Host: It's super cool what Justin and his partners are building at their hold code, Traction Capital. Justin came on about a year ago to discuss Traction's backstory and the four acquisitions that they had made. A few weeks ago I saw Justin tweet that they bought two more businesses recently, so I invited him back on. For those of you with dreams of a Holdco, Traction is showing the way. Five years ago they hadn't made a single acquisition. Today, with these two new acquisitions, Traction stands at $75 million in revenue across the portfolio of six businesses and it's a really diverse mix. Distribution for firefighters and first responders, E comm, brick and mortar, retail, paving, asphalt milling and disaster restoration. Those latter two are the new additions, both with interesting features. Listen for how the asphalt milling deal came through, the existing paving business and then the disaster restoration business is Traction's first franchise acquisition. So it's valuable to hear how Justin and team thought through that. By the way, Justin will be on stage at SM Bash in Austin in April, so if you're there, make sure to say hello. Okay? Here is Justin Turner of Traction Capital. 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. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberly Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under Loi Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberly is a specialty insurance brokerage for searchers by a former searcher. Check out oberly-risk.com O B E R L E- risk.com link in the show notes Justin Turner welcome back to Acquiring Minds.

Guest: Thanks for having me Justin.

Host: You were first on the podcast in January 2022. So just over a year ago at the time you and your team at Traction Capital had built a holdco of four businesses. So we heard your story, heard the Traction story, we heard about the four businesses and got into the weeds about how you are building this Holdco. I reached back out to you a couple weeks ago because Traction recently added two businesses to its portfolio. So a great excuse to get you back on. So we're going to Hear about those two acquisitions today and how things are going at the other four businesses as well and just kind of generally how things are going at the Holdco level. So to kick us off, Justin, please just give us the, the high level kind of refresher on Traction for people who might not have heard your first interview. Who are you, who's your team and what are you building at Traction?

[3:26] Guest: Yeah, absolutely. Well, thanks again for having me. So I helped run Traction Capital Partners. We're an investment firm based out in Seattle, Washington. We started kind of looking at acquisitions end of 2017, beginning of 2018 and closed on our first acquisition in October of 2018. Today we have six people on the team at Traction and then about two little over 200 employees across our portfolio. And for us, our focus is really on companies based in the Western US that are somewhere in the kind of 1 to 5 in EBITDA range.

Host: Great, thank you for that. So we're also, we're going to bullet point your, your four, the four businesses that we talked about in your first conversation. But let's hear about these two acquisitions that I guess happen in, in quick succession. So tell us about those.

Guest: Yeah, our plan, they closed two days apart. Our plan going in was not to have that happen. And I don't, I don't recommend that. But yeah, we closed on two deals in January of 23 and the first one we closed on is a disaster restoration business. It's based in eastern Washington and we first started working on that transaction in June of last year. We got it under loi, I believe in August. So it was more of a drawn out process than we were, we typically like to see, we'd like to be, you know, 90 days or less. This one, well exceeded that. This was an interesting deal for us for a couple reasons. One, you know, first investment in the industry. So there's a lot of work you have to do to try and get up to speed. The second piece that was new for us was this was our first time investing in a business that is part of a franchise group. So part of the reason it dragged was, you know, us getting educated and then, you know, negotiating through the FDD side of things with the franchisor. They were, they've been great, they were great to work with, but it was definitely a learning experience for us on the franchisee side of things. And then the second business that we closed was, we call it an add on for our paving business. But we bought a business that was probably 50% larger than our existing company in the space we own a business called Tony Lind Paving that's a, you know, kind of run of the mill asphalt paving business. And then we bought a company called Ground Up Road Construction that does asphalt grinding and soil stabilization work. They were a vendor of ours on the paving side of things. And so we feel like there's a good opportunity to combine the resources of those companies kind of jointly go after work together. So we've got expanded capabilities which should allow us to go after better and better projects. That one was also the first one we had done that was really an off market deal. Our attorneys were the law firm for Ground up and the husband, wife's owners had approached our attorney and said, hey, we're thinking about selling our business. We know you helped TLP through their process. Would those buyers be, you know, potential person we should talk to about selling our business to? So it was, had its ups and downs. You know, the, a lot of people talk about finding proprietary deals and I think, you know, they're, they're certainly out there. I'm not convinced that it's an easier process for the buyer or the seller if you go that route. I think intermediaries play a really valuable role in that process from whether it's educating the seller on market pricing or market structure when it comes to like, hey, what is market for specific legal issues. And then the other piece of it is there can at times be a lot of hard conversations that you have to have as you go through the deal process. And that intermediary can kind of serve as a buffer where we can have really hard conversations with the broker and then they can kind of filter that back to their client. But at the end of the day, you know, got, got the deal closed. You know, I think we've still got a great relationship with the seller, the, the husband and wife team. The wife is going to transition out pretty quickly. She'd like to retire. She's been the kind of lead accounting person for that business for the last 15 years. And Scott is going to continue as, you know, the CEO of that business going forward for at least a, a handful of years here. So it was long winded. But yeah, so we got, we got two closed.

