Tom Barber on the Design of Winning Private Equity Firms

[Music] Hello and welcome everyone, I'm Peter Lerman and this is Masters in Small Business M&A. This show is an ongoing exploration into the vast and undercovered world of Small Business M&A, where we interview both the proven and the emerging owners, operators, investors and advisors, whose strategies and methods for transaction success have been put to the test. The show aims to surface the nuanced intricacies, the key ingredients, and the important factors that can improve your decision-making in your own journey in the world of Small Business M&A. This podcast is produced by Axiel, an online platform that makes it easier for business owners and their M&A advisors to find, research, and privately connect with the diverse mix of professional buyers of Small Businesses. In addition to learning more about Axiel, you can find this podcast show notes, edited transcripts, and many other related resources all for free at Axiel.com. [Music] Peter Lerman is the CEO of Axiel. All opinions expressed by Peter and podcast guests do not reflect the views or opinions of Axiel. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Podcast guests may have ongoing client relationships with Axiel. Hey everybody, welcome back. This is Peter Lerman. I'm your host of Masters in Small Business M&A. I am delighted to have Tom Barber on the podcast today. He is out of the West Coast in the Bay Area and investing out of his second fund at SBJ Capital. Tom, it's great to have you. Thanks for covering out time for me. This is going to be great. Yeah, thanks Peter. Happy to be here. You've got a great background which people can dive into in lots of ways, either on your website or at LinkedIn. Great history back all the way to DLJ, which is a legendary firm for someone like me who grew up in New York. I've heard that name a million times. I never met anybody from that organization who didn't go on to do really cool, really interesting thing. So it's a really cool story for those of you who are interested. We're going to fast forward to SBJ though and just dive right in. Fund 2 is a control private equity fund and fund 1 was an SBIC fund deploying both that capital and equity capital. Just be great since it's so fresh in your mind. I'm sure I've been done fund 1 and now into fund 2 just hearing you just sort of go through what you learn through those changes, why you made those changes, what you see is pros and cons and interesting elements of both. Leave it to you, but I just think it's an interesting change and would love to hear you just take us through the decision as well as the things that you learned and the pros and cons. Yeah, the SBIC program was great for us with fund 1. We've always been control by out investors. That's what we do. But in fund 1 being an SBIC fund, we had to deploy debt and equity together in our companies because you need the debt to service the leverage that comes as part of the fund from the SBA. And then in fund 2, we're a traditional PE fund, so still control, but only investing in the equity side of the equation. And they're sort of pros and cons to having flexible capital in a control by out versus only having equity. I think on the positive side, having flexible capital is a great way to support independent sponsors, gives them one counter-party investor to deal with and being able to walk in and say, I can provide the entire capital structure for you and I'll divvy my own investment up into debt and equity. That just makes it easier for the independent sponsor since the sponsor's main focus is making sure they can get the deal done. On the consides, sometimes it's a little more confusing to the company. It's not what they're used to. Hey, wait, you're going to be in the debt and the equity. What if things got sideways? What how are you wearing? You sort of have to walk them through that. In my second fund, be to control by out structure. It's a little more simplified. Maybe it's not as perfect of a structure to support the average independent sponsor, but it's a cleaner message for the company that were the equity and we're heads up with you in the equity because usually the founder will roll over equity as well. And then we're going to go get the cheapest possible and best terms on the debt and so our interests are aligned there. So not dramatically different. I mean, our world and the types of deals we look at has it changed. It's just some of the messaging with the company and maybe the independent sponsor messaging as well where we support them is evolving. What about sourcing? Are you sourcing far differently and far less from independent sponsors with fun to relative to fun one? I'd love to hear sounds like I was always under the impression that S.B.I.C. funds were not necessarily organized around sourcing capital from independent sponsors. That was a that was a channel for deal sourcing, but it wasn't necessarily the primary channel. It sounds like it was it an important source for you and in fun one with the S.B.I.C. fund. It's evolved a little bit over time. We've always been there to support independent sponsors. But that's probably evolved a little more with fun too where we built up more of our own internal operations group and with our operations group. We tend to like to be the ones to be doing all the value add on the business and the professionalization. So I'm not sure sourcing in total really hasn't changed much, but again, maybe that the messaging around independent sponsors and and out of it on the margin were probably we probably become more selective in the independent sponsors that that we work with nowadays as opposed to being being completely broad. I would also say something that's evolved over the time that we had fun one independent sponsors. It's almost like the S.B.I.C. program. It's just such a perfect fit for them and I would guess man, I've seen this data, but I would guess the number of deals getting done between independent sponsors and S.B.I.C. funds has increased quite a bit