2 Years to $40m: The Anatomy of a High-Velocity Roll-up

Today's guest has traveled a long way to get where he is. Luis Reyes grew up in the Mexican countryside and didn't get his first pair of shoes until age five. Today he's leading one of the most active rollups I've seen. $8 million of EBITDA in two years. Luis and his team are building Iberian ventures, or IBV, a consolidation of fire safety businesses across Spain. They're blanketing the country, dispatching young, hungry, former consultants to meet owners and find targets. It is high volume and high velocity. They've acquired 24 businesses in as many months. Aggregate revenue stands at almost 40 million. And they want to double that in the next year and a half. They've raised capital from a German family office to do so. So you're going to get a look inside in aggressive entrepreneurial rollup. I say entrepreneurial. Listen for the origin story of the business. Luis and his partners raised just about a million dollars for their first acquisition, a poultry distribution business. It wasn't initially clear exactly what they would build. They just knew they wanted to buy a platform and go from there. Only later did the thesis around fire safety emerge. At which point they became super focused and highly inquisitive. Also note the conversation around operations in AI. Luis, exposing his background as a developer, talks about being AI first and we get into how they are leveraging the technology. If you're drawn to this style of rolling up an industry, also see episode 308 with Jordan Dubin, who's doing something similar stateside in garage door service. Finally, you'll hear my co-host, Nicholas James, in this interview. That's because this was actually published first on the mines capital podcast, where we feature stories of entrepreneurial private equity like this one with Luis. For more such stories, check it out the mines capital podcast. Okay, here is Luis Reyes, founder and managing partner of IBV. If you haven't checked out Smithlist for a while, there are some great opportunities listed there. These are leadership positions within entrepreneurial small businesses, typically searcher acquired businesses. Some open positions on the site right now. GM for a leading pool business with 10 million in revenue. Entrepreneurial GM to help grow an outdoor services platform from one and a half to 10 million. COO of a wood product manufacturer with potential to become president or later owner. Head to Smithlist.com to check out these roles and others for entrepreneurial operators and GMs. And while you're there, sign up for the alerts so that you're notified as we post yet more opportunities from the SMB and ETA ecosystem. Welcome to acquiring mines, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast, I talk to the people who do it. You know that one of the most common levers to pull in a target acquisition is technology. Updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there. So choosing the right cloud platform, CRM, telephony, compliance and cyber security, not to mention implementing all that is a job in itself. Acquiring mines guest Nick Acres knows this firsthand. As a former searcher who now owns Inzo Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at Inzo regularly works with searchers and their acquisitions, offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase. Inzo dates back to 1989, so this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Inzo, a big differentiator. Check out InzoTechnologies.com, INZO or email Nick directly at [email protected]. And don't forget to tell him you're a searcher. Luis Rez, welcome to the Minds Capital podcast and acquiring mines. We'll be airing this interview on both shows. Thank you, Will. Nicholas, happy to be here and excited. You know, these, the podcast is a one of the main sources of wisdom and encouragement for a lot of us when we started. So hopefully I give a little bit something back to you at the audience, of course. Yeah. Well, I appreciate you saying that, Luis. You have a lot to give. So I am confident you will, you will fulfill on your mission here today. Let's hear a little bit more about your backstory, please. And specifically, lead us toward your decision to land on this venture. So maybe from, from your time at Bain. I was working at McKinsey in the US. I was there for almost seven years. Love working and living in the US. You know, huge projects. I mainly did post-merge integration. So a lot of value creation plan, integration plan, they won all these good stuff for big transactions like T-Mobile integration with Verizon and HB and other big deals. And so I was very happy there. But you know, while I was living in Boston, Bain was looking for people with my background in that's what I was able to speak Spanish and kind of have, you know, more of a Latin culture and a recruiter reach out. I was already thinking of, you know, traveling a bit less than in the US that could be those red eyes were kind of getting, you know, getting very tiring. So the Bain office head in Madrid had a very interesting project of creating a technology practice to do precisely post-merge integration. So I like the project. I came to Spain and here I found working with private equity all throughout Europe. Like Spain, very different, right? Like very concentrated, the traditional private equity groups on the opera and lower middle market companies, which in Spain are really solid. And almost nobody looking at small companies, not even at SADON, something that you sometimes see in the Nordic countries, maybe because the companies have a little bit of a structure. And so at some point during COVID, because by the way, this was in 2019 that I came to Spain. So I lived through COVID. It was kind of for all of us, but especially for consultants, a very weird period where you pass from traveling every week to that working remotely that me and two partners decided to, you know, tackle the opportunity on the very small market. So SMEs and we came with the idea of applying some of the role of strategies that you see common in the US and in the Nordic countries in Europe and bring them to Spain. And Luis, so just to flush that out a little bit more, two specific follow-ups, first of all, do I have it right that you saw that there was this opening in the lower middle market or lower lower middle market in Spain where private equity wasn't yet active. We're going to hear more about that. And secondly, thesis in the logic of what you were pursuing makes sense, but still give us a little bit more personally on why you all stepped off of your very promising paths as professional consultants with the name brand, working at the name brand companies in the world and chose to do this. There are hundreds and thousands of consultants who don't choose such a path. What was it about you guys that made you so entrepreneurial? Yeah. So I before working at Bain and consulting as you mentioned, I wasn't in this role, right? So I started computer science. I actually the first five, six years of my career, I founded my own SaaS startup. I had a small exit. So I'm a builder by nature and disposition. So I knew that I wanted to do this again as time passed. And I honestly love working in consulting varied industries. There are a lot of complexity, a lot of challenges. So time pass and so at some point, probably the idea of starting a tech business wasn't that attractive anymore, but we found that our particular set of skills, me and my partners, we have M&A experience, integration, operations. And in my case, the startup experience, we thought that we could give it a go. And honestly, the way we did it is we hired first while working at consulting a person to help us flesh out the T.C. sub-it more. So we're looking to several verticals and industries. And we found one that we thought had a good chance of us providing value. And this is because