Transcript for:
Carlos Santelli's Insights on Business Acquisition

Carlos Santelli welcome to acquiring minds thanks for having me will excited to be here and excited to share my story well it's quite a story Carlo you've acquired a big business at remarkable terms this is going to inspire listeners this is going to challenge them on their own approaches to buying businesses so this is really a deal to be studied and I want to do exactly that now start us off with some background please on you Carlo yeah again thanks for having me this morning uh name's car selli originally from the New York New Jersey area uh I relocated down to Florida about uh 3 years ago so I reside in Florida um grew up in New York New Jersey then moved over to Clifton New Jersey my father's from Italy my mother's from North Dakota uh went to a very large High School Clifton New Jersey uh took three years off between high school and college uh worked for a nonprofit for for two years uh and then the last year actually lived in Alaska I was living in Alaska in a van 20 years old um essentially homeless in some sense uh and during that time period working for the nonprofit working in Alaska uh did a lot of door to-door sales and door to-door uh fundraising uh and I think that kind of forms my life experience forms uh kind of my uh you know investment thesis in some sense just getting a lot of NOS from strangers just walking around door Todo uh came back realized I want to go to the best school in the area I was back in New York so I wanted to go to Columbia University uh so I was out of Community College I applied to Columbia once got rejected applied again got rejected again I wasn't taking no for an answer I applied again for a third time to Columbia University uh finally got accepted uh and attended there so I graduated college in three years year Carlo Carlo this is there's a lot this is so already a lot of fun I mean I feel like we could do a podcast episode on your early adulthood here the okay so you took three years off between high school and college that did you know at the top of that phase that it was going to be three years or did one become Two Become Three sort of thing just curious something like that one became two became three it was affiliated with the church I grew up in so I was encouraged by my parents to take that time off between high school and college do something for the greater good um and so it was really kind of missionary sort of stuff but not you're not a Mormon I assume by your last name not to say that Italians can't be Mormons but um so it was but it was something like that sort of mission yes I think half like character development the other half like making the world a better place so it was a kind of combination of those two goals okay okay and um living in a van in Alaska give me 30 seconds yeah i' basically been to every state except for Alaska at that point I was 20 years old went up there with the friends and we were just living on the edge you know living in Kodiak we were living in Anchorage traveling around in the van I kind of I think the dream of many young people to travel and just be out there in the wilderness and uh and it was a great experience formative EXP experience but very cold very cold experience what isn't that around the time no it probably a good five or 10 years later when that movie about the guy who drove into the Alaska Hinterlands and died came out what was that movie I never saw it actually into the wild and actually very interesting experience when I decided I was going to move to Alaska I was living in New York City at the time and I'd watched the movie for the first time into the wild I was walking to believe it or not Columbia University where I ended up going and I met the actress the mother from that movie and I took this as a sign I should go to Alaska because I was thinking about it and then I should go apply to a Columbia University so it's kind of a full circle experience there but that's right that movie Into The Wild kind of inspired that move oh wow okay um great and then all right so you come back and you're older now so you you're going to start college uh you know basically at the your classmates as a freshman are going to be like you're going to be senior AE and they're all going to be three years younger than you like um and but you start in community college is that just but you wanted to go to Columbia so there's a big that's a big jump from Community College that anybody can go to to Columbia one of the most exclusive selective schools in the country as you learned painfully um the why did you just not wait around why why were you going to Community College at all if you had your heart set on this very exclusive Ivy leak I appli to both and hey you got dram big sometimes in in search in college in many ways in life so I applied to both I got accepted to the Community College which I don't think they rejected many people and I got rejected by Colombia so I said why don't I get some you know credits done some classes done and eventually try and jump over to Colombia and why did it have to be Columbia you said you needed it to be local I guess you needed it was the it was the best school locally that was it Bas I I was gone for 3 years from family and friends I actually concurrently was uh running for the Board of Education in my town um so I had kind of political aspirations locally um so I said I had to be close and I said what's the best school locally it's Columbia do you still have political aspirations no very opposite okay why uh you can have influence in this world without being directly in politics I think politics is a very dirty game these days and uh I consider myself very anti-political these days but we won't get into that okay uh and then you apply three times to Columbia what do you think the third time what did you do differently the third time where they finally relented and let in or was it that they just were G they threw their hands up were like fine come on I think that was it they're like if this guy really wants to come here that badly I told him I only applied to one school it was Columbia and had no safety school I said you are my safety school if you reject me I'll just keep coming back and uh I don't know persistence leads to success sometimes and in that case it did well of course that that you you tell this angle of your history because that is a life philosophy of yours which we're we're going to hear you've been rewarded for having nicely um but do you really think that that Colombia the the decision makers at the admissions Department of Colombia were were reacting to your persistence that that really was the the ultimately which got you in yes because they interviewed me on the second time and I got some inclination they're like it's interesting you applied twice most people don't do that what if we reject you and we kind of talk through that you know oh that concept of persistence and and and all that really cool really cool okay so you get to Columbia Colombia you're what 20 21 as a freshman at that point probably 22 because a year at the community college um I want to be an entrepreneur eventually um but everyone was doing this thing called invest in banking so I I went down that route uh got an internship and eventually a full-time offer at Bank of America Mar Lynch in their healthcare investment banking group uh did that after graduation for year um I was not a good analyst was not a good analyst I ended up switching to another bank caner Fitzgerald for a year doing similar work uh in totality did about 10 years across various buyid so Investment Banking uh roles or sell-side roles or some buy side shops I worked at Stonehenge capital and then most recently I was a vice president of funds uh 12 billion you know fund mostly credit fund they did some buyout work as well uh so that's from college up until March of this year uh I left my let me let me stop you there Carlo so say more about being a bad analyst why why were you bad and what what does that mean what can the audience glean from the fact that you were bad at Investment Banking I think I was a bad analyst I didn't think I was bad at the game of investment banking I think if I was still in that world I think I would do fine uh an analyst is especially at a large bulge bracket Bank you're there to take orders you're not uh paid to think outside the box I thought outside the box I kind of challenge the status quo uh on many fronts um I was thinking hey how can it be the first Investment Banking analyst to go source and close my own deal you know we're working on multi-billion dollar transactions it just it just wasn't the right environment for that so um I don't think I'm great at crunching numbers and building complex Financial models despite the Columbia background and all that um so anyway that was my experience there uh straight out of college what did you study at Columbia economics okay so would you say you're a uh you are comfortable with numbers it's not that you're not a numbers guy or would you say no I'm not a numbers guy and the reason I'm harping on this is because so many people um who listen who don't come from Finance backgrounds are really intimidated by the population of the large overrepresented population of former Finance people in ETA and they so I'm always looking for uh a way that people who don't have that background to get comfort that this that they can still do this so that's the pretext for question I will say I feel very strong at math mental math and just naturally you know good at math I will also say in the finance side it's pretty simplistic math we're not talking Cal 3 or anything like that it's addition subtraction multiplication and division so if you could do those four and you can use nexl file to help you with those four you know all the math you need to be successful in this space it is true isn't it it's mathy but it's it's you know arithmetic Plus at its worst um really right uh um okay so so you were already showing signs of kind of being into deal making entrepreneurial deal making from your earliest days in in finance I would say so at least the desire to do that but I think more importantly was I always thought outside the box I was not I was not good for the Bulge bracket or Corporate America uh which I still think is the case Okay um and then when did you discover entrepreneurship through acquisition or whatever your you call what you're doing December 15 I looked at the email before this uh this interview here I came from bulge back in Investment Banking where businesses were trading for multiples of Revenue 20 times ebaa 30 