Buy and Build Strategy

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I'm Kisam Patel and you're listening to MA Science where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies and what actually happened during M and A deals. Welcome to M and A Science Live where leading M and A practitioners share lessons learned from their experience. When you use proven techniques in M and A, more value is created. If you're interested in keeping up with the latest from M and a science, visit Masscience.com and subscribe to our newsletter. Again, that's Mascience.com I'm your host, Kisan Patel, CEO and founder of M and A Science and Deal Room. Joining me today is Adam Coffey, CEO at Coolsys Refrigeration and H Vac Systems, also the author of the Private Equity Playbook. Today we're going to talk about creating and implementing the buy and build strategy. How are you doing today Adam?

I'm doing fabulous. Other than lightning storms and some broader disruption continuing in the economy, life is good. Adam's good.

Hey Adam, can we kick things off with the introduction of your M and A background?

So my name's Adam Coffey. I'm the President and CEO at company called Coolsys. Coolsys is the largest company you've never heard of. I've got about 3,000 employees out there working at 50,000 customer locations. We keep grocery stores cold blood banks, cold things of that nature. I've spent the last 20 years as CEO of three different private equity backed national service companies. Some of the common DNA of all of those companies. Not to sound sexist ladies, but a lot of guys, a lot of trucks, a lot of broken stuff. Different industries always at play here. But another commonality is the buy and build strategy. So I've spent the last 20 years literally doing buy and build for private equity and taking call it a platform, bolting on 3040 companies and building a multibillion dollar empire. That's what I've spent the last couple of decades doing three different times for eight different sets of private equity firms.

What is a buy and build strategy?

So the buy and build strategy is essentially private Equity buys a platform company, one of the anchor holdings of their fund, that they're managing the firm's fund. And then with Buy and Build, what you're doing is you're buying other companies that are in the the same industry, may be slightly off center, could be a strategic pivot, adding some new capabilities, but essentially it's buying a series of companies, putting them together, integrating them or not integrating them. Some buy and builds don't actually do integrations, but in my world it's always been buy a bunch of companies, pick winners, put them together, build a scalable platform, leverage the strength of the collective, and then add extreme shareholder value in the process.

By doing that, you're creating some economies of scale.

Essentially you are. So in my case, if you just take Coolsyst, I came to the company about four years ago. @ the time it was owned by Audax Private Equity out of Boston. We did eight acquisitions over a 27 month period and then went out to market, had a great return, built a great culture by the way, very engaged workforce, reduced employee turnover by more than 40% and then company was sold to Ares Management. Aries comes in and since then I've bought another 12 companies under the Aries period. So total of 20 over a little over four years, three more under letter of intent today. With the capital gains tax rate change potentially coming, I'm sure I'm going to have a flurry of activity in the second half this year as well. And so we're buying anywhere from six to 12 companies a year now and I'll continue doing that. I'm in a fragmented industry that has 4,500 companies that look like we do. There's just a lot of small family owned businesses, founder owned businesses, over 4,500 of them out there. So if I bought 20, I still have 4,480 left to go. So I'm going to be doing this for a while.

Let's paint the landscape. When do you start considering a buy and bill strategy?

Let's just go back to private equity in general. In order to hit a private equity type of return that they desire, you're looking for a three times multiple of invested capital. That would be the typical up the middle of the fairway. Private equity modeled return that they're looking for. Three to four times would be ideal. In order to achieve that, a company has to be growing anywhere from 25 to 30% on a compound annual growth rate. So if you're a newer company, not a VC funded company, but an actual real company with revenue and you're growing at 25 to 30% organically. Hey, you're already there, you're done. However, I typically am running large business to business B2B or B2C industrial service companies and they're in mature markets. The businesses have been around for a long time. And generally speaking, when I come to a company, it's growing probably in high single digits. Six to eight percent would be typical. If you think about the law of seven, a company that's growing at 10% a year takes seven years to double in size. That's far too slow from a private equity perspective. You need to amp that growth rate up to about 30%. And in order to do that, if you don't have it organically, you need to focus on increasing organic growth. But then if you can't get to 30%, then you need an inorganic component. And so buy and build makes sense when the organic capability of the business is less than 30% and you need to have a fill in in order to get the 30% level, which would put you on a trajectory to double the company in size in 2.87 years. I believe it is. And then that allows you over a five year period, which is the typical private equity hold period, it would allow you to get to the kind of returns that private equity is looking for. In addition to that, you also then need to have a fragmented industry. So the company criteria is I'm not growing at 30%, I can't grow at 30% organically. And maybe I can take 6 to 8 and get it up to 10 to 12, but I need some fill in and then I pivot and I take a look at the industry. And if the industry is fragmented like mine is, then buy and build is a strategy that can be employed quite effectively to help build scale in a.

