Host: Chenmark is a name many of you will know. The three founders of the Maine based Holdco quit Wall street in 2015 to go out and buy small businesses to hold and operate forever. Today's guest, Trish Higgins is one of those founders. Trish and her two partners are often on panels and podcasts including acquiring minds episode 55 doing more high level talks about Holdcos Small Business Acquisition Search But I had Trish on today just for story time. I wanted to hear about a particular acquisition, that of Cap' N Fish's Cruises, a boat tour business in Maine. Even for Chenmark, whose founding principle was to take the road less traveled, this seemed like such a funky, unlikely and frankly, unappealing business. I wanted to understand what Trish saw that I didn't. Well, she delivered. You're going to learn a lot about what to look for in these businesses. And by the way, we do actually get into some high level stuff about Chenmark. Overall, I couldn't resist. So the actual story part of the interview doesn't start until around minute 20. Please enjoy this awesome conversation with Trish Higgins, co founder of Chenmark. 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 Oberle 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. Oberle 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 Trish Higgins. Thank you for joining me today on Acquiring Minds.

Guest: Thank you for having me.

Host: Trish. You are a partner and co founder at Chenmark, the well known and widely respected firm in our world here of small business acquisition.

Guest: Our very small world.

Host: Yeah indeed. Chenmark has acquired since 2015 when you all really got started. Nine platform companies, over 30 acquisitions total. So that's the nine plus a couple dozen bolt ons and tuck ins and now count 450 probably north of 450 employees across the Chenmark family of companies so quite an active seven or so years. Most of the listeners will probably already be familiar with both you personally and Chenmark. But indulge me and just give a quick bio on yourself and on and on the Chenmark operation, please.

[3:21] Guest: Sure. Well, I think probably the biggest addition I'd make to the overview of the stats is 9 platforms, 30 plus acquisitions, 450 plus employees and 2 kids during that period. So we have been. It's been a busy seven years.

Host: Yes, but important clarification.

Guest: Exactly, exactly. But. So I started Chenmark along with my husband James and brother in law Palmer back in 2015. We had more of a traditional finance background, not really anything to do with evaluating companies, oddly enough. So we weren't investment bankers, we were not in private equity, so we were more in like the trading side of the market. Palmer did equity, was an equity research analyst. So he had the most sort of experience making models and things like that. But James was a currency trader and I was a research analyst at a global macro hedge fund. So pretty different to what we're doing today, but it actually really provided us with a really good sort of foundation in analytical thinking and evaluating new ideas and all that sort of stuff. And I went to business school. I did not take any classes in the search space while I was there. I did basically none of my coursework was at all relevant to small business operations. So I get a lot of phone calls from people in business school who are thinking about what to do and I always tell them that they are way ahead of the game because when I was there I wasn't thinking asking those questions at all. So a couple of years post business school, you know, I think all in our different way, we were all feeling like we wanted to do something a little different. Both one, you know, we had this sort of idea of buying a small business came up through a couple of different ways. And you know, first and foremost we, we thought it had interesting economic characteristics, you know, financial returns. We thought it was a pretty interesting space. Very fragmented, very inefficient ability to buy companies at relatively low valuations, hold them for the long term. So from a financial investment thesis perspective, we thought this was an interesting space to sort of spend a career. It certainly we don't think is a get rich quick space, but it is an interesting space we think to build a career in. And, and then just on the personal side of things, we all felt in our own way that we wanted to do something where we had a bit more of an impact. We felt that we'd had the privilege of going to some really great schools and working with some phenomenal bosses that we learned a lot from. But we sort of felt like we were just sitting at a desk and we wanted to get out and say like, hey, we have these ideas about things that might work from a leadership perspective, from a business perspective, from an operations perspective. But how do we, how would those translate in the real world? And the idea of becoming more involved in small businesses made us, was really exciting to us just on a personal level. And we've said many times that even if chenmark doesn't work out from a financial perspective, because maybe it will, maybe it won't, you never know what's going to happen. We have had so many interesting experiences, both good and bad, that our lives have been much more interesting than I think they would have been otherwise. And, you know, we're very thankful for the experiences we've had in all of the craziness of the small business world. So that's pretty much the big picture stuff. We've been sort of a couple of the kind of the big things about us that I think are important to our model is that we're very focused on long term ownership. So. So when we buy companies, we don't really think about an exit. We just think, is this company something that we think we can own for the long term, can generate cash flow over the long term and will it be around? So sort of what's the long term durability of demand for this business? So that's a really big one for us. The second one is that our goal has been a holding. We're in a holding company structure that came around a couple years after we. And we have been using the cash flows from our businesses to buy the next business. And when we first got into this space, we really were committed to the idea of building a portfolio of small businesses. And at the time that was not a popular idea. And people really were focused on sort of the single searcher model. And you know, I think one of the benefits for not having gone through more of the traditional search education is that we sort of came at it with our own perspective. And especially in the early days, that idea can have some challenges because it takes some time to kind of get a, you know, to build a portfolio of companies, you first have to start with one and then the next and then the next. And it can take a while to build it up. I think at least in a sustainable way that made sort of sense for us. But we have really focused on creating this Portfolio using the cash flows from business one to buy business two, then the cash flows from business one and two to buy third and so on and so forth. And so we have not, you know, we haven't raised a fund, we don't really work with external capital providers and our growth really relies on the success of our businesses. And so we're very invested in our businesses in terms of how they do. And if they do well then overall Tenmark can grow and if they don't, then we'll kind of, you know, spin our wheels for a little while. So I'd say those are kind of the two really big important aspects of our approach and our model that you know, as I mentioned before, this is a very fragmented, inefficient space. So there are a lot of other people who have different models that kind of, that work for them and for the three of us and what our objectives are, the sort of long term holding company internally, cash flow generated, funded growth kind of made sense for us and that has, I think it's kind of cool for us because that was really our plan, you know, at the very beginning when we were just putting this down on paper when it was just an idea. And that's pretty much still very much our guiding vision. So it's. We've gotten a lot of other things wrong and had to adjust. But those big things have stayed true so far. So that's encouraging.