it was very fragmented, very small companies, no real platform. So we knew we wouldn't be dealing with private equity. And we raised a bit of capital before leaving the area. It was very small. It was less than 1 million to actually acquire the company. And doing this in Europe sometimes as a mid-career professional, it's easier because you don't have to deal with healthcare issues, you're way more protected. So I personally felt that if I was to do this, it was going to be now and it was going to be in Spain. And so I left consulting first. And after we acquired a couple of businesses and had support from bigger investors, that's what my partners left. So it was kind of risk. The risk was managed, but we still had a little buffet because we wanted to do something of our own, right? And that money that you raised, the million or less than a million, you did while you were still at Bain. Correct. Obviously the investors knew that when the first deal got completed, I personally would leave consulting. So it was one of the conditions, but the investor felt comfortable to commit before doing that. And this was friends and family money. Yeah, yeah, exactly. And remind us, Luis, I believe that the thesis that evolved was not the original. It was more of a holds co-vision. Yeah, say more about that unless I'm wrong. Yeah, we always look at very fragmented industries because we wanted the ability to continue growing inorganically. And we saw again that the targets, the industries where the targets were very small. But we also wanted that if the role of opportunity in a particular vertical was impossible, we would have quality assets that would still be related somehow to the other assets. And we could provide some support. So that's why we restrict to business services, distribution businesses. But in the beginning, we said, look, if the whole idea is having more acceptance by investors and better acceptance also in the market, we stay there. But fortunately, we found fire safety as an industry where we could actually do a roll-up. And that's why we now are doing more of that strategy. Great. That one million that you raised was that in the direction of being similar to a traditional search fund? Yeah, that's a good question. So the structure-- and this is more driven by what the investors are used to in Spain. And the ecosystem, right in Spain, you have a very good search on ecosystem. So the law years, the advisors. The structure was very similar in terms of the 30% kind of return share based on 10% in the beginning, 10% based on an IRR and whatnot. But we put two conditions. First, we would not be the operators of the business. And second, we would not restrict it at only one business. And typically, the search fund grew a little bit more tight up. But yes, it was similar to a search fund in structure. You mentioned that you hired a person, I believe, while you guys were still employed, what was the profile of this person you hired and specifically what was the scope and instructions that they went to research different verticals for you? Yeah, this was a guy that had a fine and sent M&A experience like a couple of years at a consulting company, at a broker, the M&A advisor. So he knew-- he was very young, 25, 26. So he liked our profiles. We also were very involved during the weekend mostly. So this was somebody willing to work hard with experience, very charismatic to reach out to company owners. But when it was the moment to talk to potential targets, we would do it on the weekend and one of us would join because this guy looked like a baby, right? But somebody very brave that bet on the project early on. Is he still with you? No, he's not because he was always clear that he did this to get the experience to start his own thing. So fortunately, he managed to do that. And now he has his more firm too. But was it mostly a research role or outreach role? Complete. This guy could have been a researcher, right? So obviously, we were instructing him what type of companies we wanted to look at, the metrics beyond financial that we were looking at. But he would do the outreach, the structuring, the LBOs. So full, integrated stack. A lot of value. Oh yeah, he's a very smart guy. He had very hard work. Yeah. The team at Aspen HR recently published a short white paper targeted at searchers entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download it is in the show notes. Aspen is a professional employer organization or PEO run by a searcher for searchers. Search fund veteran Mark Sinatra runs the company, which provides HR compliance, flawless payroll, fortune 500 caliber benefits, and HR due diligence support for your acquisition, all for a fraction of the cost. Go to aspenhr.com or contact Mark directly at [email protected]. And then returning to the other question, Luis about Spain and what the lower middle market is like in Spain or at least in particular industries. You know where I'm going with this? Say more about that, what it looks like, and how it differs from some of its European neighbors. Yeah. So look, Spain is a market. In general, you're right, but more so, Spain were SMEs account for a large part of the GDP. So in Spain, it's around 65% of the GDP coming from SMEs. The US is less than 45 in the northern Europe is less than 50. So you have way more fragmentation. You also have the average size of the company tend to be small. And in some sectors, you know, the capital providers were not now we have a way more private credit funds and different ways of providing capital for entrepreneurs, but until very recently that wasn't the case. So for example, Italy might have a similar kind of fragmentation. However, in the north, it's more concentrated. You have more sophisticated capital providers from a long time ago. So those conditions, right, like the nature of the SME market, the lack of capital provider has made it so that companies have stayed fragmented for longer. Now we're seeing more consolidation in the classical spaces, like clinics, veterinary, you know, like insurance brokers. And now we're starting to do it in business services. There's still plenty of lohanging fruit, at least in terms of M&A, we'll talk about operations later. And the last factor is that I believe compared to the Nordics, again, which sometimes have similar structuring some industries, businesses here are way less professionalized. So if you want to get into rolloops for SME's in business services, you really have to have very good operations background and the willingness to get your hands really dirty, which is not the case for, you know, like the big private equity groups here in Spain. - Yep. And what about Luis, this other point that in certain industries, in Spain versus Italy or Northern Italy, there aren't platform-sized targets. So we could take the industry that you're in, fire safety, there just aren't two, three, five million dollar EBITDA businesses in that industry, in Spain while there would be in other European markets. Do I have that right? - Yeah, yeah, but I think it's a consequence of integration or rolloops processes really have never started, right? So yes, in Spain, in fire safety, you have, before we started, only three companies with more than 40 million revenue. By the way, there was actually 40, so you have less than 5% revenues concentrating at top five players in the industry. If you go to France, that's 60% in the UK, that's 45%. In Italy, it's close to 25, but it's obviously more than five. And again, it's because some of the big fire safety companies in particular business services is kind of the same. All of them grew through M&A for many years in Spain that process just has happened, right? - Well, let's return to the plot now at Luis Injust. So a reminder, you raise the money, a little bit less than a million bucks from friends and family. You have hired this superstar analyst who's doing both industry