How to Build a Roll-Up Machine

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Trust me, it's going to save you a lot of time and headaches. Here's to the deal. I'm Keith San Patel and you're listening to M&A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M&A deals. [Music] Hello, M&A scientists. Welcome to the M&A Science Podcast, where we learn from the best M&A to uncover proven techniques for enterprise value creation. If you're interested in learning more about how to optimize your M&A practice or want to get involved with our community, or for the M&A practitioners, visit maciance.com and subscribe to our free weekly newsletter. If you want to keep up with us on the go, head over to LinkedIn and follow M&A Science. I'm your host, Keith San Patel, founder and CEO Deal Room and chief scientist at M&A Science. Join me today is John Serosulo, CEO of Leap Partners. Leap Partners specializes in the acquisition and improvement of businesses and the home services industry, including HVAC, plumbing, and electrical services. The company focuses on partnering with business owners to enhance operations and maintain high levels of owner satisfaction and employee retention. Today we're going to talk about how to build a roll-up machine. John, how you doing today? I'm doing great. Thanks for being with you. Hey, thanks for taking a break from running the business and doing deals to have a conversation with me. It's a nice time to chance some time to step back and talk with someone who's done a whole lot of this and anxious to learn and doing your platform so they have a lot of great stuff to share. Likewise, looking to learn a lot from you, can we kick off a little bit of our background? An engineer by education actually spent the first part of my career in the Navy, great beginning for building career, great opportunity to learn a lot of the young age. I was an engineer in the Navy, and a little bit of time working and manufacturing after that, and then quickly transitioned to running field service businesses. I've been involved in three different field service businesses. All three were roll-ups. First one was in telecom services. That was working for a big Japanese company. Second one was in home security. That one was private equity back. Then my current role-oply partners, as you mentioned, in HVAC and plumbing. I've been living in Nashville for 20 plus years. Most of the deal activity that I've had over the last 15 years has been concentrated in the southeast. That's where building at Leapest, southeast, focused HVAC and plumbing platform. Very interesting. A lot of different platforms you've been involved with. But the Navy and engineering background, what are the big learnings from those experiences that you can do to emanate today? I was actually a nuclear engineer in the Navy. That's a real deal. Real deal. Yeah, I was on a big ruser, surface ship. Not a submarine, which a lot of folks think when you mentioned nuclear engineering. What mostly translated from that experience was really the foundation of understanding what it means to be a good leader. That really translates across every. and you just vet any kind of career. Particularly in the work that we've been doing at Leapest in my previous efforts. If there's one lesson I learned, it's the importance of developing your team and your people and hiring the best and surrounding yourself with the best people that really came through in my military experience. That's something I think is big dividends that lesson over the course of my career. That's all about the people. I feel like when we talk about M&A, it's taken that step further, where it's a lot of changes that you have to drive through leadership. Yeah, a lot of people think of. and when you talk about M&A or private equity companies and roll-ups, they think it's all a bunch of financial engineering. Just buy in assets, you're combining them, you're mixing them up in certain ways and selling them and making a lot of money. That really is the wrong way to think about what we do. It is so much about the team that you build, the people that are leading the organization, how they treat and deal with people throughout the organization. Because inevitably there's a lot of change and challenges for folks in all the businesses. As you go through a roll-up and build a bigger company from lots of small ones. And if you're missing that element of leadership and understanding what drives people and how to help people fulfill their own personal dreams and aspirations through their work, you can do all the great deals you want. If you miss that piece, that part of leadership and the people and building the talent from within, you're just not going to be successful in the long run. Fair point. You've got a lot of it, they've been back around obviously, but then you've ran through a lot of operational roles before you start taking leadership with the organization and their M&A strategy. And it sounds like a lot of that sort of gave you that experience and preparation for it. Yeah. Once I had that foundational opportunity to understand the importance of leadership, I was very fortunate to have the chance to be involved in the businesses that I identified. The first one was a little bit different. It was a telecom roll-up. We did sell tower construction maintenance and kind of bone infrastructure build that for the carriers. That was a national platform and it was working for a big multinational company, a Japanese company. So there's lots of great lessons that I learned there, but it was really just in the last two opportunities, the one-in-home security and now the one in air conditioning and HVAC and plumbing that I had the opportunity to work close to with private equity companies. That's a whole different kind of twist on building and creating value. And thankfully again, at the opportunity to be surrounded by some really fabulous partners that made that just a great experience. They're really different than also like the stage where these platforms are already operating and you're just growing them or do you have to do a lot of groundwork to get them going. Telecom roll was kind of a start-up in the sense within again within a big multinational company. So we were new in that field, we acquired a bunch of companies and built a national platform doing that telecom work. There's something