The Exchanges

Q Yeah. So you're bringing the capital, and as earlier this year, you've done two deals. Why don't you pick one of them and walk through some of the deal, and then what happened after you closed?

A Instead of trying to choose, you know, between one or the other, just chronologically. So we partnered with a wonderful organization called TEPCO in Dallas, Texas, Bill Keen was the CEO, still is the CEO, a wonderful transition that's occurred since. We had an intermediary bring it to us and Bill was looking for, he wasn't looking for a buyer. He was looking for a partner. And so he tasked the intermediary who we thoroughly enjoyed working with that. Find me somebody who is not going to load up the company with debt. That's going to think long-term. It's going to keep my people in place. He didn't want to be absorbed into a bigger organization. And the company's phenomenal. They have incredible technology. They do very high end glazing work. So you think of glass as being pretty trans, pretty transparent. Ha ha. Right. But pretty straightforward. And what I learned through this process is it's not, I mean, so they have four liquid cooled computers that are doing, you know, millimeter intersections with plans. I mean, they're doing glass panels for skyscrapers, very technical work. And they also have this incredible product in the stadium market. That if basically glass retracts up into the ceiling, like in a skybox, they're almost always the people that do that. They have some really interesting technology around that. We closed in late February, early March, and the plan we de…

AI assessment note: “So we partnered with a wonderful organization called TEPCO in Dallas, Texas”

Q Yeah. And what percentage of the businesses that come through the doors do you end up doing some real work on?

A Let's see. In terms of real work, I would say probably 15% of Of the businesses that come through, we, we take a really close look at. So if the business is very lightly staffed, it's sort of a, almost more of a hustle than a business. Um, and you can get in some big hustles. Like we looked at a business recently was doing nine million dollars of free cashflow. That is definitely a hustle, right? It's one person. They're the linchpin in this thing. Everyone is an extension of them. There's no systems, the repeatability of revenue is not there. And if that person gets hit by a bus, I mean, the entire company implodes within a short period of time, right? So we call that a hustle, right? That's not a business. A business is a sustainable organization built on a collaboration amongst a lot of different people, right? I mean, that's what we think about it. So if we get a business that's in our target range, kind of that three to eight, even really two and above kind of that two to three ranges is a little bit interesting for us. We've looked at a lot of things that are sort of two and a half going to four and a half. We can see a good sort of trajectory there, but if it's in our target range and we can understand the business, uh, And we think the ingredients are there. There's a closely held ownership group, right? Either one or a handful of people that own the company that all wa…

AI assessment note: “probably 15% of Of the businesses that come through, we, we take a really close look”

Q So did that then lead you from owning a few businesses into looking for new deals?

A Yeah. Well, so I like to joke that we fell backwards into private equity. Like I didn't ever know that there was an industry called private equity, right? I don't have a finance degree. I think I've taken one accounting class in my life. So my undergrad was politics with an emphasis in poverty studies. And then in the MBA program, I was only there for, you know, call it a year. And I took mostly marketing focused, Classes. Cause that's what I was interested in some business processes and things, but it wasn't, I was never educated that there was venture capital or private equity or any of these nuances. I didn't know what investment banking was. So really it was just falling backwards into it through. We bought this business. We really enjoyed it. We enjoyed the process. We enjoyed the people. We enjoyed serving these new clients. We enjoyed innovating in the business and on the business model. And then the question is, well, how do we do that again? Well, we got to go find somebody else, right? Well, how do we do that? Well, are there other people out there? How big is the universe? I mean, it's very one foot in front of the other. It wasn't like we had this grand plan all along that we're going to develop a holding company structure with a permanent equity capital base that then goes, I mean, all those things I learned later from people far smarter than me that were like, oh,…

AI assessment note: “Yeah. Well, so I like to joke that we fell backwards into private equity.”

Q Let's turn a little bit to what happens in a negotiation of one of these businesses where you've got an owner. It lines up, right? The valuation is what you want. You sort of, what happens?

A So typically, businesses in our segment are not priced. Below us in the markets, when you start getting sort of sub-million dollars of earnings, Sub two million in some cases, they'll be priced. So it'll literally be like a house sale. It's like, here's the going rate for the house. Here's what we want for the house. If you can meet that, you can buy it. Here are the terms. It's all pre-packaged, right? Very rarely do we see price deals. So deals up market are truly, and this is down market as well, but they're on price because what somebody is willing to pay for it under what terms and what somebody is willing to accept for it under what terms. And so there's definitely a dance to it. Right. That's the way we kind of think about it. We try to never play games. So the dance is we typically will throw out an opening price and terms. So here's how we value the company. Here's what's included in that valuation. Here are the terms of that valuation. And we try to be very detailed, including, you know, how long we want the owner to stay on board. We sort of set all the material we think about as major material terms In a indication of interest, we sometimes combine a letter to the seller combined with a term sheet, right? To kind of two different forms of, of communication. We don't do the whole, we're going to low ball you so that you high ball so that we meet in the middle thing. …

AI assessment note: “we typically will throw out an opening price and terms.”

