Callum Laing Entrepreneurial investing and agglomeration

All right, welcome back to another episode of Bacon Wrapped Business. This is Brad Costanzo and we are going to have a very interesting show today. It's definitely not going to be for the most absolute beginner of the audience out there, but this is an episode I've been really looking forward to because it's, it's a guest that I've been following for a while. I've read a couple of his books now, and I've been following kind of his journeys, ups and downs and some of the really innovative strategies that he's using to build very, very big business, public business as well. So today I'm interviewing Callum Lang and Callum is the author of a book that I just read. You can go check it out called Entrepreneurial Investing. And as you know, if you're a listener to the show, I talk a lot about acquisitions and creative deal making and just thinking about business in an innovative way that a lot of people don't necessarily approach it. And when I read Callum's book, I've got the whole thing just about highlighted and I couldn't put it down. I got through it. I recommended it to, like three or four people. I said, you have to read this. This is really innovative. And I'm not going to try to tell you exactly what this means, but I'm going to have Callum do it. Callum, welcome to Bacon Wrapped Business.

Thanks, Fred. It's great to be on and great to hear that you got so much value from the book. That's excellent.

Yeah, I sure did. So, as I said, this is a. It can be a complex subject to, you know, people new in business, but what you're doing is taking a very tried and true strategy in the, you know, you can call it a roll up strategy for people who are used to acquisitions and roll ups, but you're doing it in a way that, as I said, it's really innovative. But kind of take me or take the. Take the listeners who haven't read the book yet through kind of the basics of what you guys are doing and kind of why, you know, your approach is so unique and innovative.

Yeah, so it's actually, I think people tend to get a little bit freaked out when you start talking about the public markets because it's so far away from what most small businesses know and understand. And yet actually, when I explain what we're doing to an entrepreneur, they get it straight away and they can't understand why everyone doesn't do this. It makes so much sense, actually. The people that struggle to understand it are the Ones that come from the traditional finance world, the ones that come from sort of investment banking backgrounds and private equity. And I'll kind of explain why. But basically for your readers that are not familiar, what we do is we create a publicly listed holding company exclusively for the use of good, well run, profitable small businesses. And in effect what happens is that small business swaps its private stock for public stock, but carries on running the business exactly the same way that they always have done. So it's their brand, it's their culture, they're hiring and firing. And for an entrepreneur, as you know, retaining control is incredibly important. The problem for a lot of small business owners, and by the way we're talking, our market is well established, traditional, good small business. That's kind of the backbone of the economy that everyone talks about. This isn't sort of high tech crypto, Instagram or. Yeah, or distressed stuff. This is the landscape gardening company that's been going for 20 years, the aircon maintenance company, the carpet cleaning company that are quite frankly very boring businesses. But just keep, they understand their clients, they deliver great results year on, year out, they're pillars of their community and they spit off profits. But the challenge for these businesses is they face something that we call the scale paradox. So they're too small to go for really big contracts. And because they can't get really big contracts, they, they remain small, which is always frustrating for any entrepreneur with ambition. And then you get this very weird scenario around the value creation. So you know Brad, as an entrepreneur, the whole heart of entrepreneurship is creating value for others. So imagine that you've had a bit of success, you're one of these businesses, you're doing 20 million, 30 million, 40 million a year. To the outside world, that's a very successful small business. And as the owner of that business, you're creating a huge amount of value in the world. Massive amount of value for your clients, clearly value for the hundred plus staff and their families. There's a whole ecosystem of suppliers and partners and landlords that all extract value because you get up and go to work every day. And yet typically there's only one person that can't extract a commensurate amount of value from the business and that's you, the business owner. Obviously you're probably drawing a nice salary, you're probably taking out some decent dividends at the end of each year. But compared to the economic footprint of your business, it's negligible. What you're able to actually monetize. And in fact, the only way you really can monetize some of that value is to sell the business. But there's a couple of problems with that. Firstly, not every entrepreneur wants to sell. Most of us actually, despite the grumbling, we quite like our businesses, we like our clients, we like our team most of the time and we like the challenge of growing our businesses. So we don't really want to sell it if we don't have to. But the bigger challenge is who's going to buy it. You know, there's just not that many buyers out there for small businesses. And so kind of the default option becomes to sell your business to a trade sale, a bigger player in the marketplace. But invariably those deals are always structured as a three or five year earn out because small businesses are often very centered around the owner. The acquiring company wants you to come with it and, and wants you to guarantee numbers for the next few years. The problem with that, as you know Brad, is that once we've been entrepreneurs, we're pretty much unemployable.

Yeah, we don't like to be under the thumb of somebody else telling us what to do and what numbers.

Exactly. Yeah. We're just not very good at being told what to do. So yeah, invariably that structure rarely works out for the entrepreneur. They normally fire from their own company within six months or 12 months or they leave discussed. And yeah, if you've spent 20 years creating value from others, that's a pretty rubbish ending to this venture. So yeah, basically what we said is, look, we'll create a publicly listed company, we'll do it exclusively for the use of good, well run, profitable small businesses. But the key function is that those businesses retain control. So when I'm talking about it to investors I say, yeah, the distinction that we have, we work with businesses all over the world. We've got companies in the pipeline right now in the us, uk, Australia, New Zealand, across multiple different industry sectors. But the one distinction is that these companies aren't for sale. The founders wouldn't want to sell them to anyone else. They're coming in to join us because they keep that, that's autonomy. And they can, you know, once they're part of the group, they can go for bigger contracts, they can incentivize their staff with stock options, they can use our stock as a currency to go and do their own mergers and acquisitions. So yeah, it's a, it's a very, it's a relatively simple concept. Obviously the devil's in the detail of making it all work and I'm happy to drill into some of that. Right.