times ebaa big-time transactions I came across this French backpain device business doing three of ebaa they were selling for 9 million bucks the business was listed online which for me was crazy that someone would list something like this online at the time um and uh I just blew me away the multiple that you could buy this business for so I don't think I slept much that night I did my lbo several times over I'm like wow if I could buy this business and come up with this money this would be uh this would be pretty lucrative so that was kind of aha moment for me your aha moment was you found you happened to see a business for sale online a small business and were blown away by what it was selling for essentially the multiple and so you didn't know before that that kind of small business transactions were a thing sort of thing I would say small business transactions were a thing I was shocked at the multiple really I've heard some of your guests in the past use the term the magic is in the multiple that was that my aha moment on the magic is in the multiple at the lower end of the market and the economics I could probably get at this time I was thinking as a buyer could be pretty lucrative if I could come up with the capital to take a deal like that down so and this was such an aha moment you you uh oh I guess you looked up before before our conversation now when that happened December 2015 um you don't have that committed to memory but it was something that now 9 years later really were you're coming up on your 9th anniversary of that moment I guess here Carlo and you still remember it well yeah and it was Evolution getting into search space and ETA space and I was working at a fund called Stonehenge Capital at the time uh and we participated in many search deals or search style deals we participated in many independent sponsor deals so I've played in the lower Middle Market now for I call it nine years uh and now I'm just on the other side as a buyer rather than a capital provider to that space well you know one thing that's interesting Carlo and I mean given how quickly you've moved this year you know as one of these making up for lost time things but I do want to press you a little bit on the fact that you saw yourself as you know Square what is it square peg round hole type of person in in a corporate environment wasn't kind of didn't fit didn't feel at home there felt entrepreneurial like you wanted to do things outside the box your own way going back 10 years more maybe and then and then you have this you have this discovery of small business transactions the magic being in the multiples going back to 2015 so you did stick around in corporate land for a while even after your Epiphany and even after knowing that you didn't love uh having your hands tied not being kind of captain of your own ship why do you think you stuck around for so long great question I don't know should have pulled the plug a lot longer ago but uh um you know there there there's plenty of benefit to being a capital provider in the space you're paid well the benefits um you're also just striking the check and you're not doing a ton of work post closing so um yeah none of those are great answers but those are at least the justification I gave myself okay um and you were to be clear you were having visibil further more and more visibility into this world because I get where you ended up you were do you guys were doing independent sponsor Deals searchy searchy Deals so you you were also learning I guess correct We Were A lender non SBA lender um and and I interacted with many independent sponsors or search fund guys at the lower end of the market and uh you saw the deals getting done and I I was around long enough to see people buy grow and exit their businesses and the case studies were incredibly compelling as I'm sure you know so then why did you finally decide to step out I think uh just it came to AE in uh earlier this year I I'd spent uh about two and a half years at this this new fund post Pro uh post uh Stonehenge Capital uh and just seemed like the time to move on so I left March 3rd of this year uh and now we're sitting it's December 2nd I've closed on four Acquisitions this year so far so in uh you know what's that eight months um and We're Off to the Races and excited for 2025 gonna hopefully uh increase that amounts a fair amounts but again March of this year was the time I kind of pulled the plug on Corporate America and and dovein head first okay Carlo well so four deals already this year we're gonna spend our time and focus on two of those which are really kind of a single transaction because there's kind of sister companies um why don't you give us the the headline uh about that deal and then we'll get into the story please so what what are the companies how big are they get start with there yeah so trium Industries and still water Fasteners they manufacturers of custom metal components Custom Metal components you could think screws Fasteners uh they they manufacture Pro imately 200 million per year uh approximately 13 million in sales uh approximately $3.5 million of annual uh ia profitability ia uh 65 employees between the two facilities the operate of two separate facilities in Connecticut and Massachusetts with about 150,000 square feet of space um and I acquired both those businesses October 29th of 2024 so say just over a month ago 13 million in sales three and a half in EA so that is a much larger business than somebody who I self-identifies as a Searcher would go after if if you had to label yourself I assume it would be independent sponsor uh I tell I don't love that term I i' say I operate at the crossroads of Entrepreneurship and and private Equity um sure you can bucket me into independent sponsor I don't necessarily operate these businesses but I think I am fairly more involved than other independent sponsors are that I know have been with their portfolio companies um so yeah you can bucket me as independent sponsor sure okay that bucket well when you go out looking for businesses to buy what is your approach what are your parameters give us give us a picture of what you're out there doing before we actually get to the transaction itself yeah so the entity I operate as called Cortina Capital Partners I call myself a investment vehicle and I think I'm slightly different than independent sponsors or traditional private equity in a couple ways most importantly is number one is uh proprietary deals I only do proprietary deals I've only ever done personally proprietary deals uh and have no interest in doing bank or broker deals so if there's a bank on it there's a broker on it not interesting to me in fact if there's a Sim or a data room or any materials prepared I don't touch it it's an instant death kill for me and the reason is because as we talked about earlier the magic is in the multiple we could talk about this transaction multiply paid there but uh you won't I don't think you will find a a below Market deal that is brokered or represented by a bank and if you can buy a business like I did here for a pretty low multiple the economics you get as a buyer are so much better and advantageous that I think it is worth putting in that extra effort to go find those proprietary deals and for the audience they'll know the term proprietary but just in case we don't it means basically going and finding the deal yourself it is not as you said already found by a broker it's not listed anywhere it's just so it's you have to go find these deals which is really difficult and kind of part of the art and then and but once you're negotiating with the seller it's just you and that seller um all the way through now and we're going to spend much more time on that so that that's one way what about size Carlo um you know a lot of the audience listening I mean there are people who who buy as small as 150,000 of SD um you bought a three and a half million of EIT so that's what about 20 times larger um how do you think about financial parameters size parameters to me there's no upside there's no uh maximum there's independent sponsors doing large deals and there's guys finding proprietary large deals it's a couple elements that there's no broker between the relationship between me and the seller is much more direct um that's important building that relationship with the seller I'd also say in this specific transaction we're discussing here trium industries that business was not prepared to be sold half of my job was actually as a banker preparing materials preparing financials and uh in very much extracting the information I needed from the owners to prepare a package to go to raise Capital um you know in this instance you know for example I sent the owner a list of a due diligence request list I need tax returns financials your employees your customers I emailed him once he didn't respond emailed again no response I call him up hey man I'm super busy here if you want this information he goes come get it and so that's exactly what I did I flew up to Connecticut I that down multiple days with the owner extracting the information from his computer hey can I jump on your computer and go on your QuickBooks go right ahead you know so this is a much more partnership approach much more handholding the seller to get the information I need the full total opposite uh you know approach here right as you're working with a banker broker all that information is in a nice clean offering memorandum or Sim it's a beautiful data room with all the information you need so this is a much more uh handholding approach uh the way I have done it and did it on this deal but the rewards are are clear if you're able to pull that off uh with the economics being better on those transactions okay Carlo okay okay okay okay got a lot of follow-ups there was a lot there first of all he said you already had the business under Loi when you asked for all those materials and he said sorry too busy just to be clear uh it was either under Loi or close to being on the precipice of being under Loi yeah so we we had already discussed and talked at a fair length at this point okay and so just to get in his head even being even looking at the exit of his business for millions of dollars it wasn't his priority to get you those materials I mean I think that that's just an education point for for listeners that sellers you'd think that selling their business would be priority number one if they if they're open to the selling process but even then no the day-to-day typically the day-to- day is typically more there are fires to put out that are more important even than moving the process along