Host: You know that searching for a good business to buy is difficult. It takes a few months at a minimum, and more often over a year. For today's guest, Jules Brenner, the search took two and a half years. But listen for when Jules and I discuss how after a broken deal, he adjusted a few key strategies in his search and within a very short amount of time after those adjustments, found and closed his successful acquisition. Also, Jules bought a manufacturing business. So this interview is a great high level tutorial on buying a business in the world of manufacturing. Evidently I needed the tutorial. I kept calling customers vendors throughout the interview. Please excuse me there now, despite his long search, Jules is making up for lost time, growing his acquisition aggressively. In fact, he thinks it's a realistic goal to keep acquiring and reach one $100 million in revenue in the years ahead. Please enjoy the story of buying a manufacturer in the transportation industry with Jules Brenner. Hey, Quick Housekeeping note. I'm going to start airing Acquiring Mines on Mondays instead of Tuesdays. As I do now. I want to have a little more distance between the episodes now that there are two episodes per week. So expect new episodes on Mondays and Thursdays going forward. We'll see how that goes and adjust as necessary. Thanks for listening. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. I want to share an update on the Acquisition Lab. As you know, the Lab is a highly vetted cohort based accelerator and community for people serious about buying a business. After going through the Lab's month long intensive, you have ongoing access to almost daily Q and A sessions with advisors, regular live deal reviews with Walker Deibel, author of Buy, Then Build, Potential Deal Team Introductions, and a very active Slack group with other searchers on the path. Well, the update is that the Lab recently passed 60 businesses acquired and for well over $100 million in aggregate transaction value. Also, all members now enjoy lifetime access to the Lab because when you buy a business, it's often just the first of many and the Lab wants to support you in every deal, not just your first. Lastly, check out my recent interview with Shane Ursum, episode 105. Shane acquired a business with over $1 million in EBITDA in just six months and he attributes a lot of his deal success to what he learned in the Lab. Check out acquisitionlab.com or email the lab's director, Chelsea Wood chelseieveenbuild.com Jules Brenner, thank you for joining me today on Acquiring Minds.

[3:02] Guest: Hey there Will, thanks for having me.

Host: Jules, you acquired a manufacturing business after a two and a half year year search. So it was a long search and in retrospect there was a lot you do differently. So we're going to hear all about what you learned during your search as well as the business that you ultimately acquired, which is pretty unlike the businesses of many of my guests. But let's start with a little context. Jules, where are you from? What's your background? Kick us off?

Guest: Sure. So originally from Brooklyn, New York, I grew up there, went to college out there at nyu, kind of early on, liked industrials. There was a book that I got as a gift as a kid, Ayn Rand book. Alice shrugged, fell in love with that whole space, studied mechanical engineering, studied business as well, ended up doing an aerospace minor. And when I got out of college I knew I wanted to do industrials. So I looked a lot into like, you know, new age industrials, old age industrials, old age being like, you know, businesses that have been around for five plus years, usually old and boring. Machining, metals, things that new age being like electric vehicles and renewables and things like that, and fell in love with both worlds, decided to pursue the new age industrials, spent a bunch of time in earlier stage tech companies working in all different roles from project management, operations, business development, sales, et cetera, and kind of fell in love with everything to do with running a business and fell in love with bringing like a more modern technological approach to an old age industry like industrials. And you know, after, you know, some amount of time in the industries, I decided that I wanted to look at business acquisition and jumped into this whole world from there.

Host: And Jules, you, how did you get. I, I know that your experience in startups is in the Bay Area, in California, Correct? So how did you get from New York to California?

Guest: Yeah, a good question. So I don't know, kind of why I wanted to do that. I think I got sick of the humidity in New York and you know, just decided to move out here out of college and you know, knew that there was like a lot of manufacturing industrial operations out here in the state. It's actually a pretty heavily industrial state. But I moved out here and you know, lived in a lot of the different cities everywhere from San Diego to LA to the Bay Area. Different cultures and different ways of doing industrials, if you will.

Host: And so, and, and so your, your last stints you're in the Bay Area working for whom?

Guest: I Worked at a company called Amp Up. So you know, I kind of, when I moved to California, I got into electric vehicles initially on the OEM vehicle manufacturing side, manufacturing electric trucks. And you know, after kind of seeing the growth in the industry of electric vehicles in California, I started to realize that there were going to be other ways aside from the physical vehicles themselves and that were going to grow. So I moved up to the Bay Area, worked at a software company that just got a Y combinator. You know, they were doing like software for electric vehicle charging stations, trying to basically use software to optimize where hardware couldn't. And you know, fell in love with early stage companies. But you know, I loved how the culture is so different when it comes to industrial technology. Everyone wants to see rapid progression in an industry that's historically slow moving.

[6:35] Host: And so if you're kind of immersed in the Bay Area, you're working for a Y combinator company. The, the obvious path would more be to start and have an idea, start a business. And yet you became interested in acquiring an existing business. So what was the, what was the evolution there?

Guest: Yeah, good question. So you know, I kind of almost, you know, went down that path. So you know, during the years I worked everywhere from like later stage businesses that were, you know, like series B all the way to like series A, you know, seed round and kind of seeing that like a lot of like particularly industrial companies, especially hardware, they don't really get to a point where they're you know, at really operating state until maybe three years in at best. I've seen a lot of the ones I know, usually five, some maybe even like they're still pivoting 10 years later. So I really liked having the ability to modernize the industry, but I did not like how long it would take to go from zero, finding those customers, convincing them of some new age thing, it's all really, really slow. And I wanted to jump into the driver's seat of operations faster than that. So I looked at a business acquisition from there because it's something that I knew could be done. I grew up in New York. I have some friends that like they took over their parents companies and a lot of finance private equity out there. So was aware it could be done, just you know, had to kind of figure out how.

Host: And so tell us about figuring it out, figuring out how. You had private equity friends, you knew friends who had acquired their parents businesses. But were you at all familiar with the you know, loan funded or traditional search fund model, buy then build model? Had you read the Books. What was your, what did your education there look like?

Guest: Yeah, I kind of read all the books there were to read everything and then found searchfunder.com started there. Just ingested as much material as I could. You know, looking online, just trying to learn about how it's done, what industries people are choosing, how they're choosing it, where does all the equity capital flow to, you know, what are the competitors, how do we stand out, things like that. So I studied everything and really tried to be systematic about where we went. Having been from the startup community, you know, you're kind of ingrained to, you know, go the opposite direction of the pack and look for value there. So I took a lot of that into the future search.

[9:02] Host: But given your experience and interest in industrials, it doesn't sound like you considered the industries that you might buy into a blank canvas. Talk about what you, where you focused your, your, your preferences.