Well, let me try to make sure that I want to make sure I got this and kind of also be the advocate for my listeners if they're the least bit confused. So one of the concepts here, as you said, these are you're not looking for companies who are, you know, for sale, distressed, et cetera, like the ones who are trying to get out. These are well run businesses but they want to be able to really realize the value that they're creating and have a chance to get a, a bigger piece of the pie. And you know, their other options are just like, you know, sell their business to somebody, maybe they make a few times like, you know, if the smaller you are, like a small business is going to get, let's just say depending on how small you are, two, three, four times ebitda, just in general. And the bigger the business is, the, you know, if you got a business doing 10, 20, $30 million, etc. You typically you're going to get a higher multiple. But you know, unless you're going to grow from, let's just say you're doing 5 million a year to something higher, you're, you know, good luck getting that. So you come along, you've got a publicly traded vehicle, publicly traded company, like a holding company, if you would, that then says, well look, if you join us and correct me at any point if I'm wrong, swap your shares for shares of ours in, you know, that's a very, very, very basic version of it. And we've got, we're bringing in other companies to do this. So as we bring in other companies and we create, you know, many more, we're actually being able to add all of the earnings together and all the revenue. We're making a bigger company by bundling them, but you remain in control. And then ideally, if the aggregate of these companies are going to trade for a higher multiple in the public markets than you would ever get if you just tried to sell on your own. And the public markets are liquid. So after a while you have the ability to not only grow because you have the resources of a public company, but because you have the ability to liquidate shares. And as the entire company grows, so does the value of your shares. Did I kind of get that right or did I miss anything?

Yeah, no, that's right. But one of the, I guess key distinctions is it's not, it's not an exit. So basically the way that we structure it for companies coming in, they'll get a multiple of EBITDA on day one. But It's a perpetual earning. So the more profit that company contributes the following year, the more shares they earn, and so on and so on. Which basically means that regardless of the share price, if you imagine the share price stays flat for the next 20 years, but your company is growing, you're able to go for bigger contracts because you're part of a plc, you're constantly earning more shares in that equation, which means that the companies in the group, and these are small businesses, they're across multiple different industries and countries. There'll be peaks and troughs, but the companies that do well in a given year earn a bigger slice of the pie. Companies that plateau will go backwards. There's no penalty for that, but obviously that year they wouldn't earn additional stock. So it's a very equitable solution. And I think the other really key element to this is this isn't something that we've built with a desire to sort of sit and run the holding company. And these companies sit underneath us. When a company comes in and joins us when it swaps its private stock for public stock, that owner now becomes a significant shareholder in the PR plc. They join what we call a senate, which is kind of the principles from each company. And so the founders of those companies together make up 70% of the owners of the PLC. So they're always in control of the PLC. If they don't like the way that the direction the board's going, if they don't like any decisions, they can always fire the board and put their own board in. In place. So, yeah, we've built this very deliberately from day one, not for us to have control, but for the principals coming in to really own their own group.

That makes sense. And one of the things you said that it kind of slipped my mind too, and I like that, which is there's two ways to kind of really profit here. Obviously, one of them is I get X amount of, like today, I join your agglomeration, I joined the PLC and I get a million shares or whatever and whatever that's worth, and obviously if the share price goes up, my million shares become worth more. But even if they don't, you're saying that If I, like 12 months from now, if I had a really good year and the profits of my business contributed to the profits of the PLC even higher, I'm earning more shares that way. So even if the stock is flat, I'm making money there.

Correct, yeah.

Now, what about in case I may be jumping the gun here, but I mean, it's kind of the elephant in the room. If the stock price goes down, which it does, and your stock fluctuates, et cetera. But if the stock price goes down because the stocks, you know, and stocks are valued in a lot of different ways, but ultimately it's supply and demand. And if somebody gets in there and starts dumping stocks, which has obviously happened in the past to you guys, or, or there's a market fallout or if just anything else goes wrong, how do you overcome that? Because I would imagine that's got to be one of the big questions and objections that people have right away. Well, what if the stock price goes down?

Yeah, it's an interesting one. I mean, you mentioned that we kind of dealt with this previously. So I'll make a complimentary copy of my book available to your readers. And in that I talk about the first one of these that we did. And so we've been working on this for about five years and kind of had most scenarios thrown at us and sort of had some learning along the way. One of the key things that we learned from the first experience is that actually talking about the stock prices is really the wrong metric to focus on because it's the one thing that we can't control. We can control the fundamentals of the company. We can keep adding debt free, profitable cash generating businesses into the group. Now obviously we can market the stock and try and get the word out to as many people as possible. But you're absolutely right. Basically the share price on a given day is not a reflection of the business, it's a reflection of the buyers and sellers in the market. And with any small cap stock, it doesn't take a lot of buy side pressure for the share price to shoot up. It doesn't take a lot of sell side pressure for the share price to sell down. And that's for some people, that's the appeal of playing in that micro and that small cap space because the multiples can be so attractive. So basically when we have the conversation with business owners, we always do it on a zero share price growth model. So when we take them through, when we look at their numbers and we model it out for them based on their own forecast, this is how many shares you would earn over the next five years, 10 years, whatever, as far out as you want to go, we always do it on the basis of the share price being flat over a five year period. Now that's pretty unrealistic. The reality is as an incredibly fast growth because although the companies in our group are generally not that fast growth they might do 5, 10% a year, which is kind of a good year. Our PLC is incredibly fast growth. So the vehicle that we've got at the moment is called nbh. It's a UK plc. We're listed on the German Stock Exchange, which is one of the most liquid main markets in the world, and very flexible for what we do. In the last 18 months, we've gone from an empty shell doing zero revenue to 11 companies in the group doing 125 million pounds of revenue, 11 million pounds of EBIT sitting on about four and a half million of cash, which makes us one of the fastest growing small cap stocks in Europe in terms of the underlying fundamentals, the revenue.