Business that makes sense. So fragmented industry, the growth isn't super high, otherwise we'd be focused on different things. Essentially using that as a platform to keep tacking on businesses through acquisitions to get the return the private equity firm is looking for.

Yep, I need 30% growth a year. Again, if my company is growing at 30% organically, don't need buy and build. And certainly it could be a strategy to amp it up beyond that. But I'm looking for that 30% growth rate. Buy and build really makes sense in a slow growth organic industry that has potential because of a fragmented nature. I've spent 20 years literally doing buy and build in three different companies, three different industries.

Can we talk about the transition from operating as that company with steady growth to moving into that buy and build strategy.

In a company like I'm running today, where there's the 4,500 companies out there, let me also tell you that I typically buy somebody for around five, five and a half times EBITDA and my company traded for about 14 times the last time I was in the market. I anticipate trading next year kind of at the 16 to 18 times multiple level. When you have that kind of arbitrage between the multiples you're paying and then the multiples a much larger company sells for in today's market, it really sets up an ideal situation for adding extreme shareholder value. And with 4,500 companies out there, this is something that I'm going to be doing for many years to come. And it will far exceed one hold period with private equity. It will be multiple hold periods with private equity. I'm in my second hold period with private equity now, probably be one more private and then we probably hit the public markets at that point. When it's going to be inherent in what you do for an extended period of time, you need to develop the capability to do this in house. So when I got to the company, I had no deal professionals working in the company. I had no legal department in the company. So I added counsel, co counsel. And I now have four investment professionals. So call it a team of six who focus on mergers and acquisitions as their everyday mainstay part of the work that they do. And I'm now expanding that team to include more deal professionals, but now also integration teams on the operating side, sales integration teams. Because every time we enter new geography or add new strategic capability, I now have the ability to cross sell that across the entire empire. So there's a sales integration effort, there is an operations integration effort, always of course a finance integration, HR integration type of effort. But I went from no team in house to six professionals. By the end of this year I'll have nine people. And those people's main function in life will be to assist with the buy and build effort and to make us a solid integrator and to make us available and able to maximize growth potentials organically. So here's something that's pretty cool. When we buy a company on average after close within the first 12 months, that company grows by 25% organically. And that's because of this cross sell opportunity of all the different products and services that Coolsys brings to the table. And so entering new geography or doing strategic pivots really opens up a cross sell component which then amplifies organic growth on top of buy and build. And it's a combination of all of that that has to incorporate having what I call muscle memory built within the company, which means it's something we're going to do, we need to be good at it, we need to constantly improve our efficiencies in how we do it. And so that means these need to be full time employees owned by the company, that work for the company, that are embedded in the company as opposed to outsourcing all of these different facets.

Build your deal team in house and essentially getting a big snowball effect out of all this.

And we built it over time, right? So you don't go from zero to nine people, you go from zero to one. One adds two, two adds a couple more. And it's as you're building traction and starting to get opportunities and become good at it, then there's an acceleration that takes place which really helps you maximize opportunity.

But to back up as the CEO, founder of a company, and even looking at someone that transitioned and works with a PE firm to roll something up, how does that work? Is it often hears a platform the private equity identifies and they retain the CEO to lead the effort, or is it specialized CEO skills that they then implant into the strategy? What does that look like that really kicks things off in terms of driving the execution from the beginning, you're asking.