[10:48] Host: If I can distill kind of your three goals or the three themes of your thesis going into this were a financial one, an interestingness one and an impact one. And I, and I know that, I mean I think I know the answer to this question but for the benefit of the audience I think you've said already that it's been very interesting. I know Palmer answered when Palmer and James were on the pod in January Palmer death was emphatic about the impact has been just working with people much more closely than from a cubicle on Wall street is just unquestioned there that the. So the impact checked that box in a big way. And then financially, you know, from, from those of us on the. Seems like financially it's working out. Is it now I know it's not, you know, the story isn't over yet but you continue to make acquisitions. We're going to get into that here in a minute. Does it look good financially? Wouldn't it be great to have experts at your back when buying a business, people to help you polish up your pitch and processes as you go to market as a searcher Then help you evaluate opportunities once you get some deal flow. Such experts exist Buy side advisors. But they'll cost you to the tune of tens of thousands, even hundreds of thousands of dollars. But another option exists, the Acquisition Lab. The lab is a do it with you buy side advisory service, not do it for you. Founded by Walker Deibel, author of Buy then Build, the lab represents Walker's vision for what is most needed to make a searcher successful and available at an accessible price. It's cohort based and you will come out the other side of your cohort prepared to go to market as a savvy searcher with a tight message and process so brokers take you seriously. Pre approved for a loan and with an entire community at your disposal to help you along the journey to buying a business. To learn More, check out acquisitionlab.com, link in the show notes

[12:49] Guest: yeah, you know, probably depends on your perspective a little bit on like what's your definition of financial success. And I would say that it is being internally funded in and having a long term vision kind of means, you know, I think none of us feel that we're financially successful because we feel that we still have an incredibly long ways to go in our journey because we intend to do this kind of for decades. And so, you know, seven years in is still relatively early and we still feel very much like we're just starting. Also when you're, you know, internally funding deals, you know, there is a zero sum game between the owner's cash compensation and the amount of cash that's in the business to fund growth. You know, so every dollar that I take out, you know, James Palmer and I take out to, you know, whatever fund our own personal lives is, is a dollar that could stay in the business and compound and be available for the next level of growth. So I would say from a increase in the equity value of chenmark, we've been, I would say quite successful. But if you are looking at it from a maybe like a business school classmate perspective where people talk about how much income do they make? Candidly, James Palmer and I make very little income because we prefer to keep most of it in the business. And that's a choice. But it would depend if you're talking about financial success. From a personal income statement perspective, I would say probably not that great. From a personal balance sheet perspective, I would say it's very attractive. So it kind of depends on what your definition is and what you're trying to maximize.

Host: Yeah, our definition is definitely net worth perspective, not income since that Is, as you said, discretionary. You can choose to capture a lot of the more, a lot of that cash flow more than you do because you reinvest.

[15:02] Guest: Yeah. Well, the thing that I think that's important to highlight though, because a lot of people that I speak with are interested in the holding company structure in this space and I think that, you know, they're comping it against their opportunities to go work at a private equity fund or something like that. And I think that if you're thinking about that as your alternative, you know you're going to make more cash compensation in the next five years going down that path. I would say like, no doubt, if you're looking at it in terms of maximizing the potential for your net worth the next 20 years, then I would say a Chenmark esque model is more relevant or has a higher upside. But those differences can be meaningful depending on, you know, your lifestyle choices and needs and potentially what your classmates are making and all that sort of stuff. So I think some people realistically don't want to make that trade off in the, in the near term. And yeah, so it's just I, I like to highlight that point because for people who are interested in getting in the space, they have to feel comfortable knowing that especially in the beginning of getting your flywheel started, you're essentially the last to get paid. And if you have expensive tastes, it could be challenging for you.

Host: Sure. You know, when I hear you say all of that, Trish, and you just said this yourself, I feel like you're talking very much to a business school audience, people who are considering investment banking or private equity. But if you're talking to an entrepreneur who might be considering this path of entrepreneurship versus another one, they're like, well, obviously in the first few years I'm just trying to be ramen profitable. So that doesn't sound so bad. In fact, that sounds kind of like expected. And I like to think and hope that a lot of the Acquiring Minds audience isn't. I know a lot of my listeners are in the business school crowd, but I also try to have a wider listener base as well. So maybe some mid career professional who's not in the finance world, who's maybe in tech or any other walk of life and considering buying a small business. And if they learn about what you've done and are doing and they're not, you know, their comparison is not a private equity career, it's almost, almost anything else. It probably looks quite attractive even sooner than 10 or 20 years out. Would you agree?

Guest: Absolutely. Again, it kind of goes back to what your comps are and how you're defining success and all that sort of stuff. So I would certainly agree with you. It depends on, you know, what your. We know what your alternatives are for sure.

Host: Yeah. Yeah. Okay. I want to ask one more follow up question on the history of Chenmark, then we'll get into the story. I'm really bearing the lead here, but the, the fact that you all have the model that you're referring to, the Chenmark kind of holding Holdco permanent equity style model is not really what's taught in business schools. And, and, and you're kind of thankful that you didn't take those classes because maybe it would have oriented you in a different direction versus kind of just looking your own perspective, your own kind of first principles perspective. Why do you think there is that divergence between what's taught and the way you guys have done it and because the way you guys have done, I mean, you guys are really held out as this exemplar of this really cool path of, of buying small businesses. And yet. Yeah, and yet. And yet it's not what's taught. Why. Why? The why. The why the disparity there.

