The Exchanges, every show

Q How have you systematized and organized the 70 people underneath that leadership?

A It's no different than a lot of firms, where we have an investment team. Jordan helps oversee that. We have a number of deal quarterbacks on the investment team who report into us and have a VP. Those are principal and partner level, and they have a VP, a senior associate, and often an associate on deal teams. They then report into me and Matt, who are the investment committee. Will oversees our CFO and our back office activities. We have a business development five person team that's done an incredible job helping source opportunities and give me and Matt leverage where we used to have to do every first meeting. Now with a business development team, every first meeting with founders and our business development team is able to not only handle the first call, but actually handle the first meeting and then help decide whether Matt and I should Fly out and spend time in person with the founders, which is a big part of our program. So investment team, business development team, and then all the back office activities of the firm.

AI assessment note: “we have an investment team... Will oversees our CFO... We have a business development five person team”

Q As you're building, growing this franchise business, at what point in time did you decide to branch out and create Garnett Station?

A Pretty quickly. About a year into building the Burger King business, we got a call from the former CEO of Burger King who took a job running another franchise system and said, I've watched what you guys have done, providing capital, technology, data science, organizational design, and rolling up the Burger King system and helping professionalize it. Would you consider doing it in our system? That deal led to then the former Chief Marketing Officer Burger King called and said, my wife runs this business. I think you guys should consider helping her professionalize it, buy it from the founders, and grow it. One deal led to another deal led to another deal. You look today, we have 36 investment professionals, 24 operators, 14 in back office staff. That is entirely been built organically when we realize we need operating partners. To help us bring the technological changes, and the innovation, and the supply chain, and the marketing, and the integration, because it used to be Matt and I running our Burger King business, and now we need to build a real firm to go do it. So it was very much organically. It was COVID when we realized coming out of it that we should build an institutional investment firm as opposed to deal by deal SPV, family office capital, because we felt like Having lived through that cycle, and fought through all the challenges that came with it, demonstrated that …

AI assessment note: “Pretty quickly. About a year into building the Burger King business”

Q So what looks like a traditional background, New York upbringing, banking, private equity, Harvard Business School, how did you decide to do something different from what would have been going back on that traditional path?

A I always remind people talking to investors, prospective LPs, or prospective team members who spend a lot of our time recruiting, you have to think of GSP differently in the sense it's not like I was a partner at KKR and Matt was a partner at Blackstone and we Got upset with our economic arrangement and decided we could do it on our own. Our firm was very much built organically. We think of ourselves as entrepreneurs. We run a business. Our business is there to produce extraordinary risk-adjusted returns. We had this idea, which literally started as a phone call four days into business school where I called Matt and said we should open a Wendy's or an Auntie Anne's in Harvard Square. That led us down a rabbit hole where we realized that there was a compelling opportunity to buy, Resilient businesses at very attractive prices. Add technology, data science, capital, capital allocation, management talent. Grow them through M&A and organically. It was an entrepreneurial idea, and in our office we have the original business plan from the first deal we looked at. It was five KFCs in Vermont. Ultimately that KFC deal didn't work out, but what we realized while building value in the Burger King business Was that there was a massive opportunity to invest in fragmented markets, high quality businesses behind this baby boomer generational transition, 10 trillion of assets or so set to cha…

AI assessment note: “literally started as a phone call four days into business school”

Q With you guys as founders of the business, your own operating experience, what you've done, how have you gone about building Garnett Station to take all of those lessons and scale them with your team?