[8:24] Host: That's great. That's great. Congratulations on those, Justin. Both sound like they were, had their own challenges and on the ground up deal. So I take it that you encountered all of the problems that you just listed that people encounter when buying a business without an intermediary. So you had to educate them on what a fair, a realistic valuation was. You and had to have those hard conversations without the benefit of the intermediary kind of filtering all that through.

Guest: Yeah, you know, I think the valuation side was actually pretty smooth. You know, they, you know, we, we oftentimes talk about EBITDA as, you know, oh, I paid four times or three times or six times. But ebitda, as I think most of the people that listen to your podcast will know, is not really representative of what the business generates from a cash flow perspective. And the sellers understood that concept really quickly because they have a business that has a significant amount of capex that is required to drive the business. And so, you know, all of our conversations early on were about coming back to a, you know, EBITDA less capex number as the number we should focus on and then a multiple of that. So that part went pretty smoothly. I think the challenges were, you know, working capital, working capital targets, you know, some of the, the legal side of things and then, you know, really the diligence process itself. You know, we're working with directly with the sellers and they have a business to run. They didn't have help, you know, populating a data room or getting us the data that we needed. So I think it really put a stress on them just trying to get everything that we were asking for and were requiring. But yeah, it took a little bit longer than we had hoped. But at the end of the day, I think everybody was, was really happy with how the transaction ended up.

[10:20] Host: And you said Scott is his name is of the, the husband of the husband and wife team. Yeah, he's going to stay in the business for how long?

Guest: You said we've got a three year employment agreement with him and then after that, you know, we'll reassess what he wants to do there. There's a handful of things that he wants us to take off his plate which were happy to, you know, hire the right people to do that. He really enjoys the business development side of things. He, you know, less so enjoys more of the admin and operations side of things. And that's something that we feel like we can step in and relieve some of that pressure off his plate.

Host: Great. And as I recall, I mean, I mean as with most holdcos, to actually scale your model, you need operators in, in each of the businesses. It sounds like he's going to be primarily actually focused on sales, not on operations. But you have somebody at the ready to go in and, and be the operator for this business.

Guest: Yeah, we've been in the recruiting process for an operator that'll step in and help run, you know, both sides of our infrastructure business, the paving and the grinding side of things. Scott will continue to be involved in that until we get that finalized. But yeah, the, the longer term, I shouldn't even say longer term. The shorter term plan is to backfill so that he can be freed up to really be the face of the business and continue to help it grow.

Host: And just, I, I don't think I've ever had a conversation with somebody who bought a vendor. So when you do kind of, when you acquire a vendor and do kind of a light vertical integration there, do you worry the vendor, the ground up that you're acquiring will lose business from your competitors? So they're not going to like the fact that, you know, they're not going to want to be helping the, they're competing. Tony Lind Asphalt pavement business or. Not really.

[12:17] Guest: Not. Not really. I think Ground up would tell you that they would prefer not to work on the projects that TLP has them work on. Ground up is really set up to do, you know, massive infrastructure projects, whereas our paving business is focused on smaller, higher margin jobs. So I don't, I don't, I don't think we're at risk there. I think where we may be at risk is if we, you know, start hiring people away from different customers that we have. But I don't think we'll lose a lot of business now that we're more vertically integrated.

Host: Great. And then going back to the restoration one, the cleanup business, the restoration cleanup business, the six months that it took to get that deal done, that was because it was a franchise. Is that what I'm hearing you say?

Guest: I mean, there was a number of different things that led to the delay there, but the franchise side was definitely a learning experience for us for sure.

Host: And how did you all think about the risk involved in buying into a franchise network?