Right. Every new company that joins adds to the.

Exactly. So that's the pro forma. So basically, if they were with us for a full year, that's what their contribution would be. So, yeah, we're incredibly fast growth, we make a lot of noise. But consequently, when you're fast growth and small cap, you do get a lot of volatility in the stock. Our share price has been up at €2, it's currently down at $0.50. So really we just kind of say, look, let's focus on the earnings per share, which is the metric that we can control. Every deal that we do is earnings per share accretive, which means that we're buying profit using our shares at a lower multiple than the multiple that we're trading at. And I've actually put together a very simple animated video again, which I'll send.

Oh, that's great. Yeah, I'll definitely put that in the show notes.

Yeah, because it's a bit of a. It's a bit of a confusing concept because I guess people's tendency, when you think about small business, percentage is really, really important. If you create more shares in a small business, you get diluted and therefore your share of the profits gets diluted. But percentage in PLC is almost irrelevant. It's the value of those shares that's the key metric. And so, yeah, that's basically what we focus on. We say, look, the bit that we can control is the value of the earnings per share. The share price will go up or go down, but if your fundamentals keep going up month on month, year on year, the share price will reflect that. And actually, for us, that was kind of a really important distinction to make because it's. This sounds hard to believe, but it's almost as challenging for us when there's a run on the stock and the share price goes up very High, which again, it's pretty easy to do with a small cap stock. A lot of people go into the market suddenly and start buying it. And suddenly we go from 50 cents to €5, which is not kind of unheard of in our world. But then we have the same conversations with people, but going, look, I don't want to join because you're overpriced right now. I'm going to join at this price and the share price will go down. And so basically there's no, you can't win that game when you start talking about share price. So we just say, hey, look, let's focus on the things we always say to the businesses coming in. Forget everything else, forget the share price. You can factor into your own calculations. We won't, we will always assume 0% growth. But does the deal still make sense for you in terms of being able to have some liquidity in your stock to take some cash off the table, being able to incentivize your staff with actual tangible stock options, being able to go out and do your own acquisitions and all of these things? If it doesn't make sense for those, then don't do it because you think you're going to get rich off a share price.

Well, and so we don't have to go into. Because you talk about the first experience in the book where there were some unscrupulous players who were holding on to a lot of stock and then they just decided to dump it in the market. And, and I mean, this is obviously a thing where, you know, stock manipulation, especially of micro cap stocks, like this can be a thing like, but is there a way? Like, is there first, I guess the first question was, is there a way to help prevent what happened before from happening again? And is there, like, let's just say that, you know, a couple years down the road, you know, we're past this, hopefully past this virus, recession, depression, whatever's going on. You know, the stock price is now at €5, maybe it's at 10, and somebody decides to go in massive shorting and just really, really suppress it down. So it's one thing to say, well, don't worry too much about it, but I would think that that's a really, a really valid concern that, well, wait a minute, like I could swap all my shares with you right now and just because of the market, I could get, like, couldn't I get decimated if things go wrong in the market that I have no control over? Even though my business is growing, my wealth is now evaporating. Like, how do you really overcome that very real concern?

So there's a lot to unpack in all of that. But short answer to the last part of your question is one of the tools that we use to protect downside for companies coming in is they can take up to 50% of their initial consideration in a bond that we issue. So basically it says, say they're due to get a million dollars worth of shares on day one. They can elect to take half a million of that in our bond, which is a five year bond that pays 5% a year. So that just kind of protects their downside. And the other 50% goes to the upside without kind of going into too much details on the first one. But yeah, I mean, fundamentally what happened was somebody broke the law and illegally dumped shares. We can't help. Yeah. If somebody chooses to break the law again, it happens. Yeah, it happens. There's a limit to what you can do. I think there's a couple of things we learned. It always sounds a little bit lame when big companies talk about their values, but we took one of our core values is trust. And our whole model is based on we trust small businesses. Somebody that spent 20, 30 years building their company is not going to destroy their own company just to get one over on us. That's. That goes against the inherent DNA of an entrepreneur. And the mistake that we made through naivety was when we went into the public markets, we kind of had that same. We came from the world of small business where small business owners create value for others and then figure out how they're going to get rewarded somewhere down the future. We suddenly moved into the capital markets where the vast majority or certainly a large amount of people have no interest in creating value. It's just about stock and getting in and getting out. And if you can spread rumors on an online forum to manipulate a share price, that's what you'll do. And we were new to that world and it came as a bit of a shock. And so I think one of the things that we learned from that was, first of all, small businesses often tend to look at the investor community as one homogenous group. If you're an investor, you've got money to invest and I should go and pitch to you my product. Yet that kind of neglects the fact you've got angel investors that have a very different remit from hedge funds. They're all investors, but it's a completely different world. And so what we discovered was it was very enticing when we first got into that Space because everyone was offering to throw money at us. And so whereas we were very selective of the businesses that we brought on, we weren't at all selective of the investors we bought on and we paid the price for that. Consequently, sort of five years later and we've discovered that actually there are some investors out there with values. There are investors out there that are patient capital, that love the small cap space, that love what we're doing, family officers, high net worth, smaller institutions that really like our innovative model and are willing to back it for the long term because oftentimes they've got companies that they want to bring into us as well.