very different about doing it inside of a big company as opposed to doing it partnered with a private equity firm in both home security and now and lead partners. I've had the opportunity to work with two really exceptional private equity partners that open my eyes to some of the opportunities that are out there to really create something and do something special. It's a little harder to do that in a big multinational company. It's a lot easier to do it in an environment where you have an investor who is really aligned on the vision and what you're trying to achieve. It's a very aggressive as everybody knows private equity companies tend to be really aggressive about pursuing their goals on a pretty short timeline and that's a little bit different than you get in a company that can be a little bit slower and less aggressive and less willing to take risks, which I really enjoy about partner and private equity firms that can really get aligned on a goal and an objective and concentrate a lot of resources to get that done and done quickly. I risk profile with the p firms yeah I risk profile and just a willingness there's a time pressure from most private equity for all private equity companies some more than others to deliver value quickly to investors and that's just a little bit of tenu in the case of a big public company there are driven by driving the stock price up but they're much less willing to take risks to do that company is just very concerned about making mistakes aggressive investors and business leaders are more willing to take risks. Or more willing to take on some of those challenges thoughtful about the risks but willing to take them on maybe more so than a company that has just a large infrastructure and can slow decisions there. I'm really happy living in this world of working with investors that are really aggressive and have high expectations. What about economics in terms of how they incentivize management and the whole world program of success. I'm glad to brought that up that's not that it's very different in a corporate environment big multinational company the compensation is much less incentive focused whereas in working with investors like private equity firms there's much more enthusiasm and energy around the variable part of compensation and the rewards for achieving challenging objectives including the opportunity for a lot of employees on stock which is just a lot of money. Which is generally not something that you see in big multinational companies. So yeah having the opportunity to really motivate a team through more aggressive approach to compensation is definitely something that helps in private equity back companies reaching some of those objectives a lot quicker than they might otherwise. >> How do p firms like sell you on that in terms of? of, hey, we know your background, John, we think you're a great fit for this roll-up platform. I can't imagine it being like, here's the x percentage of options that you'd get, 'cause there's a total picture of this is what we're envisioning of how much we can grow and this is how much value you'd be able to produce. - What was the pitch to you? - That's generally the approach in our situation, we, me and the team that actually came from the security business that came together to create lead partners. We actually got together, put a business plan together before we had any investors and then essentially pitched that plan to different private equity firms. In doing that, there's obviously some degree of negotiation about how much capital is necessary and how the equity will be distributed. So we ended up with a phenomenal partner, consensual equity partner. It's called a family desk, so it's essentially a wealthy family and an investment vehicle for a wealthy family. And we were very much aligned on what we knew we could create and very quickly came to an agreement on how that part of it would be structured. Like everything else, it's all a negotiation. - So this was Brums Gratch. These came up, got us some partners together, came up with an idea, identified a market, teach me how to do this. - It was interesting. Started out with myself and my CEO Patrick, us getting together after we had sold the security company, neither of us were very happy with what we were doing. We said, "You know what, let's get together and do it all over. Let's do another business like we did, but we didn't want to do home security for a bunch of reasons." So the first thing we had to do was research to identify what market, we knew we wanted to do home services, but we had to research and figure out, "All right, we're gonna focus this effort." So we spent a couple of months talking to a lot of people and looking at every kind of home service business we could think of, roofing, landscaping, pest control, HVAC plumbing, everything we could think of, talked to investment bankers and investors who were familiar with the space and decided HVAC and plumbing for a lot of reasons was the best place for us to target. It was similar to the business that we were very familiar with, which is home security and kind of the deployment of resources to folks homes to solve problems and it's a service that is not discretionary, which we really liked and of course investors really liked that too. So that was the first thing to do was, all right, let's decide the business we're gonna focus on. Next thing was putting together a strategic plan, our business plan. So we had to identify what was our path to success. We're very inquisitive. We've done 19 acquisitions in less than three years. So we knew an important path was gonna be our ability to find and source deals and to get deals done in a build a company and a culture that could grow aggressively as we were buying these businesses. So a lot of work had to go into putting a business plan together that we could then put in front of investors and pitch the idea and we met with a bunch of investors. Essentially anybody we can get in front of. And I'll say this, it was challenging to get investors that were willing to jump on board with us 'cause we had nothing but this plan. We didn't have a deal. A lot of times when you start that process, you'll have a deal ready to bring new investors. We didn't have that. We had just started the search. We were identifying candidates and talking to folks. It was probably