selling their business absolutely I think they there's a fire that put out right that minute with their do real dollar impact to that they think they can sell their business later it's not a top priority uh it was my job to constantly remind him of that hey at the end of this our relationship and transaction I'm going to put x amount of dollars millions tens of millions of dollars in your pocket um so I should be your top priority and in fact I'll come up to you in your office and I'll sit with you and I'll help you do these things okay now so so let's let's hear about that Carlos so you you you go up to Connecticut you walk into a manufacturing facility 65 people big Warehouse or facility I guess you said 150,000 square feet between the two businesses and you're just this one guy you go into the the owner's office which is probably some I assume kind of some dusty you know florescent light lit room in the in the back of the facility Maybe not maybe it's corporate uh and he and you say I'm here I'm here to EXT you know look at your QuickBooks basically and and he sits you down at his computer and and you go to town you go to work on on getting out what you need from his QuickBooks in some sense yes I think it's a little bit more salesy like Hey we're you know I chart out a very clear timeline to closing it's going to take us 60 days 90 days here's the steps we need and here's the information I need so it became clear to him it was clear to me the steps I need to take but to him first time selling a business he was unclear how long it's going to take and the steps and if this is going to involve this and that so I was pretty clear with him on that the other thing I said is hey if you have any shadow of a doubt if I can close this go call Mark go call Michael go call Don the guys I bought their businesses in the past and put millions of dollars in their pocket quite recently and they'll say Carlo is the real deal he can come up with the money and close this transaction because there was definitely that degree some degree of like doubt during this Hey where's the money coming from how do I know I'm not just wasting my time here with this transaction exactly especially since you're a alone individual Carlo do do you not at some point I mean maybe you've just answered it that you have these testimonials you can point him to these these references but do you not at some point feel the need to project that you're bigger and more corporate if you will like poor poor choice of words but just just more of a a team than basically kind of a lone wolf out there were you tempted to bring along two interns or something just so you look like more substantial than just Carlos anelli doing this thing it's a it's a great question there's a lot to discuss on the topic but for me it's striking a balance between blue collar I'm a blue collar guy I lived in Alaska I was going door Todo raising money I you know I came you know you walk in there with like a T-shirt and jeans with a little bit of dirt on them you don't want to project yourself as being private Equity type guy but the balance side of it is yes I was constantly talking about my track record I worked on multi-billion dollar transactions which is true in my career I bought other businesses I've done this many times it's constantly instilling like you know confidence in them that you can do this from the finance side but at the same time you're not some private Equity guy who's just looking at the numbers and stuck on their computer all day um definitely the art of the deal um going through this process but um I think it's important especially when you're working on a proprietary deal there's no advisor broker helping them and pushing them along along the way that's your job in many ways yeah and well and so let's turn to that which I think is the biggest detail of all to explore here one of the reasons that even I at this point generally feel like proprietary is not a good use of time now for an enormous relatively big deal like this it it starts to make a lot more sense but for people buying smaller SD businesses half a million to a million million and a half if they can find it it just from so many guests who've tried proprietary spent a lot of resources on it and it's basically been a dead end and they've often just found their deal from bis Buy sell after spending a lot of resources on proprietary I I end up feeling like I'm I'm not much of an advocate of the technique but there's a more but aside from just kind of that kind of um quantitative assessment of How It's how successful or not it's been it also comes down to this philosop to this to this alignment of incentives or this perception of misalignment of incentives which is if you are having to educate if you even if you you're Outreach you get somebody on the hook on the phone they they're talking to you and you're negotiating with them even if you get that far which is hard enough with proprietary um they are going to doubt everything you say when you say this is how the business is is how I'm valuing the business you know this is what multiples are this is what this is worth this is why here's a weakness in your business and so I need to I need to I need some concession on on the valuation because of this weakness or that weakness or customer concentration or what have you everything that you utter to them they are going to see as biased because fundamentally this is zero sum every dollar out of their pocket is into yours and vice versa so it just it it always feels like it would it's really hard to find a seller who can get over that and not and not need to rely on a third an objective third party like a broker or Banker to sell their business um so may maybe you've already answered it which with it which is all about the trust and Rapport building but but answer all that please I think to some sellers the dollar amount is not necessarily the most important it's speed certain to cloes like effort on their parts if you can sell them on the fact you can make this a quick transaction uh I will focus on what's important in your business the consequential stuff and not have you sign up for a two-year saleside process with endless amounts of questions um that's a there's a ton of value to that and that's was exactly the case in this situation and scenario I also think I'm able to think more creatively and uh have a much wider bench of like Capital providers and I think maybe the average Searcher so is able to fit this deal into to the the bucket that ended up fitting it into for example non SBA deal this was not SBA appropriate it was too large for that um and then also again just the leaning on my track record I can close these transactions quickly I've done it many times I can get that money in your pocket as we promised in a speedy and efficient manner and I think to the seller that's all they wanted and and that's what made them happy ultimately they are happy I I fulfilled what we discussed and the DI struck with them and uh I think they were happy with the transaction okay and so just two quick follow-ups there first of all one thing that will differentiate you from many listeners is that what you just said which is that you do you have experience doing deals of this size and you know where to get the capital so that that is certainly Edge that you have um or or in a difference with many of the listeners because of course one of the reasons we're talking to you here Carlo is what what can the the sort of more average Searcher learn from your story here um so that is an advantage you have that other Searchers will not is what it is um but secondly you you said something about avoiding the two-year what did you say the two-year sell-side process something a tale of an earnout sort of so say more about that a traditional private Equity shop talking to an owner here would have lots of process lots of time lots of strings attached say more about what you're kind of you're competing against and why and how you differentiated yourself was can be so appealing well I think two things one if this owner is signing up a broker to go sell the business this is a long process multimon usually multi-year process realistically uh and an owner in especially in this scenario was not willing to sign up for that type of process but number two to your earlier point was about you know maybe the word is consequentiality I focus on the consequential things of this business when I was working at a large fund and you're paying 14 times Zea for a business yeah that model better be exactly correct and the you know all the detailed information from your customer and supplier and Trends and gross margins per skew you you need all that information because you're paying such a high multiple in this instance where I'm not paying a high multiple uh I would say my job was to really focus on the consequential stuff which is really customer concentration employee uh situation owner involvement in the business I didn't need you know where the what college did the you know the bottom guy go to when he was younger it doesn't matter it really doesn't matter when you're paying the multiples I'm paying on these businesses so I think that made the job much easier for my side and also the seller side it wasn't endless request for diligence endless questions that they may get when selling to a larger private Equity Fund and you spell that out for them that if you were to go with somebody other than me the process is going to be what what was the expression I heard the other day it's going to be a cavity search for sure and take forever I didn't really spell that out necessar I think they already knew that but on top of it I think most private Equity Funds certainly the ones I used to work for would not have gone to Connecticut and sat down for 3 Days on the guy's computer extracting the information you know what I'm saying uh I don't think they're willing to do that um so that's fine good I will and I I'll take these deals down myself and so and and why do you think a private Equity shop wouldn't be willing to do that I mean this is still you know three and a half million of ia uh it's not that big a sacrifice to fly and meet the guy and and on his own turf and extract the the materials from his computer like what yeah it's interesting Edge yeah I think some to be clear I think some there's a lot of private Equity Funds out there now some of them are willing to do that and some are a little more willing to roll up their sleeves I think the general consensus is that companies trade for what they are worth so if someone's selling their business three and a half of Eva