Guest: Yeah, so, you know, when we started the search, I started to try to think about why, you know, high level parameters are important to getting funded. Right. Because you know, you can want to do whatever industry you want to do, but if the deal doesn't get funded, you've kind of wasted your time. So really thought about what were the criteria that were really important and really try to understand why and build from there. And I think at the core, you know, really started to see that high, you know, gross margins were really, really important. Typically these are found in service based businesses. You know, knew that it was important purely from also my Silicon Valley days because I've always looked at it as like, when you start a startup, your investors are expecting you to focus predominantly on gross margin. You know, how do you find a product or service that is so wildly good or different the customers will pay a large margin for and there aren't a lot of competitors. And then over time you can figure out how to get revenue by hiring salespeople and how to get, you know, EBITDA and profit by hiring the right finance and operational people. So really thought about that as like the core base from work to build out. Thought about like which business models have a strong moat, you know, where you're going to come in and there's going to be a way for you to grow and wait for you to dominate a market and not have all these competitors that are driving margins down over time. And ideally something that's in a growing industry, something that's growing, something that has to be. In the US a lot of different businesses have been starting to be outsourced to Every country. So really wanted to find something that was like that and ultimately a really bankable company with lots of history. So when you think about that, lots of history, you're not going to find it in an industry that was started two years ago. You're going to have to look into old and boring. You're going to have to think about like, you know, if you're going to find high margins, you know, usually you're going to find it in a company that has high operating leverage. So you know, it had to be of a certain size because of that. And then you start kind of narrowing it down. I mean, I think then the final thing, final filter I applied really was I looked at like who the other searchers were out there, who was my competition, both from the funding perspective, but also who's also going to be reaching out to sellers. And a lot of them had like, more like, you know, left a consulting gig or they were in private equity or they had an MBA and they were more like finance and generalist operators versus like they focused predominantly on one industry their whole career and they bought a company in it. So wanted to really, you know, figure out how to stand out from the pack and increase the chances of success. And that was a big part of it. So kind of doing like, you know, a self audit from there. You look at, you know, what's your background, how do you fit in, where are you going to stand out? You know, if 10 of the same like generalist operators wanted to get a landscaping company, it's going to be really hard to stand out aside from in the numbers. So it's a lot less chance you find value. So applying all those filters, I kind of knew that the highest chance of success and the thing that would operate the best would be something in the industrial space, I think ideally in manufacturing. And you know, for that reason we actually started initially calling ourselves Manufacturing Succession Partners, MSP for short. You know, we actually still keep the same website, but over time we kind of opened up the, the deals we look at and we can get into that later. But I looked at manufacturing and then I knew it. Well, I spent time in it. And then from there I started to ask myself like, who in manufacturing is actually making high gross margins? And a lot of it goes to China, a lot of it are like tier one suppliers to OEMs and they usually have lower margins. So kind of putting all that together, I knew that a really nice target would be a, like an aerospace or medical manufacturing facility that has some, some highly specialized work where they can charge high gross margins, but they were also like a tier 2 or tier 3 or maybe even tier 4, where they were so low down the chain that, you know, it's not likely that they're ever going to really get disrupted. But also solo down the chain where their margins could be the highest. And if you have significant amount of dollar value of physical assets and machines, there's a lot less of a chance that the deal is not going to get funded. You know, it's a much more bankable kind of deal.

[13:32] Host: When you say tier one, two, three, four, what are the. What are those tiers represent?

Guest: So if I can give you an example, like, let's say in an automotive, right, so like a tier one, there's the oem, original equipment manufacturer. So let's say that's Ford, right? And there's the tier one. Maybe the tier one supplies the whole engine for Ford in one shot. Now, that tier one subcontracts basically out to a bunch of other smaller tiers. So it might be someone who, you know, builds the top of the engine block and then that gets, you know, to another party that builds the bottom of the engine block. And that's your engine. Now, those guys, you know, they'd be basically like your tier twos. They would split off and, oh, this guy provides a gasket, this guy provides a bolt, this guy provides a hose, so on and so on. And as you go up the chain, your margins tend to decrease. So you want to find yourself as low as possible. And frankly, like, you're going to do that anyway because most searches aren't buying these. Like, to be a OEM or tier one, you're going to be a pretty big company, so you're going to be buying something small anyway. But, you know, for that reason, I avoided companies that were like original equipment manufacturers that made some small widget all themselves, and often their margins were not that great. So stayed in, like, you know, someone who made a part that went into something big. And if you can even find someone that's making a part that's like, cheap relative to the whole end product, the margins tend to be really nice.

Host: Alex Mears of the Bryden Group talks about one of the best businesses he'd ever seen was a manufacturer of some piece where the piece was very, very, very custom for a particular whatever. I don't even know what the. What the machine or the vehicle that it was ultimately being manufactured for the final product, but it was very, very custom. And so it was kind of. That was the Moat it was hard to kind of find a replacement for that. And it was also such a small line item on the overall cost of the final product that it was not one that was ever going to be really scrutinized. And so they could just have a lot of margin there and feel safe that they were kind of hidden way, way, way, way down the list and who they were selling to. Their vendor was never really going to spend the time to try to optimize them or push them on price. And it was just a very safe, fat and happy kind of place to occupy in the value chain. This, this kind of reminds me of you. Remind me of what? Of that kind of whole dynamic there. So I get, I guess this is well known in manufacturing that that's where you want to, want to play at least as a small, small player.

[15:54] Guest: Yeah, yeah, exactly. Yeah. You want to have as many like, complexities to the part as possible. The more complexities means the less people that can make it, right. The more features. Like I've seen some shops where they only will bid something with like maybe 50 features, right? It's, you know, one block of metal, but 50 unique features cut into it. And something like that will tend to eliminate a lot of the competitors because you can, you can cut one feature wrong and the whole part is scrap. So, you know, if you think more along the lines of that, you will tend to find some pretty good margin products.

Host: And then if you're playing in that space, how do you grow? Because it seems like you're just so integrated with your vendor that you're basically, your sales are determined by what the vendor needs from year to year. And this isn't like, you know, a home services business where you can grow your territory or whatever. So. So yeah, just for, for those uninitiated to the world of manufacturing, how do you grow a business like that?

Guest: It's tough. It's very, very tough. So, yeah, yeah, like, we've definitely seen those where like those companies are making a product where there's maybe like 50 customers out there in the whole US that might buy this and they're already working with like most of them. Right?

Host: Yeah.

Guest: So, yeah, that is really, really tough. And you know, if you get really, really specialized, frankly, you're better off just becoming like an aqua hire or bolt on to a larger like private equity or competitor, you know, it's not. And, and frankly, those guys will offer more money than we ever will anyway, so you probably won't end up with that deal regardless. But you know, in those Cases like there are some where they like will make something somewhat generic ish, like for example, a gasket manufacturer. Right. So you might be doing, you know, gaskets for automotive or something, but gaskets are used in a bunch of other industries, so you can apply it there. Sheet metal is another good example. Sometimes somebody will make like a sheet metal part that is very particular for certain industries. You know, they do something really, really well in house. But then, you know, you might find yourself in a position where you can apply, you know, you've been doing, let's say automotive sheet metal and now you can also apply it aerospace and things like that because those machines will work on different parts. So yeah, I mean you have to be careful basically is the really, really thing there. You might get your great margins, it might look really good, but then you might have a ceiling on how far you can grow the thing for sure.

[18:10] Host: Okay. And so just overall, again, for those of us who don't know, industrials are manufacturing very well. You know, what I would understand is, what I understand about manufacturing, of course is that outsourcing has big been the big trend for a generation or two, excuse me off specifically offshoring like out of the US Outside the US and so it sounds like the opportunities that remain here are just super niche, super specialized, kind of premium, high value manufacturing. First of all, is that correct? And second of all, are there any other big trends that you know, that we should be aware of just kind of help us understand it at a 30,000 foot level, like the state of manufacturing and the opportunities therein?

Guest: Yeah. Another good question. I think it's definitely tough in the US all the time now. I get emails from a Chinese precision laser or something shop that actually wants to work with us and have us outsource our laser work to them. Just a small part of what they do. It's pretty crazy. And we definitely become a much more global economy, especially out here in California. But with COVID there's a lot of onshoring going on where some of the people that would send their parts out to the China or somewhere else might bring them into the US now, but you can compete with a lot of their prices. I mean at scale they do a really, really good job, you know. So what actually works here in the US is like, for example, if you're doing aerospace, you tend to have to work with a US company. If you're doing like certain like infrastructure work, like what we do, and I can tell you about that later, you have to use US metals and you know, they tend to want to work with somebody hyper localized for a quick turnaround, so you kind of have to play more of the service game and maybe get really good at certain parts where, you know they have to go with you. But yeah, it is, it is tough. A lot of, you know, a lot of manufacturers, they shut down especially, you know, as their margins shrink. It's already such a low margin game for a lot of people that, you know, just enough of a margin shrink that it puts them out of business pretty fast.