Really good questions and they're of course complicated. So I'd say that there's many instances where founder owned businesses transition to private equity and then a buy and build strategy can also be built from that point. But I will say that it's typical in founder owned companies to focus almost solely on organic growth as kind of their mainstay. When I meet entrepreneurs, when I talk to entrepreneurs, I've bought over 100 companies in my career. So I've dealt with if you bought a hundred, it means you looked at probably a thousand. As I've had all of this exposure to founder owned businesses, I would say that in general most founders tend to be focused almost entirely on organic growth. Mergers and acquisition is seen as expensive, complicated and potentially not something that's very fun. When you're really good at building a business from 0 to 1 and then you're going from 1 to 10. It's like this, this is my wheelhouse, this is what I do. And then to start doing acquisitions can sometimes throw entrepreneurs out of their comfort zone. And so I think that's one of the beautiful marriages of a Typical private equity firm and an entrepreneur led business, or entrepreneur founded business, is the marriage of, call it these different strategies, different skillsets and capabilities. And when it works well, it's a wonderful thing to see. Of course, like anything else in life, when it goes bad, it goes horribly bad. So you need to do a really good job upfront making sure that when you're doing a buy in, you're applying very good filters, I call them, and you're picking good companies and you have a sound strategy, and yet you're doing most of your work upfront to make sure you're buying the best companies that fit the strategy, rather than just out haphazardly buying. And I see a ton of haphazard buying out there all the time. And generally when it goes south, it's because people didn't put much thought into it ahead of time. And instead of buying the diamond, they bought the carbon chunk and it just didn't go smoothly.

So there's a variety of ways that could get structured and set up and different scenarios that play into that.

Short answer Yes. A lot of times too, there are transitioning founders or people who are getting closer to retirement age and they're seeking to cash out their chips. There are times where people like me, I'm a tool, and private equity says, geez, I've got a big service company, I want to make it much bigger and I want to do it really fast. And there's a buy and build component here. Who's on that short list of potential CEOs. And my name would come up with a bunch of different recruiters or private equity firms as being one of those people who has a lot of experience doing this. And so oftentimes I come into a situation where I'm displacing the founder who's riding off in the sunset. Or potentially I'm coming into a situation where the founder already has transitioned to private equity and now it's private equity transitioning to private equity. And that entrepreneur has already written off into the sunset or is ready to. So there's some kind of transition taking place. There's a need for a new CEO, and I'm the serial CEO who's both an entrepreneur and a buy and build guy with kind of a GE pedigree during the Jack Welsh era to augment the skillset. You put all that together and it happens all the time. There's no right or wrong. And I've seen all permeations thereof where founders stay, founders get into this and or founders retire right off into the sunset. And a professional guy like me rides in.

So ideally the PE firm wants somebody experienced at the strategy to execute. What was the first time when you got onto this platform deal? How'd you get in? What was that like?

I have to go back a little ways to say that my parents are both 90 years old. They've been married for 68 years. Old fashioned Roman Catholic family. I think the neighborhood raised me. Cause There was like 10 kids in my house and 14 kids next door and you know, eight down the street the other place. It's weird, there's tons of us all over the place. But my parents at their age grew up and their formative years were during the Great Depression and World War II. And then my dad fought in Korea. Very different mindset. And I was taught very early to chase title and money. Kind of you define success with title and money. That's how Depression era minded people thought about life in general. You know, I was chasing title and money. After getting out of the service, I went to ge. I worked first as an engineer. I transitioned over to business during the Jack Welch era, the heyday of ge. Great time to be a GE Crotonville guy, learning how to run a business. All the business leaders coming in and teaching modules. And it's the Jack Welch Camelot era of ge, if you will. And then when private equity started calling, it's like when you get close to the GM level in a company like a GE and you're a Crotonville guy, then it's like recruiters just start calling you every day, 10 times a day, and start trying to pick you off. And a PE firm starts calling, starts knocking on the door saying, hey, Adam, come be president of a middle market company. And that's where the advice of the mentors within GE comes to play. And it's, geez, should I stay and be one of a thousand general managers trying to be a vp, trying to be a division president one day? Or should I step out of GE and go run a company and be a president? And I'll never forget the advice if he's out there listening. A guy named Mike Martin, former Cleveland Browns football player turned GE superstar inside healthcare. His advice, Adam, once a president, always a president. I took that and ran with it. Boy, it was the best advice I ever got in my life. I stepped out, I went, I became president of a company. But I didn't know what PE was. I had no clue. I didn't know what buy and build was. I had no clue. I'm just a guy Chasing title and money. Someone wants to call me president, give me a bunch of money and I land in private equity. And if you go back 20 years ago, you could measure the number of firms in the hundreds and then measure the equity invested at under a trillion. Today, 6,000 firms, 4.3 trillion in assets under management, 1.5 trillion in cash committed out looking for companies to buy right this second. So I dumbed into private equity. I learned through the school of hard knocks over a 20 year period what private equity was, how to work with it, how to maximize potential. And I really became an expert at it the blue collar way, which is just the lunch bucket brigade. Experience is the best teacher. And that's why I actually wrote my first book. It was really to just take 20 years worth of learnings and transfer that to the business community. Because what I was seeing is private equity quickly has become 50% of all merger and acquisition activity on the planet involves private equity either as a buyer or a seller or both. And I think most business people today, if you gave them a basic quiz on private equity, would fail that quiz. They don't understand it, they don't know what it is, they don't know what the flavors of private equity are or how it works. They just know about like Shark Tank and DC and but they have no idea about buyout funds and buy and build and all these different terms, how funds work and what they are. And that's why I wrote the first book was so that somebody else doesn't have to go through the same 20 years of learnings that I did.