for x amount of dollars uh that must be what it's worth there's no way you can get a below Market deal out there um also again I think just time and bandwidth you know like uh you know private Equity Fund deal team they want the they want the materials ready they don't want to put together a Sim rather pay up and and uh uh for a deal and pay a higher multiple and have a clean deal with a Sim all prepared and all the information prepared for them okay great well and and by the way the other thing about well well let's hear a little bit about your what you said essentially that the multiple being so low allows you to do less thorough due diligence you may maybe you don't want to put it so bluntly because it sounds it sounds negative to say oh I I didn't diligence this as hard as I I needed to but frankly that's what this that's what we're talking about when you buy a business it's such a compelling multiple there's a lot more room for error right and and and by the way you're not not diligen it just for the sake of not dilc it it gives you that other Edge that you have which is speed and that's very appealing to that's that's kind of how you how you get your deals so it serves a purpose but do I have that right you do uh would now be an appropriate time to talk about the actual transaction because I think that can go into the multiple discussion you you tell me sure sure well um not not quite yet the other thing well maybe because because actually Carlo the other thing to say here is that when talking about due diligence uh is that you don't have a PG so the way you structured this deal you also have less personally at risk than many Searchers buying much much smaller businesses so sure let's get let's how is this deal structured yeah so my uh in the letter of intent with the seller which I signed April 15th so about 6 weeks after it leave my job I would P purchase the business and the real estate for $16 million there's a $2 million seller note so I had to deliver them $14 million cash at close I took the real estate and I did what's called a sale lease back I in fact bought the real estate but simultaneously sold the real estate again 150,000 square feet of of space uh and the sale leback buyer purchased that for $10.75 million so $16 million $2 million sell know only needed $14 million at closing of that 14 million 10.75 came from a sale leas back buyer who was purchasing the real estate so I needed to come up with $3.25 million so $3 and5 million e the business I had to deliver separate from the real estate 3.25 million so less than one time zba for this business on top of that the business came with an uh remarkably uh excess amount of excess inventory we didn't know at the time of the LOI how much inv ventory there was by the end it became clear to myself the seller the amount of ex's inventory was approximately we'll call it somewhere in the $ 15 to $2 million range of fair market value so that's machinery and equipment and then inventory they're making screws and bolts and and fasteners so we're talking screws and fasteners and raw material so stainless steel wire um I got what's called an asset based loan from an asset based lender um backed by the inventory um and they provide all 3.25 million so in effect I bought this $35 million business three and half million e the business uh for $33.25 million cash at close 100% that was financed by debt no equity needed I Own 100% of the business today uh and that's how the deal was structured it's amazing okay we're g to we're g to I'm going to walk you through it a little bit slower but to be clear on the asset-based lender providing the 3.25 um of cash at the remainder that you needed to come up with did they provide more than that or did you just basically need them for that sum they provide me a facility so AOL a revolver which is like a credit card so my capacity on that my credit card limit if you if you will uh was yeah triple that I would say and and that's because an asset-based lender will give you a facility that's maybe half the amount of what of your invent of that inventory that inventory who Fair the inventory the raw materials and the equipment right whose fair market value was in the 20s correct so around numbers if they think the the inventories were $20 million they're like all right we'll give you half of that we'll give you a facility uh like capacity of 10 million and you can draw $10 million on that at closing and if you want to use that to buy the business you want to use the rest of it to put money in your pocket that's that's your decision uh but that is in round numbers so they're not looking at the cash flow of the business which is SBA lenders look at cash flow most SBI funds look at cash flow lending these guys are an asset-based lender if you don't repay us we're taking the assets and we're selling those assets to get our money back the facility was again round numberers 10 million bucks 3.25 goes into the transaction so you're left with 6.75 of this facility so that's also nice working capital for you although maybe you don't need the working capital because the business is big enough and has what what did that 6.75 remaining on the facility mean anything to you have any value to you uh just optionality yeah if you want to buy more inventory or invest in the capex or anything for working capital we don't need it we funded enough cash to the balance sheet at closing and it's uh you know it's throwing off 300K of cash uh a month at this point so uh that's just nice to have in some sense that capacity okay great U let me let me just quickly review to make sure I have it $16 million is the purchase price in for the business and real estate really two businesses and I guess two pieces of Real Estate right correct collectively 150,000 Square ft you do a sale lease back which means that you sell the real estate so you're the owner the business owners of real estate you sell it and and immediately lease it back so you continue to use it I I assume that lease is a long-term lease so there's no threat of losing access to the buildings um and so that provides you immediately with 10.75 million that you can use toward the 16 million so now you have to come up with 5. to 5 million uh to buy this business 2 million is in the form of a seller note so now we're down to 3.25 you need to come up with and we just covered where that came from you got a $10 million the the business had six uh 13 million in sales three and a half in eaah but it also had um inventory and raw materials and equipment to the tune fair market value tune of $20 million let's call it conservatively for round numbers and you could get a loan on that of an additional $10 million from an asset base lender and of that 10 you took 3.25 and put it to to fill out the remaining $16 million that's amazing and so you walk you walk away the 100% owner of this business that does three and a half million of IA and you haven't put in a dollar yourself and you don't have a personal guarantee that's correct that's correct um and even more so right there's only call it $4 million of debt on the business today right so $35 million e the business I bought it for really $55.25 million so I paid one and a half times iida for that business again definitely below Market uh in terms of oh wait wait that that's a really interesting point sorry to interrupt Carlo but yeah because what what you just did there was you let's let's pretend the real estate is just separate and apart right so you're talking about so moving the real estate out of the transaction you paid 5.25 million which was what you needed to come up with after you sold the real estate for a business doing three and a half of EA so you paid $5.25 million for three and a half of EA so that's where you get your one and a half X multiple which is amazing because correct yeah obviously one and a half one and a half times is not a number we ever hear even for very low SD businesses this is a very high SD business for search land correct interrupted you what were you gonna say yeah so paid 5.25 million for $3.5 million EA business one and a half times IA how's this possible to me things proprietary deal and the power of the sale lease back uh definitely helps bid down that purchase price um but yeah that was a deal we closed a month ago with trium Industries now let's spend some time on the sale leaseback concept there's got to be a catch there Carlo I mean is there so obviously you secured a lease where there's no as I said there there's not going to be any threat of losing access to that building but some owner along the line in this business we haven't heard the history of this business is a very old business somewhere along the lines they thought it was strategic to own the real estate and you're letting the real estate go is there not some risk there or some downside to that or is it just 11 million bucks of free money that you can get access to yeah it sounds so simplistic when you just summarize it the way we summarize it but there's definitely some complications first of all the transaction becomes much more complicated we need to do environmental uh work phase one phase two uh there's additional uh there was a petroleum release there was underground storage tanks need to be released this is all due diligence dollars I needed to put up and I'm not backed by anybody it's my own money um and if the deal falls apart you're on the hook for that money um it also made it complicated at some point the seller did see the actual sale price of the real estate and it to me it's very clear I am signing myself up for a 20-year trip net lease the I'm uh the only way I'm getting away with selling this real for close to $11 million is signing up for that lease that may or may not you know he may or may not not want to sign up for it's a triple net lease so I'm in charge for paying the insurance the maintenance the taxes on the building um and and yeah it just complicated the transaction uh to to a number of extents last thing is as you pointed out I don't own the real estate now I have a landlord that I have to answer to and that obviously complicates operations and things of that nature okay so there's a little bit but your calculation is that it's okay and sale leaseback is obviously a thing so there's this isn't this isn't a fringy move this is something that people do give us a little more context on sale leaseback for people for the uninitiated we now have a definition of it and how it can be used but is it common is it you you know in PE land tell us more I think once you understand it it's almost like the second level of first to me lower Middle Market the