Q You go through this. This is always the rub. Why don't you talk about the valuation of the businesses that you tend to buy?

A Valuations are, it's a really tricky topic because it's always done typically on a multiples basis, but the question is multiple of what? And so I think that before you talk about multiples, you got to talk about what are the different things that multiples are based on? And I'm going to, I'm going to put off to the side, you know, sort of revenue or multiples of a users or like the metrics that I've seen in sort of the startup world. Oftentimes, it's going to be a metric around cash flow or earnings, operating profit, something like that. The nuance matters. So my point is that there's a lot of nuance around what counts and what doesn't towards earnings. And what are you doing a multiple based off of? So we looked at an aerospace company where it was doing seven, eight million dollars of EBITDA. But when you got through all of the reinvestments and all of the dynamics in the industry, really the business was doing about three million dollars in true owner earnings, like the cash that sticks to the owner. So we always try to normalize to this idea of what does it feel like to sit in the owner's seat? What really sticks? So what do you have discretion over and what do you not have discretion over? Because the ideal thing is you want to value a business on after everything has been, has been paid to kind of keep it on its current trajectory, right? And you have investments in lea…

AI assessment note: “So we always try to normalize to this idea of what does it feel like”

Q So as someone that went out to the market to raise capital for the first time, what did you find?

A There is a diversity of LPs out there is one of the things that I will say to you. I met some unbelievably kind, generous, intelligent, Like thoughtful people who I just, frankly, like I would never have access to any other way and that I would have never met any other way. And many of those became our investors, man, it was a huge boost. Like it was fantastic. The conversations, I mean, you talk about iron sharpening iron, like good investors ask good questions. And some of the stuff we had thought through a lot of it, but a lot of it created a depth in our organization that I think didn't exist there before and made us think through or rethink things that maybe we had sidelined for too long. On the opposite of the spectrum, I met quite a few people that gave me the heebie-jeebies. I mean, I don't know, you know, that just were Wolf of Wall Street-esque, that were incredibly not kind, not generous, and treated us very poorly. And I think that that's a gift as much as the other is. My nightmares, and I woke up multiple times in like a cold sweat and During the fundraising process is we close on the capital and all of a sudden I'm saddled with a group of people who now are occupying my time. I'm stressed out about them. I used to joke that calling the board of directors could be done in the shower every morning, right? It was ultimately the decision fell with me. And I certainly…

AI assessment note: “There is a diversity of LPs out there is one of the things that I will say”

Q What teaching from your parents has most stayed with you?

A Both my parents work their tails off and work their tails off when no one's looking and have done it over a very long period of time. Like this idea of, and when I say working, it's not just working hard because they, they always spent time with us. I mean, I come from a wonderful family. I got an incredible head start in life. And the older I get, the more I realize how rare that was. I mean, I come from a two parent household. Both my parents were very supportive and encouraging and. The reliability that I saw them exhibit, you know, sort of hard work to me is, is very similar to reliability. Like they're kind of very, very similar ideas. They just always followed through. And there's always this idea of like, you finish what you start. You do it ahead of time. You don't make excuses. And so I saw like, you know, for instance, my mom pretty frequently when I was in high school, she's like, you know, you got everything done. You got all your homework, you know, stuff. Yeah. And she's like, really? It's all done. No, I'm going to wait till morning, get a little bit more. She's like, nope, let's sit down and do it. And she'd be working on something that, you know, she's very involved in the arts in Missouri. And she'd be working on a grant proposal. This is unpaid work. This is for, is a volunteer. And she'd be pouring over this thing for. 2030, 40 hours. Just Trying to get it d…

AI assessment note: “you finish what you start. You do it ahead of time. You don't make excuses.”

Q Break that down. What's the anchor? Is that a business?

A The anchors for us initially were, we had these, you know, collection of marketing companies, and then we, we ended up purchasing a recruitment marketing business, Mediacross, that we still own today. And then those were complimentary skill sets because recruitment marketing is still a form of marketing, right? So we had a background in marketing and lead generation. But expressed very differently. It was expressed for the military. It was expressed in education for states recruiting teachers. It was a very unusually different aspect versus in the core marketing businesses that we had originally developed. I mean, we were doing everything from consumer products to B to B sales, some software marketing. I mean, it was a, it was a variety, right? And so I think that looking for those footholds of expertise is a really interesting and then looking, you know, interesting way to going about it. And then you look for ways to express those differently. It's kind of in the same way, you know, expressing expertise and how that builds the same way that capital compounds. So if you think about them, they're very parallel paths that you got to think about is, okay, we have these skill sets. What's the highest and best use and expression of those skill sets, right? And over time, those skill sets compound in value. You actually become an expert at what you do, right? And it happens slowly, …

AI assessment note: “we ended up purchasing a recruitment marketing business, Mediacross, that we still own today.”