Guest: It took a while for us to get comfortable with. We definitely spent time with the franchisor down in Dallas, you know, really talking about how we're different from, you know, what they think of when they hear private equity. And I think that was one of the reasons why, you know, we were given the opportunity to buy the franchisee. He had a number of private equity groups that were a part of the process when he was, you know, first had his business out to market. And I think we, you know, set ourselves apart because we have a long term focus. We're not looking to, you know, drive incremental profitability over a compressed time frame and then exit the business. It's more about, you know, what is the long term opportunity and how do we generate, you know, sustainable long term cash flow growth in the business. So it, it definitely wasn't because of the, you know, exclusively because of the franchisor side of things that it, that it dragged. There was a number of things that popped up. But we're, we're excited to be a part of the franchise system and we think there's, you know, a lot of opportunity to grow within that system. So it certainly has its risks, but we're, we're excited about it.

Host: When you say opportunities to grow within the system, are you eyeing kind of this, how, how quickly you can acquire, once you're, once you kind of have a tollhold, toehold within a franchise system, you can, you know, if there are exiting, exiting owners that the integration piece is often very seamless. There's kind of a, there's kind of a built in, a built in pool of potential, potential deals out there, namely the, the others in the franchise network. Is it kind of all of that stuff or something else? And, and are you proactively pursuing that? Are you just kind of raising your hand and saying, hey guys, anybody who wants to sell, we're here?

[15:21] Guest: Yeah. So I would say it's, it's kind of all of those things. We bought the biggest franchisee in the system. And I would say of the, you know, in the size deals that we look at, this was probably the best kind of complete team that was in place to run a business. And we, you know, we've partnered. This gentleman's name is also Scott. We partnered with a CEO who still owns a chunk of the business alongside of us, but is extremely entrepreneurial, is very driven to grow the business, you know, hasn't slowed down at all. I mean, Grant, we've only owned it for not even a month, but he's got a great system and team in place to allow us to go after some of these growth avenues. Given the fact that he is their largest franchisee. You know, he, he, he has a lot of conversations with other franchisees who are struggling or wanting to, you know, achieve the growth that he's experienced in his business. And even during due diligence, we, we knew that there was other franchisees in the system that were reaching out to him saying, hey, can we partner? Would you be willing to buy me out? And so we've already, we've owned it for a month. We've already submitted an IOI for, you know, buying another territory that's an existing business that Just has been struggling. So we think there's a lot of opportunity there. You know, when we talk to the franchisor, there was some hesitancy on their part. Again, you know, they hear private equity and they, they have a vision in their mind of what that means. I think what, what we're trying to do on that side of things is really build the relationship there so that they're not, you know, threatened or anxious by what our, you know, strategy might be. So we're keeping them in the loop on hey, we're talking to, you know, XYZ territory but we think there's a lot of opportunity to either buy new kind of greenfield territories or you know, help partner with struggling franchisees in the system and really deploy the system that Scott and his team have put together to be able to drive, drive business.

Host: Yeah, I mean that, I mean I've just recently had a few, a few episodes devoted to this concept of namely actually on Thursday, Brian Beers who has, he and his brother have acquired like 30 Midas locations. And in many cases it's talking to sellers where the, they're struggling. They just haven't been very successful stores, very successful locations. And so not only are the terms of the deal often very favorable seller, heavy seller financing, sometimes 100% seller financing, but Brian's experience in the system allows him to go in and turn around pretty, pretty, pretty quickly and pretty confident like know that he's going to be able to go around and turn, go in and turn around a struggling Midas. So, and, and, and so just getting to 36 locations, I mean you can scale really quite quickly within a franchise system once you get the lay of the land.

[18:37] Guest: Yeah, and again we're brand new. I'm not, we are not experts, we don't have the playbook dialed in but we certainly seeing a lot of opportunity and we feel pretty confident that you know, our team out in Spokane is going to be able to handle, you know, the integration and then the turnaround side of things with these territories that are, you know, struggling.

Host: 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. Chelsea at buy, then build.com and just two more on this. Justin. When you're, you are positioning yourself to the franchisor as a private private equity group, that's really more permanent equity rather than traditional private equity, do other private equity groups not also say, oh no, we hold for the long term or they, they basically have to acknowledge, no, we are buying, we do intend to buy this business, to grow it as quickly as possible and then sell it because they know that the franchisers franchisor is not going to like that. So I would just imagine you'd hear a lot of private equity groups claim, oh no, we're in it for the long term. But maybe they can't if they're not actually in it for the long term. How do you, what does that look like when you're competing against other private equity people? What do they say? What's their messaging?