research and outreach for you. You're still employed. The idea is that you, when a target comes along the obi, you will leave and start and go after it. And then that first acquisition may become a collection of companies. a whole to co, but you were one of your criteria for a target was that there needed to be fragmentation in organic growth possibilities there. That is in fact what you found with fire safety. Pick us up from there. Yeah. And so the first company we acquired, it's actually in the poll-3 distribution space. So it has a lot of the characteristics that we wanted, like very fragmented, small businesses, certain recurrence in this case, the company is basically capex, right? Because it's distribution of building equipment, but the market is the supply or number of companies is pretty static, like the industry. It's really old, right? It's an industry where there are not many new players arises. So the recurrence comes from, you know, in Catalonia you have like three or four companies from the last 20 years, not new entrance. So we said, okay, this industry could be a target for for the type of strategy that we want. In the end, it's a very complex industry to be in. If you are not from, you know, the poll-3 business, the companies are typically in very remote locations and in Spain, different than in the US executives are not super willing to leave the big cities. So it was hard. The asset was super high quality. So we said, okay, this industry will keep the asset. We might not be doing a roll-up. The second company that we acquired, we raised in similar format, friends and family, actually same syndicate of people. And this is when we enter fire safety, right? With a very small company, 600K in EBITDA. And what did you find about this industry once you were in? Yeah. So again, all the quantity stuff we knew, right? Like thousands of companies, billions in revenue, very recurrent, regulated. However, going into this company from the outside, you look fantastic, 1.7 million revenue, 600K in EBITDA, owners, 86 years old, kind of professional management, if you want, not sophisticated, but in the end, all employees. Being there, we found out we were lucky because that company had an operating model that we extremely, extremely well oiled, right? So you have a team creating routes for everyday visits. All the visits got confirmed. The technicians were super disciplined in doing the visits. The operational manager had metrics and everything on their control. And when we look at the margins, we saw the recently, it wasn't necessarily pricey. It was just operational efficiency. So we started to look at other companies, and we saw that that wasn't the case, obviously, in all of them. And even then, we saw 20%, 15% margins with complete chaos operationally. So we saw, besides what you can see on the quantitative, the ability to really provide value if you roll up your sleep, it ended up being when we talked later on after the rest of the story, way more word than we expected, but the potential was there, right? And you also experienced this phenomenon that is so common among acquiring minds guests, where once they work so hard to get that first deal, but once they're in the industry, all of a sudden, they receive a lot of unsolicited inbound from owners, in fact, raising their hand, saying, hey, buy me because they've heard this young hungry person has entered the industry by buying one of their competitors. You experienced that, and that also helped form the thesis, correct? Same more about that. Yeah, in the beginning, we received requests from mainly M&A brokers. So they offer in the same area that we were, we bought the first company in the south of Barcelona, and we immediately almost an X-Day, we got a broker saying, hey, have another business close by where you are, it's another fire safety business, it looks similar to what you just acquire, and then we received another call and that's where we, we knew again the numbers from the outside, but we took a closer look, and we realized that in the Barcelona area, there were more than 300 companies in the space. So we actually look into one of the companies that the broker offer, we ended up acquiring one, the others were not very good fit, not very maintenance focus, which is what we like. And by now, we're obviously very immersing to the industry, we go to the, all the fairs, we go to all the events, but yeah, in the beginning, the realization was when we started to get all this inbound interest, but now it's mostly through relationships that we get the deals coming to us. Yeah. There are 300 fire safety businesses in Barcelona, greater Barcelona alone. Yeah, and they go from 150k in size to the biggest, well, now we are the biggest 8 million in the area, but they're very small, right? That's why there are so many. They're very small. And so another key dynamic here was that you bought this first platform, probably from the outside looking in, you thought or hoped that it was a well, well run organization, but then once you got behind the curtain, saw that in fact it was just brilliantly run. And then as you started looking at other companies in the industry, it further differentiated the platform that you bought. These other companies just are not nearly as well run. So that operational delta, you started to see as yet more opportunity, kind of further forming or strengthening this thesis. And then you decide to what to go after it, exclusively or what, pick us up on the kind of decision making process in the plan. Yeah, so no, we validated, as you said, that we could add value, right? Like we saw that if we took this process to other companies that we started to see where not as we were run, we could add value. That was for us very important, right? Because we don't have access to deep capitals, deep pools of capital. So we better have something that we provide and bring to the tables. So we validated the market size was validated. We validated that there were a lot of businesses willing to sell, which is also important. You have some industries where maybe owners if you don't get a high price, might not be as willing to sell. And when we did the outreach, we saw that again, we could reach out to them. We confirmed that no private equity or other capital providers were inside the industry and we decided, okay, it seems that it really checked all the boxes. So we went and started speaking with different capital providers, not front-end families, no search on but family offices. And this is where we started to, you know, we aimed to raise first 20 million in capital. And eight months later, we managed to do that. We now have full thesis, a list of targets. We have an M&A team working reaching out to hundreds of businesses. And that period get us to the 20 million capital, hundreds of millions of pipeline and operations, M&A team higher and all the components ready to really go big after the opportunity. Yeah. Great. Luis, you said something there that I think was, you said it in passing, but I think is subtle and but important. Nicholas has posted about how some of the data in at least could sort of big private equity where the value creation is. And it is actually not in operational wins. Nicholas, do I have this right? The latest Bane private equity report, I think it was about a year ago. It reported that among the three big levers, one being M&A, one being operational efficiency and the third being just the multiple expansion because you buy it well. I think it looked back over the last 10 years, the 2010 decade private equity, large cap private equity, I've gotten 50% of the value from M&A activity. So add-ons and 50% of the value from multiple expansion, but literally zero percent had come from actually improving the businesses. But this was related to large cap. And I think one of the reasons I believe there is so much more activity in the lower middle market than