[18:39] Guest: Yeah, well, I think that the small business space, whenever you have a space that's super fragmented, you know, hundreds of thousands of these small businesses, the, you know, the traditional mental model that, you know, was the first to come up was person goes out, buys one business and that's kind of has worked and, and that's been the traditional path. And so I think that when it comes to, you know, a lot of the business school professors are also investors and they also went down that path themselves before they became professors. And there's nothing wrong that path. But you know, essentially, you know, they're being, you know, they're teaching what they know and they're teaching a model that, you know, has worked for a lot of people and they're familiar with. And you know, it might also be a model that, you know, people want to, you know, they want to invest in themselves. And so I think that, you know, part of it is just where are the most available models coming from? And that's what's being taught, you know, which is totally fine and totally legitimate, you know, nothing wrong with that. I also think, and I don't know that this is a specifically a business school thing, but from an investor standpoint, you know, we were very lucky in that we didn't rely on traditional search investors, partly because none of them were interested in us when we started. But, you know, I think that those investors, a lot of them like to think that they're the ones doing the diversifying. So if I'm a search fund investor, you know, I might invest in 30 searches and my portfolio is diversified. I don't need somebody else to diversify for me. And actually, when we were first starting and talking about this holding company concept, we actually did get that feedback from other people, from potential investors saying, I don't want you to diversify. That's my job as the allocator. And your job is to go find a company and try to make money for me. And so I think there's a little bit of tension and kind of like, whose role is it to do the diversification? And from our perspective, that was something we wanted to own was the diversification. But I think a lot of traditional investors, they're the asset allocators and they're looking for executors more than investors.

[21:04] Host: And you all are this kind of funky hybrid. I mean, you're definitely executors and operators as well.

Guest: But I think we started from very much an investment capital allocator mindset, and we still are very mindful of that. And so we've kind of blended both of those rules. But, you know, most people who are going into search aren't thinking about asset allocation.

Host: And do you think, how important do you think that orientation is? Holdcos are hotter and hotter. There's going to be the holdco conf. I assume you're speaking there or you'll. You'll be getting okay. And so it's just more and more appealing to people. And part of the reason the attention has come more and more to Chenmark. But I don't think all of the folks interested in the hold code necessarily are first and foremost investors or have that investor mindset as much as you all do. How, how important do you think that is to the model that somebody be investor first, operator second?

Guest: Honestly, I don't think that's that important because we kind of came up with our investment thesis, you know, basically in 2014, and it stayed the same. So we certainly get, you know, inbound from more sort of like Wall street analyst types who want to come work -unquote HQ, which would be very disappointed if they saw and, and, you know, and help us with quote unquote asset allocation. And, and it's like, you know, we don't, we don't really need that. There's actually not that much work to be done in that area at Least at our scale, at our size. Now, like that is not job. That's just, you know, we have some guiding principles that, that hold true and then we execute within those guiding principles. So I would say, you know, if a person has, I'd say that being an executor is much, much more important. And if a person can kind of figure out their, again, their guiding principles for how they want to, you know, allocate the capital that's either given to them by investors or that their company has generated, you know, they, they'll be fine. I don't think it's necessarily that important as long as, you know, we had, we had no experience being operators or executors. And you know, we learned, you know, and are learning how to do that. And it's something you can pick up. So I assume people can pick it up the other way as well.

Host: Yeah. Yeah. Excellent. Well, let's get into the story for today, which is we're going to talk about a particular acquisition, one that was challenging in a lot of different ways. A real, I think a really interesting class, just kind of classic, classic small, scrappy business. So I think this will just be a really fun conversation. And that business is Captain Fish's Cruises, which is a tourism business.

Guest: Two apostrophes and one name is tricky, but that's what we got.

[24:00] Host: Hard to spell. I mean, yeah, clearly they never hired a marketing agency, which is, which is, you know, part of the magic of all of this. You acquired the business in February 2020. We all know what happened a month later. So this is going to be a roller coaster of a story. It's in tourism. So of course tourism was one of the first industries to be hammered the hardest. So tell us first about Captain. What is Captain Fish? Captain Fishes?

Guest: Well, Captain Fish is actually a person. We literally bought the business from. Captain Fish.

Host: Captain Fish.

Guest: Yeah, Captain Fish. So very literally named company. But it was, it was actually a business boat tour business in mid coast Maine that had been in that family for three generations, taken different forms, but you know, it was pretty, pretty long history in the area which, which is pretty neat. I think they trace it back to starting in 1936, which is pretty cool.

Host: That's awesome.

Guest: Yeah. And so, you know, Captain Fish was running it. His children weren't, you know, had grown up and just weren't interested in, in taking over operational role and he was looking to retire. It actually was listed with, you know, a local business broker, somebody that, that we'd met and sort of saw the, the listing and you know, kind of, it fit our, kind of roughly our valuation metrics and, you know, called the broker who we knew and we're saying, you know, what's more about this? He's like, well, it's actually, you know, boat tour and whale watches and sightseeing. And we were like, huh, like never had thought about that industry before. And it was, you know, it's right in our backyard. If it had been further away, we would have never looked at it. But, you know, it was an hour away from your house, so like, why not go up and take a look and dig in a little deeper? And at the time I was running our search process, so I kind of had the discretion to, to take more of a look at it. And I personally had been in that role, but I found myself every time we were looking at a business saying like, oh, I'd like to run that, or I wouldn't like to run that, or that'd be interesting. And one company we'd look been looking at previously, I'd been seriously considering stepping into the CEO role for that one, which unfortunately that deal fell apart, so it didn't happen. But it was certainly something that was kind of top of mind. And in this business, it is, it is not really a great search business in that it doesn't really fit a lot of the characteristics searchers are looking for. You know, no recur, you know, no contracted revenue, highly seasonal, a lot of staff turnover. You know, those are all things that would probably make, you know, if you were going to a traditional search fund or an accelerator or something, they would feel like, absolutely not. Yeah. Which is fine because that's what's great about this space. Something that's interesting to me is not interesting to you and vice versa. And so we, let's see. So we met the owner, you know, came, came to agreement on the terms. He, he was honestly one of the best owners that we've worked with in terms of, you know, everyone has their little things. But he was very professional and reasonable and whenever we had, you know, differing opinions, we kind of figured it out. So, you know, honestly, it was, it was actually a really great, probably the easiest transactional experience we've had.

[27:58] Host: I have to say, from the outside, I was a guy who's selling his family business. He's the third generation owner. His name is Captain Fish. So, you know, I would assume he's, he's, he's colorful, he's got his name on it. How. Give us some, some metrics on the business. How many employees is it when in season and then out of season. Is there a management layer? Give me some, you know, give us. And then what does it do day to day? How many, how many boats? Does it have tickets? Does it sell all that stuff?