Guest: Yeah, I mean, we haven't been, you know, in the room for their pitch. You know, I would tell you when I worked in private equity, like you weren't coming in saying hey, we're going to, you know, strip out costs, drive profitability and sell it. But there was an understanding that hey, we have a defined, you know, period of time where we have to deploy and then repay capital capital back to our LPs. So just by the structure of the fund, you know, you know that there's hey, we have X number of years to deploy, we have X number of years to make improvements and then we have the opportunity to give that money back to LPs. So I would say, you know, our approach coming in of saying, hey, no, we, we are multi decade, we're not, you know, three to five years resonates. Now again, we're only, you know, traction's five years old. So you know, we, we haven't been able to demonstrate a multi decade hold period yet. But I think that part really resonated and you know, we, we try and come into the conversation, you know, from A from a standpoint of, hey, we, we are not experts in your business, we don't know how to run your business better than you do. You know, we're going to ask you a lot of questions. A lot of them may be, you know, silly or simple or you think are ridiculous and that's totally fine. We are asking from a standpoint of wanting to understand, not because we think we're smarter than you by any means. And so I think that, you know, I think that approach really resonated with Scott, the individual that we, you know, partnered with on the franchise side of things for the restoration business. And you know, he, he had grown it really quickly and he went into it when he started it with the goal of building it to be able to have something that was sellable in the future. So he was very strategic in how he built his team, how he built his systems. And I think for him one of the biggest drivers was, hey, I, you know, when we talked about this before we started recording, it can be really lonely when you're at the top of these businesses and you know, you don't really feel like you have people around you who are as invested in what happens with the business going forwards and you know, not having that team that you can really bounce the hard strategic questions or hey, like I'm, I'm weighing this decision that's going to have a meaningful impact on the business. Like, what do I do? So he was looking for partners that, that were aligned on the long term side of things. He still sees a tremendous amount of upside in the business and in the industry and he's super entrepreneurial. So he's trying to figure out what things out of our core restoration mitigation side of things can we add to this business that help us accelerate growth. So we're really bullish on that one. The franchise side is an interesting dynamic, but we're really bullish on the team and on Scott and I think they're going to do a great job.

[24:02] Host: Great, Justin. And before we get off this, just tell us a little bit about the restoration and mitigation business because I feel like this is a kind of a, a small service, a small business, a service business that I, a home service business that I hear about more and more. And you'll, you know, I think there's been a, a deal or two on acquisitions. Anonymous and I just, I hear about these businesses, don't know anything about them, seem like really hard businesses, but clearly there's, there's demand for the service. I mean there There, I guess there's more people with disasters happening in their basements than I realize. So. Yeah, just kind of talk to me about what, what to look for in a business like this. What did you like about this? The business model and, and kind of the market for these services.

Guest: Yeah, I mean, I think one of the big things is it's truly a non discretionary spend item. Yeah. If you have a pipe that's broken in your house, you're not thinking, hey, I need to, I need to remember to get something scheduled to come look at this. You're not thinking like, hey, I've got to, you know, try and negotiate the best price. It's. I need this solved immediately. And so the non discretionary aspect we really like, you know, I think as they're, you know, we, we live at. Our business is based in an area that's not, you know, really driven by catastrophic events. I think if you look at restoration businesses that are more in the Southeast, you'll find, you know, wild fluctuations depending on what their business model is. Because a lot of their work can be, you know, cat driven, where you have massive weather related events that drive the need for this type of work. You have, you know, an aging housing stock, and so you have lots of structural challenges with homes and buildings that, you know, aren't affected necessarily weather wise, but just they're old and they break. And that, you know, causes a need for the type of services that we provide. The, the piece that's, you know, different in the business we bought versus what you'll see from other. The. Some of the other, you know, franchise specific businesses in the space is we don't, we don't do a vendor program. So we're not aligned with insurance companies. A lot of restoration businesses from the franchisor level will partner and become vendors with State Farm or all state or whoever it may be that does your homeowner's insurance. And so our model with this business is to drive business from local relationships. It's not from a national account standpoint. And so our sales folks are building relationships with local property managers, with local plumbing companies, so that, you know, we're the first person that they think of when they have an issue rather than it being driven by the insurance company saying, hey, you know, we have a $10,000 project you guys need to work on and Spokane.

[27:04] Host: And I guess that means you get to, you get better pricing that way, better margins. Because the insurance companies kind of really knock down your pricing. If you're a vendor for an insurance

Guest: company or no, when you're, when you're on the vendor program, there's a very defined, hey, this is what these types of services cost. Where we feel like we are able to drive better margins on work is we don't come at it from a, hey, here's the five things we have to do to check the box that we took care of this customer. We go above board to make sure that their house or their structure is, you know, completely back to normal. So we do a lot more testing. We do a, I would say a more thorough job of making sure that the property is actually livable again before we're actually done with a project.