Host: Top of the list for most acquisition entrepreneurs after they close on the business is digital marketing. Is the business doing it properly or at all? Has the website been touched since 2005? In many cases, that website is going to need an overhaul. Eversight is a firm that works with searchers to do custom redesigns of their websites for a flat monthly fee. So you don't need to spend down your precious working capital for a custom redesign of the website. That and all ongoing support is baked into their monthly fee. So your website cost is simple and predictable month after month with the assurance of knowing that you can ping the folks at Eversight for any changes you might need and you will talk to a human, call or email your Eversight rep, make a request and expect your changes live in hours, sometimes minutes. There is so much going on when you transition that business you buy. Make the website management easy by putting it in the capable hands of Eversight. Check out Eversight.com searchers. E V E R S I T E.com searchers. Well, getting back to the beginning of your search, the launch of your search. So it was a two and a half year search you acquired this year. So my math suggests that you started right around Covid. Covid had already started or is about to start. So. So take us, take us to the launch of your search and where are you at the time and how old are you at the time?

[21:51] Guest: Yeah, I, so I started the search, as you said, right into Covid. Quite interesting because, you know, when we got going it was literally a, you know, we weren't sure, just like the rest of the world what was going to happen. You know, I started it in March 2020 and that was right about when, you know, literally all the news started coming out. Even better. So we started in aerospace machining. We actually had like a few deals, like basically guys that I knew from the aerospace industry that I called up and said, hey, I'd like to buy a company now. Are you guys selling? You know, a few said yes. Then very quickly they started losing contracts left and right. You know, they had, you know, some of the big aerospace. They were supplying some of the bigger aerospace contractors that were, you know, supplying parts for, like, Boeing. And as, you know, the planes got grounded, their, you know, replacement and maintenance schedules got pushed. So, you know, a small change in revenue eliminates a good chunk of your EBITDA for someone at that size. Yeah, so we were seeing people basically tell us, like, you know, I would love to try to sell now, but not only are my numbers going to look good, but I'm trying to make sure my business doesn't fail.

Host: Yeah.

Guest: So, you know, attentions got shifted. It pushed a lot of what was going on, you know, at the time. I kind of knew we were going to take some bit of a. Like, a hit. Like it was going to, you know, be a situation of, like, you know, it's never a good time to really start anything. And, you know, Covid is hard to predict, and it was hard to predict how long it would last for, but, you know, I thought it was going to end by August. And then it kept kind of getting pushed and pushed and pushed. We then ran into the election, you know, and that also slowed down a lot of the deals and then ramped them right back up after the election and so on. So very kind of volatile year. But, you know, when I started, I kind of knew that, like, you know, the average search was a year and a half. So I prepared for that. And then also knowing that, like, you know, you're going to probably lose some time due to Covid. You know, I was searching in California at the time. The state was, like, shut down, and it was going to be a little longer than a year and a half. So, you know, when things added up, definitely was a slow start.

Host: Yeah, Your search was based in the Bay Area, and you were, at this point, 4 ish, 5 ish years out of school, out of college.

[24:05] Guest: Yeah, the search was in the Bay Area. I was. Yeah, probably about that out of school. And, you know, I was pretty much at the point where I thought it was gonna. It was gonna be a quick one, a quick search, and turned out not to be after it got worse. But the Bay Area was interesting because it was probably the first place in the country to, you know, shut down. Right. We. So we had, like, the big tech companies there. Everyone was leaving. Everyone's leaving remotely. So I eventually also left as well. I actually ended up going to Phoenix, Arizona for a bit during, like, about a year, part of the search, but definitely wanted to Find something in the West Coast. I think there's some statistics on search funder where you know, the average searcher, they find their deal within like two and a half hour flight or drive or something like that from where they're based. So you know, I knew that statistically likely I was going to land something on the west coast between either Arizona or California.

Host: And so give us more of these parameters of your search. So you were, you were willing to move but you, but you felt likely it would be on the, somewhere on the west coast. That's probably just where the opportunities were. So you were willing to move, you were living off savings and kind of what, what size company were you looking to take down? Give us some of these parameters. Yeah, sure.

Guest: So when we started we were a, you know, I kind of like looked at the market. I thought about doing like a traditional search where you know, you raise the capital ahead of time but then you get worse economics later and then you also have to buy a bigger deal and then look at that versus like the self funded search where you know, you fund it yourself and then when you go to acquire the business, you take investor equity still but you end up buying a little bit of a smaller deal but owning more economics of that deal. I weighed both options. I actually talked a lot to the traditional search fund investors, pretty much anyone that would talk to me like the big funds that everyone knows, I pretty much got laughed at by most of them. They kind of told me that manufacturing doesn't work for search, you know, and I tried to explain to them, I'm like, you know, if you look where everyone else is looking, you're gonna, you know, find yourself in high valuations and tough to get good economics out of those setups, but just wasn't for a lot of the funds. So just kind of at it as a necessity, we shifted towards a self funded search. With that said, like, you know, I use we a lot and when I talk about this stuff I wanted to, you know, kind of call it like, you know, mimic, you know, some of the aspects that work well in a traditional search in our search. So like in the traditional search you're raising money from investors in the beginning, but then they serve as advisors throughout the process and they help you get the deal funded and they diligence, etc. So I built a small team internally, recruited a former Deloitte accountant that you know, was partner there for like three decades left and then you know, serves in a, the board of a bunch of publicly traded companies and gentleman named Ron So he came on board and then, you know, part doing that, I started to like build more formality to stuff and get a little bit more focused. So, you know, applying those filters initially at aerospace was proved to be pretty ineffective because of COVID So you know, because of that we said, all right, well what's the next industry? So then started to having to look to other things in manufacturing. So I looked at, you know, like manufacturing level, like architectural components. We looked at the lighting industry for a little bit, you know, LEDs and things like that. And we looked at, you know, pcbs, so you know, circuit boards, things like that. And then, you know, eventually stumbled into the infrastructure industry, which I can talk about later. But you know, the whole way through is all self funded. Me putting in my own funds and investing, you know, just typical self funded search fashion.

[27:49] Host: Yeah.

Guest: And you know, I think it's important someone starting in, that just prepare for the journey to maybe take a little bit of time and make sure you're funded appropriately and in this.

Host: And yeah, and the funding in your case came from savings or kind of other money that you had access to. But you were.

Guest: Yeah, yeah.

Host: And when you. So when you say we. The. The acquisition vehicle is essentially Jules. But you had assembled kind of a deal team that was helping you along the way.

Guest: Yeah. And the deal team grew over time. I can get into that as well. But it started with basically myself and then our CFO Ron, and then we have some like indirect advisors that we worked with that are like industry experts that we kind of use on a case by case basis for operational diligence and things like that. And then eventually we had an intern that started with us that finished an MBA program and then eventually became a kind of full time associate with us who works with us on site at the current deal. And then, you know, we're looking to scale that as well, you know, and have like a kind of a small management team for which we can use to support many companies in a kind of a micro private equity fashion.

Host: Okay, well, we'll get into that. But Jules, when you were getting all of these rejections from the traditional search fund folks, did that give you pause or did you remain confident in your thesis?

Guest: No, I mean, I don't know. I mean, I came from the startup world. Um, so that's pretty normal, right? You know, you're gonna like not get funded from 90% of the investors you talk to. So it was just about talking to enough people that, you know, believed in it, you know, maybe did industrials themselves. You Know, I found that kind of like industrial community, you know, eventually among search. It took some time because it's small and it's not a lot of us. But I think it proved to be kind of interesting because we went to go fund our current deal. I actually took it back to some of those and all of a sudden they had a very different tone. When we were able to offer a deal at a lower valuation than a lot of the software companies they were being brought at during the time when we were funding it. Multiples were pretty wild all across the board except in the niche we were in.