nine months of work pulling that together, getting investors, our investors lined up, finding our first deal. And that was challenging because we were pretty, as you can imagine, unknown in the space. People didn't know who we were. We didn't have a reputation. But we found an exceptional company that was our first acquisition. How many called condition there in Huntsville, Alabama. Great leadership, great team, awesome culture. And it really was just a wonderful starting point. But all in all, that was nine months to a year of trying to figure out what we're gonna do, trying to convince other folks we were worth supporting and then getting the business kicked off. - All right, let's break this down. How to get the roll-up platform started? First and foremost, it was picking the industry. The second was building out your investment thesis for your business plan. And then the third was really going after building pipeline and finding deals to actually execute, which those orders could kind of run in parallel or one way or another. And our goal was to self-generate these deals, not to find the deals that were on the market that a broker was out trying to sell that was in the midst of a process. We wanted to go out and source deals ahead, 'cause what's very important to us is having the right kind of leaders in the organization. So we didn't just walk in the door to us. We wanted to go out and find company, and we knew we were a good fit. So there's a lot of work in doing that. And building a database of companies and doing research and talking to a lot of people and then convincing, good talented leaders had companies that we were the right partner for them. That's what took probably a little bit longer than otherwise might have. - It doesn't come easy. When it comes to picking the industry, like these are the sexy, high profile AI, you're anything industries. I want to know what was the basis of it, where obviously you had some experience in related fields. So I'm almost thinking, hey, John, search agencies based on your higher experience. Or is there something else I'm missing? Were there factors of like how fragment of the sector is or any growth or were there other elements? - First and foremost, we had a team from the security business that we knew was gonna be the core leadership of lead partners. We understood field service, residential-focused field service businesses. We understood technicians and trucks going to people's homes, largely residential and maybe a small amount of small commercial, but that kind of service delivery platform. Of course, 'cause of our approach and our business model, it's very important that the industry be very fragmented. So that was a significant factor. Now, it turns out a lot of those industries I mentioned are very fragmented. HAC and plumbing is, but so is pest control or so is landscaping. A lot of those other businesses are also. So most of the home service businesses that we looked at had that feature of being very fragment. But yeah, that's definitely an important element. And then there were some other kind of peripheral elements. A significant one is that it was in favor with investors. There were some industries and home security actually went through the phase where it was really had a favor with investors. It had to be one that would be of interest to the folks that we were pitching it to. And HAC and plumbing definitely passed that test. - So you had the leadership team in mind. So I was a big element of like, hey, are they going to be the right people for this insect or finding sectors that are fragmented? And then also what's in flavor with investors? I'm going to keep roleplaying this out with my own because that's people who figure out get free advice from doing these pockets. For myself, it's my background's all software. It's all B2B software. I do a lot of stuff around M&A. If I was in your shoes, I would start looking maybe broadly at finance technology. I can start looking at mortgage technologies. I can start looking at some of this stuff around even government in terms of, here's a security and stuff that deals with some of their finance transactions. But then start looking at what's fragmented and then cross that over with what's appealing to investors these days. When you took that and started saying, okay, we've got some leads or this seems like the right one to go after. Do you start a building the plan? What goes into it? Is there any key things that you're like, hey, these are really the important stuff that you got to lay out in your plan to make it interesting and attractive? - Yeah, a couple of things. You have to look at it from an investor's perspective. So you have to think about what the kind of investors you're gonna be targeting are gonna be interested in. One thing they were all interested in is, does this team have credibility? So this leadership team that we had assembled, we had to demonstrate in that plan that this was a team that could pull it off. And the fact that we had a really successful exit in home security really helped that. That's maybe part of the credibility. It's demonstrating that this is not our first rodeo that we've done this before, that we've been successful and we're a team that's worth betting on. A big part is the financial model. So it has to have a financial model. We had a bunch of costs that we knew we were gonna load Lee Partners up with early on. 