over the years because of that ideal flexible capital for their deals which which also helps increase the likelihood of getting the deal closed which independent sponsors are obviously you know super focused on. So whereas with a pure play private equity fun they'll if they were to part with a pure play private equity fund, they're still working together at that point presumably to line up debt sort of two transactions. Right. Line up debt and sometimes the independent sponsor feels like they've got to bring the debt you know first to prove the deal to prove the deals financeable and then they bring the equity and it just you know adds more steps to the process and can delay the process which then can risk the deal a little more. Yeah. So brokers and business owners on the other side of that transaction are waiting on pins and needles during that period so that's a tough right but the law and deals fall apart because hey I have the equity but I don't have the debt or I have the debt but I don't have the equity if you go to one guy then one capital provider that can provide it all but just it reduces that risk. One of the things we were just quickly talking about before pushing record and I shared it in some of my just notes with you. I wanted to hear just your thoughts on how you're building your private equity fund in terms of the organization and who is on the team and who is a part of the team and and your thoughts on just sort of how how that's changing for private equity and why that's changing like if you were to just zoom out and sort of look at private equity back to I don't know. 2005 or 2007 kind of like pre great financial crisis and 15 now 15 20 years forward from there like what do you think are the big changes in terms of just the way the organizations are constructed what kinds of talent is is in house and how is that something you're acting on at SPJ. Now that's a that's an especially interesting question because I started my private equity career in 2005 so I have seen that evolution going into the the great recession and afterwards and back in the 2005 world private equity and including the fund that that I had helped start back then pre SPJ capital tended to be former investment bankers who were really good at getting deals done and and good at underwriting and we bought a business for the right price got the deal done and then sort of sat on the board and with the company sort of ran itself and we checked in and tried to help that model has definitely evolved over time and when I started the J capital eight or nine years ago we put in place a different model at the beginning and then we we've evolved it since then and that's getting much more active with the companies that we invest in to add value help professionalize the business bringing subject matter experts around finance IT gross strategy consumer insights that that sort of thing to take more of an active hand in building the business so it's almost like closing the deal now is the start of the marathon and then the hard work begins whereas back in the day you sort of you sort of bought a business and and more sort of hoped hoped it worked and that adding operations talent and getting more directly involved in the business I think that started with the bigger funds but it's definitely reach. down into my size of fund now in the lower middle market. And in fact, it's probably more valuable the smaller the businesses because it's just things they haven't seen before. Like how do we create any commerce capability? How do we hire an outside marketing person or implement digital marketing that we bring that talent now and that's the type of people we've been trying to build up at SBJ. So we have a vice president of talent. We have a head of growth strategy and then we have some other resources in IT, interim CFO, help M&A business development, sourcing deals if it's an add-on type of situation to add value to the business. So very, very different than sort of the 2005 playbook. 2005 is it's almost 20 years ago. So it's not like yesterday, but it's not like it's 200 years ago. Like why was it like that back in 2005? Like why wasn't it more like your characterizing it today? What do you think are the reasons why it's changed quite a lot in 20 years? I mean, is it as simple as just like there's more capital and alternatives and there's more competition? Is that it or do you attribute it to something else? I think there's two factors. One, I alluded to earlier, private equity used to just primarily consist of former investment bankers and then he had some people that came out of Bain or McKinsey and consulting, but that was more rare. I think the types of people running private equity funds now and their backgrounds has evolved quite a bit. You have a lot more operation, former operations, executives that are either part of a private equity team at the senior level city on investment committee or have even started their own private equity funds. And so because of that, there's a greater appreciation for the value that operations experience adds as opposed to just deal experience. So you have this appreciation of a broader set of experiences among private equity. And then the other factor, I think quite literally that same business, if I picked a, I don't know, Niche lower middle market business services company, let's say that wasn't tech oriented. In 2005, that was maybe a seven times purchase price for that business. And now that same company, good company, but same company is probably, I don't know, a 10 to 12 times deal. And the higher the price you pay, the more you need to get more growth out of the business and the faster you need to get it out of the box. And yeah, sometimes you buy a business, you just get lucky, but it grows fast out of the box. But nowadays, when you pay 11 times or 12 times for that, for that small company, you need to take an active hand in growing that business. And the way to do that is with operations talent. I think one other factor too is by bringing operations talent, you