there was 10, 15, 20 years ago is because there has been a lot of talent coming in to the lower middle market to drive operational improvements. But this segues nicely to my next question to Luis. Could you explain to us how the pro, because you've talked a lot about how you research the industry, how you checked all the boxes in terms of being fragmented and unsophisticated. How was the process, however, for learning what a best-in-class, fire safety business looked like in Spain? Yeah, so Nicholas, regarding also the research that you mentioned, I'm not familiar with the details besides being an ex-abaining, but it's also about a leverage, right? And when you are operating large caps, you can really leverage the business, you can get depending on the quality of the asset, very good price, that with small targets, that's not a possibility, right? As you scale, that start to be more and more, but when you start, you cannot leverage businesses that much, multiple expansion. It is there, and the potential, actually, for multiple expansion is huge, but for us, it's mostly operational complexity. So operational value at. So going to your point, I mean, once we were into the industry, we really research the best players that are public companies, right? So we part through transcripts of work [BLANK_AUDIO] reports, we went and read the industry reports on, for example, API group. We look at other groups that were not doing so great in the UK, for example, Marlou Pilsi. And then obviously you have everything about route management, about quality technicians to create corrective work after the inspections. You hear about the importance of being quick to provide service to your customers and to program your routes correctly. So you know that intellectually, however, once you see it in a very small business with no sophisticated IT, with very basically educated people, you see what you could get done in small business. So we set up some parameters mainly about revenue per technician. There was a minimum for us to get interesting margins. We set the ratio of back office personnel to front office personnel, with those very simple parameters, I'm missing a bit more of details, but we were not only in this exhibition, and every business has to be like that. We said at least we need to get to ex many euros per technician and we have to keep the back office at this size and the rest flows from there. So we had an in-bite, but we were working on it very incrementally, let's say. And I have to imagine that being out there talking to so many business owners in any given month or quarter, you just accelerate your learning so much. You come from consulting, you're used to having to learn fast. But this whole belief system that you have had to be in this industry for 10, 20, 30 years in order to be expert, it doesn't have to be true if you can so rapidly educate yourself by talking to dozens and dozens of business owners and comparing all the companies in this space. No, for sure. Look, despite our background, we don't want to go with the idea that we're smarter or we know better about the industry. What we're sure is that we're more willing and coming from tech. I have that inclination to try some more experiments and if they don't work, they don't work. For example, right now we'll talk about it later, but we're now being AI first in everything that we do. We started integrating AI into the scheduling of the routes with the customer and every single business owner, even former business owner integrated into organizations say that's not going to work. Like this is not the way small businesses were. You cannot do this for safety businesses. Say, look, let me try it out in the south part of Madrid. And let's see how these hundred customers react and everyone react great. So we go, we tweak a little bit the model and then we expand. So yes, we keep learning operationally what works. We also empower now or operational managers, but we have some fundamental beliefs that we will not compromise on and we take it slow and we try to convince people, but there are some things that we just don't negotiate. So if you cannot provide with the size of the back office that we have quality work, which means less than one day respond for customer requests, we are going to automate it. And then that's when people open up because they see that it's not possible to get to those targets and then we apply best practices. So again, just to say that we learn from the owners, but we also have assert coral beliefs that we try to just get them done regardless of the initial beliefs of the people in the organization. Obviously a lot of convincing and talking to them, right? AI first, so you talk about using it in route, optimization. So how does that work? It's a software that lays in your scheduling software and based on the address and the timing request, it'll place it with the right vehicle or truck. Is that kind of how it works? Yeah, so you have per city. So let's take Barcelona, right? Which is a lot, one of the largest metro in Spain. So we divided in three regions. Then we have all the customer bases in the same database. We have different type of work because not every job looks the same. So we categorize the work depending on the complexity of the type of elements. Then we have all the technicians label according to their expertise. We ideally would have the same technician that has done the work before. So it's a lot of data, you know, grooming data improvement. Our our backing systems, unfortunately, are the industry standard in Spain, which you need to be because it's regulated. There's a lot of legal requirements that you need to meet. But all the database, we have an AI team in house that takes all that data, designs a route, a person validates it, and then the AI starts sending WhatsApp, emails, or calls to confirm the routes and creating the route plan for every technician. But we have still a person in the loop because you know, the still you get a lot of mistakes on the route design. This is a custom AI overlay to these industry standard software. Yeah, yeah, we take the data and we do all the routing outside with, you know, we have Python, you know, the standard I would be now remiss to talk about the specifics because now my team does it. But yeah, we do it all in-house and then we feed the routes already designed back into the system. Yeah. What are some other examples of AI usage in your organization since your AI first? Yeah, now we have call center. So this is like a very short summary of what happened. When we start into buy, again, let's take Barcelona eight companies, we consolidate them in three warehouses. We realize again, something that you don't think maybe on your integration plan, which is now customers when they cannot get the, you know, the initial or the original company on the phone, they look for the company, they see their part of a group and then they start just calling all the telephone numbers. So you would have all the phones going on and off the whole day. Okay, this is not the efficient. This is destructive. So we'll consolidate a call center, the call center in Spain. It's very expensive. So we decide to outsource it to Colombia. And now we, we were facing a call center with 30 people on it for a very small company. Okay, we have to do something. So we created our AI tool in house to receive all the calls. If the calls are simple, I want my invoice, the AI would take the invoice. But from the system, confirm with the client, you know, all the details before sending it. And then it sends it. If the, if the request is complex, like a problem with the fire safety installation, it passes directly to the person that came so that in this case, we were AI reactive because we build a call center actually last year. But now we look at all the problems before changing org, before outsourcing, before changing the configuration of the