'Cause we were gonna be doing a lot of deals. To do a lot of deals, you need to have a lot of staff to find those deals, get the deals done, go through diligence. And then very significantly integrate these businesses. So we had to show that we could buy companies at a price and fast enough to grow the business to a reasonable period of time, get big enough to support the significant overhead that we were gonna have from the beginning just because of the nature of the way that we were gonna grow the business for acquisition. So the financial model and being reasonable and financial projections, 'cause you often will see folks put business plans together. We're just terribly unrealistic expectations. There's nothing wrong with you should have big ideas and big goals and big dreams and high expectations. You have to be able to in this business plan show that they are reasonable understanding the kind of the framework of the industry you're working in and the team that you have. Those are probably the two kind of important parts. It was, and then maybe a little bit of work just showing investors that this was a great market. That kind of data is not too hard to find. I would say another element for investors that maybe were not very familiar with home services or specifically HVAC employment. - Drank to the team, the financial model, the market opportunity, on the financial model, 'cause you don't know. It says you don't know what the finances are the company that you're buying. It sound like you'd be pretty big. Like how? - So you have to project the size of the business you're going to buy him. driven at doing what their margins are. So you have to make some assumptions. You're really templating out what these businesses are going to look like they're acquiring and then you have like year one year two. Of course, you're never right about that. But there is a good bit of data available and talk to enough investment bankers. You can get an idea of what typical even margins for businesses are. We had to include some factors for things like, hey, we'll get purchasing efficiencies over time as we grow. So we're going to improve gross margins by a certain amount over the course of the, we did a five year plan. No one's going to expect that to be accurate or perfectly not perfect and not even accurate. It just has to be reasonable and credible. And you got to realize that those are numbers you're going to get held to if you have an investor and you put a plan in front of them that they write you a check as a result of you're going to be held to those numbers. So you don't want them to be aggressive, but they need to be the numbers that you're confident you can achieve. Okay, be really realistic and that's doing as part of your reputation is actually delivering on your plan. How many people do you have a pitch to before you got one to say yes? So partner that we ended up with our current partner concentric equity partners. Then really the first ones we talked to I had known some folks there for some time through some other activities other businesses. And I would say from the beginning we knew if we could get them excited to write a check they were going to be the partner that we wanted to work. You had a relationship there. I did. Okay, just for people listening, let's be open-minded and realistic about it. If you don't have relationship that's first and foremost as you got to build relationships with the mindset. We didn't know if they were going to be willing. There's a lot of factors that go in their decision about making investments that are out of our control. So in parallel with presenting it to them and trying to get them interested as we were putting it together we probably meant with a dozen other private equity firms. Talked to more than that. In some cases had a couple of meetings. There's not that many private equity firms in Nashville but we met with everyone that we could that was here. A few others outside of Nashville that we knew through the sale of our security company and you cross paths with bankers and private equity firms and they help make connections. We pitched the plan to maybe ten or so different entities. But I would say we knew if we could get concentric interested they were going to be the partner that was going to be the best fit for us because we knew that we had a lot of alignment on our values. How we look at business. They have a very deep history and field services so they understand the business. It worked out the way that I would say we had hoped it was going to work out from the beginning. There's some true to that choosing the right partner because if you don't that could be a miserable marriage. I mean if I talk to anyone and I do quite often talk to folks who are thinking about this journey the most important decision you make is picking a partner that is really aligned with you on values and expectations because if you don't as good as things might seem in the beginning as good as a deal you might be able to negotiate at some point and it's probably going to happen pretty quickly you're going to run into big problems if their expectations and their values are different than yours. It's way more important to find the right partner than the best deal. Instead of shopping around for the best terms it's more focus on the values and expectations. No, Dad, not even close. Everybody ends up getting very focused on the best deal. What does that mean in terms of values that we can have it together and tell a good story? What does that mean? Values that it's very core how you treat people. So does for us we have a certain way of running our business that is very we talked a lot about the importance of good leaders and the importance of building that culture and there may be another investor that really doesn't care about the culture isn't interested in your thoughts on having a great leadership team they want to hit their targets on number deals done and growth and they were very might be very willing to compromise on buying companies that don't have leaders that align very well with our culture to hit targets. That's a small example, but you have to make sure that you look at business the same way because bad thing challenging things happen unexpected things happen and you have to make decisions on how to react to it and you want a partner that is aligned so that when you make those tough decisions they're supportive of them and that they trust you to be able to make those decisions because they understand the kind of leader that you are that's not always easy to find but I think it's the most important thing about starting up an initiative like we have. We've found any like questions or topics that you could bring to the conversation helps sniff that out. Yeah sure I'll mention one safety safety is an important part of demonstrating to your employees that you value them beyond the financial metrics of how much revenue they create. It's an important part of being a good leader is and taking care of your people. There's a lot of investors that are thinking about we're invested in this business we're going to exit in three or four or five years whatever it is. We've got to hit these metrics I got to return so much appreciation to my investors on their investment and I'm not really interested in hearing anything