do risk the business faster and you reduce the volatility of the outcomes because you've got a consistent playbook like during the first year, you own a business that you're applying as opposed to company A runs off and does things one way, company B runs off, does things another way and maybe things work for company A and they don't work for company B or we're applying now the same playbook across everything we do. I was going to ask you, well, maybe two things. I mean, let's start with the first, like, when you look at back at the businesses you've bought, the returns that you've realized and just the general outcomes post transaction, what do you generally, do you have a general attribution for like how much of the success of a deal was just a function of buying it right, structuring the capital structure correctly and generally buying a business that had relatively good wind at its back. And like, how much do you think of a total pie of returns for a given business that was bought and then sold? How much do you think is can be sort of attributed roughly to what you do operationally versus just generally getting the sort of stock selection and underwriting process, right? Yeah. So I'll comment on the private equity industry as a whole and then talk about my fun next. But I do think the return coming from, let's say, the operation side and taking an active hand in improving the business, that has grown over time and it has gotten harder and harder to just create a good deal by, you can only be such a good stock picker and what's a really competitive world out there and it's getting to be a relatively efficient market. It gets a little bit of fish and is you go down a little smaller. But at an efficient market, you've got to take an active hand in driving your return. So I think more of the return is coming from that upside. Now specifically on my firm and our strategy, which maybe is slightly different than the average strategy, we really do try to create value on both the buy and then the operation side after the after the buy and the way we create value on the buy and create more balance in the returns there is really taking what we call the road less traveled to find good deals. If most of the private equity industries going into HVAC, let's say or car washes, we'll avoid those areas and we try to sort of find the next HVAC or the next car wash or areas that other people are not in where the fervor is less great, which that allows us to get in at a better price usually where we play, we're getting into this single digit multiple. So hopefully I'm creating some value on the buy. Now I've got to create the rest of the value on the on the upside, but it's not upside alone for us. Could you talk maybe a little bit about these two key folks inside the SPJ organization that you've mentioned, VP of growth, then either had a VP of talent, just how did you select those people, what, how are they spending their time, things you've learned from different ways to deploy those kinds of people? Yeah, just love to hear more about like how you're taking advantage of this growing skill set that you have inside your organization. Yeah, so a couple of years ago, we brought in a vice president of talent. And I think that probably the most simple way people think of that role is, oh, you're bringing, you're bringing in house executive recruiting and you're going to do your own executive recruiting. We've structured that role to be a lot broader than that. I mean, this is a person who is a real investment professional at the firm. It's just their primary focus is investing in people. So that's in making sure we're driving the best talent on the investment side into the business, making sure we're assessing talent in companies before we buy them. And then do we need to make changes down the road to add new talent to the business? So there's a whole assessment side that goes that goes beyond beyond recruiting. And then something else we also do as it relates to sourcing is we try to partner up with operating executives that maybe just sold did a private equity deal sold business that they were running for for a nice price. And now they're looking for their next deal. And it's in a sector that we have interest. So we recruit executives like that to actually become sourcing partners for us to then go and look for deals with us. I mean, looking for a deal and a sector of interest on SBJ's behalf and our VP of talent really runs runs all of that. And then lastly, on the more traditional side, I was talking about is really less about bringing executive recruiting in house at its more about managing the executive recruiters that we hire better. So picking the perfect recruiter for that CFO search in Charlotte, who's great with CFOs and knows that market or picking the right VP ops that has a deep food manufacturing background, finding the exact recruiter that knows that sector inside and out. And I would say bringing in a vice president of talent. I've always thought of myself as pretty good at picking talent. I've had a decent track record because now we have someone who soul focuses that. I think we're probably two or three times better than we were before at getting the right people in the right seats at our companies. And that's faster. And then someone who's like, when A instead, maybe it was a B if I was doing it as a side job. And the talent loves it too, right? I mean, it's just bringing a better, it's making SBJ a little bit of a beacon for great talent in the lower middle market, which that's sort of the Holy Grail. So that sounds like a really big job. I mean, yeah. And a lot of different directions that that person could conceivably be spending his or her time. And he gave him and they can't just be a recruiter. Yeah, that's the thing. They've got to be able to think like an investor and have a broader, broader skill set. It's a pretty unique person in that, you know, in that role. So how long have you had that role, Tom? I've had that role two years. And then boy, but it feels like