Magic's in the multiple the second aha moment I had was like sale Le backs when you realize the power of that and again I think this deal is a great case study of that you can it's it's a very powerful move now I used to never want real estate in my transactions now I probably won't do another deal without real estate in it where I can do a sale eack um just again you could bid down the purchase price significantly and and get a great deal on a transaction There's real estate uh there's sale e back Brokers there's a ton of institutional salees back buyers out there um it's definitely a multi-billion dollar market um there's many buyers that that's all they do they only do sale lease backs to be clear you need to own the business to own through the real estate most likely right I can't have another business that I don't own sign up for a 20-year triple net lease where I increase the rents to some degree or sign up for you know that that type of arrangement um it's it makes it complicated it's much more complicated than just buying a business which is already complicated in it of itself um but yeah there's a whole world of people doing this independent sponsors and I'm sure other Searchers are also pulling these transactions off and the and with the sale lease back firm fund you you negotiate uh a lease and and like what do your rents look like do you negotiate I guess you negotiate how long is the is the lease I guess would be the big question 20-year lease it's triple net so again there's the base rents plus I have to pay insurance taxes and maintenance um I would say I did not have to some people what they do is they increase the rent that they will be paying versus is like the old landlord I did not have to increase the rents almost at all very very minimally um in order to get uh this s back buyer to purchase the real estate and that that rent is locked in for those 20 years correct and and and so you didn't have to increase the rent much but typically in sale leaseback scenarios the sale leaseback buyer of the real estate does see want to see typically a big uptick in rent what what can can Searchers listening learn from is what I'm trying to get at here uh businesses trade off of IA real estate trades off cap rate so if you every dollar of IA you move over to rents so your IA goes down by a dollar uh the operating income of that real estate goes up by a dollar but if that real estate trades off of a five cap that's like a 20 times evit though so if you take a business buying you buy a business trading at five times EV and you transfer that dollar over to the real estate at a five cap which is like 20 times EA you just made yourself 15 turns of e on that dollar I don't know if that's too complicated for the for the listener but that's the math okay that might be too so it's Advantage in other words it's advantageous to spend more in rent yes yes so some people will try and jack up the rent as much as possible to the absolute limits if but only if they're the real estate owner only if they're still the owner but not once they're not the owner well no like someone like me I'm like hey buyer of this real estate I will pay you $2 million in rent I'm paying $900,000 a rent but I'll pay $2 million a rent $2 million a rent at a 5% cap rate is million 5% 20 that's $40 million if they went for that they would have gave me $40 million and guess what I'd give 14 million to the seller and I would have put the other $24 million in my pocket and so the calc the calculation there is um obviously that whatever the the evido will come down now because you have these additional real estate expenses not only in rent but the triple the triple net but the business can support it easily right which I think is the math that is very important can this business actually support that rent is there plenty of margin of air and cushion uh to service that rent to sell leas back buyers I think this is almost more of a credit play they use the vehicle of real estate but they're underwriting is this business healthy will they be able to keep paying the rent payments over the next 20 years if they don't fine we SE the real we have the real estate and we could sell the real estate but they don't want to put in a new tenant that's not their game so that's kind of the way they're looking at the world gotcha okay and so for Searchers looking for looking at smaller businesses we often SBA style deals we often celebrate real estate because allows you if the real estate is is more than half the value of the transaction just 51% or higher then you can amortise your SBA loan over 25 years so it becomes it seemingly is really appealing in that case you're getting a 25 year it's almost like you're mortgaging the cost of the business um and it's accompanying real estate but maybe a technique that a different technique that people should look at is taking that re real estate and doing a sale lease back and having to bring a lot less to the table to buy the business or all or enabling them to buy a bigger business as in your case absolutely I think there's pros and cons to both approaches owning the real estate and financing it over 2530 years on the SBA world s Lee back uh I think it really comes down to the Arbitrage you can get between hey I'm buying this real estate for 5 million I'm going to sell it for $1 million that's a $6 million Arbitrage if you can get plenty of Arbitrage between what you're buying and selling that real estate for that can be very advantageous to you as a buyer and H how would a Searcher detect that there's an Arbitrage opportunity what are they looking for I know you you gave us you told us once tell us again maybe in in different terms uh how do you know if there's a Arbitrage there uh you know I work with a SES back broker who I sent the deal to and they gave me some quick numbers they said hey we think we could sell this for x amount of dollars and they exceeded that they did a great job um so that's it just knowing what you can buy the real estate for and and finding out what you can sell it for yeah I see so the Arbitrage is between with the S seller owner of the business their own real estate at and what some sale lease back buyer does correct Carlo one other thing I want to highlight that I I gather from you somewhat in this conversation also from our our preall and just having gotten to know you a little bit is is you're it seems like I mean you're on here as an expert right now but you're also um comfortable not knowing everything about a deal or an industry and just figuring out figur that out as you go um so many people suffer from imposter syndrome you know if they if they encounter a body of knowledge in a deal they're looking at that they don't know it might just scare them off or might just they might just convince themselves they don't belong or shouldn't be doing this you don't seem to have that particular self-doubt or or something do you know what I mean yeah I think that's very true I think maybe that's the nature of this uh game which is you're constantly going to be in positions where you don't know what's going on or you're you're a little confused and uh uh that's definitely the case for me you know during this process I I talk about sale eback it was my first salale leas back and there's definitely instances where I wasn't Crystal Clear what was happening I think having a good set of advisers around you and helping you through that process is critical the other part is just being comfortable with the unknown and uh you know um admitting when you don't know what's going on and uh and I think that's just part of the game here so uh but you do have to project competence and of course you're not saying you're incompetent but you have to project you know to all the stakeholders in a deal you have to project that you that you know you're going to make this happen that you are the expert in the room yes so it's a fine balance it's definitely a fine balance um and maybe it's just like ignorance of what you don't know and just like oh uh you know uh you know I have a lot of friends getting into the space now who come from very fancy backgrounds and I think they hesitate because they feel like there's that 1% that they don't know and they know much more than me and they're much more sophisticated than me yet somehow you're still able to do this so I think that's the message to anybody out there that you may not know 100% of this game and I don't think anyone really knows 100% of this game and they figure it out as they go and and you just lean forward and hopefully it all works out yeah yeah and and I think I think that's kind of a skill in and of itself and so if you don't have that you're the type of person that feels like you you just got to be super smart about everything all the time that that could actually handicap you here I think so but again if we're talking about again deals low multiple deals there so much margin for error in there uh and you structure these deals right um they should work themselves out you know um that's my belief at least and so what will your day-to-day look like now you're the 100% owner of this business Carlo uh you don't know much about manufacturing I assume you're not going to be an operator in this business obviously that that's been pretty clear from the start you're an independent sponsor if we have to put a label on you it would be that what will your involvement be um I'm very operationally involved in the first call two to two to three months I live in Florida this business up in Connecticut so I'm not there day-to-day but there's a lot of transitional items in the first two or three months that I am intimately involved with ultimately the owners two of the owners sign up to work for another five years I'm hiring a couple of their individuals to supplement what they're doing I mentioned there's a ton of excess inventory so are hiring someone to First help organize that inventory and then ultimately sell it uh at as high as possible price um but my goal is after three months to be once or twice a week hourong check-ins and then move on and do other transactions in that sense I am kind of like independent sponsor which that's more their model I won't be operating this business on a day-to-day I'm not the CEO uh but people there know I'm the new owner I've introduced myself to everybody um so that's going to be the dynamic and and what about the employees hearing about about a new owner who lives in Florida what what do you need to be as careful in your day one speech and how you present as a Searcher wood who's going to be everybody's kind of is going to be super visible in the