[30:07] Host: And just what didn't they like about industrials? What about the model doesn't work? Is it, is it just that customer concentration and non recurring revenue generally? Although I guess there probably is recurring revenue because you, you're, you're on a continual basis providing a, a part to, to your, to your vendor, Right?

Guest: Well, you know, when we started we were called manufacturing succession, right? So it was just manufacturing, not industrials broadly. So you know, I'm, I'm, I'm sure they like industrials. Like if you brought them an industrial service or an industrial software company, they'd be all over that. I'm talking initially with manufacturing and with manufacturing, I can see their points. It is really tough. I mean a few things I noticed is like a, they're like a little harder to operate fundamentally because you know, a little lower margins. There's a capex requirement that's often a lot higher than that of like a H Vac business where you just buy another truck and hire a few people and they take it home with them. You have to get machines, you got to get real estate. You know, there's a lot of consumables involved. Sometimes the cash flow conversion cycles are really slow. So all those things can make it tough for growth rate because you know, you can pay like, you know, I don't want to say anything but you can over, you can overpay for a business as long as there's a really big growth rate behind it. So you know, a lot of these like, you know, searchers will buy like software and stuff and pay like 7 times EBITDA and get funded, but then they grow at 30% a year and quickly it's okay. So if you have a lot of things that slow you down along the growth journey, it can get, you know, it can make a equity investor a little queasy. A bank will love it, but an equity investor might not. So I think that was the big one. And then the other one was like, you know, they sometimes wanted people with like more you know, kind of general like an easier business to run fundamentally. Like even for us, like you know, we wouldn't buy this like you know, high tech laser frequency manufacturing type of business. Right. It's in some, the manufacturers that still remain in the US are frankly those right with the high margin, low profile. So it's kind of hard to find a balance. So there's just less available options too. And I think that's why they think there's a less of a chance you're going to succeed in the search itself.

Host: Yeah, yeah, those are good arguments. So one other question about the nature of your search. When you decided to go self funded after talking to all these traditional folks, traditional search fund folks, I recall from our pre call that you had an interesting, you, you talked to people who had also done self funded searches and who are now CEOs of self funded acquisitions and traditional search fund acquisitions. And there was another point that you uncovered in talking to these folks. Do you recall that? Particularly the self funded, your self funded guy and why he actually, if he could go back and do it again, he would have done traditional.

Guest: Yeah, yeah. I definitely talk to a lot of different searchers, you know, some that are about to acquire, some that have already acquired some a few years in. That's kind of interesting because like what I realized over time is there's kind of two distinct routes. You go like the self funded, you buy a smaller deal, smaller deal means people are wearing many hats, means you're not going to walk in day one and have like a, you know, an assistant. That's all they do is an assistant, the purchasing person. That's all it's this. People are running around doing a lot of different things and you probably are going to become the general manager and you'll probably are going to have to do a lot of things and probably work in the business and maybe spend a year trying to work your way out of working in the business full time. Now if you buy a larger deal, which you have to pretty much from a traditional search, that's when you're like, you know, we'll walk in and you have those like almost luxuries people focused in all those different job roles. And you know what I interestingly found is like some searchers, they came from like, you know, they were a VP at like, you know, a bank or something like that or like you know, high up in a startup and you know, they find themselves where they walk into the deals and to have to do a lot of different roles. Uninteresting. Right. And I've heard people like even complain about the quality of people they work with. Right. All sorts of things. I think, you know, if you think those are going to be concerning, I think maybe you just might want to do traditional because it takes probably a year or two extra, a self funded search minimum to grow to a point where you look, you know, big enough and have the scale to hire those sorts of like, you know, basic creature comfort type roles and focused people and maybe even better quality people. So it's a little bit like that. And I think in hindsight, like, you know, it's, it's interesting too because we've, since we did a self funded search, we ran into that as well and found ourselves like we're, you know, I had to be involved in a lot of different roles and it's a little bit more chaos than maybe some people, like when everyone's doing different things.

[34:40] Host: Okay, great. Okay, well take us. So now you take us through the first deal that, that near miss that you had or I guess near success that you had. Give us quickly on that story.

Guest: Yeah, so. So there were a few, you know, initially it was in the aerospace industry Covid kill those that pushed US basically in 2021. And then in 2021 there was like, you know, we just had the election end. A lot of people were concerned about capital gains taxes. So we found a flood of sellers in the market and then they were able to kind of close their books from that bad Covid year or at least put something, you know, file a tax return. Usually a lot of deals were done after the first tax returns filed. So, you know, I kind of brought in the search because I wasn't sure if we were going to find candidates in California when the state is closed most of the time. So ended up finding a company on the east coast that manufactures architectural lighting. A little bit of a bigger deal. Not like I intended to go that large, but they kind of came up where they were doing like almost 3 million of EBITDA. And you know, I felt like there can be a lot to grow. They fit a lot of the stuff that I talked about behind margins, all that. So at that point, like the deal kind of fell in at a point where, you know, frankly, I don't think, you know, I or the team was prepared to close it in the sense that like we did more networking with investors prior. A lot of the investors did not want to talk to you unless you had a deal to show them first, then it's kind of hard to build a relations and get funding all at the same time. And then was also larger than expected. Right. When you raise, when you try to do a deal that size, usually it's in a traditional search and you've raised money before, so the investors have a time to see how you operate and trust you. But if you come out of the gate asking for at the time was $15 million, it's a little tough. I mean, in Silicon Valley I've seen it all the time. You know, we have like 17 year olds raising, you know, tens of millions of dollars, no problem. Right. But when you, when you do it out of the gate in the search world, it's, you know, it's, it's not okay. So I took, ended up taking that deal. Like we put it on their loi. I ended up taking that deal and like shopped around to probably like 100, 200 investors. Something crazy. I mean, everyone that was on Search Funder, everyone that's on our site, anyone and anyone that I could find, I showed the deal to, you know, ended up, you know, basically getting to a point where I found a group that was interested in funding it. This took a bit of time and unfortunately by the time that group said, yes, we'll fund it, the sellers of the company decided to change their minds and said, hey, you know, we actually don't want to sell now. We'd like to continue making money from this company for another two, three years and then let's talk and we'll be better in the market to sell at that point. So really sucked. I mean, you know, we were at a point where it's like probably 30 to 45 days to close the thing after months of investment trying to fund it and it died out. But I know you called it like, you know, like it was, it was definitely near miss. But what was interesting from it is that a lot of those investors that I kind of showed that deal to, they had really good things to say about the way we were thinking about the business, the way we structured it, the way we presented it in the sim. And then when it came to funding the next deal, not only did I already have those relationships and some bit of trust, right? And kind of, you know, I knew who to go to quickly, but at the same time, you know, they knew what to say to get the deal across the finish line.

[38:04] Host: So kind of, you know, it was not wasted time.

Guest: Not, yeah, not wasted time, but it sucked. It sucked. It certainly felt like wasted time in the, you know, in the middle of it. And that's the hard thing, I think, about search, because it's a super binary outcome versus starting a, you know, startup. You kind of get revenue every month and slowly increases, but usually not very binary.

Host: Yeah. So when that deal fell apart, did you question continuing with your search?

Guest: Oh, yeah, I did. I mean, that was, I don't know, a little bit over a year and a half in. So at that point, I was like, all right, now, you know, I'm over the average. But Covid, you know, did slow things down. So I kind of said, all right, like, you know, I need to do something different. Right. So that. I think that was a. A pretty, you know, direct moment in saying something I was doing was not working. I have to try something else.

Host: Okay, and so what was that? What was your next step forward?