yesterday, honestly, don't know how we ever operated without the VP talent role now. And then you asked about the other role that we had created, which we brought in a vice president of growth strategy a few months ago and going back to our earlier conversation about deal professionals and bringing in broader skill sets, the person we brought into this rule, she comes from a strategy consulting background specifically with consumer companies. So never has been a deal professional, brings a different perspective to what we're doing, very focused on consumer insights, devising growth strategies, driving growth strategies. And so for deals before we close them, like we have a deal under LOI right now, we are getting her involved in the growth strategy ahead of time, even before we close the deal, to develop what new channels are we going to go into, what new products, how are we going to change the marketing, what do consumers think of this business and how can we make that consumer perception better. And so we're not plugging her in at all the portfolio companies because that would dilute her activities too much, but we're taking the three to four companies where she can be most impactful on specific projects. And again, some of those are existing companies, some of those are new that are coming to the portfolio and she's going in and running a project together with the company. I was becoming a little bit of an extension of the management team as it relates to specifically the growth strategy. What do you think you have to stay away from or what are the little traps or pitfalls when you start to build out an operational team inside of private equity? You start playbooking things, there's consistency and you're amortizing these playbooks across a growing portfolio. Have you seen it go wrong? How does that happen? Where does it go wrong as opposed to just always being this kind of like dreamy value creation team that just kind of get to right every time? How does it go off the rails despite best intentions? Yeah, it could definitely go off the rails in a variety of ways. And I worked in another private equity fund in the late '90s and I think I learned from what I saw there and the relationship between the companies and the operating partners back then. So, one is companies, especially small companies that we invest in where you're partnering with the founder. They don't love it when the deal team builds a relationship with the company while the deal is getting done. And then when the deal closes, you hand, like let's say I hand the keys over to an operations group and then the company doesn't see me anymore. And they now have, like they thought they were getting one boss or one partner and then they end up with a completely different partner and it's like, hey, I didn't sign up to work with that guy or group. So, that bait and switch, they don't like and that's why we keep a consistent team throughout. So if we're going to bring an operating partner to help, we have them involved upfront. We bring in our VP of talent, our VP of growth strategy and the deal team stays very involved on an ongoing basis. I think the other place it can break down is if it's more sort of culturally impersonality wise. I mean, culturally, SBJ's got a really firm culture around transparency, integrity and fairness and partnership. I'm not your boss, we're doing this, we're doing this together. Sometimes if you bring in an operations group or operating partners that think they're almost more in turn around and they're supposed to fix a bunch of things, that brings in a certain, let's say, attitude that was inconsistent with what the company saw while the deal was getting close. And it can also lead to sometimes almost the deal team having friction with the operating partners that are involved in the deal. So something that's very important to us is it's not just about the operations group or an operating partner having the right skill set at experience. They've got to have the right bedside manner to, again, partner with the company like the rest of us do as opposed to, hey, everyone get out of the way. I'm going to show you how this is done. And the fight thing with our vice president of talent and our vice president of growth strategy, I mean, the companies end up loving them so much that they want all of their time. Like it's the biggest balance for us is, hey, wait, wait, John and Nicola are working with other of our companies. You can't monopolize all of their time. I know they're great, but let's put them where they're their most value. But I much rather have it that way where the company's begging for more time that, oh, I got to talk to S.B.J.'s ops group again. They're a pain in the neck and they're not, they're not really doing much for me. Yeah. The operating executives who are working with you guys in a sourcing capacity, how does that relationship season post closing? How does that one develop over the, once the funnel has been built or the deal has been closed? Yeah. So it's a pretty neat program we have, our sourcing partner program. So we find the right executive has to be, they've got to culturally fit in with S.B.J. And then they've got to have expertise in a sector where we have a high level of interest. Like we're really interested in say like childhood enrichment right now. So we get it executive focused in that area. But the form that the sourcing can take sort of depends on what the executive wants. Sometimes we're partnered with an executive that wants to be on a number of boards going for, but they're not looking to run a business again. We can use the sourcing partners program to create that opportunity for them where we're sourcing to create deals for S.B.J. but to create board opportunities for them. And then in other cases, we've got an executive that has a thesis on a sector and they want to find a business to run. And so we leverage our sourcing background and then there's some IT in the background to send out a lot of emails and sort of manage the funnel here to help that