Q Yeah. So let's turn a little bit to that up until I guess this year. You had just been redeploying your own capital from the businesses you owned, and you made a decision to bring in some external capital. Why'd you bring in external money?

A We wanted to have the financial resources to meet the opportunity. I mean, frankly, we didn't start with a huge capital base, right? It was me being an entrepreneur and sort of compounding over a long period of time. And once you pay your taxes and you reinvest back into the businesses and have changes in working capital, kind of similar to what we talked about, There's not always a tremendous amount of that raw earnings power that is available on an ongoing basis. It kind of comes in fits and spurts, to be honest. I mean, we've, we've had issues where a company's grown in our portfolio dramatically, which is phenomenal. It's amazing. We love it, but it'll consume a bunch of cash for a shorter period of time, right? Later it'll catch up being able to fulfill the demand that we saw out there in the market. I mean, the, the honest to God truth is that People are living longer. The baby boomer ownership wave hasn't really hit yet, which is kind of surprised a lot of people, but I think it totally makes sense. You know, older demographics are getting older, but people are living longer and the health into old age feels like people are living healthier lives older, which means they can work longer. And I think people are working longer, especially if you love what you do and your passion is your work, right? Which is a lot of these sellers, right? So if you look at it, we have Let's…

AI assessment note: “We wanted to have the financial resources to meet the opportunity.”

Q And as you walk through those different pools of capital, what's the differentiation from what you're offering from, say, a private equity fund and a search fund?

A To start with private equity, if you think about the traditional, and look, there's lots of flavors of private equity, right? And I have lots of friends in private equity now, and I really respect what they do, right? So this is, it's just a different thing. They're trying to achieve something different than we are, and what they're typically trying to achieve is Purchasing an asset that they have a plan for. So this is the famous, you know, 60, 90 day plan. They're going to come in and say, okay, look, we've been there. We've done that. We've got operating partners that have lots of experience in an industry. We're going to fairly quickly and dramatically professionalize the company. As far as the deal goes, we're going to load up the company with quite a bit of debt. Is that sort of the norm? We're going to put it on a three year timeframe where we're going to whip it into shape and then we're going to try to find somebody else to buy it. Again, it works clearly. It's not like it doesn't work. It's just not the game that we're playing, and it's just a very different way to express talents. So if you look at the way we structure deals, I mean, as you know, you're one of our investors, Ted, like the last two deals we've done with no senior lender involved. We've done all equity with a combination of equity and seller debt. And why do we do that? Well, if you look at how family …

AI assessment note: “the last two deals we've done with no senior lender involved”

Q So what is that process for sourcing new businesses?

A It's probably worth talking about what it's today because it's evolved a lot, right? And we've made incredible mistakes. I mean, that's one of the things that whenever you, you look at anything in hindsight, it always looks like a straight line. You go from A to B and in reality, it's the line squiggly and, you know, zigzagging all over the place. And so, and we follow the same trajectory. I mean, we've wasted a tremendous amount of Time and money and effort doing lots of things that seemed like they would work that frankly just don't work. So what we do today is we try to consistently express our opinions about what we're looking for, about how we work, about why we're going after certain segments. We try to make our value proposition incredibly clear in the marketplace of we're offering a different product is how we kind of consider it than traditional private equity. And we offer a different product than search funds. We offer a different product than fundless sponsors. We offer a different product than a country club deal. And these are, when I say a different product, we're offering this product primarily to sellers, although the leadership teams are really closely behind. I mean, we want to set the table well for the future. And so we offer a product to sellers and the leadership teams, and we're selling peace of mind and obviously financial de-risking to the sellers. And…

AI assessment note: “what we do today is we try to consistently express our opinions”

Q Yeah. So I know you spent a lot of time over the years telling the story of how you go about doing things so that you can be known to sellers of businesses. How does that work?

A Getting back, I think you asked the question a little bit before, and we got, we got sidetracked with search funds and private equity. So how we source deals is, is I think completely differently, at least we think it's completely differently than everyone else. So everyone else is going outbound. And when you go outbound, there are, in essence, call centers set up at some of these private equity firms where you hire very well-educated young people that are just graduating from college. And for two years, their job is to basically cold call. They're cold calling executives and founders, owners. They're going in outbound, contacting people at conferences. I mean, sort of like a heavy traditional business development techniques. And I can go into the nuance of why we don't Want to go in that direction? I think there's some, some negative selection biases. And I think from a power dynamic standpoint, it's just not a great dynamic that's set up doing that. So it wastes a lot of other people's time and it wastes a lot of your time. Not to say it doesn't work because it does. Although the joke in private equity is there really are no proprietary deals anymore, right? So everyone jokes about proprietary deals. There's very few anymore. Well, we actually get a lot of proprietary deals. We eat on proprietary deals, right? And when we say proprietary, it doesn't mean that there's never a…

AI assessment note: “how we source deals is, is I think completely differently than everyone else”