Host: Okay, well, Justin, let's move on to hearing an update on the four businesses that, that you already had in the portfolio that we talked about last time. We'll just quickly go through these. Let's do Sea Western first, which was a distributor of supplies for fire stations, correct?

Guest: Yep, yep.

Host: So tell us about seawestern. How is it? How is it now?

Guest: Yeah. So that business, we, we sell equipment to fire departments, everything other than fire trucks and extraction tools. And it's a business that's been around since the 70s. We bought it in October of 18. That business, when we bought it, was about 15 million in revenue. It'll do probably 36, 37 million in revenue this year. And you know, last year was the best year they've had. I think this year is on pace to be their best year again. And, you know, I think it's really a credit to the team there and some of our team attraction. You know, when we bought that business, we knew they needed systems and infrastructure to help the business scale. It was, you know, paper everywhere in the office. That was really how they manage the business. And so we did a full deployment of an ERP system. We built a bunch of tools to help our sales force. And so the system side of it is really what's allowed us to scale to the additional geographies that we have sales reps in now. There's a lot of changes happening in that industry. There's been a lot of acquisitions of larger distributors in the kind of first responder space. So it'll be interesting to see kind of what shakes out over the next handful of years. But we're, we're still really excited about that business. We've got an add on that we're getting close to with that business that would give us access to be able to sell the fire trucks as well as kind of the wildland wildfire rigs. So we're yeah, we're, we're excited about that business. It's been, it's been awesome for us. We, Scott or no, Steve, excuse me, was one of the owners that we bought it from. He's still the CEO of that business. Today we're actually flying down Wednesday down to Arizona for a board meeting for that business. So, yeah, it's been, it's been going well.

[30:24] Host: And Justin, when you said it was, that business was founded in the 70s.

Guest: Yep.

Host: So it's just, it's, it's interesting because in our world a lot of times you hear the prescription being get rid of the paper, get rid of the fax machine, put in tech and you know, magically the business just grows. And I feel like that's kind of conventional wisdom. And then I've heard a number of guests come back and say, well actually that's really oversold oftentimes, you know, yeah, you can get some efficiencies from getting rid of the paper and putting in tech. But like maybe the efficiencies aren't so dramatic and actually maybe the changes are disruptive or it's just not as big a deal. It's not as much of a needle mover as you might think. And yet I'm hearing in this business, one that was 50, you know, I guess it's a 50 year old business now, 40ish years when you bought it. In fact, that really kind of was the thing that, that the battle, the bottleneck that allowed you to more than double it in five years. A 40 year old business. I mean this is a business that had a long time to grow, got to 15 million, which of course is impressive. But, and then, but then really kind of in, in just the, the four year, four or five years you've had, it has more than doubled. So am I, am I hearing you correctly that it was really, it was really just kind of like putting in some tech?

Guest: Yeah, I wouldn't say it was only putting in the tech by any means. You know, we were really fortunate with that business that, you know, Steve and his team really place an emphasis on the customer service side of things and really taking care of the departments and not just being order takers, but being, you know, available and you know, being out in the departments and helping them figure out, you know, what are the, what is the equipment that they need or the supplies that they need to make sure that their people always come back from the fire to be able to go home with their families. And so, but that in conjunction with taking the ceiling off of the business that really was their lack of a system on the back office side of things. They had orders that would fall through the crack. They had a slow process to be able to actually get pricing to customers because it was really a bottleneck on Steve. So we developed a bunch of pricing tools for our sales reps to help them really quickly be able to get pricing out to the customers. And then we, you know, really streamlined the order intake process so that, you know, things shouldn't fall through the cracks. There's, there's still issues from time to time, but it's certainly not as, as easy as just putting systems in that work. So you have to make sure that the systems actually support and drive the business, not just, you know, system for system sake.

[33:15] Host: Yeah, yep.

Guest: And that was real. I mean that was really an effort that was led by Dale and Peter on my team. They spent a ton of time in that business the first year and a half after we bought it to get those things in place.

Host: Dale and Peter. Peter Bell, who I met in Orlando at SM Bash and Dale.

Guest: Yeah, Dale Payne, he's one of the guys that I started traction with.

Host: Great swag off road. Tell us about how this business is doing.