executive go find a business that they want to run. And it's great for the executive too because we've had instances of this where sometimes we like the deal and we want to partner with them and they'll run it and we'll invest to the deal. But in other cases, for whatever reason the deal is just not a fit for us. Maybe it's a unrelated segment we don't like as much or the business is too big or too small. We'll give the executive the ability if you want to take that deal and go find another firm to do that deal with, that's completely fine. So we give them a platform to create deal flow for whatever their ultimate endgame is. How many folks are you working with at any given time in that regard? Usually three or four, again, all around sectors that we have interest. It started as one and honestly it was so successful and led to a lot of incremental deal flow. Deal flow that agents weren't involved in yet because this person's calling on business orders directly that it's a program that we've expanded. It also gives us a way to work with great executives before we have a deal. We work together to find the deal as opposed to, hey, I've got this under LOI. Would you like to come in and help us? I've heard of variations of this approach and I've seen this in different constructs. But generally speaking, I think it's reasonable to say that a lot of business owners today get a lot of inbound from a lot of private equity firms and from a lot of investment banks wanting to maybe take a sell side M&A opportunity, private equity firms looking to get on their radar. Even when a CEO or an ex-CEO calls, the birds of a feather tend to flock together. There's more of a natural response rate, I think, to CEOs or ex-CEOs reaching out to CEOs than anybody else. It's nothing against private equity or investment bankers. It's just people identify with their own. I think it's a really good sourcing process. You're spot on, the aha moment for us. If I or head of business development, email a bunch of business owners, I'd be lucky to get a 5% response rate to those emails. Even 5% seems reasonably good. When it comes from an operate executive, we get about a 30% response rate. See that response rate really demonstrated for us. This is something different. It's a better way to go about it. Someone's guard will be down. They're more willing to have a conversation than with PE where they're a lot more guarded as a PE guy going to use this against me. What should I be telling him versus not? If you zoom out, it seems like, go back 20, 30 years, kind of dawn of private equity, 80s, 90s, KKR, Teddy Forstman and those guys to sort of like 100% deal shops. All the talent under the roof are deal guys, ex-bankers, like you said, maybe some McKinsey and Bane folks. You fast for 20, 30 years and the mix of operators and operational talent as a percentage of the total is really increasing. Do you think that a private, the majority of private equity firms in the year 2040 or 2050 will be 100% founded by XCEOs? Are we in a phase shift where bankers become like a smaller and smaller portion of the total talent under the roof of a private equity firm and more and more of these private equity firms are actually being started and led and run by trusted and sort of high end operators. Is it going to level out or do you think it just keeps on getting more and more operator-centric? I think it keeps, and I'm a former banker, so I think it keeps getting more operator-centric. I think the more efficient this market gets and it will keep getting more efficient, it has for 20, 30 years now. The less important the buy is, the less you can create as much opportunity on the buy, and you've got to create the opportunity and the return on adding value to the business, and who better to add value to the business than someone that has run a business before. So I don't think we'll ever be in a world where it'll be all operations people, but you just need a broader set of talent and a broader set of experiences to run private equity fund nowadays than you did 20 or 25 years ago when you could win the day and drive your returns on the buy. And another important thing, and I don't know if this is a factor of just the environment we're in and valuations going up and all that over time, but the private equity returns have come up over time too. I mean, the long history was private equity was 1.6 times net returns on average, and over the last 10 years or so, that's been closer to like the 1.82 point O world, and that's quite an increase in returns even as valuations have gone up. And so that partially tells me the private equity funds are getting better at growing the businesses faster than they did 20 years ago where they just had to win the game mainly on the bottom. Yeah, they're getting better at growing the businesses and they're doing that faster than competition is degrading returns. True, true. Yeah. Yeah. Yeah. Maybe we could spend a little of the time just talking about some of the themes and areas of interest that SBJ is excited about. When we first met a handful of months ago, it was maybe a little bit of a like a heuristic for it, but you were sort of talked about this kind of concept of like the boring consumer. And usually the consumer is kind of like the growthee, brand oriented sort of sad and trend oriented part of the economy. So I'd love to just like hear a little bit about how you have sort of unpacked consumer and the different themes that are exciting to you there, interesting transactions that you think reflect that. But I thought that was a really interesting theme that I really hadn't heard before. So I'd love to share that with the audience. Yeah. So we focus on founder and family owned consumer and business services companies, but our history has been the most prominent in the consumer sector myself and my partners. But we sort of always say we take the road less traveled in the consumer sector. We're taking that more boring meat and potatoes side of the consumer sector and looking to create the excitement in that