about what you're doing in your business with regard to safety. Many investors could care less about that. If my numbers that's what's important don't bother me with talking about safety. We invest in safety it's a priority for us. It's a part of building a great culture in the long run as part of building a great company. We are very much aligned with our investor in that regard. In fact their expectation is the first thing we talk about in a board meeting is safety and how we're doing at taking care of our folks and we invest money in technology and leadership and management time to to improve our safety performance. That's maybe a small example but you can multiply that over almost every kind of a display in the company where you want to be aligned with your investors on how you approach topics like that because if not you'll end up worrying into problems as the business evolves and then you have to make hard decisions about difficult challenges that come up. I see how that can lend into other areas based on what's important to the way you run the company and really get a sense to the care they lean in or lean out. Yeah you'll have things on deals that you do. You might be indulgence in finding something about a company that indicates they're not going to be a good fit and sometimes it's best to walk away from a deal and again investors might not be aligned on that if they're looking at it through a certain lens of only the financial impact and not thoughtful about the importance of building a good culture and creating a strong leadership environment. Every day things like that will come up and the better alignment you have it's never perfect the better alignment you have the less time you spend wrestling over issues like that and the more time you spend building a good company. How is it negotiating terms with investors? I'm always curious about this. You have this idea of what you want to build but you're early in terms of pursuing it but sort of managing equity for the management team versus the investors and just making sure that there's good equitable interest and you can get those terms aligned for the long term. So I am probably not the best person to answer that question because if what an investor I didn't know very well we would have had more negotiation because of the relationship I had with concentric prior to getting kicked off we didn't have to negotiate because they proposed a structure that was absolutely met our needs and honestly they care as much about the leadership team and our success both financial and otherwise as there won't they wouldn't have posed a one-sided deal. Again that's part of picking the right partner. If it's just a financial transaction then negotiating is a big part of it. We were committed to building something special. They knew that it only worked if we if the deal worked out great for us. We knew it only worked out for them if it was a great deal for them and we didn't really have any challenges come into agreement on the terms of the deal. So there really was not negotiating and negotiating to be done. So not to get specific in your situation but just broadly ballpark. If I were to pitch a roll up as a new sort of Denoubo project to investment firm my targeting is there a range I'm targeting in terms of equity I want to have reserve for the management team and is it just generally the management team or is it kind of the founders and then you sort of look at a broader pull it for them employees. Yeah so it's both the founders and the management team but the amount is going to depend on what you're bringing to the table. So it depends on how much cash being in the table. There's going to be an investment the investor is going to put up most of the equity but certainly they're going to expect founders to write checks and to participate in that. So how much bigger a check you write will be one factor in how much equity you get. The strength of your business plan the track record that you have if you're new and you've never done it before you're not going to get the same kind of a deal as someone who's done it successfully three times as three good exits and now I'm going to start their fourth. So how competitive it is if there's a lot of investors chasing it because of the strength of the team of them industry or the strength of the plan you're going to have a lot more negotiate leverage. It's hard to say mid there's a range quite wide range. I mean the hypothetically are we talking like 10 to 30 percent? Yeah yeah something in that range again and depends significantly on how big of it have a check the founders who are willing to write but yeah something in that range. Okay so that's a big part of it. There's a lot of variables that go into it. >> Well, it goes into that. >> Very tough. So we get to that point. We get terms agreed on. And then we let's do it. Wait, we're the next step. What happens? They just hand us a huge check and then we off to the races. The check's not written until we get a deal. So we were still operating on our dime. They agreed to back us, ending us getting first deal to the table. So we were very aggressive in going out and finding deals. We found two early on when we closed in March of 22 and I've won in April of 22. And it was when we closed those deals that the company got funded with the initial chunk of equity to get started on. And then we were off to the races from there doing deals and then integrating these companies and putting them together and helping them to improve. It was a great. What's the pitch? Because this is interesting. You're hunting for the first deal. And obviously things have really matured from the first deal you'd done. How many deals have you done on the current platform? 19. 