Are these the backers who end up funding what you referred to in the book as the accelerated venture fund?

No. So the accelerated venture fund is actually a completely sort of separate entity. So some of your more astute listeners will have already pegged that. While our model, the agglomeration model, is a great solution for small businesses to give them scale and liquidity, there's nothing in that model inherently that injects capital into the business. It was never designed to do that. Yet if you're a small business and you swap your shares for a public, you're owned by a public company, you suddenly get access to much, much bigger contracts. The problem is you got the same resource base. So how do you scale up to serve these big contracts? So what we did last year is we created a venture capital fund completely independently, arm's length from us. But the venture capital fund only injects capital into small businesses that are about to be acquired by our agglomeration. And this was actually, this solved a couple of problems. It solves a big problem for small businesses and it makes it even more attractive for a small business joining us because they now basically get an equity injection of cash, allowing them to go out and win bigger contracts and scale up. But it also solved a problem that we were seeing with bigger institutions that like our model, but because of the size of their ticket, their typical ticket size. So if a company, if a fund comes to us and says, so we've got one at the moment we're talking to that typical ticket size is 40 to 50 million. Now, they couldn't just invest 40 to 50 million into our PLC, it would smash the share price through the roof. It wouldn't make sense for them to do that directly. But what they can do is they can invest that money into the venture capital fund. Venture capital fund can take that 50 million and divide it into 10 lots of five and invest 5 million in the next 10 companies that we acquire. And then the venture capital fund basically can get in and out of those. It's like, it's like being able to invest in Uber the day before it went public, basically.

Yeah, I really like that chapter in the book where it described that the whole thing was really good. And I got to that, I was like, oh, damn, that's really, really innovative.

It takes it all up a whole nother level.

Right. One of the questions I told you I was going to ask profit, the way profit gets distributed. So, you know, I'm a, I'm a business owner and I make a salary, but then obviously have my own profit and distributions, et cetera. So now whenever I merge this with the, with the plc, I mean, I assume I still get the same salary, but now you guys, as the collective, own my profits. How did dividends get distributed? They retained. You know what, what is a protection? I have to realize. Okay, well, at least I'm, you know what I'm saying? Like, how do you answer that?

Yeah, well, so first of all, your salary is probably going to go up because most small businesses, business owners pay themselves a rubbish salary and take what they can in dividends. And that makes perfect sense in small private business. So basically what we say is that before you come in, normalize your salary. You need to be comfortable that you're in a selling you're happy with. Then when you come in, basically the group is being. The public markets are valuing the company based on an earnings metric. So the more profit that we've got in the group, the higher the valuation. Now there's obviously there's a significant difference between profits and cash flow and ebit and cash. So typically what happens is when a company is part of the group, they will earn bonus shares. It's perpetual earning. I talked about at around 300% of every incremental dollar of profit that they contribute, but they only push around 22% of their cash, sorry. Of that profit in cash up to the holding company. And that goes to covers things like the market costs, the investor relations stuff and the issuing of dividends. And we've always made it very clear that our belief is that a business, one of the key premises of a business is to return capital to shareholders. And so we want the business to be dividend yielding because a couple of reasons. First of all, the business owners themselves, they're all used to receiving dividends and we would rather they held onto their shares because they get dividends from them rather than sell them. Secondly, the Minute you become a dividend yielding stock, it attracts a different type of investor into your stock. They tend to be more patient anyway, yield, people that are after yield. But interestingly as well, it puts us in a very small niche of companies that are fast growth and dividend yielding. Normally as an investor, as you know, you kind of make a decision between do I go high growth or do I go yielding? The fast growth ones, typically they're throwing all of their cash at fast growth. The yielding ones tend to be pretty slow burn, but they pay out a nice dividend. So if we can combine that fast growth, because every month we're adding new companies and new revenue and new EBIT into the group, but also pay a dividend each year, that does make us a fairly unique option for investors, which is always good.

Okay. Yeah, so that makes sense. One of the questions I got here on the, because I just looked up, you know, the stock on the blue, on bloomberg.com, etc. Is it true that because it has like zero dividend, like the numbers just kind of look a little bit out of whack?

Yeah.

Is that just because not updated is.

One of the perpetual challenges of being a small cap listed company is first of all, until you get to 100 million market cap, most of those big guys like Bloomberg and Yahoo, they just can't be bothered to do the work to get you into their system accurately. Also, until they see your first year's numbers, they don't have a lot of data to work on. So for us, I'm not sure when this podcast is going out, but we're announcing our first, our 2019 numbers on April 30th. And yeah, after, after that you should see Bloomberg and Yachin's the worst. Yeah. Bless them. But yeah, trying, trying to get them to update our information.

Okay, so, so my, my suspicion was, right, don't trust the, the, the numbers besides the stock price, don't trust all the various financial numbers on here. Because I was like, that doesn't make sense.

It's. Yeah. So it's just, just as a rule of thumb, a company in its first year, especially if it's below 100 million, it's nearly impossible to kind of get those accurate numbers out to the big, the big guys. It's, it's very frustrating.

Right. I can imagine shifting gears. Another question I had. So when you guys started to do this, obviously you, you have to have a public vehicle. Did you, did you buy a first like an empty shell in order to go public right away or did you actually start a business and then take it public. Like, what was the. What was the route when you guys decided, all right, we're doing this?