brand or in that business ourselves with bringing some new skills to the table. The operations helped that we were talking about before as opposed to we're looking at fuel to that rocket ship and get it off the ground as opposed to just to hitching ourselves to the rocket that's already headed to the moon. And so whereas maybe a lot of traditional consumer funds or consumer growth funds are focused on the really high growth sectors of food, kale chips, gluten free, those sorts of areas. Those are pretty exact. Yeah. Those are great areas, but they're just there. There's so many funds chasing those areas. We tend to like to go where everyone else isn't going. So again, very experienced consumer investors in branded and non branded. We like food manufacturing, food service, private label, which has been one of the fastest growing areas of food. And then even things in our ancillary to let's say food on the consumer side like the regulatory and inspection side as well where we can leverage some of our end market knowledge to help a business that is more of a service provider to the sector. And then that's sort of on the food side. There's also the opportunities on the product side that we've gotten involved in where obviously everyone knows e-commerce is big nowadays, but there are a lot of found around companies that still don't really know how to approach the e-commerce sector and channel with a discrete successful strategy that's profitable. And so with a few of our businesses, we've gone in and helped create that digital strategy as opposed to it already being in place and us just sort of hitching our wagon to it. Maybe on the you asked me for an example, one example I'd use is so we about a little over three years ago now we invested or bought a business called the perfect puree of Napa Valley that is a is a food company selling very clean label fresh fruit purés but selling those specifically to restaurants. So not a consumer brand, but if you went around and asked chefs and then also beverage managers that are running the bar, where do you get your puree from or what's the best puree on the market, they would say perfect puree like it was a brand that was very well known on the B on the B to B side. And again, sort of sort of sleepier, not the type of business that probably the average consumer growth branded fund would focus on and we ended up getting in at a very nice price and triple EBITDA over the course of about three years and sold. How did you do that? Helping them out with sales strategy got more into the chain side. So we're the where the fruit puree or our business was the fruit puree in the cheesecake factory, cheesecake in the shake-shack strawberry lemonade. Whereas they had more of a history selling through distribution into independent restaurants, we helped them get more into the chain side. The lemon zest and the delicious crumble cookie, that that's our puree that was in that. So sort of a new channel like national accounts for them. Did you achieve that with talent that you brought into the how did they go from being the trusted brand to the sort of preeminent chefs in Napa Valley to then like penetrating cheesecake factory? I mean, what were the specific, there's more steps to it than what you shared. I'd love to just hear like how did that journey start with a little bit more detail because it's I mean tripling EBITDA in three years and opening a channel to the cheesecake factory when you've been selling to French laundry, that's real business change. That's like a substantial business change. Interesting to hear a little more about the steps that it took for that business to be able to do something like that. Yeah, it's such a great product that it was more they had relied historically more on pull from the customer base and less on direct selling like a lot a lot of it went through distribution even before where it was hard to really even know how the end customer was using the product and something we ultimately figured out too was, you know, you think you think fruit purée is you think, okay, that's maybe mainly desserts. Well, we're really not true. Half the business was on the beverage side. So if you if you've ever ordered a mango mocha at a restaurant, you know, likely that it's the perfect puree mango puree that's in that in that drink. So understanding that the beverage side was actually a very strong part of the business and then developing more direct selling capability to get into the national accounts to figure out the right direct person because a lot of the national number of the national accounts, they liked the product a lot. They knew the product, but they were sort of getting it through distribution, the dot foods of the world, but it wasn't as much of a partnership like hey, crumble, you're developing this new cookie. Well, we've got this great turmeric ginger puree we could do for you that could be great, you know, for that for that cookie, you need the direct customer relationship to create that opportunity. If it's just going through purely through the middle man and you don't know what the customer is using it for, you have a less of an ability to partner with that customer to drive additional demand and that was that was one of a number of big, big factors. So that's really cool story. Do you think you tend to look for these outstanding under-merchandised products in consumer? Is that maybe something that you guys are looking for and that's something that is sort of accidentally or at this point deliberately kind of part of the playbook? We are. I mean, we always say and it's hard for us like we're never going to bring the operations talent to create a great product. So the great product has to be in place, but we love to see underdeveloped marketing and branding channels that would be logical that they're not in yet, whether it's digital or maybe they should be selling into mass and they're not selling into mass and we can help out with that. So that's a big factor for us. We've done that with truly designs, the leading