19. See, and this what is it just over three years? It'll be three years in March. It's just under three years. It's under three years. That's incredible. A great start. What's the pitch? What really lands when you're talking these companies in terms of talking the founders and just getting them on board of making sense to sell into your platform? That's a great question. And that is a real important component of our success. So first, let me just describe the kind of owner we're looking for. We generally, we can put a perfect profile together. It would be an owner of a company who's run it for a long time. Maybe it's a generational company that was passed down from father to son. With an owner in there, let's say in their 50s, who is starting to think about, hey, at some point, I need to have an exit plan, but I'm not ready yet. And man, I've been running this business for 20 years, and I haven't had a vacation in a while. And I sure would like a little bit of a change in lifestyle. That's our perfect profile. And then our pitch to that owner is, hey, look, we have an opportunity where you can recognize a big chunk of the value that you've built in your business over all these years. Give you a chance to diversify some of your personal net worth and recognize some of the value that you've created. But still give you a chance to run your business because these guys run their businesses with their same brand in a very similar way. They were running them before. They did a deal with us. And you'll become a part owner and leap partners. And you'll work together with a whole host of other really sharp, interesting fun people to work with to help us build this regional business. And then at some point down the road, we'll sell and you'll have an opportunity to participate in the value and vault that we create over the course of building this regional business, leap partners. And by the way, you're going to have a big team around you. We're going to take off the back off the stuff that you hate to do. Hey, we're all taxes, benefits, insurance, marketing, leap management, recruiting. We got teams of people to help you with all that stuff. So you're going to get a little bit of your life back. And you're going to have an infrastructure around you that you're going to be able to take a vacation. And you're going to have a lot of the good stuff you loved about running your business. It is going to continue. A lot of the frustration and things you didn't like about your business is going to end. And you're still going to be an owner and a big company that is really doing something special as a group. First of all, I'm going to look for specific characteristics in the business. So we're looking for potentially these generational business. The owners in their 50s or beyond. They're thinking about exiting maybe even what that may entail is in terms of a lifestyle change. If you have some more autonomy in what they can do to take a vacation. I'm sure there's other elements like we talked about the emphasis of values and culture. So I'm sure you're looking for, is it somewhere that we're looking for an investor? Are there differences? So I would say yeah, there are some differences. So there's a lot of really good owners out there that are running these companies. As you can imagine, great people. If I could characterize the one thing that separates the ones that are good fit for us from the ones that aren't, is that they are open to learning something new and curious and have a kind of a curious attitude towards business. The owner that is not a good fit for us is someone that says, I know it all. I know what I'm doing. You can't tell me what to do. I've got this down. I'm as good as it gets. That person is not a great fit for us because we work all these owners, these 19 owners. We meet regularly. We get together. We share best practices. We learn from each other. So the best fit for us is someone who likes the idea of being part of a team, enjoys the participation of helping other locations out and then learning from other locations and sharing ideas. And has the approach that I want to make my business the best it can be. And that means I need to be open to insight and input from all sorts of different places. They have that kind of mentality. Then they're a great fit in our intersection. And tech we call that growth mindset. Yeah. Yep. It really is. It's that mindset. And that kind of passion for always doing better. And if I had to say a second thing that's really important is an owner who is committed to their team and to develop in the people that work for them. Because as we grow, we have lots more opportunities for leadership roles. And we want to fill them internally by developing and growing our people. Some owners are very happy like doing everything on their own and telling everybody what to do and not really investing your own. They're people, better business owners, delegate and help their team take on new tasks and new experiences and learn from that and give them leadership opportunities. And that's probably a second element that's really critical for someone that we would be pursuing. Strong leader that develops their team. So we find all these attributes. We've got profile of the owner, profile of the business. All check off look good. And the pitch of the owner is that hey, you can size down some of your responsibilities. You get become part of something bigger. Like together we have a story how we're going to make something a bigger business in this market. It gets them basically the next chapter and like frankly less crap work for you to do. And I'm sure there's other elements in terms of what's unique to your company. The operational efficiencies and things of that. That's how to about right. Yep. And then a second bite of the apple and then pay for the private equity pitch. The second bite of the apple. Hey, we could get some ships off your table. You get that boat you always want to take that vacation. And then hey, you're still in it for the next big one, which looks like a great story in terms of getting you a return. That's going to be stronger growth. And you probably would have just run your business. That and we're going to help grow your team so that when you do get to the point where you're ready to exit, you're going to have a great team of folks that are going to be ready to step up and assume those responsibilities when that time eventually comes. That's a great. I'm ready to join your business team. I'm going to get the pitch down. In terms of execution on these deals, what have you learned? We got 19 deals done three years. I know I always talk about Byerlet M&A. Now you already lend to some of the key attributes which is like building your own pipeline. You can't just get a bunch of advisors bringing you deals. You're out there with a clear profile going after talking to owners. You got the pitch down. But what have you learned in terms of executing these deals that make it