Yeah, there's a few ways that you can do it with this particular one with a spac, a special purpose acquisition company, which is an empty shell. We had a very specific desire to get onto the Frankfurt Stock Exchange, and that's because Frankfurt is fairly unique in that Frankfurt and New York are quite similar in terms of their flexibility for a model like ours, which is why Berkshire Hathaway is listed on New York, for example. However, unless you're kind of at least a billion, preferably 2 billion, you're going to get eaten alive in New York. As a small cap stock, you're just getting shorted and beaten up. Whereas Europe's a lot more. There's a lot less kind of that negativity that you get in there, the US market. So we wanted to be on Frankfurt. Frankfurt doesn't allow you to list a SPAC directly, an empty vehicle directly. So we found a secondary market in Europe, actually Dusseldorf. So we listed the SPAC there. We backed in the first three companies, so construction company and a couple of education companies. We then did the full prospectus with the UK Listing authority, because we're a UK plc and that gave us our European passport, which allowed us to get onto the Frankfurt market, which is. Which is where we wanted to get to. Yeah. So it's interesting, the book that we wrote, which I'm also happy to make available to your readers a few years ago, is called Agglomerate. And Agglomerate was basically that was written for the small business owner, whereas Entrepreneurial Investor was written more for kind of investors looking at this model and trying to understand it. And when we wrote Agglomerate, which is a little bit out of date, but it's still a good read if you want to kind of get more info on this model from a business owner's perspective. When we wrote the book, we really wanted people to read the book and go out and create their own agglomerations. That was our thinking. It's like, let's share our intellectual property on this. Because there's so many good businesses out there that could be better businesses if they were part of a group like this. Yet having been through this a couple of times now, it's really difficult to do. There's so many different moving parts to it. So now we just say, look, if you're thinking of running an Agglomerate, come and join work with us. First, come and do a year introducing companies to us, working with us on the investor side, come into our realm of expertise for a year or so and then once you kind of learnt a little bit behind the scenes of how it works and you want to go and set one up, we'll probably back you to do it because ultimately we'd love to have lots of these agglomerations out there, but yeah, very, very difficult to try and do it from scratch on your own. This.

That's great. Yeah, that's smart. So that's. And you know, that actually brings me to one of the topics that you mentioned and you talk about this in the book as well. So you guys have done several workshops on this model, right? Tell me a little bit about that. Like, what are some of the reasons for the agglomeration workshops? Are they. Are they kind of to really help people understand this so that if they really like it, they can do kind of what you said is like, you know, in essence, work with you guys to help source deals and be a part of this and get kind of a over the shoulder view or is there some. Or there's some other aspect?

Yeah, no, no. So, pandemics aside, we had been running these workshops. I think the plan this year was to do about eight in Asia, Europe and the us. In fact, I just finished running one in LA down the road from you, few weeks ago, just got back to Singapore in time. So this started off as a workshop that we ran for business owners coming in really to teach them the difference between being a small private entity and what it's like to be part of a public entity and kind of making sure people don't accidentally inside a trade stock or, or make a stupid announcement to the press that would impact the share price or how they get their financials, reports and all of that. Kind of the nitty gritty of what it means to be a part of the group. And then what happened is we started having investors asking if they could come along because they wanted to be a part of it. And then we had people that wanted to introduce companies or introduce investors to us wanting to come along because they wanted to. To know more. And what was happening is we're running more and more of these. And I was getting more and more bored of the sound of my own voice saying the same thing over and over again. And I also noticed that people weren't really. The business owners were coming in with their own preconceived ideas. The investors were coming in with their own preconceived ideas and it was very difficult to kind of get people to acknowledge each other's worlds, which is really important in what we do because we kind of sit with a foot in each camp. So fortunately at that time I was spending an awful lot of time on planes flying around the world. So I redesigned the workshop from the, from the bottom up and turned it into a game. So basically now what happens is you come in at 9 o' clock in the morning, It's a long workshop, it goes till 10, 10pm at night, you come in at 9 o' clock in the morning and by 10pm Your aim is to have built an agglomeration to a billion market cap. And so we space that as a three year period over that 13 hours. So you come in, you join a board, you're a director, and you have to pick which market you're going to go on. You have to start pitching to small businesses. You have to start pitching to who are the investors that will invest in you when you're sub 100 million, who are the investors that, that will invest in you when you're more than 200 million. So you kind of go through this whole gamut of how do you pitch to small businesses, how do you pitch to investors? And then all the way through it, I'm basically this evil chair master who throws real life scenarios at you. So just before you're about to go up on stage and do a presentation to the financial markets announcing your numbers, somebody hands you a note that says one of your directors has accidentally been doing insider trading and the market's just found out about it and the SEC wants to know more. And it's all stuff that we've dealt with that companies like ours have dealt with over the years, but it makes it really interesting. And of course what happens is obviously you learn a ton and you learn way more when you're actually involved in making these decisions. But a big part of the learning is not from us, it's from the other people in the group. Finding out how people react under time pressure and under stress is a really big learning curve for people. So yeah, it's a lot of fun.

Yeah, I remember reading about that. That sounds super cool. And then so recently the number of people who are they, are they, is it still like biz owners, investors and potential bird dogs for this or the, you know, the people, everybody?