Guest: Yeah, that business has been, you know, it's, it, it saw a huge bump from COVID You know, it grew, I think 45, 46% in 2020, you know, slower growth in 21, kind of flat in 22. Still a really good business for us. The challenge there, as it's been for, you know, the last couple years, is on the product development and the, the velocity that we're able to get new products out into the market. We've added a couple people to our team there that I think are helping to start accelerate that side of things. We've got a really loyal and passionate customer base and you know, thankfully we've been able to, we've been able to design and sell really high quality tools. So yeah, we're, we're excited. This should be a big year for us. We've got a couple, you know, big product launches that'll be happening later this month and next month that we think will help kind of restart the growth that we're looking for with that business.

Host: Tony Link paving. We touched on it a bit already because it's the, of course that was the vendor to ground up. But tell us a little bit about that one and how it's doing.

Guest: Yeah, that one, that one was flat last year from the year before, you know, and maybe we'll touch on some of this later, that was one that really had challenges on the employee side of things. And, you know, we had a lot of folks kind of early on when we owned it that were, you know, jumping for what they thought were greener pastures. And so there was a lot of work just trying to make sure we had the employee base that we needed to do the work that was on our schedule. I think we've solved some of those, you know, issues here lately. We've had a lot of employees come back saying, hey, the grass actually wasn't greener on the other side of things. And yeah, we're still excited about that business. We think there's a really good opportunity in conjunction with Ground up now to go after bigger projects for that business and to expand the customer base that we have there. I think our challenge with that business is making sure we have the right management in place so that we can free up Tony, the prior owner, to, you know, work on only the things that he enjoys working on. And so that. And so we, you know, reduce our dependency on him as an owner. He's still a vital part of that business. He still enjoys coming to work, but, you know, he eventually wants to go spend more time on his boat, spend more time hunting. And so we've got to free him up to be able to do those things.

[36:24] Host: Yeah. Well, let's do talk about both hiring his replacement and just kind of the labor challenges you saw with that business. Let's put a pin in that and return to it. Let's hear about your last portfolio business, Stumptown Mattress. The mattress business.

Guest: Yeah, it's fun talking about the portfolio because most of the time it's been good news. This has been the one that's been a challenge for us. It's. It's largely a consumer discretionary spend item. A mattress is something you can say, hey, actually I'm good. I don't need to buy one for another six months or a year. And so during last year, we definitely saw a pullback in that business. I think uncertainty about the economy, housing, sales slowing down. So that business was down, call it, you know, 10 to 15% last year. We've added some folks to the team to kind of help restart some of the growth there, which we've. We've made more of an emphasis on new product development and, you know, trying to build out some different sales strategies there to start, you know, offering our kind of mattress and home goods products to a little bit broader audience than they had historically. So that one is the one that's been a Challenge. But it seems like the last kind of two or three months or so, it started to turn the corner the other direction.

Host: And it's kind of an E commerce retail hybrid. Right. There's a location in Portland and then it also sells online.

Guest: Yeah, probably 30ish percent of our sales are online direct to consumer. And then the balance is through the brick and mortar store that we have in Portland.

Host: And Justin, what do you think you didn't see when you were looking at that, at that deal and because obviously it's been more challenging than you would have liked.

Guest: Yeah, I think we didn't fully, I mean, you hear about COVID bump in profitability. I don't think we fully normalized what the impact of the COVID bump to the positive was for that business. And I don't think we, I don't think we saw the slowdown on the consumer spend side of things and maybe we should have. But you know, we bought it kind of end of 21, had a great finish to 21. And then, you know, starting, kind of beginning of Q2 and 22 is when we really started having some slowdown there.

[39:06] Host: And does that, does that scare you off now from discretionary, consumer discretionary kind of permanently or.

Guest: No, not, not permanently. And I think, I think a lot of that Covid bump is starting to be, you know, long enough in the rear view that you can see kind of what a more normal, somewhat normalized earnings looks like. I know we still have a lot of supply chain challenges and you know, a lot of inflationary pressure on the costs that go into certain things, but I think we've worked through most of what, you know, the COVID impact on some of these businesses has been.

Host: Okay, great. Well, on the kind of heels of the question that I just asked you, you've now done six acquisitions, a really a wide variety of businesses. What have you learned or what have you improved about the types of businesses that you buy? If anything? I mean, are you, do you really kind of look at, I assume you have size parameters, but aside from that, are there certain things that you like or won't touch or, you know, has your, has your scope become more narrow? What have you learned?