[39:02] Guest: So it was interesting. So, you know, when that deal died, I ended up kind of talking to one of the investors that I showed the deal to that, you know, the deal wasn't for them. A gentleman named Sam, who, you know, owns a few industrial businesses in Tampa, Florida.

Host: You know, this is Sam Rosati, who will be a familiar name to the audience pursuing capital, and one of the three people behind SM Bash, the conference.

Guest: Yep, yep, exactly. And, you know, Sam and I got to know each other a little bit then with that initial deal. And then, you know, when this deal died, it kind of told him that. And he said, you know, that basically happened to him too when he was starting out. Like, he had a deal about the similar size just die in a similar fashion. So he, you know, wanted to help out. So, you know, he basically became kind of like an advisor to the search from that point. And one of the interesting things I kind of started realizing at that point was kind of like, you know, thinking about private small businesses acquisitions as like, buying real estate. Right? And what I mean by that is, like, every piece of real estate can be sold, right? You can take a small pot of land, the most rural area, and it has a value. Some. There's some dollar value to it. It's usually not zero. And you know what was interesting? There is, like, it's not necessarily about the dollar value you pay. It's about the structure you do to get there. And that kind of made me think about, like, you know, there were deals out there that I kept coming across that were, like, small or imperfect for one reason or the other, and I kept rejecting. You know, over time, the criteria started widening as I started to realize a lot of the deals on the market have imperfections. But it made me kind of think about, like, what imperfections were okay with me and then start to shift my attention to how do I structure the deal to accommodate for those imperfections. Okay. And that was a pretty big change. But then Sam also urged me to focus predominantly on the broker deals. He kind of said, at this point forward, no more, you know, off market deals. You only work with a broker. Find someone you know locally, and that's it. And that's exactly what I did. And then that's.

Host: Jules, let me jump in here because I want to drill down on both of these points. So the thing about the perfect business or the imperfects, the imperfections that you are now willing to tolerate. Like, I'm sure that you had already encountered the old phrase, like, there's no such thing as a perfect business. So you probably already knew that you couldn't find perfect. And yet it sounds like Sam actually did kind of break, break open whatever standard you had for perfection or imperfection. What were some of the things that you were requiring in. When you previously in your search that Sam was like, you need to relax those a little bit.

Guest: Yeah, I think the big one is customer concentration. And then, you know, with that one, like, often you can structure a way for it. One thing that I started doing and then I eventually started getting better at was like before I used to say if it was like a customer concentration over 20%, I would structure basically that percentage of valuation almost for a forgivable seller note. And you know, sellers would say, well, that's, I see how that's reasonable, but that is a big risk, you know, for them where they lose the whole percentage of that customer's revenue if they leave.

[42:30] Host: Right.

Guest: So yeah, over time, what I did was like, all right, well if this was a 15% customer, then I would be okay. So I do 15% from the total percentage of the customer and say they're 25, and then that 10% becomes more of what the forgivable consideration is. But then also, like, what I started to think about was like simplicity in deals. I think a lot of the sellers in the lower micro market that we operate in, they want simple deals and trying to minimize the amount of moving pieces, not having three, four moving pieces like, you know, you might have in the large private equity deals where there's a, a seller rollover, a seller note, an earn out upfront cash, you know, you know, all consulting agreement and you know, salary associated to it, like, you know, really baking it down super, super simple. Because I found that a lot of like, you know, the sellers in the, you know, sba dln, they, they don't get that or, you know, they just this not for them. So, you know, those, I think those are two of the probably bigger things for sure. That's interesting.

Host: I thought you were going to say just the opposite. I thought I was going to hear you get more creative about terms because Sam was kind of, kind of telling you that, like, focus less on the imperfections and more on the terms. So I thought he was going to kind of be showing you all these different terms, tricks that you could use to get comfortable with a particular deal. But no, in fact, he was saying you were already over complicating things.

Guest: Yeah, I think the big thing is the valuation. Right. So it's like one, you know, kind of weird concept is like, you know, if you paid nothing for the company, would you still buy it? Right. You know, so it's like, you know, there is a dollar value in which it's cheap enough or you're willing to absorb the risk with just upfront cash. Right. Like buying a piece of furniture, you know, if I'll buy a, I don't know, a table. Right. And, you know, I would just be, if it had a little imperfection, that I would just pay less cash with the thought that I'm going to fix it later. Right. So taking that sort of mentality. So basically the, the goal is not to, like, you know, go wild on valuation. It's to like, you know, let's be systematic about it. So be systematic about meeting the seller's needs, telling them what you need to get there, but then reducing the total moving pieces. And then I can kind of talk about what ended up happening with our deal maybe as a indicator for, you know, this sort of procedure. But I think, you know, it's important like to, to, you know, do that and then understand like, you know, really early on, like, what are the sellers expectations? Because if they have a certain dollar value in mind, they're just not going to really sell until they get it. So you're better off not even spending your time trying to chase valuations, but saying the guy is the right seller, right company, wrong time, or it's just not for me or someone else. Got to take, you know, more risk than I'm comfortable to take.

[45:07] Host: Yeah. Okay. And let's double click on the, the other thing that he told you about. Just broker transactions going forward. And so that, that is a kind of a further departure from traditional search fund land where it's a lot of. It's going to be. A lot of those deals are going to be proprietarily sourced. And so why is, why did Sam convince you that that was not the way?

Guest: Yeah, so kind of like I overdid it with my mindset of like I want to find something that no one else has found. Right. Like industry wise. And I apply that mindset to the deals, right. I want to be the only guy on the deal and the only way to do that is people proprietary. And what I kind of realized with the proprietary is like the broker is there to talk the seller off the ledge. And there's a lot more times than like, you know, we as the buyer see where the seller's on the ledge of like changing their mind and the broker just pulls them back in. So that's really important. And like now I wouldn't even attempt to do a deal where a broker wasn't involved. I mean, I have not had very good success with it at all, frankly. I mean we're definitely, I don't know, oh for five at least or something on it. Because every time like something comes up in the purchase agreement, you know, because the other thing too is like if you think about the team on the seller side, most of the team in a proprietary deal is not your friend. So for example, like, you know, you try to do a deal with let's say the lighting company I talked about, you know, their accountant, you know, it's a. They're. It's their trusted advisor, right? Because if there's no broker, then they're going to call their accountants. Hey, what do you think about this deal? Should I do this deal? Not accountant is not your friend. They want them to stay a client as long as possible, right? So they don't want the deal sold. So they're going to say whatever they need to say basically to keep that client, the client and the deal to not get sold. Right? Because likely you're going to change accounts. Same thing with their lawyers, right. So there's no one on their side that's kind of has your interest in mind too. It's not aligned well. So because of that, you know, the sellers tend to freak out and then not sell the company. And I'm sure it works for some, but there's a lot less odds of it happening. And then there's also a lot less odds of the seller being reasonable about valuation and structure because there's no one to really teach them about the market. Right. When brokers come in, they like a good Broker will spend a lot of time explaining to the seller this is what you're going to likely sell for and, you know, adjust your expectations or let's wait a year. So I think it's, you know, it's really important that searches remember they're not a private equity fund. They don't have unlimited amounts of time to do deals and they're collecting management fees the whole time. Especially if they're self funded. They're probably not making any money, they're losing money. So you need certainty of close. It's super, super important, at least for the first one. And certainty of close is hard to find in proprietary deals.

Host: Great. I think there was also an item about gross margin that shifted in your perspective on your search. Talk to me about that.