Guest: So we have two boats and a parking lot. So if you ever need to get some thick skin, go work in the parking lot for a day. Never had people swear at you more than when I've worked in a parking lot. So two boats, 149 passengers each. And in the season will run kind of anywhere in a normal season. 30 to 40,000 passengers in season now highly seasonal. So were open mid May through mid October with the big months probably over 50% of revenue are July and August. So highly seasonal. And the business really shuts down in the wintertime. So when we purchased it had one full time employee who was a captain who was also did, you know, boat maintenance and helped out with stuff in the wintertime. So, you know, another thing that probably wouldn't make a searcher feel that great with no employees essentially. And I think that it was our, let me think about this, our sixth business, our seventh, sixth or seventh business that we bought. And so it's actually one thing that's nice about the holding company is concept is that yes, there were all these things that, you know, highly concentrated revenue from a seasonality perspective, lack of middle management, like no contracted revenue, like all of these things kind of build up. And if it had been a first deal we looked at, we probably wouldn't have gotten comfortable with those risks. But given that we had other businesses, we felt comfortable taking more risk on some of these things because we felt some of the other dynamics kind of made up for it. And so, you know, it kind of allowed us to take a bit more risk.

[30:32] Host: So, so for the, the individual acquisition entrepreneur out there, not the searcher necessarily, maybe a searcher, but maybe kind of a search fund business, business school type, but maybe just, you know, a searcher who's going to get an SBA loan. This, this has maybe a riskier profile than maybe they want to take on.

Guest: Right? Exactly, exactly. And so then I think I answered all the, you know, the big questions in terms of metrics of the business. You know, it's really about, you know, we hire a lot of college kids, seasonal summer work. So we will thankfully have some people come back year after year either like, you know, they worked for us between freshman and sophomore year and kind of work out that way, or, or people who live locally and are looking for a summer job for a Couple days a week, things like that. So in the first year though, we had pretty much like full turnover. So yeah, some, some challenges with having to train everybody like from brand, you know, from. No, no experience. We'd also change the ticketing system. So you know, a lot of a big learning curve in that, in that first year. And so we bought the business in the end of February of 2020, like one week before COVID hit. And so, you know, that was unfortunate. The nice thing about the business from a financial perspective is that, you know, one nice thing about not having a, you know, a management team is that you really don't have much payroll. So that is good. And you don't have a lot of operating expenses when you are not open. And so, you know, you do, you do burn cash throughout the season and then typically the month before you open up. So April, May, you do burn quite a lot of cash in terms of getting the boat ready. So boat expenses, if anyone's owned a boat, you know that they're not cheap. And so, you know, you have to painting and maintenance work and all sorts of stuff like that. And for us, we're Coast Guard inspected vessel, so we have to have Coast Guard inspections and dry docks and all these things. So that is, you know, kind of certainly burns cash before you start to make money again. And so we, you know, you know, candidly, we, you know, if it had just been that company again in 2020, we would have had a fair number of issues with, you know, bank compliance and, and things like that. But again, being part of a larger entity, we could kind of buffer some of that. And so when Covid hit, my goal was to really not lose money. And so we sort of had to. Well, first we were just closed, so we missed the beginning of our season. So in the state of Maine, we were just shut down. And then we had, in our state we had a restriction of 50 people as a gathering sort of hard stop, which to be honest was quite frustrating because that's a third of our capacity of the boat. And there were other boats in our area that had like a 59 person capacity limit and they could still also have 50 people, which like, didn't really make any sense to us because obviously those 50 people were much closer together. You know, we said, okay, you know, thankfully we'll be allowed to open basically late June and what can we. So how can we be profitable at a 50 person max? And so at first we were saying, well, is anyone going to show up? And so that was a big question mark. But actually people were so desperate to get outside and do stuff that we actually really had a lot of sold out trips that season at that 50 person capacity, which was, which was really great. And you know, we could still turn a profit at 50 and so which is just great. I didn't know that going in, but I kind of knew what breakevens were. So that was good. But the one thing we really did and focused on as a team was saying, okay, what's our break even by trip type, because we run a number of different types of trips. And so, you know, what's the fuel expense by trip, what are the labor costs by trip? All those sorts of things. And being very disciplined on, you know, if we just don't have enough people to break even on a certain trip, you know, it's got to come down, it's got to be canceled or we have to merge it into a different trip or be very, very proactive with essentially like per trip unit economics. And so I figured we would track per trip down to the gross profit and I'd say, okay, you know, this trip made some, some, you know, was whatever. It made $800 of gross profit for us and that's, you know, some contribution to our overhead. And we were able to keep overhead very, very lean. You know, we essentially spent nothing on marketing. You know, really anything that wasn't an essential expense, we. We just was done. And I myself worked a lot in the business in terms of parking lot, ticket booth, you know, all that stuff. And you know, in a way that first season was, you know, sort of stressful, I guess, or challenging from like the COVID perspective. In retrospect, it was from operationally it was sort of a gift in that I was brand new to the business and it wasn't as busy as it usually is. So I had more time post acquisition to season, start to get up to speed on how everything ran and all that sort of stuff. And then in season we weren't as busy. So we also had a lot of new hires. And so we sort of. It was kind of like a training wheel. So season and that's how we kind of tried to think of it. And it also for. So I hired a general manager. So that was my first hire that the captain who had been the full time employee, he stayed on has been wonderful and then also hired a woman who'd been working in the ticket booth previously to come on and help us with a lot more sort of guest services, policies, website stuff, things like that. And I think that the COVID experience kind of helped us come together more as a team because we went through this sort of weird, you know, situation together. And so I think that was great. So, yeah, that was basically our first season and the, the transaction overview.

[37:43] Host: And so if you were, give me a sense of the profitability of the business. I mean, you made an important point that like when it's not operating, there's not a lot of fixed cost. So there, there is that. But it still strikes me that for a tourism business that all but, you know, ceases operations right as you're coming into season, it still strikes me that the fact you were able to even not only survive but be profitable says something about the profitability of the business or the. Yeah, just how kind of how attractive the financials are of the business. Am I, am I right in that intuition, what is in a normal year, how profitable is the business?