Guest: I wouldn't say that our scope has become more narrow. We, we, you know, we're still focused kind of Colorado and West on, on the businesses that we want to look at largely, so it's easy to get to the businesses so that we can spend time with the teams out there. I think the market has gotten a lot more competitive for those Size deals. You know, I go to a dinner here every quarter in Seattle. That is a group of folks that invest in private businesses that don't have a fund. So it's a group of independent sponsors, which is what we would be. And, you know, there's 30 people just here in Seattle that all own businesses that they've bought that are in the size range or larger than the companies we're going after. And Seattle's not a large investment hub by any means. So the market's definitely getting more competitive. I think, you know, interest rates on the buyer side have changed our kind of valuation expectations a little bit. But we haven't seen, you know, the cost of capital change, what owners think their businesses is worth, which I can totally understand from their side of things, that their business performed well in 21 and performed, you know, maybe a little bit better in 22. They're not going to think, oh, well, the buyer's cost of capital is higher. So that should impact the price that they're willing to pay for my business. They think, hey, like, my business is doing great. Why would I accept a discount from what somebody told me it was worth six months ago? So we haven't seen any change on the pricing side of things, really. The cost of debt has certainly gone up, and depending on your lending relationship, that can fluctuate pretty wildly. I think for us, you know, we're going to try and stay in the same size range of deals for the most part. We still think there's a lot of opportunity to partner with these businesses that are, you know, at the low end of the middle market. And hopefully we can come alongside and help, you know, build out the systems and the team that's needed to continue to scale those companies. But I think it's going to get harder and harder to find, you know, deals that we think are priced appropriately just because there's going to be more and more capital coming into the space.

[42:43] Host: And that is because why? Just a continuation of a trend that has been going on now for a while. Because you're not competing with searchers. Like, so the trend in searchers, you're not. You're a bit above that market. So you're not really competing with that new popularity.

Guest: I mean, yes and no. There certainly is searchers that are looking at deals that are on the lower end of what we're looking at. There's increasingly more and more independent sponsors that are folks that are, you know, coming out of a private equity background that are saying, hey, I can go raise the money to go buy a $3 million EBITDA business. And there's more and more funds that are raising, you know, a few hundred million dollars where their focus is on partnering with independent sponsors. So there's more and more capital. I think as returns get driven down kind of across the market, folks are going to try and find these niches that have the ability to drive higher returns. And I think that in and of itself is going to drive up pricing for a little while now. Will everybody be successful that's trying to move down market to do these deals? I don't think so, because you're buying businesses that need a ton of help, that don't have full teams. And so, you know, it's very different from like $2 million EBITDA business is very different than buying a $10 million EBITDA business. Like your sophistication, the, the team and what they're capable of doing. You've got to remember that they're people and treat them like people, treat them how you want to be treated. And, you know, it's hard, I think it's hard to come down market and have the same expectations that you'd have for your team. Yeah, there's just, there's not as much professionalism, there's not as much sophistication. So you got to roll up your sleeves and work alongside them to help develop them. And that's not what everybody wants to do.

Host: Yeah. And. And that is part of your model, Right? I mean, I've heard you say that now with a couple of, a couple of the deals where the CEO, founder, seller is still involved in the business. Is that, is that the case in every acquisition or is that kind of your default? But then it varies at the edges.

Guest: Yeah. Of our four of our six businesses, four of them still have the prior owners involved on a day to day basis. In two of them, we've gone through a transition there. So Swag, the gentleman we bought it from is not involved on the day to day side of things anymore. He still helps with product development, but he, you know, from the beginning said, hey, I want to be done in 12 months. I want to go ride dirt bikes and hang out with my kids. And then the prior owners on the mattress business are now out of the day to day as well. So we've promoted a couple people from within and then we brought in an individual externally as well to help continue to lead that business.

[45:42] Host: Bringing in somebody externally. And I think you mentioned it was, it was Tony Lind as well that you're, you're looking to eventually replace.

Guest: Yeah, we're there. We're looking to bring on kind of a director of operations that's going to oversee all of the day to day side of things. We want Tony to focus on customer development, customer relationship side of things. Those are the things he really enjoys doing in the business. He doesn't particularly love being there at six in the morning every day as we're getting crees on the road with machines. So we've got a director of operations that's going to be starting here in the next couple of weeks that we're excited about.

Host: And Justin on the hiring piece. So for both kind of higher level hires, director of operations types and then also that what you experience at Tony Lind with, with folks leaving and then I guess coming back, which is great. I get those are two different, very different hiring processes I assume are kind of like pools of talent. Take the latter first, like the blue collar hiring and labor shortage that we all have heard so much about. Where does that, where are you seeing that in your own business? In. In Tony? Lynn, is that as bad, Is it easing? Because I've heard, I've heard rumblings that it's easing. Happy rumblings that it's easing.