teams, if we can automate it, right? But this is another example with AI. It's actually being super good for cost saving, but also more importantly for our customer experience, right? And I imagine all of this is where you really get scale because you're bringing all of this AI tech to across the portfolio and integrating them all into this, to this back office. One feature of what you're doing is that it's high volume you would think and you've already touched on that integration, depending on how much integration you try to do, could be a key challenge, but also a key differentiator for what you're building. So talk to us about the level to which you're integrating and what challenges what people might learn from that. Yeah, so as you say AI and in general, you know, automation is a way of turning a business services business, which most of the costs are labor into a high operating leverage business where you do topics and then you replace manual labor by something that scales better, right? So for us, the whole thesis revolves around, as I mentioned, on the revenue per technician, the ability to really maximize the amount of work that a technician can do safely on the hours that they work. And so for us, the city of routes and customers per region is paramount. So we go into a region, then we start acquiring more customer bases on that area. So we need to integrate, right? So for us, it was never a matter of whether we integrate or not. And the most important part is to integrate the customer base, the route management system and the routing of the technicians. After that, then you start to more traditional integration like back office instead of having, again, like 20 invoicing people or throughout, we just put in an excellent center, we create work flow systems, but that's more traditional private equity, right? But that's how we decide what to integrate and what not. You actually make it sound easy, but you have told us that integration has been probably the key challenge here because certainly finding targets and acquiring them has not been a challenge. Not saying it's easy, but you've done so many in such a short amount of time. It's clear that's not the bottleneck. The integration is. So what has been such a challenge because what I just heard you say sounded very systematized, very dialed in? No, I would say that by the way, even M&A is hard, right? Like the something that we have talked about AI and systems and processes, but really it starts, it sounds glitchy, but it starts from the team. So we were three partners, right? We had a team of two women in Fox is the beginning. We have now, after so many years, five people that come from BCG, Bay and McKinsey. So we have really good team and everybody is fully head-stound on their own thing. So at every day we have somebody covering an area of Spain traveling to the area. We don't send letters, we don't do like a written sign letter. We actually go there, we knock on doors, we visit companies and these are people we'd experienced in M&A, right? This is this is very high caliber people traveling all over Spain and they're young, they like it, but it's not easy to get to get deals and and integrated and operating. It's also really hard, but we have a dedicated team and we could talk all day about errors and mishaps and hard work. So it's not a one, definitely when I see people wanted to do roll-ups and it's a guy, I say it's not about being smart, or I wanted to work a lot of hours, you need a team, right? You need a team, specialize on every area of the thing that you want to do. Yeah. Looking for an SBA loan to buy a business, then meet Pioneer Capital Advisory. Your team forgetting an SBA 7A loan quickly and at great terms. 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There are exceptions, but typically it is somebody who has a portfolio of businesses and to the extent they're helping one of their platform acquisitions. It's often financial, it's often M&A or beyond that, it could also be in operational leverage and in the value creation within the organization, but not certainly not as directly involved. You are 150% focused on this. You're not doing any other businesses. You still have your poultry business, but it's kind of on the side. So this is almost, you guys have become fire safety business operators, whereas Nicholas's point about learning in industry, many independent sponsors at least in the US will learn in industry, but they won't get their hands dirty merely to the level that you guys have become. You're probably among the best operators in the country, if not the world, not to flatter you in fire safety at this point. That's a different model than we often hear. That was by virtue of necessity. Again, we don't have, I think we had good, I would say typical private equity profile, because we didn't have it, but good professional background, but we didn't have the pools of capital available, maybe if we had, we could have bought, I don't know, like 15 businesses in the beginning, how about executive team, but we didn't have that, right? So first of all, it was a bit out of necessity. Now that we're in, as we build the platform, right now, we're almost at 40 million in revenue, take finance as an example. I build the finance function. I'm interviewing higher each one of the FPNA professionals, the accounting team, the controller. Now I hire a CFO, which is actually fantastic, way better than me, at his thing. And with him, I act more of a typical private equity or sponsor, right? Like we define targets. We set up the budgets that we want, but he does most of the work lead in the team. I feel that as we evolve, that will be the case for most functions, but we have to build it, right? It's building the company and then probably will treat it more of a traditional sponsor, but I feel that gives us the differentiator for the next one. Look, if in the next one, we have deep, again, more capital and we can go after bigger businesses, we would prefer it. But if we can go into similar industries and we have the team, we also have the chance of doing that, which again, most private equity firms or independent sponsors done. So again, it's something good, but born out of necessity, right? I think it's also worth highlighting that doing 24 or more than 24 acquisitions at this stage in a relatively short amount of time, that in itself requires operational excellence, just to undertake so much eminivity. You mentioned that you have a team, a former BCG caliber people traveling around Spain knocking on doors. Can you talk more about this? Is this something you do because it has a higher success rate? How do you go and ensure you're being tactful when you show up in person? How do you tactically do that? And then maybe segue that into how you operate your M&A process, such as high volume, high velocity, as well as that in the introduction? Yeah, I know that's a good point. So the consulting background of my team, it's in operation, right? It's not in M&A, not because they cannot do it, but typically they prefer to do different things. So our M&A team is coming from finance and other M&A background, either private equity, actually some folks from other private equity firms or from M&A advisors. They have to be young because we require them to travel. And for us, they have to be good at analytics because we expect everybody to do their own LBOs. We have templates and everything, but we expect them to be very good at identifying issues in the balance, the cash flow statement, the typical models we have again, best practices, but they need to do it. They need to prepare their briefing for their own deals and they need to be very charismatic, you know, to be dining and chatting with business owners the whole day. It's not easy to find, but we have three folks that, you know, 25, 26 years old that are just best in class and they love their job and we love what they do, but