Guest: Yeah, in a normal year I'm not going to get into like the specific numbers because that's all confidential with the old owner and whatnot. But it certainly is a profitable business. It's, it's really, it's like an airline in that you're, you know, once you're, you know, we think about it in terms of load factor. So if you have 149 people on a boat and you know, it only takes 20 or so to break even from a gross profit perspective, then, you know, every single one on, on top of that is essentially, you know, once you cover your overhead, you know, drops, you know, directly to the bottom line. We also have been pretty, I think, focused on pricing, especially in 2020. As soon as I realized, like, hey, like all of the trips are selling out, like prices have to go up. I was probably actually a little slow on that side of things. But we've been increasing prices which also, you know, basically drops, you know, directly to the bottom line by the business has essentially, We look for businesses between 1 to 3 million of EBITDA and look to buy them between 3 and 5 times. And this certainly fits in that range. So it's a good business.

[39:49] Host: From that perspective, when we were talking earlier about how this probably felt a little riskier than maybe somebody's first acquisition or from a traditional search fund perspective or kind of MBA search investors perspective perspective, it wouldn't be appealing, you know, as you just talk about the seasonality and how that works, like why is seasonality necessarily so unappealing, at least academically?

Guest: That's a great question. I don't have really any issues with seasonality, but I'm also I think I'm quite good at budgeting, so I don't have a problem with it. I think that other people get concerned. Banks get concerned with seasonality because they feel like, hey, you have all of these months of negative cash flow and so that makes them feel uncomfortable. And if you're not good at managing your cash balance. So let's say you go through the season and come October, so you have a million dollars of cash sitting in the bank. Some people might pay themselves out, you know, a huge dividend or they might buy something and they can. You might. I think people get concerned that you can in October, November, you might think you can afford things that you actually can't because you have six months of all of your various payments to, to make. And that come, you know, sort of March, you're gonna have no cash and then you're not going to make your payments or you're not going to make your distributions to investors or whatever you need to have. So I feel that it's really, if you can manage cash appropriately, I feel like who cares if you make it all in one day versus 365? Like I don't care. But I think people get concerned that that cash, that's. Well, two things that cash is generated is going to be managed well. And then if something happens, you know, God forbid, you know, one of our boats, you know, knock on wood, goes down, you know, with some mechanical issue for three weeks in August, you know, that would be a huge hit to our financial performance for that year. And so you are taking operational risk and like condensing it into a short period of time. And you know, that's just an additional risk factor. You know, I certainly. We had an issue last year where one of our captains unfortunately left us, you know, right before the July 4th holiday. And so finding a captain on short notice, right. Heading into busy season is a very, very hard thing to do. And we ended up having to pull down a bunch of trips until we could find the right person to fill that role. And you know, that is a financial hit. If that had carried on, that could really have ruined our season. And so I think that again, it's a risk factor and is something that other people might not feel as comfortable with.

[42:55] Host: And in this business in particular, the other obvious risk that jumps out at me is the one you just mentioned. You're. Precisely because you have such low overhead and have so few full time employees and you have the one, really the one full time employee, you know. Yeah, that's obviously a Screaming vulnerability. And you know, that strikes me as actually enough to scare even Chenmark off just because it's, you know, so much. Yeah, it's just like all of your eggs in this. In this. I mean, if he had walked on the first day or said, you know, triple my salary on the first day. So, you know, how did you wrap your head around that?

Guest: Yeah, to be honest, on that side of things, that was probably just a bit of being naive. I felt that. Well, first of all, again, we'd had a really good experience with the owner to the level where I trusted him and he told me that the guy who was staying on was good was great. And to be honest, he has been wonderful and great and it's worked out really, really well. And I've said many times I'm very lucky that that was the situation. If it hadn't been, I would have certainly been in a bind and had to find, you know, probably somebody else or, you know, it just, it would have been a lot harder for sure. So I mean, honestly, on that side of things, like a little bit of luck combined with kind of feeling out, you know, hey, you know, it seems like even though I haven't met this person, it seems like a, a sort of decent risk to take, but still was, you know, a little nerve wracking in that first couple months.

Host: I like that the first thing you answered was essentially that the trust that you had in the seller, because that's the theme that comes up so often is like a lot of the risk we're taking is that. And if he's vouching for this guy, you're really kind of banking on that. Just the financial characteristics of this business that you all liked is. Do you think they are particular to Captain Fish or do you think boat tour businesses in general? Can you extrapolate from Cat and Fish that these are attractive, These are attractive businesses and would, would, you know, are opportunities that, that we acquisition entrepreneurs should look at.

[45:29] Guest: Well, don't look at them unless I've looked at them first. But so yes and no. So we certainly. We've looked at other companies in the space. A lot of them have boats that are worth more than the business. And so we, we will see that sometimes in landscaping, things like that people will have more equipment. Like the equipment is worth more than the multiple on the business. So you know, you, we might, you know, I've certainly looked at somewhere it's like, hey, you've got 300,000 of EBITDA, so what am I going to pay for that? Like at most three times. Right. But your boat is worth $2 million. Yeah, like so. So I would say a large amount of companies in the space have that problem. And there are other people I know who have bought businesses in the space where they have not, they've gotten around that by not buying the boat, they've leased the boat from the owners. And that's not really something that we have explored or wanted to do because the boat is so essential to the business that we really want to feel like we, we own that and own our destiny on that side of things. So it hasn't really been something that we've been interested or like gone down that path at all. The other thing that can be very difficult in the boat space is dockage. So you know, some boat tours own their docks, which this one did, which means, you know, you really have control over your destiny. A lot of boat tour operators lease and don't have particularly favorable leases and they don't have long leases. And so that's really hard from our perspective to get around because it could be like, hey man, like this is a great boat business, makes $1 million a year or whatever. But you know, it's a year to year lease. I've seen some boat companies have month to month leases or in some regions it's really the people who own the peers who have the control. So they might do year to year leases but take 20% of the revenue, things like that. And so we certainly have become a lot more familiar with different geographies and the norms and what's, you know, interesting. And I think that you can certainly find pockets of opportunity. But I wouldn't say that it's like, oh, you know, every boat tour that's out there is, is attractive because there's a lot of those sorts of things. There's also a lot of boats out there that might look good financially, but the boat owner has not taken care of the boat particularly well. So you know, again, maybe it's a, you know, let's say it makes $500,000, but you can kind of tell like, hey, it's going to need an entirely new engine or it's going to need all this stuff, you know, that it's, it's just you're going to have to spend so much getting the boat up to speed because if you don't spend, you know, the amount you should be spending annually, it really catches up with you and you're going to have a boat that's in poor condition and that's certainly not that we want to face. And so that, that's another thing. So it's kind of, it's a like there I think, I think it's a little bit more bait and tackle e than some other like maybe landscaping for instance. Like you can find some of these hidden gems. But I'm not sure like anyone's going to be going out and doing like a huge boat tour like roll up or anything like that because it is very more, is much more like case dependent than it seems, I think.