[48:02] Guest: Yeah, so gross margin, you know, as I was kind of saying, the Silicon Valley example is like the most important thing, right? If you have a high gross margin, you can solve for a lot of issues, right? Throttling revenue with salespeople, throttling profits with operational finance people. But you know, what I started noting is like noticing is the more advanced business buyers, what they do is they find situations where the gross margin is bad and they figure out how to, you know, like look past that to see if there's something that sellers are missing. So, you know, for example, you know, during the time we've owned the current company, we actually had another company reach out to us that makes the same revenue, is in a similar industry, but makes a third of the ebitda, if even that. And you know, their margins are, you know, like literally just a little bit lower, 10, 15%, which, well, that's a lot, but you know, it's, it's substantial was what it does to the ebitda. So, you know, an idea like we could have, you know, or the older version of myself would have said, okay, no, not going to waste time, but instead we spent some time on it and said, hey, what goes into your margin? And we realized that like they were having double the amount of employees than they needed for the revenue their size. They were, you know, something was happening with their consumables. They were just disappearing as if somebody was stealing for them or something. And you know, there were clear things based on our business where we knew that day one, we could come in, make those changes and find ourselves in the gross margin that was appropriate, but we would pay today off a lower gross margin. So that's what I started seeing with like these more sophisticated buyers and a more competitive acquisition environment, especially for really Nice companies, they get creative on that. They figure out, like, you know, I'm going to pay a little bit more, you know, on face value, but, you know, they have some very immediate ideas on how they're going to, you know, day two already be, you know, looking like they paid a really good price for the company.

Host: Great. Okay, so after that disappointing loss and you connect with Sam and you kind of rejigger your search a little bit, or at least like your, your perspective shifts on a, on a number of, on a number of variables. What, what happens then?

Guest: Yeah, so, you know, I don't know whether it's serendipity or, or what, but, you know, pretty much a month and a half or something after that happened, you know, we found the current company that we bought today. So that business, interestingly enough at this point, I've seen so many manufacturing operations. As soon as the broker sent it, I was like, oh, this is the one. How did I know it? I couldn't tell you, but it just, you know, I knew it was the one. It, it looked the part, smelled the part. Lo and behold, like, when we started understanding, like, the seller's background, he actually had a pretty similar background to me. Also a New Yorker, also moved to California, also an engineer. A lot of things matched up in an interesting way. And then, you know, the company, you know, actually the seller bought it himself. He bought like a, you know, a smaller sheet metal company out in Anaheim, California, that's Orange county. And over time applied his industry expertise of construction to the business. He spent a lot of time, he's like a key executive in some of the transit companies out here and brought a lot of infrastructure work to the business. So think like supplying metals to highways, roads, bridges, train stations, stuff sometimes people wouldn't see, like drainage systems, stuff that goes into the concrete that provides structural rigidity to the components. Train station furnishing, like trash cans and, you know, map cases and benches and things like that. And we really loved how he had, you know, kind of like the maximum size of EBITDA you can do for an SBA size deal. But he was also in an industry that was receiving a lot of growth. So California invests, been investing a lot in infrastructure with the Olympics coming into town, with the train system being built to support some of the traffic, and then the Biden bill coming down in the next few years here, of which, you know, the largest pouring of the cash appropriated for highway bridge, bridge and train systems would find its way to Southern California. So love the trends. Knew that like, you Know, we can get creative with this deal because there was a lot of overlap and we could, you know, eventually find ourselves to, to a lot of growth and bought the company. And it was an interesting negotiation. I can get into it. It took pretty much what, two and a half months to get under Loi, another six months after that, there's seven months after that to close with the seller. But, you know, been really happy with what we bought so far.

[52:42] Host: And so he had acquired the business himself after a stint or career in working as an executive in the various various transit agencies in Southern California. It was and then grew the company and introduced a lot of those, those contacts and contracts into the business. And so now primarily the business is serving kind of infrastructure, public transportation in Southern California.

Guest: Exactly.

Host: Yeah.

Guest: The lion's share of the revenue supports infrastructure supply. So just making parts. And then the contractors, the general contractors that we are subbing, contracting to, will provide installation. And then the other portion of the business supports like a lot of quick turnaround work. Think like, you know, architectural metals for various buildings and industrial machinery that might break down and they need like a stainless steel component quickly. Well, we'll make it. We have our own trucks and we drive it over to a lot of the machinery operators here in SoCal.

Host: You had mentioned that the it kind of maxed out the SBA loan. Give us a sense of size of the business, ballpark, whatever you can on numbers and number of employees. And how old was the business, both how old, how long had he held it that you're seller? And then when was it actually founded?

[54:03] Guest: Sure, business was a little bit over two decades old. He bought it like I think four or five years into its existence. And then, you know, in terms of structure, we always structure the deals with like seller note. I think that's really important, you know, just to have some buy in from the seller and then also, you know, look good from a perspective of funding. But we had to, you know, it was sizable enough to max out the whole SBA loan and then a seller note on top of it. Coming into the company, there was about like, I think 15 employees, something like that. And then in the first like five months, we started seeing a lot of growth. So we increased headcount to about 27 or 30, something like that right now. Wow.

Host: One of the other things going back to, you know, the perfect business, one of the things that of course we all, we all hear all the time is quality of revenue. Recurring revenue is ideal. This sounds very project based, like project based revenue. And that's One that lenders and everyone tell you to be especially wary of. How did you think about that?

Guest: Yeah, I think a few things. So the first one is making sure, you know, if you're going to buy something, a project revenue, you're going to pay as little as possible. I think that's a really important. You know, you can solve a lot of problems if your loans are low. Right. And then b, you know, while you, while even general, even getting recurring revenue in the current deal market is really, really hard. You know, any, most sellers, like if they have recurring revenue, they, some broker has educated them on how much their company's worth. And you know, if you paid 10 times EBITDA for recurring revenue, I mean that sounds great because you don't have to work as hard because the revenue is recurring. But those loans are going to be insane and the equity return is probably going to be low. So, you know, you got to find a balance. But what I started seeing is like there's this other, there's two other things that you can kind of think about. There's reoccurring revenue so you know, consistent patterns of the same customer ordering and over, you can, you know, kind of track their order volume over time. And the other bigger one in particular for our industry is backlog. So you know, if I, let's say got contracts right now that were dollar value backlogged for a whole year's worth of revenue. Well, what does that mean? I mean that's better than recurring revenue, right? You know exactly what's going to happen for the next year and you can move forward. And I think recurring revenue is important. You know, even I realize more so even because you just be in the operator seat because you can make business decisions, it's hard to decide on how many people you should hire, what machines you should get or whatever when you don't know if there's going to work to support that coming up. Yeah, and it's a really powerful feeling. So for our industry, we just work on backlog. And if you're in a construction type space, oftentimes there's good lead time on the work. So you can, you know, get into it today and then, you know, know that it's later next year you'll have it and then build from there.

[57:02] Host: And so you look for, you know, the, the more the backlog, obviously the better. And so you're the business that you acquired. American Sheet. American Sheet Metal is the name.

Guest: Yeah. The company is called American sheet metal. It's ASM in the acronym sheetmetal.com we kind of rebranded it to ASM because, you know, we don't no longer just do sheet metal, but, yeah, asm.

Host: And so ASM had a. A nice, big, healthy backlog.

Guest: Yeah, they had good backlog and more importantly, a lot of growth trends as well going forward. So, you know, we kind of like, we knew that with this amount of cash, it's like $5 billion a year going into SoCal for, you know, the next four or five years for this kind of work, there'll be plenty for us to do. So, you know, when we got in the deal, we actually spent more of our time, like, building up internal digital and physical infrastructure so we can process as much of that revenue as possible as it comes in. So, you know, all those factors were important, and I think, you know, when you do something like that, too, you have to be thoughtful of things like growth capital and make sure you're raising accordingly to. To support that.

Host: You had said that just after your failed deal and. And kind of connecting with Sam, this deal popped up about a month and a half later. Do you think that you would have pursued this deal before your kind of shift in perspective of your search?