they're not from consulting backgrounds. The consultants are more in operations. And so their best in class being just really affable and friendly and intelligent. So that's why they're able to not only approach these business owners on your behalf, but also add value in those dialogues and then entertain them and kind of move the conversation towards a partnership eventually or at least learn more about each other. Exactly. And actually when the deal is closed, you know, they pass it to the integration team and sometimes at the first or second week, the business owner has, hey, where is Guillet, which is the guy that does the amenate? Where is he? He doesn't talk to me anymore. So they actually create really strong bonds with the owners and that's the most important thing, but again, they have to be analytical enough to do their own analysis of the business and to prepare the briefing and defend that business in the investment committee that we have. Any independent sponsor will know that closing a deal is a major undertaking, but this is different when you're closing a platform versus an add-on. Can you talk a little bit about the distinction because clearly you have found codified the approach to closing a lot of deals in a way that you can manage operationally? Yeah, so I would say that for small businesses, at least here in Spain, most of them are not professional either. It's the owner, like typically aging and wanting to transition out, or it's an owner that is not that old, but he wants out of the industry, or it's a kid's, right? But it's very rare that you find professional management. So that makes it so that the complexity really comes from the fact that you're dealing more with an entrepreneur that can be mercurial. So you have some people that are the right price. Make sure that you guys are going to take care of the business that you have credibly because there are so many renouts. And that's it, but there are others. We have a deal that we call grandma, abuela, because the only reason why we close it is because the grandma of one of my co-founders was friend of the wife of the owner and he found out that they're from the same town. Otherwise, this guy wouldn't have soul. So every deal, it's different, but it's not it's not mainly a conversation about price or about structure. It's mostly, you know, understanding the entrepreneur and make sure that he understands where you're proposing in a way that he that he likes it, right? Luis, to Nicholas's point of codifying this this engine, we heard you say that some of the businesses that you bought have been millions of dollars in revenue in others as small as 100 K in revenue. We heard you say that there are 300 fire safety businesses in greater Barcelona alone in this this universe of fire safety businesses in this wide range of revenue that you are saying you're willing to look at from almost no revenue all the way up to as big as you can get. How do you decide if a target is worth pursuing? Yeah, so what we do is we have a database in Spain in many European countries. This is different than in the US. You have all the financials. of all the companies published and this is the balance sheet, the PNL and the cash flow statement. So you have, we have the database once we know that a business, it's a fire safety business, which is not easy to know from the outside, but once we know it is, we classify, we have a system that we develop in-house where we have all these, we actually have 2,500 businesses there, and we already know how a maintenance company looks like, and it has to do with the combination between the gross margin, the DSO and a few other metrics. So we already know that they have to be at least, a majority maintenance, right? But the first check is that they have to be maintenance focused out of the 300 businesses that we talk about. You have passive fire safety, that's out. You have mostly installation base, they're out. And then you start with the things that you get to know after the conversation, consumer concentration, if they work for facility managers, if they work for public sector, then after, and those can be in one conversation, right? Then you're going to, what you need data and you need to develop a relationship with the guy, before issuing an L.I. We ask for the code and the revenue of their customers for the last five years, and then we look at churn rates, we look at the average ticket per customer, we look at the concentration per zip code, and we have these things called if I get it, the day is the hard part, because now you need the the trust of the guy, and then we reject every business that has a high churn rate, right? More than 10% for us is a no go, or we defer a lot of the payment. And so we have a bunch of checks that we do by talking to the to the to the owner and getting that data. And then we get to out of those 300, maybe 70 really are target and out of those, they're defied on what I say, which really not, the pool is not infinite, where you can fish, but in the end, it's quite reduced, right? Yeah. What a luxury in the European markets, I know it's the same in the UK, that all of this, but this private company information is public, and you can just just go through the list, it's amazing. Well, it creates problems. For example, this Abuela company, right? It was the biggest deal, two million EBITDA, 40% margin, and we pay a little bit dearly for that one. And given that it's almost like a very search for prime material. So this guy had received 150 letters from all kind of potential acquires, and he was sick of it, right? Like that's also makes it so that he didn't want to hear, is I know the guy wanted to buy my company. So I have these letters here from like everybody wanted to buy. So it creates so it's sold, it's selling kind of problems. Yeah. And so to be clear, you said that you can identify, you're so familiar with the industry now, you can just by looking at the financials, the public financials of these private companies, trying to regulate whether or not it's majority maintenance or not. Yeah. Yeah. And just going back a couple beats, but what I didn't hear you say throughout all of your decision making criteria, working these businesses down the funnel, is operational excellence. And you've already told us you don't need that. In fact, that's the value that you're going to provide in many cases. But you did get really lucky with that with your platform. How how how might you assess from the how might you tell the audience to assess a business from the outside? It's operational excellence because because it would be nice for that first bit for every sponsors first business to have operational excellence and only the subsequent ones, the bolt-ons. Not. Yeah. It's honestly very hard because let's state two companies. We have another dreamer, the company we acquired, 1.2 million revenue, very stable, very slow steady growth of 5%. You have gross margin of 81%, also very stable. And they have even the margins of close to 40% super stable. And then you have another one, looking the same in another part of Spain that actually was the opposite of operational excellence. The difference there is that they had a very captive market with high prices. But you can know that from the outside. So when we saw the financial, we said this is it. It's another similar business. We went the business owner was never there. The service was very shoddy. Like the technicians were organizing their own work however they want. But they live in the area. Right. It's like the five people that do fire safety are the ones that live in the town. And so they know their customers every day is the same customer for the last 20 years. But you know, you would do not go there to touch anything or it wouldn't work. So it's very hard to know from the outside. But you can tell steadiness, same margins from one year to the other. They don't have