Guest: Yeah, I would say it's easing a little bit. I think it's still a challenge, especially, you know, if you're not replacing, if you're adding to. It still has been a challenge to find, you know, people that have the skill set that we need to fill these different roles. You know, our restoration business hires a tremendous amount of people to come in and be technicians and it seems like there's getting to be more and more folks that are, you know, looking to make changes there, which I think is good for our business. On the paving side, it's been a challenge. We're a non union shop and it's been a challenge to get good operators in there. But we've seen over the last handful of months, I would say we've seen some folks coming back that left for what they thought were going to be better opportunities and more folks saying, hey, I'm hearing good things about what you guys are doing. I want to come be a part of that. So I think it's softening a little bit. It's still a challenge. And I think, you know, on the management side, you know, we've got I think three or four open controller positions that we're hiring for right now. It's been very hard to find high quality people to fill those roles for

[48:24] Host: what we need Justin, I don't think I asked you revenue numbers on the two new acquisitions. So tell us those and then tell us the overall portfolio where you're at revenue wise and then I'll close it with one last question.

Guest: Yeah, the ground up business is a, you know, 13, 14 million dollar a year revenue business. The restoration business did about 10 and a half million in revenue last year. Overall, we're going to, you know, we probably finished out 22, somewhere around 75 million in revenue and we're call it 200 or so employees across the portfolio.

Host: And so to put that in perspective, you, you, your first acquisition was in 2018. You started really looking for businesses I guess in 2017. So I guess you kind of officially started in 2017, but really your first acquisition, 2018, five years later, less than five years later, you have, you're at $75 million in revenue. Pretty spectacular. How does that square with like when you were, were, you know, modeling this and, and whiteboarding it in 2017, what were your aspirations for, you know, your five year plan? Because here you are at five years. Are you ahead or behind? I can't possibly imagine you're behind, but

Guest: compared for us, yeah, I mean, I don't know if I could tell you specific, you know, dollar amounts that we were projecting. I would say like if you told me at 29 when we started that this is what we'd be, you know, five years later, I would blown out of the, blown out of the water. We've, we've got a good team attraction and that's, I think, what's helped us to be able to scale. It's, you know, I think when we were starting out, for me at the time I was coming out of private equity and I was maybe naively saying, hey, I think I can do this on my own. So in the beginning it was just, you know, hey, I walked away from a good paying job to try and, you know, build this business. Let's try and get a deal done so that we can start paying ourselves a little bit of money. And then it was, you know, hey, we got the first one done, let's see if we can find the second one. And then all of a sudden it's, you know, 75, 80 million in revenue. So it's, it's, it's been a whirlwind. It's definitely been kind of more than I, you know, expected that it would be. And we're, you know, hopefully going to continue to, to grow really fast. We, we want to, you know, continue to build this. We've got a really good team. I think there's a good opportunity for folks that have a track record of being able to buy and grow businesses. So we're excited about the next couple years as well. We think there's going to be some good opportunities for us.

[51:20] Host: Justin, will you be in Austin for SM bash at the end of April?

Guest: I will be. Yep.

Host: Great.

Guest: Yep.

Host: I'll be. I'll see you there. We. We. We met each other in person in Orlando last time. Will Pete. Peter. I met Peter as well. Will he be there in Austin, do you know?

Guest: I got. I'm not sure if he's coming this year and he checked.

Host: Okay. Okay. Okay, cool. Thanks very much for coming back on Justin. Congratulations on the last five years. Really exciting. Really, I'm sure enticing to people listening. As we all know, Hold Closer are a fantasy of many listening to this podcast and you're the real deal. And it's happened pretty quickly. So congratulations on that and for being really kind of an inspiration to people.

Guest: Well, thank you for having me on. I think you and I have kind of chatted offline about this, but I probably hadn't, you know, 10x the number of people reach out to me from being on your podcast the last time versus any other thing that we've done like that. So thank you for the platform that you have and giving us the opportunity to talk a little bit about our story.

Host: No, well, no problem, Justin. Thanks for coming on. And that's a good reminder. How can people. What's the best way to reach you this time? I suspect you'll get more outreach than last time.

Guest: Yeah, I'm on Twitter. I'm not super active on Twitter. I'm more of a consumer than a creator on there. But feel free to shoot me a DM or, you know, find us on the website. Shoot me an email. Happy to. Happy to be helpful where I can. Cool.

Host: All right. All that'll be in the show notes. Thanks, Justin.

Guest: Cool. Thanks. Will.

Host: Sa.