Yeah, that tends to be the ones. We've had quite a lot of appeals to open it up to a wider market. But I'm not really like, I Don't particularly want to be in the events business for the sake of being in the events business right now. So yeah, it's kind of, I mean if you've got a genuine interest in the long range model, then yeah, I definitely recommend and I think it's probably the closest you'll ever come to understanding what it's like to be a director of a plc short of actually being a director.

Yeah, I know, I can imagine that. You know, back it up. One of the things I, I'd asked you about, you know, prior to me hitting record and I said one of the ways that I found out about you, your friend Jeremy Harbour and some stuff is I'd read a, I had read an article on the concept of a virtual merger, I think he called it, where it stopped short of going, of going public. And it was, I mean you're obviously familiar with it, but the, for my audience you might not be. And the basic concept was find multiple companies, maybe ideally in the same vertical or niche that you could, they would be exit minded. You would get in essence an option to purchase the company, roll that up into, you know, you're a holding company and then now that you've got the options, you go take this to a bigger potential acquirer like a private equity business or somebody else and now you're selling what amounts to like several different contracts to buy these businesses. Right. One of the things, and I know that's one model that I remember, I just read a brief article and it kind of got my wheels a turning and I guess the first question I've got just right there, just backing off the agglomeration model, do you have, do you personally have experience with that? And was there a part of that that was like, yeah, that sounds good in theory, but it's actually harder to pull off because of X. Because I know that the reason I bring this up is the agglomeration in publicly traded businesses. Like that's an infinitely more complex type of model. And I was just kind of curious, kind of how those two differ. Just personal curiosity.

Yes. So I mean if anyone's interested in kind of small business mergers and acquisitions. Jeremy Harper, my business partner, has been teaching on that topic for 10 or 11 years and he discovered way, way before I did that it's much easier to acquire a company than it is to market your own company up to sort of the equivalent revenue. Yes, it is double the size of your business in one deal rather than try and grow organically. And I went along, I met Jeremy about 10 years ago. It's the second ever event that he ran and it was for just five people. Spent a weekend learning about the strategies that he had used to build companies. And we stayed in touch and then five years ago, started working together. But basically the agglomeration concept was an evolution of that virtual merger concept. And what he had, where he was getting to with that was small companies don't really have a lot of value. They're very difficult to monetize. The bigger you are, the more valuable you become. So if you can kind of get your ego out of the way and start merging with other companies to become a bigger entity, the value of all of them become much bigger. I'll give you a classic example that I've run into many like this, but this was three guys that each ran hosting companies. And yes, we're posting. This was in the days before Amazon and Google and Microsoft dominated. And for five years they had been meeting up at two or three conferences a year, and they all got on and they would go out drinking at night at these conferences, and it would always get into a discussion. You know, we would be making so much more money if we just merged together. It would be so much more profitable, so much more valuable. And then they would constantly just get into a battle about which brand would we use. And I want to be the CEO of the whole group. And they're just getting to pissing contests about whose brand was better. And what they were missing was if they all just threw their shares into a virtual company above that, they could all keep their own individual brands. But the value of that holding company that now owned three companies and had that combined revenue and combined profit would be significantly more valuable than any of the individual companies on and more visible to bigger buyers.

A lot of bigger buyers. They don't want to buy a company doing like $2 million a year.

Exactly, exactly. So, yeah, that was really the, you know, Jeremy had already started working on that and he had been, you know, he'd been acquiring distressed companies for no money down and then working out, fixing them and working out how to sell them and realizing they couldn't get much for them. But if he put them group of them together, he could get much more for them. Then kind of the evolution of that was, well, actually I can get an even better price for them if I'm willing to take public stock rather than cash. So people will pay a premium if I'd accept their stock rather than cash. And so that seemed like kind of a good idea. But then what he realized Was that once these PLCs had bought these small businesses, they then destroyed them. Basically said, look, we want to buy you because you're entrepreneurial and you're innovative and you've got a great little business and we love your culture. But now we've brought you, we're going to teach you to be like us. So you need to put all of your employees on the same corporate contract. You need to renegotiate all of your client contracts. It's on our standard template. You might as well rebrand you because our brand is better. And at which point all the talent in the small company leaves because it's not.

Yeah, exactly.

That's not what they signed up for. And so that was kind of the catalyst to Jeremy going, why don't we create our own PLC and not do that?

That's kind of the evolution from that. Now that's fascinating. As I mentioned offline, like I'm involved, I'm a partner in a, in a company. We're doing a more a non public roll up. The basics of it, if you have any curiosity or. I haven't even really talked about this to my, to my listeners yet too much. But you know, we realized that one of the hottest products out there right now is cbd, you know, cannabidiol supplements. And it's going like crazy. It's an extremely, I don't know, fragmented market is the thing to call it. Except that there's no real major brand leader. There's no brand who just completely dominance like as a household name in that, in that space. And there's a lot, but there's a lot of people. Then they'll hit a revenue plateau because advertising for CBD is so limited from Facebook and Google, etc. So you get a lot of companies doing two, three million dollars a year and they'll, you know, there's more, but they'll hit a plateau. Cause yeah, you just can't grow that organically. So what we've been doing is we go to one of them, for instance, and we are buying, we're raising capital and then we're buying a minority and the percentage differs. But we may buy, let's just say 49% of your business at lower end of the market multiple. But we're doing it with cash. We'll buy it at the lower end of the multiple and the much lower end. But then what we've got is over the next, over the course of the next year, if you hit certain performance benchmarks and if you're able to maintain profitability, etc. Then we will buy the remainder of your company with our stock as a swap at the high end of the multiple. So we'll buy the high end of the multiple with our stock. We'll buy the low end of the multiple with cash. And then that, you know, that puts cash in the. In the bank, et cetera, lets them. I mean, you. You understand what we're doing. The goal, the ultimate goal here, we've done this three times, is to package up, I don't really know exactly how many, five, 10, maybe even more of these brands that are doing some really good revenue. And then obviously, the economies of scale of working with a bigger company and having more access to capital, et cetera, that we would then be acquired by a private equity company or somebody else or a bigger strategic buyer. Granted, that's all. We hope that happens. But it's not as liquid. Right. We'd still have to go find and negotiate a buyer in the private markets to take that, unless we decided to go public, which I don't. I don't necessarily think we would do unless something else happens. But. Yeah, so this is definitely. It doesn't have the same complexities as a. As starting up a public company, but at the same time, it also doesn't have the sex appeal or. And the, you know, of being able to say, well, look, this is, you know, you're trading of our shares. These are the value, this is the liquidity, et cetera. So I'm really looking forward to sharing this episode with my friend and the CEO of CBD Capital Group on this. But, yeah, so as I said, this came at just a really good time because I'm watching closely based on what we're doing and what you guys are doing. And I remember I got off the. I'd finished the book and I called him. I was like, go get this on Amazon today.