business or no I think so yeah I think there's a there's a fine balance there between yes I'm the new owner uh you know I also uh want to for me it's more about steadying the ship in some sense um we're not changing our hiring and firing policies we're not decreasing people's pay but we're not so increasing people's pay initially until we get a good sense of what's going on here I did give the feeling that there will be positive changes going on which there definitely will be positive changes um but I also say back to my investment thesis in philosophy is not to supercharge organic growth I'm actually not super interested in supercharging organic growth I'm more interested in inorganic growth which is buying other businesses if I can buy a business for three and a half three Mill three and a half million of e at one and a half times and I can buy four of those now I got 14 million of eita I paided one and a half times for those businesses that probably trades for close to 10 times EV the amount of value Equity value I've created there is so much more than if I spent my whole time operating this business and grew revenue and EAA by 10% growth per year so that's the math I think of my time is better spent go finding the next business if I can buy businesses at this this you know value now but but to get that sort of multiple expansion you need to be buying like businesses that you can make the argument are if you buy four businesses and and then sell them as a package that they are all somehow the same business or very very similar businesses correct correct yeah same industry it's it's definitely going to be a roll up in that space correct and so that is is that what you're doing is that the project now 100% yeah I'm doing that uh I've mentioned close four deals this year in the other Industries as well we're doing rollups in those spaces as well uh but again rather than spending 60 hours a week operating this business dayto day I empower the guys there I hire some to run it day-to-day I'm going to spend my 60 hours a week going to go find other businesses and buy those businesses to do a rollup and uh ultimately sell an exit Okay couple important things there you're doing a roll up to ultimately sell an exit is this something you communicated to the seller to the owner um yeah because that is very that is very conventional private Equity yeah I think uh it was communicated that it's open uh the plans here um I I should also say I I plan to do a up whether I exit in 5 years or 10 or 20 years I don't think that's that's said either um there's a lot of solutions to provide yourself liquidity without actually selling the business there's dividend Recaps there's a whole other world we could talk about um but my first objective is buying other businesses and integrating them whether I fully exit and sell or hold on to it I would say that's not clear at this moment the other point on this is that you in your deal structure you said there was no outside equity which means you took no investors so so you that's why you own 100% as opposed to 90% or 20% and that also means that you don't have to give a return you're not on the hook for a return to anybody so obviously when you have investors they need to know what your plan is to get them their money back and a nice return on top of that so that's why often in search deals and and certainly in independent sponsor deals the whole proforma looks at a typically organic and often also inorganic strategy to get to a certain growth number after five to eight and then you know five years seven years and then sell sell in that time frame you you have the luxury you have 100% optionality because you have 100% of the equity so so I'm I'm actually interested that you do consider selling you just said that maybe you don't maybe you do but that that you even need to think that hard about selling and just not hold on to this forever since you have no investors to answer to how do you think about that longterm versus five years eight years yeah massively advantageous obviously to not have outside investors how do you get how do you get away with not having outside investors either you put up the capital yourself or you find low multiple deals how do you find low multiple deals proprietary deals sale lease back uh has been my strategy and will continue to be my strategy but I agree there's no one I that holding me accountable of course I have a lender asset-based lender I have a landlord but in terms of like Equity outside Equity investors there's no time Horizon there's no dividends there's no returns if I want to you know if the business has a million of cash on the balance sheet and I want to do a special dividend you can do it right uh as long as my lender is okay with it uh so I agree there's a lot of ad is very advantageous to not have outside Equity investors on top of it in the independent sponsor world the economics you would get is obviously vastly different right you get 20% carry you get small management fee you're basically in some sense working for your Equity investors in many ways uh in this case that's not that's not the case really important point there I think we both now said it but I'll just repeat it for a third time when you raise money from investors particularly with the independent sponsor model which is kind of a classic 2 and20 model that you're 20% your work you independent sponsor of buying the business and your big pop is going to be the 20% carry you get above and beyond certain often certain performance thresholds um so you effectively own 20% of the business uh and 80% is in your investors and you really are working to get them their return and in your case you own 100% and don't have that it's it's quite something Carlo um say more about optionality we we're not going to spend a whole ton of time on that but you mentioned dividend recap I think you just mentioned a special dividend of a million bucks is a hypothetical what our uh ways of of getting value to you personally to your personal balance sheet without selling a business just give us a quick primer or a quick list of options there in this specific case I'll mention the excess inventory again we use round numbers there's you know probably $20 million of excess inventory here we don't have to buy a new raw material or make a single extra screw here if we really organize what we have today which is a task for years two years maybe we don't have to buy new raw material um the world's not that perfect and elegant but that's a nice thing so everything I sell down or hire a sales guy to sell through the tens of millions of dollars of excess inventory it goes to the ownership I am the ownership right so that's nice been more on like a high level you know like a general uh ways you can yeah basically the dividend recap is another way of doing it I have no debt on the business today it's doing three and a half million of ibaa just an example I can put three turns of Leverage 10 million bucks and do a one-time special dividend to the ownership again if you own 100% you get all that and now there's $10 million of debt on the business and you pay that down over time there you don't give up any equity and you still have a liquidity event right most people sell the business they want a liquidity event they want some cash and the dividend recap is nice kind of solution to that it's a little tougher in today's market you know two years ago three years ago was much more popular um but I'm sure it'll come back and again that's a great solution so if you're looking for some cash some liquidity but you don't want to sell the business dividend recap is really that solution and and say more about that Carlo just because to my mind it's very kind of real estate uh that's kind of how the real estate World operates you buy a building and then you build some Equity into it and then you recap it and um pull out some some money and put put it in your pocket but still hold a building and just you can do that for over and over and over again over years and hold real estate for years and that's that's kind of that's done a lot less in this world of buying businesses and I wonder why uh it's done less but it's done plenty of people do it and uh again great liquidity solution for you um if that's what you're what you're aiming for so I mean you you could to use your hypothetical put $10 million take a $10 million loan into the business that it can support easily paying down put that $10 million in your pocket pay down that loan and do it again in 10 years and do it again do it again and be pulling out $10 million never giving up any Equity never selling the business absolutely and there's independent sponsors doing that you know multiple times I know them they're doing it and it's a great tool there's just business owners doing it you know they own the business and they take dividend Recaps and uh it's uh it's a yeah can be advant and and what would a detractor say there's got to be some reason why people even private Equity people indeed especially private Equity people look to just sell a business outright as opposed to Dividend recapping what's the reason not to do it and and by the way you also mentioned that it's was popular a couple years ago and now it's less so like what is this what is the trend there that you're alluding to well you know a business like this you could probably sell you could sell for more than three times I you know so you recap it you're not getting nearly the value that you would get if you just sold it out right correct that's one and then from the lenders perspective they're like well listen all my dollars isn't going to growth or to a new owner like to buy the business it's actually going into the pocket of the existing owner which then I guess incentives might be unaligned some private Equity groups have done this in the past they knew their company was about to go bankrupt or there were some issues they took a huge dividend recap they took the money and then the company failed so there's been some bad case studies but again it's still happening there's plenty of dividend Recaps happening in our in our world I'd also say because interest rates are higher than they were three years ago you can't borrow as much debt as you were able to three years ago because of the princip the interest payments on the debt yeah um but anyway div Recaps are still happening and I don't think they're going away anytime soon uh and Carlos say is there any more to say about how you think about growth you've said that you're not leaning heavily hard on this business to grow um organically so just to kind of continue doing what it's