fluctuation in labor costs or EBITDA margins. But that's not that reliable indicator. But it's a good indicator of best. I have a slightly more philosophical question for you, Luis. So many independent sponsors and PE funds will say that they are hands on and operations focused, right? Not very many can say that they're actually a big team inside of business working only on one platform. But generally, what are you sacrificing when you're truly operationally excellent? Yeah, I think that now that we have honestly created a platform and we even have approaches by the big private equity firms in the Spain, in the UK, we could be doing something else, right? Or additionally, with the team that we have. And we want, right, at some point, the idea is to launch a fund and have several verticals at the same time. And by then, we really need to think how we scale the model that we have because obviously we cannot have 12 people working on every vertical. Or maybe we do, right? But this is a philosophical question that we have to answer. We don't have time to think about it. But yes, you're sacrificing the optionality and the ability to do something maybe bigger with the same high quality team that that you have. And how do you decide, let's take the case right in front of you, how will you decide when you have given to this opportunity everything that you should and you should consider some of those offers or at least consider looking at recapping and maybe turning your attention to a different industry. What's the ceiling of this, really? For your level of involvement, we're hearing that you have. Yeah, it's a balance between, we have capital to be the ploy significant capital now, and we have a commitment we are investors to deploy that capital with the same quality and continue creating the asset that we committed to create. And obviously we have a huge incentive, a monetary incentive for doing this correctly. So I think we're aligned with the needs of our investors with our incentive. So that's great. And then at some point, the platform, it will, we will get to the point where we say, okay, most of the capital is deployed. We have a very good executive bench. We have replaced our work by industry people now that we have the systems in place. And now we actually can stop paying maybe fees and dedicate the team to other opportunities and the investors would appreciate it. Now when that will be next year, two years, this is where it depends on the progress and it's fully dependent on us. But the people that have trusted their capital on us have to be on or with that. Yeah. Speaking of which, perfect segue, we've got you here for just a few more minutes, Luis. And we do want to hear what raising capital for a venture like this in a European context looks like. So first things, first, when you went out to start raising for this, what did that look like? Where did you start? What's the lay of the land in Europe for raising capital for a rollout? Yeah. I have the advice after having done that. And then I have what we actually without that much experience. So what we actually did is, you know, we started from friends and family, those friends and family that recommended people that they knew that were more kind of structured capital providers, maybe small family offices. And we just went kind of following the trails. It's much better to have warm introduction. So obviously, it's kind of the easy path to take. We were operating a business or we were refining our thesis. So we were not only doing for raising, but it was like eight months of coffee chats getting to meet family offices, getting to know private equity funds that, you know, we were very early for that. So kind of getting to know more than what you read and you can know from, you know, now asking chat, you be able to different capital providers, getting to know them, how they think, building relationships. And, you know, out of these relationships, it came an introduction to a German family office that was focused on roll-ups. So he was after doing a lot of fintras and a lot of work that we found the right partner. I wouldn't recommend doing it the same to people that actually just want to raise capital before getting started, right? Although your first venture of maybe many, so many of those introductions and those connections that you made could bear fruit later. So not all lost. And this sort of consolidation play, and particularly with this industry and with these very fragmented, very small platform, how did the capital markets broadly react to it? Obviously, you ultimately did find capital, but can you generalize and maybe contract? it to the US. I know you haven't done it in the US, but maybe you have a flavor of what it would have been like in the US. Yeah, so I have friends that are doing something similar in the US, which, you know, number one in the US, you have very deep capital markets in operator pool. So that's a good match. It's for a very dynamic market. In Spain and in Europe, rollups are still like an ascent asset class, if you will. And in Spain, I think that investors are by nature and kind of the social and cultural norms are more riskabers. So they love investing in buildings and, you know, traditional vehicles. And again, at some point, it has to do with the maturity and the cultural norms of the country, but also be to be quite honest, it's good that they are weary. They're not, I want to say they're not good operators because they're amazing companies here, but they're not many or any other team that is really doing rollups with experience, right? And again, you said that I sometimes make it sound easy and I try to be very realistic where it's grueling. It's a lot of work. We have people that have done a lot of operations work before and even then we make many mistakes. So also again, capital markets are very conservative, but you also don't have a lot of people with experience that have done this in the past. So it's a hard market to be liquid and it is not a liquid market, right? The family office that you found a partner with, what was it about them? Do you think that that made them visionary enough to work with you in this quote unquote, nascent asset class? Yeah, I think that it was a combination between them having done rollups in other parts of Europe where it's a bit more common. So they have experience and they have their own processes to identify markets, opportunities and teams that were of the right, let's say, alignment to their values and their ability to deploy capital. And then having never invested in Spain before, I mean, it has a degree of daring to do it, right? Again, with the right team and the right opportunity they had seen business services in other places, they have done it in other places and they like the team and then they put the right controls so they're able to pull the plug if things were going south quickly. So putting the right structures, but at some point they're in just to do it with all those things in place, right? I think family offices in the United States are quite well versed in typical sponsor economics. I haven't heard that in Europe and especially outside of the Nordics and the UK and probably especially as you get down to France and Spain that they're less comfortable with, you know, for instance, management fees and in some cases are from an American vantage point anyway being. They're very stingy. Like I've heard some sponsors say they're offered a management fee of 80K or 100K per year for what the US sponsor was charged 250K. I don't know if you've had any identical experiences with that, but is that a trend that you agree with? Does it resonate? Yeah, for sure. And again, you have to go with the cultural norms of the contrary, right? So in Spain, salaries are typically quite low. Even inside the financial services industries, the salaries would be shocking for the US counterparts. So the idea is that you