mountain biking and motocross, helmet and gear business. Just to mention that story for a second. Troy's this artist, amazing artist, wonderful guy, created this great business, tons of authenticity among motocross and mountain biking, racer and enthusiasts. But he was only making helmets for like the tip of the spear rider, like the professional and maybe just a hair behind that. They were the most expensive helmets on the market. And we went in with Troy and helped him develop a road map for helmets to develop helmets still at a premium level because Troy leaves a premium brand. But a couple of tears below that tip of the spear, most expensive helmet on the market. And when she go down in price a little bit, that's a there's more demand there that there is at the tip of the spear. And so it created an opportunity for a lot of revenue growth. And then to just expand the customer base into people that love Troy Lee, but like didn't want to pay $650 for a motocross helmet. And then we coupled that with we coupled that with taking Troy and his history and so authentic history around being a motocross racer and then being an artist and creating this business it is garage. And we went out and told those stories to the market and improved the marketing and attracted a new customer into the Troy Lee brand. And the opportunity to do that was all there. Like it was always great product. The stories were there. We just went out and helped Troy tell the stories and expanded some of the price points on the on the helmets. And that also led to about a tripling an EBADOV of the business. Not that every deal goes that way. I wish. But yeah. In that case, right. Was there a key addition to his team that just needed to get into place in order to sort of extract these stories, create this media? Potta Perth that yeah. Yeah. Yeah. Generally, it's not so simple as usually the team, when we buy a business, usually the team is doing the best they can with what they know. And we've got to bring in a catalyst, be it new executives or new board members to help create that opportunity. So it Troy Lee specifically, Troy didn't have a CEO at the business. Troy Lee said, hey, I'm I'm the head helmet painter, but this thing's thing runs organically. And so we brought in a team, three key people who had built Volcom, the former CEO from Volcom, the former head of sales and product who became the COO at Troy Lee and the former VP of Finance to become the CFO. And we partnered them. I mean, they didn't replace anyone. They partnered with the existing team there and Troy and took the amazing things he and his team were doing on the product side and professionalized and accelerated what what the product side was was doing and it just did it in enabled growth potential that already existed. That's also a great story because you turned, I guess, one of your own sort of personal just personal hobbies or just things that you like to do just to have some balance in your life and and use it to your advantage to win over Troy Lee. It sounds like it sounds like you you're in the Bay Area there. Everybody in the Bay Area is reasonably good on a bicycle, right? Some some of you guys are amazing and it sounds like Troy Lee was not going to do business with somebody who who couldn't who couldn't go mountain biking with him. Says another aspect of that story as well. It's kind of cool. Yeah. Yeah. I definitely built a good relationship with Troy out on out of the trails of Laguna Beach where where he lived and built that trust out on the trail. Not not in a boardroom sitting there in my start shirt. Were you I mean, were you out mountain biking with Troy during how did that deal come about was that did he hire a banker and just what happened there? Like how are you out mountain biking with Troy to begin with and was that pre transaction or post transaction or both or yes. So what one of my friend of mine is also one of my investors is a huge mountain bike or like he would say all of his business relationships have been created out on out on the trails and he was very good friends with the former head of sales at Troy Lee who knew Troy was trying to figure out like he knew he had a great business but it had almost become so big. We knew it had this potential. Ever was telling me out it. It had this potential but he just didn't know where to go from here and we was inherently as a lot of voters are just worried about bringing a banker. What what do they do? They don't know mountain biking or my where my business. And so my investor introduced me to the head of sales initially and then I got connected with Troy and it was like, hey yeah come out on a ride with me and let's let's talk about it and I'll tell you what I'm thinking and tell me what you do and it sort of started almost as as a lot of these things do and advisory relationships where you know we're not coming in guns blaze and say hey we want to invest in your business. It's a a try. I love your brand. It's amazing. I like biking and mountain biking. How can I help you and that evolved into wow this sounds like a great plan. Why don't you be the one to do it with me? I actually ultimately ended up making. We did finally get into that boardroom and after learning about Troy's business we made about a like a 60 page consulting presentation to them on this is what we think your business can be and this was after a bunch of rides and a bunch of discussions with him and his team and he just he jumped right into it. He said I think this is the plan and you're the ones to do it and let's let's partner up. That's a really cool story. Yeah I mean this is what's great about this business. Me of course the dollars and cents are super important in what we do but being able to put a business on a better trajectory and work with you know a brand like that whether it's perfect puree or Troy Lee and get it in more people's hands because it's such a great product and such a great brand but it's that stuff I don't know when I'm a 90 years old that those are the things I'm going to