Thank you for that.

And I just wonder, I don't know if it's, you know, we've got a little bit of momentum. Granted, this, this market has just put us into a deer in the headlights a little bit. But, you know, I'm just curious if we start to continue down this route, at what point it may or may not make sense to go the model that you guys have been doing with, you know, the agglomeration and saying, well, let's make this public. So I don't really know. I don't know if we're at that inflection point yet.

Yeah, I mean, I think you've already touched on the advantages. Being public gives you the credibility and it gives you that sort of, that tangible currency. People are more trusting so it's easier to do deals and they can see exactly what's underneath the bonnet. But yeah, look, I mean there's, you know, in business there's a million different ways to skin a cat. And so you kind of go with what, what works for you.

Exactly. Now, are you guys, are you guys right now out there just continuously looking for good companies that kind of fit your mold? Because you mentioned that it's not necessarily a specific industry you're looking for, but like, what, what are some of the businesses? And you know, I may even have some listeners on this who think, wow, this sounds great, after they read your book, they'll really get it. What are some of the kind of businesses you guys are looking to continue to acquire besides, like you said, you know, profitable, well run, etc. Are there any certain verticals you're looking at or looking away from or.

No, we're pretty industry agnostic. I mean the stuff we tend to steer away from is anything that's, that's too sexy. So cannabis right now is pretty sexy. And general rule of thumb, if it's, if anything tech related, my first question is, do you read TechCrunch? And if the answer is yes, then I kind of politely end the conversation because it's not for us. But yeah, I mean the, our sweet spot is kind of traditional old economy businesses. The average age of the companies that we work with is 20 years. This week we just acquired a caravanning company in the UK. It's 53 years old. The average age of the guys running it or the women running it is sort of in their 50s or 60s. They're, they're still willing to still got another three to five years in them at least. Yeah, they're not looking to exit. They like their companies, they don't want anyone that's going to destroy them. Even if they were big enough to sell to private equity, I like to think most of them are too sensible to sell to private equity. The idea of having some 32 year old come in and with an MBA tell you how you should run your business properly and fire half your staff, just settle it with tons of debt, just doesn't really resonate with our kind of crowd.

I get it. And does it matter at all what country somebody's in if they're in the us, uk?

No, we've got some. So between myself and Jeremy. So Jeremy runs, just touching on that and going back to that. So he runs an event called Harbour Club Events. So if you do a search for HarperClub Events.com and pandemics aside, we normally do Miami, LA and Boston, but also Europe and Asia and that's a great three day course and that kind of gives us a lot of ideal flow and a lot of the introducers and I tag on the agglomeration work up on that. But we've got some fantastic companies coming through the us, Canada, New Zealand, Australia tends to be English language. English rule of law is the low hanging fruit for us. Makes sense. But yeah, we get.

Are there revenue minimums that you're looking at?

So it's more ebit. We're tending to favor companies that are doing at least a million of EBIT and above. And that's kind of. Yeah, normally by that point they've sorted out a lot of the internal stuff. When we wrote the Agglomerate book, we had a lower target. I think we were saying like 400,000 and we were getting companies that were 200,000. And we're like, yeah, okay, we'll bring you in. But what you find with those smaller companies is the CFO is also the HR manager, the IT manager, the coffee boy. And trying to produce accurate financial on a monthly basis was nearly killing them. So yeah, normally by the time companies got a million, but they tend to be fairly grown up. But yeah, we get inundated with deal flow. So for a couple of years I've been saying we get about 1,000 a year, so two or three a day. But actually in the last three to six months I'd say it's kind of close to five to 10 day now. Not everyone is right and we probably end up doing 15 to 20 acquisitions deals a year. And basically anyone that applies, we send them a copy of the Agglomerate book. That gets rid of everyone that can't read, which is a good start. But it also gets rid of anyone that kind of thinks this is an exit or maybe they're too early stage for us or the wrong, wrong space.

So how long between when somebody applies, when they're a really pretty good fit, how long does it typically take between application due diligence and maybe closing the deal? I mean just obviously some take longer than others.

But is it a. Yeah, of course. I mean we've got, we typically have 30 to 40 going through due diligence at any given time point. And that can.

You know, we've had.