doing and then you will be out there growing it in organically with more Acquisitions um but so often we do think about growth why or maybe the question would be then why not have your cake and eat it too why not yes you be the deal guy to bring all this potential multiple expansion to this Enterprise um but in the meantime also be leaning on the business that you just bought to to see some organic growth and and because certainly you know it's interesting in our conversation so far and in my preall with you I haven't heard you mention any of the lever s that that are so often pulled and you know the well I guess selling the inventory would be a huge one or that's a pretty big lever or or excuse me sitting on the inventory and not having to buy more raw materials for the next couple years whatever it is but in ter operational levers I haven't heard you mention that at all and that's usually the topic of conversation here how do you why are you not so focused on that because you could have it all in organic and organic to be clear there is plenty of organic ways to grow this business for sure absolutely okay uh anybody with half a brain walks in there is like yeah you know there's so many ways to grow this business my point is I don't want to spend my time my limited 60 hours per week uh making those changes I can identify them and then allocate the responsibility of making those changes to either existing staff um non-owners who knew about these changes but the existing ownership did not want to make those changes and I'm also bringing in a couple high energy individuals new hires to basically uh take ownership of those projects and do it so want organic growth I also know taking a step back my time is better used going to go find another $3 million e the business that I can loan 100% of than spending my time organically growing the business and fixing up the business one last thing before we leave your deal terms thing which is which is so powerful in the concept of the sale leaseback maybe you don't know the answer to this but um are small is there sale leaseback is there is there kind of a floor on that market or could even in kind of a smallish SBA deal where the real estate might only be worth a million bucks is this a tool that SBA buyers can can take advantage of to your knowledge or or maybe there's some like maybe SBA you know prohibits sale Le back or something like that do do you happen to know structurally no there's I don't think there's anything stopping them um but is it worth it probably not when you're talking about smaller deals um you know in the facts basically doubled the price of the real estate bought it for five and sold it for1 million bucks somewhere in that range if it's a smaller deal the real estate's worth 500,000 you sell for a million you made $500,000 but there's a broker fee there's due diligence cost there's environmental study costs so it's probably not worth it the smaller you go okay but remember on an SBA deal the equity that a that a Searcher might need to buy the business is could only be 1002 200 $300,000 so if they can get a $500,000 Arbitrage in a small piece of real estate even with all those fees it might still be the source of equity that need right correct am I under am I underestimating the amount of fees that could be involved in there the broker fee the ETC yeah I think so just some context I think my deal was a little more complex for a number of reasons but total deal fees between legal and underwriting deposit an environmental study an appraisal on the inventory appraisal on the machinery and equipment about $450,000 I didn't put that up front but I was technically on the hook for that if that deal fell apart so you need a lot of confidence you can get this deal done done or if that deal fell apart I'd be on the hook for basically half a million dollars in Deal fees well and that's I'm thank you for that segue that was something I wanted to get to and again this is all in the spirit of kind of learning what we can from you Carlo but also recognizing where your experience or what have you differs from the average Searcher to do this requires taking a lot of personal huge amount of personal risk in fees so maybe you just said it but maybe say more cuz cuz cuz you you'd lost you've this deal worked out but you've worked on other deals where you were in the hole for a lot of deal fee uh costs and then those deals didn't come to fruition and so you're you never got that money back so say more please yeah I think that's the game you play you know if if the deal falls apart and you owe lawyers and accountants money you should pay them that money or you pay them money up front it's going to suck yeah if the deal falls apart but if you do nine deals and they all fall apart and the 10 deal works it's going to work out and uh it's worth it it's well worth it so hopefully your odds are better than that one thing I'll add is a couple things one my you know my uh service providers they had confidence in me that I could get this done so I paid a lot of them at front at the ends if they don't have confidence in you they may ask for more upfront and there'll be more money out of your pocket the second thing is and maybe this is a a tip that anyone can use anyone listening is that in my letter of intents I put a clause saying that if this deal dies any any non-legal expense so not the legal fees they that uh diligence item they need a purchase from me so quality of earns report appraise on the equipment appraise on the inventory environmental study phase one phase two all these things came out to around $200,000 the owner I'm like I have no use for this quality of earns report but you do if you want to sell this business so you are required in our letter of intents it's they signed it that they will buy those items off me so I think that's a great little trick people could put in there maybe not every seller will agree to it but that will limit your downside risk uh in the event of a broken deal yeah I mean that's amazing but I think the central point is how the heck do you get the seller to agree to that if you really want I tell the sell if you really want to sell this business you're going to need these items and if you want to start from scratch go ahead or it's already done the QV is already done yeah uh and you could just buy it off me you will have a use for this qov as a seller if this deal falls apart me as a buyer if I'm gone I have no use for this Q of yeah so that's how I verbally explained it to them and also just a point in the deal fees it's not only do you have the risk tolerance or or can you you know deal with the psychological and financial damage of losing all that that money but if you just don't have the money so you had say you basically you're working off a nice little Nest Egg of savings you've built for yourself over the years uh I mean yes and no I mean I have equity and other stuff yeah there's value there but like cash dollars I was down you know I was I was running thin I was I had less than a thousand bucks cash in my pocket the in my bank account the day you know the day this deal closed so obviously in a very different place now but yeah I was running thin uh on Deal costs I had other stuff buildings and stuff I could have sold um but yeah you're you're taking a risk and it maybe in some sense a little crazy going going that levered uh personally but uh that's what I knew I needed to do to get it done the other or maybe one of a handful of things that that that differentiate differentiates you Carlo is the well two things you said first that you had vendors who trusted that you could get this done so they fronted you their services that and that comes from a track record of having worked with them at your in your W2 time is that right uh no since since leaving them on again I close two other transactions this year um and I wouldn't say they fronted me but yeah they I paid a small deposit up front and the balance of what I owe them was paid at closing okay but again I think if they don't believe this deal is going to close I think they're going to question should I keep working on this deal for this buyer if I don't think this deal is going to close I think they had full faith the whole time the deal was going to close and how did they have that Faith because it was it just faith in Carlo because you're you were getting such a phenomenal deal it's kind of like it seems almost too good to be true so so yeah uh yeah yeah in some sense that was but the other time we're moving full steam ahead and everyone was engaged and I think everyone believed that throughout this process this deal was was happening um so they had that belief as well another thing Carlo that you touched on earlier was that you're almost acting as a banker when you do proprietary uh Outreach and and and go and kind of get the financials and package everything up that does lean on your experience as as an investment banker right so so there is some specialized knowledge there I mean I to to what degree are you leaning on skills that maybe not everybody has I would say specialized I think putting together a Sim is relatively easy um you talk about the different facets of the deal the employees the products the customers the vendors the history um but that's correct half of my job I view as a investment banker I'm there's no materials there's no sim there's no data room I'm putting those together so I can go to my Capital providers and raise money because you need some of these things but I'd also make the comments you know when you're paying 1.5 times zbaa for business there's such a margin for error in there that I always focus on the consequential stuff I didn't Badger the owner with with certain things that I knew were not consequential because even if ibaa was off by 75% that means I'm paying six six times ibaa for the business which is still for business's size is pretty on Market I would say so I focused on the consequential stuff when I knew I was pesing the owner too much I went and found it myself I flew up to Connecticut I did that many times to go get it myself and uh you know I really just looked at myself and put myself in the position as like a partner to the seller we're going to get this deal closed we're doing this together I'm going to get you $14 million cash at closing and we're going to make this happen and uh let me let me guide you through that process when you felt that there was friction or that maybe he was getting frustrated you either took work off his plate by doing it yourself and and just constantly reminded him of what the kind of the pot at the end of this