[49:26] Host: Yeah. Yeah. So owning the boat or leasing the boat, owning the dock or leasing the dock and then condition of the boat and then of course demand, sustained demand is is always, always a huge question in every business. The good thing about a consumer business is you can look online at reviews and in the case of Captain Fish, as of two hours ago there were 2,341 reviews on TripAdvisor. Solid five stars. So that's awesome. Did you, do you use that as a proxy for anything?

Guest: Yeah.

Host: And how did you get, and how did you. I mean a three generation year old business. I mean there's, you got so much history there to get comfortable with demand. But tell me how you did diligence and get comfortable with the fact that there every season there would be, you know, those people would be lining up and booking and booking tours.

Guest: Well, so I'd say to your point, I mean competition is a huge one. So if you're going to go down to, I don't know, the Florida Keys or somewhere in Hawaii or something, you might have 20 operators that are all going to do the same trip. Right. And so that's very difficult dynamic from a pricing perspective. And it's, it's kind of a double whammy because it's one, you're probably not going to have full boats and it's sort of your load factor is the driver of profitability in this industry. And you're also probably not going to have pricing power because you have all this other competition around. And so the, the areas that are probably come to mind as like boating areas that have a lot of competition I would say are from our perspective less likely to have interesting operations unless they're very, very differentiated. In our case, in the market that we're in. It's, it's, it's, it's a small enough space that there aren't a lot of other competitors, particularly not with large boats because there's just not enough dockage space available in that area for large boats and you for whale watching. You need a large boat to be able to go out far enough to see the whales. So can't really do it on a small boat. And you know, what if someone wants to take, take six people out on a super fancy small boat, like go for it. Like that's, that's really not our competition in terms of sustainability demand. You know, one is just looking at the historical, you know, numbers and seeing, you know, how those have trended. You know, partly for us this was really, you know, how do we feel about Maine tourism in general? Because you know, you know, Maine has a little over a million year time resident, your round full time residents and well over 30 million like visitors. And so you can sort of. And the state of Maine, I think has done a pretty good job of marketing itself as a tourist destination. And you know, the tourism numbers, you know, Covid aside, continue to go up and up as a lot of people view Maine as a desirable place for, for a summer vacation. And so a lot of it was sort of understanding the tourism dynamics in Maine, understanding our regional dynamics. We're kind of right in the middle of Portland and Bar harbor, which are kind of, if you're going to go to Maine, you're probably going to go to one of those two places. Most people for a main vacation, we'll sort of start in Portland and drive up the coast to Bar harbor and then back down again and we're right on the way. So that's sort of a, you know, we're kind of the midweek stop for people. There are some other tourist attractions in our area, so it kind of makes it a hub where it's not just like a random place out in the middle of nowhere. It's, you know, got other attractions that bring people in. And in terms of the whale watching and puffin tours, you know, we're right in an area that I don't know if you know anything about birding or if anybody listen to this podcast is a birder, but puffins are a very special bird that a lot of people have on their bucket list to see and will travel from great distances to come see the Atlantic puffins. And we just happen to be close to where pretty much the southernmost part of the Atlantic puffin rehabilitation. And so we're, we're able to get there in a reasonable amount of time from our location. Can't really do that from Portland or Bar Harbor. It's too far. And whale watching, we're pretty much. There are three providers in Maine, you know, one in Portland, one in the mid coast and one in Bar Harbor. So if you think you're going to come to Maine and go whale watching, you've really got three options, and we're one of them. And so that made us feel pretty comfortable that, you know, people, you know, some people would funnel our way and continue to do that. So kind of all those different factors made us feel comfortable with, with the, with the demand picture.

[54:37] Host: Yeah, well, it does to sound like, to your headline point, that really, you know, that what makes a business, a tourism business appealing is probably going to be pretty idiosyncratic if you, if you go to a big tourist destination and offer what, what, you know, 20 other operators are offering. I mean, my audience is sophisticated to realize that that's probably, probably doesn't add up to business. Not a great idea. But. Yeah. So you guys, it sounds like there were three or four factors really, particular to, to Captain Fish that. And did you, did you recognize. Curious. Did you recognize all of those in your analysis prior to acquisition?

Guest: Yeah, I mean, the previous owner recognized that, you know, and, and he was like, this is just a good location. It's not huge. It's not too small. It's a, you know, it's, you know, and he was really the one who brought all of those things to our attention because when we first went to visit him, you know, we had no idea even how to think about it. And I think he was totally right. And he was right that, you know, tourists will pay more than locals, because from a, from a. If you're going to Maine for a vacation for a week, you know, that is going to cost you, I don't know, thousands of dollars. And so, you know, your boat tour is a very small percentage of your overall trip spend. And so you need to be thinking about pricing from the traveler's perspective, not from the local's perspective who might say, hey, you know what? I've never paid more than $15 to go on a sightseeing trip where, you know, a person who's coming from Wisconsin, who's never been to Maine before and is on their, you know, August vacation, you know, they might be willing to pay 25 or 30 and not. And think it's a great deal. And so to be a bit more global in your perspective about what people think is a reasonable price and not just be looking kind of like in your local market for, for pricing cues.