Guest: We would have definitely pursued it because it was in our backyard and it fit a lot of traits. Would we have structured it appropriately to get it done quickly, you know, with. With, you know, when I say quickly, I mean getting it under loi quickly, maybe not. Because I think, you know, I almost even kind of made, like, call it a little bit of mistake on it earlier on in the process. Like, when we structured it, made the first offer, you know, I asked the broker what were the seller's expectations in terms of dollar value. So I knew that, but then I threw like, a little bit of a wild structure. Still. Still less wild than what I would do before meeting Sam, but still with multiple pieces. And I think the seller kind of had enough of, like, enough and thought there was a good, you know, buyer seller fit where, you know, he himself kind of simplified the offer and got it towards less valuation, which is more of what we wanted, but, you know, different, you know, structure as well, too, for him. So I think that worked out. But I'll tell you, I mean, we had deals before that that I sent, stuff like that too, and they didn't even bother to do that. They said, too complicated, too moving pieces, too risky, whatever, and they just dismissed it. So I don't think. I don't think we would have made it from that perspective of mindset and then funding. You know, we Kind of knew what to do from the lighting deal failure. So it is, it's like, you know, you had to have those two lessons prior to be successful here.

Host: Yeah. Yeah. You know, it's interesting hearing you about the simplicity of, of offers and terms because one, I feel like I hear kind of two contradictory things. The first is that, like, is what you've learned, which is that the sellers don't want some overly complicated deal. Like, basically keep your terms simple. And then on the flip side, you often hear like, well, you know, you're fine your price, my terms, or, you know, part of the excitement and the fun of deal making is that you can be really creative and structure all this stuff to, you know, cover all your risks and incentivize all parties correctly and so on. But it just seems like when that theory makes contact with reality, sellers don't love that.

[1:00:35] Guest: I think that theory applies in two places. The first one being larger deals where you have more sophisticated bankers and sellers. And those sellers tend to want to actually keep economics and take a second bite of the apple. So it works there. And then maybe the other place where, you know, you have really small deals, like deals where basically there's no other buyer, no one wants it, that is all seller finance kind of situations. So, you know, that's, I think that's the mix of it. But even then, I think, you know, a lot of the sellers we've dealt with, like, they, like, we give them options. Right. So we throw out, like, we figure out what their valuation is. Like, what are in their minds is that dollar value to retire. And what I learned over time of doing this is that they're going to get their dollar value, whatever they, whatever they actually want, they're going to get it. With our seller, you know, he, I think he had a higher number or he did have a higher number than what we ended up actually closing on. But then he also just dragged out the process for an extra six months and then ended up regenerating that EBITDA anyway for himself. So, you know, it's, it's, it's like you think you won, you think you're smart, but then you end up at the same outcome. You just wasted six months that you could have been in the driver's seat. Right, Right. So I think it's really important because they, they're, you know, they're seeing this as their last, like, financial hit from anything in general. So then they do have to like, you know, think, think about getting exactly what they need to retire.

Host: Yeah.

Guest: So, you know, because of that, like, you have to be mindful of like you're probably not going to beat them on their valuation. Frankly, if the number's so wild. I mean, we have like one seller I like, when was it? It's been a year and a half already made a. Made one offer wasn't sufficient. You know, he's kept the business since and he's growing it and growing and I'm sitting here and saying, well, that sucks because the whole time we could have owned it and been part of that growth if we just gave him a little bit more on the upfront. So yeah, you know, it's kind of like a, a pick or poison. But basically, you know, figure out their valuations and tell them, say, hey, for me to pay this, what you're asking for right now, right there will, there will have to be a forgivable seller note slash earn out. There's just no way. Right, because you just won't get funded. I mean, I could, I can write an offer up for you and there's a lot of searches that do that, that just throw whatever off out there and it cross the fingers and hope it gets funded. But then the bank says no. And then, you know, if the bank doesn't say no, then when they get to the legal stage for of writing up, what happens when this and that, whatever, the lawyers will kill the deal. So, you know, instead I try to push them towards like a second option which is like, if, you know, we paid you maybe a little bit more upfront cash than we wanted, taking a little bit more risk ourselves and taking it off their plate, then the structuring of it becomes a little simpler. So that's kind of really where it ended up. And with STL was no different. And then, you know, thinking about like, you know, what else can you do? What other part of the pie can you split? Can you let them keep economics? Can you, you know, think about like by the time you buy the deal, how much backlog are they going to have bled through? Right. Because just because they had backlog on day one when they present deal to you, doesn't mean by the time you close, you're going to even see that, you know, your best bet, they're going to invoice as much of the backlog as they can before the deal closes. Yeah, right. So hopefully that makes sense. But it's, yeah, you know, I think being flexible and knowledgeable, the fact of like they have a number in mind, you know, you're either going to get there now with structure Sometimes or you just, you have to wait, got to sit on the sidelines for that thing to bounce back. Someone else makes the offer, maybe deal with them in a year.

[1:04:12] Host: Jules, to, to round us out here, two more topics. So you're, you're kind of hinting at the fact that you're now talking to other sellers. So which suggests you're kind of in a mode of acquisition. So you've done your first, and then I want to hear if you've, if you've done another or what your plans are there. But first just talk, talk to us a little bit about what you have done other than any other acquisition activity in the business. How does it look? What have, what have your first few months there or the months since you, since you acquired looks like? And how's the health of the business? And is it what you expected?

Guest: Yeah, absolutely. You know, when we walked into the company, we started to see a lot of like, you know, backlog and growth that wasn't consumer with what, you know, we initially thought in a good way. But you know, when you have that amount of like growth, I mean, the seller grew like 30% prior year before we bought it and you know, they're likely going to hit another 30% this year, if not more. So that's a lot of growth, you know, to manage through, especially when trying to figure out the transition. And sometimes you don't know what to do first. You know, do I figure out how to keep finding more sales because there is a project nature of the revenue, do I open up operational capacity? And then b, how do I not piss off all these customers that have been with us for years and are ordering all this stuff and want it now, regardless of, regardless of whether or not we have capacity internally to support it. So doing all that, you know, has been interesting while at the same time like adding modernization to the business. You know, we did an office renovation. It was, you know, pretty old school. It's like 10 years it hasn't been changed. And then we also modernized all the digital features, like, you know, got away from paper, went to the cloud on all the Systems and new ERPs and things like that. So it's been, it's been kind of wild, you know, juggling a lot. And it's reminded me more of my like, startup days than what I expected this to be. But so far it's been fun and like, you know, we're trying to be systematic while still thinking about like, we got to be in the best possible position from internal infrastructure to support a lot of the work coming down from the Biden bill here shortly.

[1:06:17] Host: So, Jules, it doesn't sound like you. You were hesitant about making changes quickly. Sounds like you got in there and started making changes.

Guest: Yeah, yeah, not hesitant at all. I mean, it was like, day two. But, like, that's because. Because I knew, like, I mean, we had a plan prior and we implemented quickly. But the big thing, like, I talk about the, you know, infrastructure internally to. To support more growth. You know, that's part of why we're also looking at acquisition. You know, once we kind of tap out what's going on here, we need other facilities. We would like rather other facilities to be under ownership as well, so we can set work there, but using the ASM brand name and resume to win that stuff. So, you know, we knew I had to kind of act quickly because if we're going to buy another deal pretty shortly, I mean, we have to have, you know, the time to do it. We can't be transitioning two companies at the same time. So it's been balancing those two that have been really interesting.

Host: But has there been any chafing by the new employees to all this acceleration and change?