remember more than the cash on cash returns from yeah cash on cash. Yeah exactly. Well we have a few minutes left and this has been great conversation. I would just we talked about it before we push record maybe just love to hear a little bit of your thoughts on just advice for people that are entering you know the workforce today are maybe interested in investing interested in private equity as we've discussed it. This industry has changed a lot since you since you got started in it right and in the 90s and deal J maybe even before that if you're giving advice to people that are coming out of college or that are in their 20s that are interested in this it's more and more operator centric than it used to be unless the ill centric in certain ways. How do you give general advice on people that are interested in these kinds of career paths? Yeah I think the you talked about a little bit earlier the private equity investor the present or even even the future it's more and more important to be well-rounded and so I still think invests on banking or strategy consulting are great proving grounds you work with a ton of smart people you had a lot of responsibility early on and you learn to work really really hard I mean when I was sleeping under my desk three or four days a week at DLJ you just you learn a lot from that and also it sort of makes everything that comes after easier easier because you started a climate climate Everest the the smaller hills seem seem a lot easier but just develop but ultimately developing this well-rounded background I mean get into operations try different things try to work in different places in operations get into a manufacturing plant understand what six sigma really means at the the floor level developing that broad background where you're not just a number cruncher or a presentation maker on the on the consulting side is it's super important and when you're really in your career you really don't have a lot really you really don't have a lot to lose I mean use that first 10 years to develop those broad experiences that then we'll create you know the longer term opportunity that you want if that's you know investing or honestly maybe get into one of one of those other things like I I talked to a former DLJ guy the other day who did his first two years at DLJ and he was going to get a more well-rounded background by going into operations he never left he's been in operations ever since and is just as loved it just a better fit for his personality and and that's some and interests and y'all it's another thing so I've got four kids and they they get tired of hearing it but the advice I always give them is for building a great career is the holy grail is you find something you're passionate about that you're good at and that's where you're going to create a great career and that's different for everybody but if you try to go into something because I want you to go into it like hey be a private equity investor even if you're good at it if you're not passionate about it it's not going to work out or on the flip side like I want to be a pro baseball player and I was a pitcher I was only five seven so I was passionate about it but I was never going to have the skill level and you just you waste a lot of time trying to go into something that you're not you're not good at and I think trying a lot of different things it allows you to figure out that like xy graph how do I how do I maximize where I am on the on the the efficiency frontier whatever in terms of what I'm best at and what I what I like and that's how you it's how you build a long career so So you think practically speaking, maybe the sort of one to three year tour of duty and the ranks of banking or consulting your analyst. And then maybe if you had your way, like just a larger percentage of those people would rather than go straight into private equity, you go straight to an MBA, they would maybe find a way to get into an operating company after those two years. Maybe that's what you would hope to see more of. Absolutely. I mean, I'm not sure I've ever really seen this background, but like amazing background would be two to three years banking, get an MBA if that's what you're interested in or not, two to three years in strategy consulting and then two to three years after that in operations. Like pretty like deep in operations, not in the finance department or do it FPNA, which is sort of similar to to being a banker, that those are great experiences to get that you'll apply all those skills as an investor. Whereas like if I think of my own career, I was a banker and then I became an investor and I had to learn the strategy side and the operations side from the investor scene as opposed to actually being in the seat in that role, you know, add a company or say a McKinsey or Bay. So, Tom, this has been great. I know we're coming up on the top of the hour and you probably have a couple plenty more calls to do. I know it's on the West Coast. This has been great. You've been really, really forthcoming with how you've built the firm, what you do there, how you've added to the organization. That's made it just a great conversation. So I'm very grateful for all that you share. It's been a lot of fun and I've learned a lot. I think this is a really good one. Thank you. Yeah, really appreciated Peter. Thanks for having me at any time. If you enjoyed this episode, check out Axeal.com. Here you'll find every episode of this podcast as well as our recorded Axeal member roundtables. Some downloadable tools for deal makers, Axeal's quarterly league table rankings of top small business acquires and investment banks and lots of other useful content that we've created over the course of time. If you're interested in joining Axeal as either an acquirer, an owner considering an exit or as a sell-side M&A advisor, you can get started for free at Axeal.com as well. Lastly, if you have ideas for podcast show guests, feel free to reach out to me directly at [email protected]. I promise I will respond. Thanks for listening.