Host: Trish, a couple of minutes ago you said bait and tackly. Now I know what that means. And it's a theme that Chenmark writes about a lot. Please Share with the audience what you mean by that.

Guest: Sure. So it's this concept of a bait and tackle shop. So this idea that, you know, you drive down a super long windy road to an amazing local fishing spot, or maybe even nationally recognized fishing spot, and let's say there's one family that owns land that's right by the entrance to this amazing fishing location, and they have, you know, a bait and tackle shop there. And because of their location, they are able to basically capture all of the demand and have pricing power, you know, as long as they're still being reasonable, you know, for that area. And so the concept is that, you know, bait and tackle shops or that concept can generate outsized returns or abnormal returns relative to the universe of bait and tackle shops. Now, the problem and why a lot of people don't like to invest in that bait and tackle shop is that, you know, at a certain point in time there, you don't have an ability to reinvest in the business. And so you can't really, it has no growth opportunities are very, very limited. And so a lot of people, particularly in today's age, although that seems to be changing a little bit rapidly in the last couple months, you know, people are very, very focused on value is equated to growth potential. Right. And so one thing that we really focus on is we really, really like bait and tackle shops because we in the holding company structure have the ability to say, hey, you know, what bait and tackle shop you generated, you know, you have an excess of a million dollars. You know, if it was just you, maybe the owners would take that. There's no ability to invest it back in the business and have it grow. But we have the ability to use that to make another acquisition that might be in that space. It might be in something else entirely unrelated. And so we talk a lot about how we like bait and tackle shops, whereas, you know, some other types of investors might view those as uninteresting. And I think that this boat tour business is abnormal relative to the universe of boat tour businesses and has the ability to produce outsized returns because of that.

[59:19] Host: So you do consider this a pretty solid boat and bait and tackle example. Yeah, boat and tackle, as the case may be.

Guest: Yeah, exactly.

Host: Having said all that about growth and bait and tackle shops, in fact, you all have made another boat tourism business acquisition. So can you tell me about that?

Guest: Sure. So I would also call this other one very much bait and tackly as well, but we recently did an acquisition of, I'd say a semi local competitor. So Somebody, you know, husband, wife, team looking to retire. They were about 40 minutes away from us in a different harbor. Very, very small, but had a lot of overlap in the types of trips that we provide. I spoke with our team, we now have basically three year round employees, which is very exciting. Our huge management team, we talked about, you know, do we want to do this or not? And a couple things. One, we thought that it would be a good complement to the offerings that we have. Two, we have. It's hard to have sort of consistent captain and crew staffing with just two. It's actually a lot easier with three boats because you can share captains between the location and crew between the locations. So having a bit more scale actually we felt would allow us to have more continuity and opportunity for our staff members, which was a huge sort of positive factor for us. And essentially we could acquire it without incurring any additional or very little additional incremental cost, overhead, cost, because our team, our existing team could, could manage it. And so it wouldn't be something that would work for a lot of other businesses, but this would probably be one of our like top competitors. And so it made sense for us. And yeah, so I guess we can, we, we didn't go into this thinking this would be an opportunity at all, but it just kind of happened this way and I think we were a natural acquirer for that business. And yeah, so I mean we're only whatever five weeks, six weeks in. So still, still learning a lot about the business.

[1:02:03] Host: And you said it was smaller, but so what percentage?

Guest: So it only has one boat and it has a smaller number of people who can be on the boat. So it is. Yeah, it's just, it's just, you know, less than half the size of our current operation.

Host: So 100 seats. Seats a little over the 300 that you have. Yeah, right.

Guest: Yeah. Great.

Host: Just tell me quickly about how despite Captain Fish being a great guy, in fact he didn't forewarn this one employee where so much, so much of your risk was that this was happening until what, day one. Tell that story.

Guest: Yeah, that was a very unfortunate beginning. And they get, you know, who knows what the rationale is. But it essentially was, you know, one full time employee, very important employee to me, especially since I really didn't and still really don't know a lot about boats, especially from the perspective of somebody who's been in the boating industry for 20 plus years. You know, I'm very much a novice and so I kind of need to rely on the people around me for Expertise. And so, so the owner didn't tell this individual that the business was up for sale, which is really too bad. And then really just told him the day after the sale that it was, you know, the business had been sold. And this person will be calling you at some point, which isn't like the best way to get off the ground with your like new most important person in your life. But to his credit, I know it caused, you know, I think clearly a lot of anxiety because he'd been in the business since college, you know, know, so, so 20 plus years. So it clearly, you know, was a huge change. And you know, I certainly have a different approach to the business than the Captain Fish did. And you know, and to be fair to him, I think he's taken a lot of it in stride and really adapted. And I think we now have a very good working relationship, which is great. Again, a lot of some luck, luck there. It could have gone much, much worse. He could have said like, I don't like you, I'm out of here. And that would have really sucked. But thankfully, so far it's worked out okay.

[1:04:24] Host: Okay. And, and then Trish, how involved in the business are you? And, and, and kind of talk about that with respect to all of Chenmark and how. Because you're, you're one of the three partners of Chenmark and you. And it seems like you're giving this particular business a lot of your attention. Whereas the Chenmark, you know, there are, there are eight other platform businesses that could be getting your attention. So how is all that working?

Guest: Yeah, so, you know, it's a small business and from a leader, like a, you know, people perspective, whatever. So I was there, you know, a lot the first year, slightly less the next year and even less this year. And that is because the team there I think is very capable and wants more leadership opportunities. And so I have been giving them more and more responsibility and autonomy as they've sort of shown that they have the ability to do that and step back sort of more, you know, more and more. So to be honest, I don't even really know what to call myself with regards to the business right now because I am very involved in certain ways, but in other ways I'm really not involved at all. So I'm sort of, of, I'd say slowly handing over sort of management of the company. And the team has done a wonderful job there and sort of, they have expressed to me that they want that role, which is great. I have a number of other responsibilities within the Chenmark ecosystem. And so it's kind of worked well. And I foresee us kind of continuing to have that sort of slow transition with. With me taking on other things. You know, this, this acquisition. I would have been less involved this year if not for this acquisition where I was obviously really involved with, you know, getting that closed and transitioned and helping the team through sort of the. The adjustment that they need to make from operating two locations versus just having one, and the leadership challenges that arise for them and their teams that are reporting to them. So, you know, it's. Yeah, so that's a little bit of a unclear answer, but that's sort of the world I'm living in right now. So it's sort of. If anything bad happens, it's my fault. But if it does well, this season, it's all the team. The team's doing great.