rainbow this particular pot at the end of this particular rainbow for him was that $14 million absolutely yeah to all that one thing I'll add on top of that is just like speed for me I love responding to emails rapidly sending out Lois rapidly if you if the ball is always in the court of the seller he asked me a question I respond in 10 seconds via email he can't blame anybody but himself right if the deal process is going too slow hey this is going too slow well let's look back at the last 20 emails I sent I responded to you within two minutes each time we're waiting on you not me right so um especially in the beginning process I send out an II rapidly after the first call I get to Loi pretty rapidly moving that deal process along rapidly especially in the beginning I think is important because at many many deals the owner gets fatigued at some point you're asking too many questions this is taking too long so if you can get the ball rolling as quickly as possible I think that helps with that owner fatigue and minimizes the risk they're going to walk away because they're tired and they're over and they don't want to do the deal anymore well I can personally vouch for your responsiveness Carlo I I know I've said it to you via email uh in our correspondences but it's amazing how lightning fast you are uh with responses what else Carlo I think I think we we've hit everything that I wanted to hit but uh more you want to say I mean this is so yeah please yeah this was uh you know I'd say I guess to the listeners this is a very exciting space I get I have friends in crypto I have friends in AI a friends kind of all over the place I I would say this is the single best space which is ETA lower Middle Market private Equity uh for to make in you know risk adjusted intergenerational wealth you find a business lower Middle Market you buy you operate it you can make a ton of money doing it it's a very exciting time to be in the space there's Capital providers coming in from all angles trying to provide more Capital to the space which is only going to get better for the buyer someone who finds the business and operates that business it's a little scary it can be um but this is a very exciting space to be in and it's exciting time to be in this space uh so if you're thinking about making the jump go for it I push the proprietary deal route I think this is a great case study and what types of deals can happen and are happening um but it's not for everybody you know and finding a deal via broker uh route is is not a bad option either um so yeah I'm lucky and excited to be in this space and uh I'm looking forward to doing this for for many more years to come as well Carla when you say it's an exciting time to be in this space we often talk about ETA and search and it being taught of the business Business Schools and the growth and podcasts like this that exist now and didn't before but what you're doing is bigger businesses and you're doing a slightly different model or a dramatically different model actually for independent sponsorship um and I have to believe what kind of what you're doing um you know you came at this not for because you went to business school and learned took an ETA class but you come at it from kind of a private Equity perspective I'm just wondering is is this new is this a new layer of private Equity the the kind of deals of this size that are maybe too small the lower Middle Market for private Equity too small for the big private Equity names what's different now I guess yeah I'd say first of all like search Fund in ETA space is nothing new private Equity it's all private Equity buying existing profitable businesses using a mix of debt and Equity so there's nothing new about search funds or ETA that's this has been around for a long time but the Natural Evolution of private Equity has been that more C you know you start with the big deals capital's coming to the market chasing these returns and now people are naturally going lower and lower in the market looking for yield looking for lower multiple transactions so this was almost inevitable that people would go to the lower Middle Market if you really know the history of private Equity um but there's a lot of different flavors out there I think it's true I feel like I've done something slightly different slightly different flavor but the end it's all leverage buyout private Equity space uh and just to be clear I'm also looking at small deals I look at deals 600k of ebaa and less million of ebaa yeah all low multiple I'm not paying more than two times EBA for any of these things but um I am yeah there's there's several deals I'm working on and I'm ramping up for a big 2025 uh I'm trying to do 10 deals next year well so that's my goal um in this space but to be clear these aren't all large transactions these are all i' call it you know 500,000 of ibaa to 10 of ibaa that's a very wide range Carlo often we talk on this podcast about you know 500 to 1.25 a much narrower band uh and and you know it's different markets too I mean once you get into 10 million of IA you're you're I mean you've got all kinds of buyers for business like that correct yeah and again if you could leverage proprietary deal route and the sale lease back I think uh you can get a good deal on it you know for me I want to always buy something below what I think I could sell that thing for because I know the value I'm creating is really in that multiple Arbitrage if I'm buying it for two times IA and I can sell for six times EA and there's ways to make that happen then that's really where you make most your money uh in my opinion well Carlo I think this episode is kind of an artof the deal uh type episode because a lot of this a lot of your insights in your in your strategy here I feel like is um is not about the quantitative stuff um it's about the I ultimately always comes down to numbers but it's about um your kind of creativity U maybe more qualitative and to that point can you share um I should have asked this at the time can you share what your opener is what this this these emails that you send the proprietary Outreach that you do give us a taste of what actually gets a response from owners who are probably getting hit up by a lot of private equity in Searchers I mean we that's another you know I said this at the top that's one of the reasons I don't like proprietary because they're getting bombarded as it is owners are getting bombarded as it is so how do you break through that initial initial Outreach yeah I there's a couple prong approaches number one yes I do cold emails I have a group overseas sending tens of thousands of emails um and it's pretty Bland with their message hey we're looking for three million in Revenue you want to sell and I also say I'm not a private Equity Group I'm a um uh I'm an entrepreneur I own businesses I want to buy more would love to talk shop with you so that's one approach the other approach which I found very fruitful has been the existing businesses you're in I know many of your guests mentioned this all the time once you're in the industry it's easier to buy the next one I say Hey listen I'm an existing owner in this space I'd love to talk shop with you I'm relatively new uh and I have found a lot of our service providers in our these spaces the people selling me stuff vendors selling me stuff I incentivize them to go find other businesses that are looking to sell because they know all the other owners they know if they're looking to retire or open to selling and I incentivize them so uh that's been my strategy and Via those two routes I feel like I have an un very robust pipeline of proprietary deals uh at the moment and hopefully that continues um but it's hard end of the day it's hard you know uh this isn't a clean squeaky clean deal that's coming through to you you have to work these relationships uh convince them to sell and it's it's definitely hard to work but hopefully worth it as you can see and and and with this business with trim and still water these businesses they it was just cold Outreach because you weren't already in the industry so it must have just been a cold email that you kind of got a bit of a toll hold and started having a conversation and yeah 72 hours after I quit my job I cold emailed them that same week I was up there in Connecticut and within a month was under Loi so this happened pretty rapidly after leaving my my W2 job yeah it was a cold email it was cold cold email cold email and then on the incentivizing owners once you're once you've acquired their business incentivizing owners to introduce you to other owners that might want to sell AKA a finders fee so if they introduce you to somebody you buy that business they get a percentage of the sale price correct other owners in the industry or other suppliers so someone selling us the wire m the wire for example they they're also selling wire to all my other competitors uh during this interview I had three people call me and I bet you they all had deals for me because I they only call me if they have a deal so you incentivize enough people they'll be calling you and bringing you deals uh plus with that warm relationship by the way right it's a warm introduction fascinating stuff Carlo uh lots to learn from here really exciting deal and exciting path I love your last point that that this is this is an exciting time to be here um even with friends in Tech and all of the the headline Grabbers like whatever Ai and crypto um you feel really excited about this space uh and and how it is kind of a moment in time for private Equity that's been coming down coming down coming down and finally gotten down to the point where you can kind of be a lone private Equity guy even though you don't talk to talk about yourself as that and go out and do really really fun deals uh with tons of value in them how can people reach out Carla well uh um I you can put my email in the the description of the episode LinkedIn I'm relatively active on LinkedIn um yeah and look forward to uh engaging continuing to engage with the community here super thank you so much for doing this Carlos anelli congratulations on uh you know make making a move out of corporate and doing so with with a lot of with a lot of results in less than a year really exciting so look forward to following you for going forward car thank you well thanks for doing this and uh yeah thank you very much I hope you enjoyed that interview make sure you subscribe to the acquiring minds Channel below we are now publishing twice a week so tons of new interviews and stories to come stories that will help you along your own path to acquiring a business