A We view the opportunity to bring in great people as an investment. One of the effects of the DPI problem in the broader industry is not just on LPs. It's also on investors, right? And you think about VP, principal, MD, even partner level investors who've been at firms for a while and haven't seen their carry paid out. There are succession log jams that have only gotten worse. We've really gone on offense to recruit talent from other great firms, people who we brought on that years ago we, we never could have got to join our firm. And that's one of the ways we've been able to grow our business is attracting great talent and investing in the team, not just on the investment side, but also if you look at our operating team and value creation team, we brought on Will Gadsden, our COO and partner about four years ago. It's an unbelievable accelerator to the business. I will often say to each other, I can't believe we ever had a firm without having a will there to really manage and ensure our processes and our back office is up to the same standards as our investment activities. Our third hire we ever made is our partner, Howard Norwitz, who we call him the left tackle of the firm. Howard has a 35 year background in debt and distress. When we brought Howard on We certainly could not afford him. That was an enormous investment, but an example of looking back without Howard, we never c…

AI assessment note: “We've really gone on offense to recruit talent from other great firms”

Q Alex, what's the best advice you've ever received?

A My favorite advice is my wife's grandfather is an incredible entrepreneur, built an amazing real estate business from nothing, used to tell me when he was alive, every deal is the enemy and never forget that. And we talked a little bit about groupthink and our fear of groupthink and think again. And every deal is the enemy is hung a sign in our office just to remind us on the one yard line, never get comfortable, never let inertia take you through a deal, never let Quote, unquote, pattern recognition allow you to invest money. Make sure you're thinking again on every single assumption and every set of diligence. We say that a lot in our office, so every deal is the enemy is my favorite piece of advice.

AI assessment note: “every deal is the enemy and never forget that.”

Q How do you think about where to take GSP from here?

A That's a question that Matt and I think a lot about. I'll say one of our mentors, Brian Friedman from Jefferies, he's a really thoughtful guy. We were meeting with him a couple of months ago, partly on this question. Where we come out is putting one foot in front of the other, not having these big, hairy, audacious goals. Proud of the business we built. We've got an incredible team. We're investing in industries that are growing with huge TAM. Rather than saying, oh, we have some goal to do X number of deals and Y sectors, continue to put one foot in front of the other, stick to what we're good at, what we know, the playbook that we've developed, and continue to generate great returns. We certainly don't have an AUM goal. That's not the business. Our goal is on the incentive side. Brian was very helpful in clarifying that type of thinking.

AI assessment note: “Where we come out is putting one foot in front of the other”

Q So before we dive into what happened with the Burger King franchises, what did you get out of going to HBS?

A HBS was an amazing experience. We learned a ton and made a lot of great friends and built out our network. That's been great to us. I would say, though, that it starts further back at Harvard College, where my group of friends has been incredibly successful and helpful to us as we built the firm. And it's people like Josh Kushner from Thrive and Alex Taubman from Long Lake and Reed Raymond at Apollo and Brian Feinstein at Bessemer. My brother Jake was also in school with us and built an incredible business at Springdale. The list goes on, but without that group of people being very, very close to us, I really believe we wouldn't be able to build GSP.

AI assessment note: “We learned a ton and made a lot of great friends and built out our network.”

Q What are the biggest challenges of integrating additional add-on acquisitions or stores?

A Visibility. People think about back office as some back office function. In our experience, getting the CFO right, getting the systems right, having treasury and cash management and FP&A and the right Dashboards in place is so important. You can really fool yourself with run rates and add back nonsense, particularly in a roll up where you're buying a lot of stuff. At some point you have to figure out what are the cash flows of that business. Having a warning light system in place, which has become so much easier to do with the advent of AI and all the technology that's been invented. You can identify problems in real time and you can fix them. These are people, businesses that we're investing in. In our experience, we believe culture matters. People matter. Labor matters. Having the systems to identify where the problems are, what the cash flows look like is important. I think a lot of people dismiss that.

AI assessment note: “Visibility. People think about back office as some back office function.”

Q Thematically, what are some of the areas you've gravitated to?