successful? I'd say a couple things. One of the things I've learned over the course of my career is a profound respect for the entrepreneurial spirit of the hundreds of business owners that I've met. Once we've done deals with them, ones that we haven't. It really says something special about our country, our culture, that we have an environment where the door is open to people who are willing to take a risk and bet on themselves to create these awesome businesses to have an overall group of employees whose lives are better because of the risk that they took. One thing I would say is just a profound respect for the achievement of these small business owners. So what have we learned? I think what we've learned is that there's so many opportunities to find really good run companies. I hear a lot of folks talk about like can't find deals or there's no good deals out there. They're out there. It's just like everything else. You got to go out and find them. You can't wait for them to come and knock on your door. For us, that's about building a reputation. We want to be the buyer of choice in the southeast. We want to be the company that when business owners decide it's time to consider that and they talk to some of their friends that we're the one they talk about as being a trusted buyer who's going to honor the business that they built, the brand that they created. That's going to take care of their employees and help them to grow and build that business even after a deal was done. So that kind of a reputation is built one deal at a time. One of the things we do is we share a list of our partners, these former owners that are now our partners. We share their contact information with every seller that we talk to because we want that prospective seller to know exactly what all the guys that have been through this with us think about their experience and how we treated them, how we treated their employees. Because there's lots of opportunities, as you know, when you go through a deal process for things to go awry for there to be a conflict between a buyer and seller. And our goal is to handle those conflicts in a constructive way and earn the trust and confidence of our partners throughout the whole deal process. So that really is a key objective as we're doing deals in a pretty small geography in the southeast to earn that reputation as being the company that everybody wants to sell their business to when the time comes. Respect owners, builder reputation. What else have you learned? I know you got a pretty short time frame you mentioned before, it was like 45 days from start to finish on these days. I said nothing we learned is the importance of aggressively integrating businesses and getting that done quickly. So you mentioned that. 45 days. We average actually 43 days between signing an offer letter and closing a deal. And we can do that because the team I have around me, we did 45 deals in the security business 19 here. So, you know, we've done a lot of deals and it's like anything else. If you do something and you practice it, you get better at it. So we've got a team that's very adept and internal team at getting through the diligence process. We have great partners, a great CPA firm that does our accounting work and a really good legal partner and they know we do things fast and they understand that's an expectation of theirs that they keep up with us. So we get to close in 45 days and then we get right to the integration. So a lot of companies that do, we do put off the integration and say we can do that later, we'll wait. But, you know, getting on the same financial system, getting everybody on the same HR benefits platform, getting on the same field software, we do that quickly and get the, all the pain of that out of the way because it is a bit of a distraction. But get that done so that we can get to run these businesses and working on building and growing. That's probably the biggest learning over the course of doing all the deals that I've done is if you want to do deals quickly, you can't wait to integrate because they just kind of back up before you know it, you got five companies you acquired none of them are integrated yet or halfway integrated and then you have to take time off from doing deals because you got to spend a year attending to the integration of the businesses that you put off. So that's probably the most significant thing that we've learned that is set the stage for us to be able to do deals as quick as we do. What did you learn related to operational efficiency? Because we make that part of the pitch to the investors, but then I'm really trying to get a reality check because even our models, we can get so synergy happy, your decent numbers and this and that and one the deal to look good, but reality, what actually wasn't real synergy and what were the surprises that maybe countered those energies. And you're right, it's very easy to say, well hey, as we put these businesses together, we're going to cut these costs, we're going to improve productivity, we're going to do XYZ. Those things are hard to do. Those things always take longer than you think they will. And in fact, this is maybe a little bit of a learning for us. We've learned that we impose some costs on these businesses right away. Initially, the benefits is a really clear example. The companies that we acquire, generally, will have not as good of a medical benefit package as we do. So when we bring them on board, we put them on our benefits plan, which they're all generally very happy about, but it costs us a little more money than the company might have been paying before we bought them. So that's an example. There are synergies that are real, but there are in some cases, you take a step back before you take a step forward in a sense. The synergies that are first and foremost, purchase, purchasing synergies, no question about it. As you get bigger, you get a little bit more leverage and you can negotiate better deals with suppliers. That takes time. It's not easy. It's not fast. It can be time consuming to do it, but that's definitely there, but it doesn't come day one. You have to build enough of a business to get the attention of vendors to get them to be to recognize that and be a more aggressive and price. The synergy that is the most impactful, but takes the most time, are the operating efficiencies. And that