[1:06:55] Host: That's leadership.

Guest: Yeah.

Host: Trish, one last question for you. You had talked about how you don't really know anything about boats. Even years in, you're still very much a novice, and you rely on the gentleman who's the main operator for that. So one of the things in our world is how much do you need to know about an industry where you might acquire a business? And I think the conventional wisdom, there's a lot of nuance to this is that the more the better. So, you know, if you. If you know something about that industry, great. But if you don't, depending on how complex the business is, like, it. It can be okay, but it's a con. Like, if you're doing your pros and cons of buying a particular business, if you know nothing about that industry, it's definitely solidly in the con column. You all are buying across a wide cross section of businesses, and Captain Fish is a great example of that. How do you think about this question?

Guest: Well, first of all, we try not to buy businesses that are like aerospace manufacturing or, you know, something highly, highly specialized. And, you know, and somebody even might say, whatever landscaping is, you know, do you really need to know anything about that? And I feel like. I mean, I kind of go back and forth on this. Like, part of our model is buying businesses we don't have a lot of experience in and putting people in place and kind of having them focus on sort of a general management role and relying on the people around them to. To get to speed on kind of how the business really works. And to be candid, we have made some hires to run some businesses based on that framework that have not worked out well, and we have to make changes. And then we've had others that have worked out very, very well. And so I think it ultimately comes down to like a judgment call on the type of business that we're buying. You know, what industry is it in, what sort of structure does it have, what does it have in place, all that sort of stuff. And then who are we bringing in to run the business? And do we think they have the ability as well as the humility to kind of figure out what do they know, what do they not know? So you know, I came into it being very aware and upfront saying like, listen, like I am new to this. I don't know, I don't even know how to turn a boat on, right? Like I, I don't even like driving my car really. So like, you know, like, like that's who I am. And, and saying like, these are the skills I bring. Like, I have a very strong financial background. I have an ability to, I think my primary job is to identify talent and, and train it and give people opportunity and hold them accountable. And you know, like, these are the things I am good at. And in my situation was literally one other person saying, like, these are the things you're good at and I'm going to need you to do them. And this is what I expect from you and can you do that? And then if the person couldn't do that, then that's my job to figure out, like, how do I, you know, what do I do then? And so that's kind of, I think it's about understanding what your job is and being humble enough to come in and say, like, hey, I don't know these things, I'm going to need your help. And in most cases I feel like as long as you don't come in with, you know, a huge ego and start talking about things you like, know nothing about and actually try to like listen to people and, and learn and all that sort of stuff. I feel like people are generally pretty willing to help you out. Again, it is helpful for us to have a long term time horizon. So you know, if you're looking to do something and have a really good, you know, come in, make some changes and sell in five years. Like, it's probably helpful to know something about the industry before you do that. But you know, we come in, we sort of say like the first year is really a learning year. You know, come in, don't try to make any big changes, try to learn the industry. A lot of our CEOs that we place, we, you know, we really focus on, make an emphasis on trying to learn the industry and the driver, the economic drivers of the industry. The people that we've had that haven't worked out have not really wanted to spend a lot of time truly understanding what drives their business and that's where we've really struggled. But as long as people come in with that attitude, I feel like it's doable as long as you pick the

[1:11:24] Host: right businesses, not something too specialized, namely.

Guest: Yeah. Yep.

Host: Trish, this is great. It's always awesome to talk to you, hear from, you hear about chenmark generally weekly. Is it weekly thoughts? What is the Chenmark newsletter? Weekly thoughts.

Guest: Everybody should sign up.

Host: It's one of the few things that I open essentially the moment it hits my inbox. It's late week Friday usually and it's just a short essay on what you're thinking about what you've learned, a lesson from the Chenmark experience. And it's written in the first person. It's just great. Do you write that or does one of the other partners.

[1:12:04] Guest: I write most of them, yeah. It's a team effort. I am. James writes an internal Sunday note and Palmer writes a Sunday note for his team as well. So if I don't have any content, I very often steal their topics which I might be doing this week. But I take lead on writing it and then James and Palmer edit it. So if it has typos, that's because it's just the three of us usually doing it. James and I are usually doing that after our kids go to bed and it's Friday night so sometimes the standard goes down a little bit. My mother in law is always very nice to email me with my errors. Always. Great. When I see the email from her at like 8 o' clock on Saturday morning, I'm like, damn it, there were typos.

Host: Well, you just reply, yeah, well that was your son in law not editing properly. Yeah, sorry, your son. That was your son editing.

Guest: Well, both of them actually. Yeah. So yeah, but it's, it's great. We really enjoy doing it. It's been a great way to kind of build a community around it and as well as time to focus on reading things and thinking about things that are kind of outside of the day to day which is I think really valuable.

Host: Yeah, it's, it's right, it's. It's sort of philosophical which, which as an operator you don't always get the chance to do if you don't carve out time for that and so recommend people get that chenmark.com, you'll see a link for it. And then how can people reach you directly?

Guest: Trish. Trishndmark.com and we push weekly thoughts to Twitter, but basically, I don't even know how to check it. So that's not a great way of getting in touch with us.

Host: Okay. Yeah. Great. Trish. This has been so great. I'm going to see what I can find on biz Buy sell in terms of, of boat, boat tourism companies, recognizing that probably most of them are not something I want to buy. But still intriguing. I'm, I'm very intrigued by the category. So thank you so much for sharing and giving your time.

Guest: Of course. Happy to. Thanks for having me on.