A We are fast followers. One of our favorite ways to be inspired for themes is to look at what some of the great firms that are bigger than we are and have done successful consolidations. Industries that are large, highly fragmented by number of units, organically growing with real secular tailwinds. Industries where bigger is better, so there's real industrial logic to the consolidation. Industries where other firms have successfully consolidated before. We never want to be the first ones through the door. We want to benefit from the technology that's there to help manage these businesses in a consolidated way. We believe experience matters from a management talent perspective. So we love to bring on management team members who've been part of successful consolidations from other firms. And then we want to know that there is a put to the strategics. We want to know that there are a bunch of strategics out there that would want to buy our businesses once we've built them. The last thing I'll say is we're value oriented. We care a lot about multiples on single unit acquisitions. We won't do consolidations, or we won't build businesses in industries where bolt-ons don't trade at our target risk rewards. So those are the key criteria. We have franchise investment. We have consolidation in commercial services, residential services, auto services. We estimate of the 10 trillion of ass…

AI assessment note: “We have consolidation in commercial services, residential services, auto services.”

Q Alex, you mentioned buying a franchise with 23, selling it 10 years later with 1100 franchises. There are probably a lot of steps to get from 23 to 1100. What were some of the highlights of that journey?

A I was thinking of the lowlights. It certainly was not a one-way street up and to the right from 23 Burger Kings to 1100 and the billion dollar sale. There were a lot of ups and a lot of downs. There's that saying, the lows are so much lower than the highs are high, which is how Matt and I feel about it, and one of the reasons why I'm so grateful for having Matt and my partnership with him, because that is what kept us going, is having each other in some of the darker days. When I think about that journey, I think more about COVID when the stores were being shut down, and our suppliers were filing for Chapter Seven, and we couldn't even get hamburgers, let alone people to staff the restaurants. The banks were agitated, and We had to jump through a lot of hoops to get liquidity. And then you got through COVID and all of a sudden you got punched in the face yet again with all of the inflationary challenges and the value wars. I think about the resilience that that showed and our ability to get back up and fight through it, get extra liquidity and stand up our distribution business so that we could distribute hamburgers to the restaurants and all the things that we had to do in order to make it through those really tough times and see the other side of it.

AI assessment note: “I was thinking of the lowlights. It certainly was not a one-way street”

Q I want to circle back on something we talked about earlier, which is if you bring together the tailwinds that you've done your work on, you understand what the lighthouse is, you want to move fast, how do you prevent yourselves from groupthink of doing acquisition after acquisition and making mistakes along the way because you want to move fast?

A So much of our process is looking back at the acquisitions. That lighthouse changes over time. In fact, some of our best deals don't go all that well from the beginning. We did a funeral home consolidation. The first quarter was a disaster under our ownership, and that ended up being the best NYC deal we've done at our firm. So long as you're willing to think again and make changes to what business quality is and attract great management teams, get the big trends right, You can build a diversified platform in a growing category and benefit from the tailwinds. In Microsoft Excel, every roll-up looks easy, but in reality, operations are hard. These are people businesses, particularly in a world where technology is changing so fast, building in technology, change management. Roll-ups are actually really, really hard, and particularly through cycles.

AI assessment note: “So much of our process is looking back at the acquisitions.”

Q Whether it's a platform or an add-on acquisition, what does your diligence process look like to get comfortable that something makes sense?

A On average, it takes us two to three years from when we first start working on a theme until we get a deal done in that space. We have a whole process for how we attack the battlefield in these categories. Ultimately, what we're trying to get at is what is the lighthouse? What is the lighthouse for business quality in that specific industry? And we're not doing rocket science. The beauty of being industry specialists, there are three numbers that matter in these businesses. Once we've mapped out and gotten comfortable with what that lighthouse looks like, we can tell you quickly whether we're interested in investing in your business and what price we'll pay. One of the advantages of doing a deal with us is we can move very quickly. One of the reasons we love doing roll ups, build ups is because the nature of investing in consolidations, no individual deal can kill you. We're investing between a hundred and a hundred and fifty million of equity, but individual deals can be as small as five million of equity. You can afford to get one or two of them wrong if you're buying 20, 50, a hundred acquisitions over the life of your deal. And in fact, Matt has a saying, if every deal is right in a roll-up, we're either not taking enough risk or not moving fast enough. It's okay to have a bad deal. That's the beauty of the model. You're able to get the most amount of capital into your winn…

AI assessment note: “Once we've mapped out and gotten comfortable with what that lighthouse looks like”