Guest: Yeah, some have definitely been overwhelmed, especially on the production side. So we hired, like, we actually had to hire more people on the SGA side to support kind of making that investment. We found that, like, you know, at certain revenue sizes and sheet metal, like, you're optimized for EBITDA margin. But then if you want to get to the next level of total ebitda, you have to then, like, reinvest a little bit. In sga, people can't be generalists anymore. They have to be focused in certain roles. So we did that. But for the most part, people appreciated that, actually. I mean, initially they were all like, what the hell's going on? And why is it happening so quickly? You know, but eventually, I think they saw that, like, it was for the betterment of their jobs, you know, work environment, their jobs and things easier. And people have been excited, you know, kind of reinvigorated because it was so, like, you know, kind of stagnant over the years. I mean, seller did a good job of, like, optimizing the maximum EBITDA for the effort, but he kind of kept it there. You know, he didn't want to push it hard, higher and harder than a certain point, you know, Jules, your.

Host: Your confidence is striking to me. You seem very comfortable and in the seat as captain there, making big changes in this business. And I. I feel like many of my Guests don't, don't seem quite as confident when they're so, they're so newly in the seat. That's your personality or what's going on there.

Guest: Yeah, I mean, you know, I came from startups so hyper growth is not anything weird to me. I mean usually like some of the companies I was at, I mean we'd go from like 50 employees pre series A and then all of a sudden you raise a series A and then within a few months you're at 200, you know, and things are happening real fast, you know, new hires, new this, new that. So it's like, you know, and then you kind of like, you know, at series A, you also kind of put on your grown up pants. You know, you start to get away from like, you know, 10 guys manufacturing in the shack somewhere to like a big manufacturing facility with proper infrastructure. Yeah, it wasn't, it wasn't that like foreign to me. But I kind of know that like if we don't do these things and we don't do them quickly, we're going to find ourselves in operational headaches pretty fast. And you know, we've been trying to keep away from that. We've been still seeing some right now, but you know, we, I don't know. And then I think just, yeah, I know that this is not at all the potential of the business. There's a lot more for us to run and go. And I think kind of knowing, kind of what we're underwriting too, from having seen much bigger operations, I know that it can be done and I know that it's not impossible. It just takes the right moves along the way to get there and so

[1:09:46] Host: elaborate a little bit on those, on those moves, specifically the ones about acquisition. So you just see all of this, all of this spend in the, in the pipeline, infrastructure, spend government basically government money in the next few years. And so you're acquiring to be able to meet that demand.

Guest: Yes, exactly. Exactly. Right, yeah. So we're acquiring to you know, meet that demand. But more importantly, like you can sit there and try to grow sales organically, but lots of times it's relationships and it's just much easier. Like let's say you had, you know, $300,000. You can either buy, you know, the, you know, a few salespeople or something like that and have them go out there and you know, hit the streets and try to build relationships from zero, or you can take 300 and use it as a down payment towards a business that's existed for 20, 30 years. Or more and already has all those relationships and you get the sales fuel with them and you get the operational capacity with them and then, and you get the cash flow from that business to pay itself off. So it just makes a ton more sense to do an acquisition, you know, and have like, you know, inorganic growth. I mean, you grow to a larger scale really, really fast. So we're always keeping our eyes out for that. But you know, doing so in a way where it makes sense. I mean, you know, some we've had people, we've made a bunch of offers, I mean, probably put out like 10, 15 LOI since we've been in this deal. And valuations are still completely wild. You know, we're careful to still bring value to investors and make sure we're not overpaying for, for a deal in order to, you know, just grow.

Host: So 10 or 15 Lois out there. But nothing, nothing has come to fruition.

Guest: We have one that we're moving along with, but they're more in the industrial services space. You know, nothing to do with sheet metal and then the other ones. I mean, it's just the valuations are crazy. We know what the sellers want. We will just never pay that. You know, it's just you want to be able to make money like that. You'd run into more problems than it's worth.

Host: And Jules, as a last question, what is your, what is your overall plan? Here are, do you see building this up and perhaps selling the company yourself and kind of in a, you know, private, private equity sort of timeline or indefinitely running the business?

Guest: Yeah. So the company was purchased in a way where we would indefinitely run the business. Kind of like more of that Warren Buffett model of take the company, buy it in an old age industry that's never going to go away, pay down the debt, you know, refinance at a higher valuation, pay out, you know, investors and profits and keep cycling that through. Definitely. And then, you know, I think we can, we can continue to do that. As, you know, more manufacturers want to leave California. Like the owners of those businesses want to leave California or whatever. We'd be happy to bring them into our umbrella and keep the companies going. So we want to see this grow. We recently did a rebrand to industrial succession to be more encompassing of industrial services and industrial software. So we've been looking at that as well as transportation and logistics and trying to find acquisitions in those space that can serve as platforms. Personally like overall goals with this, after we build out enough of a portfolio of industrial businesses, I like to Start taking those cash flows and diversifying them into different types of assets that interest me such as like real estate and venture capital. You know, I like startups but not being the operator full time would be great and you know, finding ones we can invest in or find operators that are good and you know, give them the startup infrastructure around them to scale are all things that really interest me. But we like to do it on, you know, with when we're in a stronger position of cash flow and you know, when we paid down debt on these assets.

[1:13:16] Host: And do you have any kind of gold number for revenue and EBITDA for this platform plus family of acquisitions that you're making?

Guest: Yeah, I think, you know, in terms of the sheet metal, I think we can get to 100 million of revenue. You know, I've seen other like partners that are in the space where they're getting there. You know, they acquire enough businesses. I mean, you know, literally like a week ago we looked at a deal that was like 24 million in revenue that we could have gotten to 40 had we gotten in there. You know, we'd like to see that sort of stuff develop over time to something like 100 and 100. When you're dealing with metal is not, you know, it's actually not as big as people might think. You know, it's, it's a lot of, a lot of shops that you own, a lot of employees but it's, you know, it's not that big. So I'd like to get there and I think you can get to 100. You could probably find yourself at some pretty decent Eida, probably in the teens and the valuations are like more like you know, eight times when you get to that point too. So we really tell like any like from the investors, we tell them like you know, if you're an investor or business owner looking to like roll over equity with us, like think of it as like more you know, you're not investing in like you know, the deal itself but more of the ISG team and the acquisition and the role of model of the economics. You know, we plan to do more deals versus just stay in one like a lot of self funded searchers do. If you look at the website, it's built a lot more like a micro acquisition group versus a private equity group that has to churn the deals every five to seven years or an individual that you know, wants to stay at a certain size and leave it alone kind of thing.

Host: Yeah, great. Jules. This has been phenomenal and really for me and I imagine For a lot of the audience, a good education on kind of how to think about manufacturing and opportunities there. Anything we didn't touch on that you'd like to say?

[1:15:03] Guest: No, I think thank you for having me. I think it's important to continue to like, you know, kind of pay it forward with the search fund community. I think a lot of people struggle in the search. I think just, you know, take a positive outlook and optimize for certainty of close. I think a lot of people get too fancy in the industries and the specifics of the companies and you know, there's a lot of like different tools out there that close a little faster these days. And then, you know, if there's any like, I don't know, sellers listening to this, we're always happy to chat about, you know, succession in general. I write a lot of like articles on different stuff that you can find on our website, different industry associations and you know, any investors that want to chat, happy to do that as well. Always love to get to know people early on before any action starts happening with deals. So other than that, will thank you for having me. Always, you know, love these sort of things. I really appreciate you setting this up.

Host: Yeah, absolutely. Jules, I was, I was thrilled to have you on so. So thank you very much and congratulations on a long, somewhat painful search. Seems like you are making up for lost time now Jules, what's the best way for people to reach you?

Guest: Sure. So website is industrialsuccession.com or manufacturing succession. That's your whole domain. They both will to the same place. And then my email is on there. It says Jay Brenner, my Last name@industrialsuccession.com Happy to take calls or whatever. And other than that, you can check out acquisitions and videos and learn more about the team on there as well.

Host: Great. All that will be in the show notes. Jules, thank you very much. Till next time.

Guest: Thank you all. Sam.