is number one, building a system where you can provide the folks running these businesses with the data they need to make good decisions, train them on how to look at that information and be able to evaluate it to decide what to do. And then execute on that. And that's often training of employees when you learn, "Hey, our clothes are right. Isn't as good as it should be or we're not so in as many service agreements as we need to, whatever it might be." Those things just take time. My caution would be assume it's going to take longer than you think and don't build and bank your business on just those synergies. Those should almost be added things that make your financial success even a little bit better. But you want to be careful of banking too much and certainly not being way to aggressive, which a lot of folks are on how much money they're going to save when they do a bunch of deals. Do you factor revenue synergies at all? Revenue synergies? Yes. But in the sense that through this work that we do in building this operating model, we're going to train these branches, these locations. They're going to get better at that selling process. They're going to get better at presenting options to customers. They're going to get better at offering more and that will drive up revenues in the long run. But there's no immediate short-term revenue synergies that come as a result to getting a deal done. You were in the factor that you're modeled in. You sort of look behind side and say, "Hey, there was some gains in terms of us putting better training there, but when I bought the property, I'm not justifying a higher price by saying, you know, here's revenue." Oh, yeah. No, that does not enter into our deal valuations at all. Okay. That's actually helpful. So, to really look at the business in the current state and trying to price it fairly in the market. We look at a three-year financial history of the business and our valuations are based on that, not based on what we think we might be able to create as a result of synergies after a deal. The partnership with owners, what does that look like post-close? We have a great relationship with our owners. They're super people. They're phenomenal leaders. They're motivated and enthusiastic about what we do. Keep an open door. What else do you do to really keep them engaged? We do three face-to-face meetings a year where we get together with the best practice sharing. We do regular monthly Zoom sessions, we review financial results and talk about who's doing well and giving that opportunity to share things that other folks can learn from. We have regional leaders that manage a group of branches, maybe six or seven branches, that actively support these general managers. You're going to need more vehicles next year. Let's talk about what we can do to help make sure we're ready. So, you get the vehicles you need. How many people you're going to need next year? We're going to have to get some recruiting lined up. So, there's a lot of engagement from that standpoint. But the most powerful thing is putting them in the same room with other folks and having them talk about what's working and what's not working. Yeah, it's interesting. If you think of the private equity portfolio support model, it's like you have your version of the companies you're rolling up. Yes. What's the craziest thing you've seen in M&A? Particularly in this space, companies that do roll-ups and don't expend any effort to integrate businesses they buy. And then just assume they're going to find someone to write a big check because they put three or four businesses together on paper. That was a phenomenon you saw a lot of a few years ago. And it was largely I would guess a factor of the circumstances. There's a lot of money that wanted to get into this space. And there are a lot of buyers chasing not many deals. My sense is that has changed. And the folks I talked to today are much more interested in valuing platforms that really are integrated and really are businesses not just a collection of independent businesses that hadn't been put together on one financial statement. That was a bit of a surprise. But I think the circumstances over the last 18 months that shifted a little bit. And there's a lot more attention being paid to how well these businesses integrated. And can you demonstrate some performance as a result of the fact that you pulled these guys together? A phenomenon of somebody willing to write a big check for companies that have just taped together. To me, that was the craziest thing I've seen in M&A. Yeah, that's a really good point. The industry overall has just increased the awareness and emphasis on integration. Since I started this podcast eight years ago, it's just like continuing being emphasized even to public burning call conversations. The acquisition great tells I can integrate it. That's spot on with industry needs. That ties back to just being by your lead. Are you really thinking of that from the beginning? Having a plan and executing it? When you don't do that, that's not. That's being so led. So great example there, John. John, this has been a great conversation. I can't thank you enough for taking the time. Schooling me a lot of things around roll ups, helping me become a better M&A scientist today. I appreciate it. I love this topic as you can tell. I really love. I enjoy talking to folks from all different industries. This is always something you can learn from what someone else is doing. So it's great to have the chance to do this. And I appreciate you making time for me to share some experiences. Follow M&A scientists. If you made it this far in this interview, I hope you got some takeaways out of it. Always welcome the feedback. Reach out to me on LinkedIn. Let me know topic ideas or criticism. I always welcome as usual because it's how I get better at doing this. Till next time, here's to the deal. Thank you for taking the time to explore the world of M&A with our podcast. We love hearing feedback. Tag us on a LinkedIn post. Add a review on Apple podcasts. We'd love to hear from you. If you need help standing up in M&A function or optimizing one that you already have, we're here to help. And if we can help you, we probably know someone that can. You can reach out to me by email, if you sign [email protected]. 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