Companies in that pipeline that we started the conversation 18 months ago. And it's just stuff. Stuff keeps coming up. I think the quickest, quickest from first phone call to announcing to the market that they've gone public through us was 10 weeks. But that was because they had all of their due diligence kind of set up and, and ready to go because they, and they've been doing another deal and then they saw us and decided that we were a much better option for them. But they were already kind of set up and geared to go. But I'd say three, three to six months is probably the kind of time frame and basically there's the only cost that the company will incur is, and it can even occur after you've joined so we can announce and get you into the group. But at some point you have to have audited financials because your compensation is based on audited financials. And most small businesses don't have that. But that's the only cost that you incur prior to coming in. Nice.

Is there, I mean, are there any with this, with this existing climate right now? Obviously, I mean, there's a whole bunch of unknowns. But has it, has it really pushed pause on some of the stuff you guys are doing? Is it still.

No, actually, it's a. Posted about this on LinkedIn recently. It's. Yeah. For five years, people have been. One of the big questions is always from a company coming in, what happens if there's another global downturn? Now, I was a small business owner that went through the global financial crisis. I had to lay off 38 and 42 staff. And it was the most brutal, painful, lonely period of my entire life. It was just horrendous. And I always said, you know, if you're going to go through a downturn, I'd much rather be in a group of companies that have a vested interest in my success than sitting on my own trying to figure this stuff out. Now, I was kind of hoping we weren't going to test it quite so soon, but it's been fantastic to see the way the companies, because they do, they all have a vested interest in each other's success and they're all going through the same thing. And so every day we're all on slack and zoom and jumping on calls going, okay, look, yeah, I've just gone out to my staff and said we need to do a 15% salary cut across the board so I don't have to lay anyone off. That's her plan for this month and this is how they reacted to that. And other people are going, great, yeah, That's a much better idea than what I was looking at. Okay, let me try that. The communication from government is not always that clear. And so, you know those companies that have got lawyers that got the time to kind of pour through the new regulations, have done that and then put it into English speak for others and. Yeah, so there's really. It's really great to see how those companies pull together. And actually, we're not seeing. We've had a couple of deals that were kind of close to announcing and they stepped away from it. And in both cases they said, look, I would much rather be in the group than out of the group, but I don't feel comfortable coming into the group until I've secured a couple of big deals that are currently on hold, so. And again. Yeah, and look, again, it's that kind of. That sort of moral values that is fairly unifying of all the businesses that we end up working with. Yeah, they're just good people. They like the model. We've got other, you know, in any. The money hasn't gone away. In fact, there's a lot more being printed. Yeah. Yes, there is. It's just shifting into other places. And for example, one of the businesses that we've got trains care staff and they are getting in the UK and they're getting absolutely inundated with people that have been laid off from their jobs and want to help in this challenge and want to be trained up as care staff so that they can go and help. So, you know, with every kind of. With every dark cloud, there's a silver lining. So I guess that's the value of a portfolio approach for investors.

It really is. So you don't know what you guys are going to do on the new on the next workshops, etc. Is that still kind of to be determined based upon the new?

Yeah, so I think we're pretty cancelling everything over the summer. I think I'll send you the links, you can stick them in the show notes. But I think the next one in the US was scheduled for something like September in Boston, so who knows? We're putting out lots of content online, so, yeah, follow me on LinkedIn, YouTube.

Yeah. So obviously this brings us kind of to the end of this conversation, but, man, I've really, really enjoyed it. It's always fun to be able to read a book, be just completely mesmerized by it and just a lot of little epiphanies going off like, ding, ding, ding. That's one of the rare things where, like, most of the Business related books I read, I'll get little incremental knowledge, like, oh, that's an interesting insight. Yours definitely had that, that. Oh, wow. I never thought about it like this before. Like, that's really cool.

I appreciate that.

Now, you mentioned a link for people to. Or something that, you know.

I will, I will set something up so they can download a free copy of the book. I'll send that over to you and that'll be.

There'll be a link for that in the show notes. Guys, we don't have that set up, but we'll make sure that if you click the link on the, the app or in the, on the blog, wherever you're reading it, we'll make sure we get that to you. And I can't recommend it highly enough. Are there any other big nuts you're trying to crack right now? Anything that you know, might be able to be like, hey, maybe we can help?

No. Although once you download the book, we are going to do an online summit for anyone that's interested in. And the book kind of talks about three areas, which is alpha, which is getting great returns on your investment, liquidity and so the small cap, micro cap space and then impact, so how you can actually do good with your investments. And I think on May 11th and 13th, we're going to do 11th to 13th, we'll do an online summit. So, yeah, you'll have a chance to get a free, free ticket to that as well. So, yeah, look out for that.

I love it. I love it. Well, Callum, it's. What time is it over there where you're at? You're over in Singapore, right?

Yeah, it's 10 crack. It is. We've been talking, aren't we? It's 10 to 11 in the morning.

All right, well, it's 10 to 8pm here at night on the other side of the world, but I really appreciate you spending an hour or so with your morning with us and sharing this. I really look forward to staying in touch with you and, you know, maybe. Maybe we'll end up doing a deal one of these days together. You never know.

Yeah, sure. Thanks, Brett.

Thank you, Callum. Have a great one. And for everybody else listening, if you like this, check out the links in the show notes. Make sure you subscribe to the show so you don't miss this. And if you have any questions at all, if you want any further clarification or if you have any ideas or even suggestions for other topics or guests, please shoot me an email to ask Brad@baconrapidbusiness com and stay safe out there. And hopefully, by the time you're listening to this, we're over the hard part of this virus stuff. But I will see you on the next episode. All right.