offer local salaries no matter what's the, you know, the type of talent that you have, then you also have more, and this is by, sorry, I would say I'm generalizing Spanish investors from the very few that I have contact with and by talking to other entrepreneurs. So I apologize if this generalization is not true, but what I found is that again, like the salaries tend to be earmarked, watermarked towards traditional salaries in industry in Spain, which are quite low. And then you have investors wanted to control the company as if it was, you know, their own operating company. So it's sometimes quite hard to get them aligned on a roll of strategy, where you need to be well incentivized, where you need to have your team well incentivized. On the other hand, they don't ask for things that maybe in the US are more common, like co-investments, and these type of things are not common requests that I heard from my friends that sometimes in the US are a bit more common than here, right? What do you mean by co-investments at the end there? So private equity firms, and again, this is not maybe common for independent sponsors, but you know, it helps sometimes ask to invest alongside you without paying the fees and from your vehicle for rather with you. So if you're buying a platform, then I get 10, 15% allocation directly into the target with all the benefits that it has of not paying fee, they're not paying carry on that. Oh, okay. In Spain, I've never heard of anybody asking for that. It's a version of getting a piece of the GP economics effectively, right? Well, here they do. No, no, it's a co-investment in several of my friends in private equity, again, not even small funds. You have some LPs asking, they told me, maybe now this is not so general, but they ask for that, like, investing directly. Let's say that you buy a platform, right? So you buy 90% and the LPs have a generally P, they, and they might have you know, reduced fees or whatever, but that's different. No, they ask to invest directly into the assets of the other 10 percent allocation is directly for them. And that always has a lot of advantage. You don't pay anything. You don't pay carry. You don't pay fees. So that I never heard of anybody asking in in in Spain, right? Luis, you'd mentioned to us that the timing of your raise, you had to be careful because you were stacking EBITDA so quickly with the velocity of your acquisitions that from the beginning of your raise to the end, the value of the enterprise that you were building, you thought had shifted, had grown. Say more about that and how somebody or a team pursuing a high velocity consolidation play should be careful. Yeah, that's a good point that you need to have your timeline and the capital needs plan out or align. As you mentioned, we were, we were negotiating a capital increase. We have some people interested, but we wanted to get, or we knew we can, we could get a bit more on that round. We have the investors, you know, approved to just bring more capital providers, but we continue working. So as you get into holidays and you know, in Europe, they tend to be very sacred time passes. We continue doing deals and at some point you make evaluation on the round based on some numbers. You didn't put a bad backstop on saying if we reach this target because we didn't know that could happen. And at some point, we were close to basically the valuation said being super low and, you know, having very different alignment between your investors. So in the end, it was an issue, but it was close to be so now we learned that you have to limit the time of your fund raise or have some provisions for if you get, you know, 10%, 15%, more of it that we have to reevaluate the pricing. So now we learned that that less. Yeah. A problem of the fortunate, however. Yeah, it is a forward position to that. Yeah. Luis, we got to let you go. But I want to try to invite you to generalize if possible. We've heard a lot about this industry in Spain and the dynamics of the market there, family offices there and elsewhere. But for anybody listening around the world, and maybe a less market where private equity or or roll-ups consolidation isn't quite as far along as it is in the US, what generalities might they look for to pursue an opportunity in their market like you are in Spain? Is it possible to generalize here? Yeah, I think this is possible to generalize to the point of not being very insightful. Right, but you need very fragmented markets, you need industries with recurrence of revenue. You need those small companies if it's going to be very fragmented that have some level of professionalization. And it might not be management like in your case, but it has to be, you know, not have any fiscal issues or companies accepting money without reporting to the authorities, not all countries are like that. So you need to be very formal sector. Then you need to have some successes in other countries of that particular industry because if you want to exit and you want liquidity at exit, you want other capital providers to have done it in those places. And then you need talent with experience in that industry because again, at some point you need to build the executive base there. So I feel most European countries have that except the fragmentation were in the northern countries is already consolidated. We tried to look at it also at some point before we started in, you know, I'm from Latin America and it's a little bit harder because the small very small businesses have some of the issues that I mentioned, right, not all of them report income to the authorities and some stuff that you might not want to get into. So in Mexico, for example, a large market, you think it would not be analogous to Spain. It would be more challenging. Exactly. I wouldn't go to the exact same target size, probably it would be a little bit more in the middle market where the consumers of these companies are more multinational companies that they demand a lot of formality from their providers. I wouldn't go and buy 200 K revenue companies in Mexico in fire safety, definitely, at least I wouldn't. Luis, it closes out by telling us what the goals are for the next year in terms of either revenue growth or absolute number of acquisitions and then we'll let you go. Yeah, we want to over the next year or 18 months double the size of the company in terms of revenue. They might be the same or less from work acquisition depending on the targets that we close, but we want a double. We want to consolidate our executive team. So we now we want to have a very solid team on the company and we want to make sure that the capital providers and the families that have supported feel comfortable that we are creating a quality asset for them to get the returns that they're expecting. So I think we're on track, but we need to keep focus on that. Great. 16 million in EBITDA in fire safety in Spain. Very exciting goal. Luis Reyes, thank you so much for coming on the Minds Capital Podcast acquiring minds. You and I have been in touch for about a year now. So glad we finally got you in the seat and congratulations to you and your partners on all your success so far. Very, very exciting project. Thank you. We'll thank you Nicholas. Very, very good to be with you today. Hope you enjoyed that interview. Don't forget to subscribe to the acquiring Minds newsletter. We send an email for every episode with an introduction to the interview, a link to the video version on YouTube. In soon, key takeaways, numbers, and more essentials from the interview for those of you who don't have time to listen or watch it. Subscribe at acquiring minds.co. You'll also find all our webinars there on the website, both those we have coming up and recordings of past webinars. At this point, there are over 30 webinar recordings, a wealth of information on all the technical nitty gritty of buying a business. AcquiringMinds.co