Got a good background to get into management and then sprung that over into the PE side and built it up.

To where you're at today without knowing what PE was or if it was a good thing or a bad thing.

Then he wrote a book to help other people understand faster.

Exactly. And based upon the continuing sales of that book, I have to tell you it's resonated with a lot of people around the world just as being a great resource to learn the basics of private equity in about four hours.

That book's called Private Equity Playbook. I've actually read it. I enjoyed reading it just because you write it with natural simple language. So it's very easy to understand.

And so the next book's coming out in September, it's called the Exit Strategy Playbook. And so that's now it's not just about private equity. Private equity certainly is a piece of it, but it's to really focus on entrepreneurs, founder owned businesses and even the transitioning Fortune 500 executive who finds themselves running a private equity backed company that's going to be sold and they've never been through the process before and try to understand what that looks like. Continue to try to learn and also teach as well. I'm having a lot of fun. It's a great time in my life. It's not so much focused around the financial outcome as it is around sharing stories and entertaining people and trying to be a good steward to the next generation of the world's business leaders and helping them mentor them. I think I've mentored now around a thousand people over my career and there's going to be a third book coming out about the stories that I've learned from mentoring all these people in the business world, trying to help them solve for their own personal equation of what the future looks like and what success looks like.

That's really great. I'll add the book on the reading list and who knows, we may have a follow up interview here. Adam, the one thing with your business is very service oriented, the series of businesses you've been involved with. I'd love to hear a little bit about your thoughts around culture because culture plays a big role when you start combining these companies. And I'm just curious on your general views. Sure.

I'm going to first of all tell all your listeners, if any of my shareholders are out there, please turn off your speakers right now because they're not going to like what I have to say. When you're the CEO of a service company, if you cannot store your product in a box and put it on a shelf and bring it out later when you need it and open it up and use it, then I'm afraid to tell you that your product is actually people. And if your product is people, then your entire focus should be culture. And so my philosophy on building revenue is to go all the way down to the ground level and to start with people. If I build a cool culture, I get an engaged workforce. If I get an engaged workforce, they take care of customers, customers like to be taken care of, they give us more stuff to do and revenue reigns from the skies. So the secret to building top line in a services business is to focus on people and culture. I call myself a blue collar CEO. I left home after graduating high school at 17, went in the army, was there for four years. When I first got to the business world, I started at the bottom and I worked my way up. And in 35 years of working at service companies, I've held every Job a person can hold in a service company. I used to be the guy in the truck who was driving from service call to service call. Back in my field service days, I repaired cat scanners and MRIs in hospitals. So I was a service technician. And then I became a support engineer and a service manager and a regional manager and a vice president. I worked my way up. I held every job on the org chart. And so I call myself a blue collar CEO because I've never forgotten the guy who was in the truck. And that's because in a service business, culture is king. Your product is people. You need to be able to talk to people and to have a message that resonates with people in the trenches. If you want to find sustainable success, that's it.

You just gotta have the ability to empathize with all the different roles in your company.

I'll put it this way. When most people take over a business and you don't have to be a CEO, you might be a general manager coming into a business unit. Fortune 500 world. People always lead top down. And I go through a process that's very predictable. And I teach this to MBA candidates at the executive MBA kind of level. I call it a discovery phase. I go to a business, I'm a guy who's held every job you can hold in a service company, but I go into a new service company and the first thing I do do is I look at a spreadsheet and I look at, okay, what are the different classifications of employees? Okay, I've got service techs, I've got construction guys or install techs. I've got this class or that class. I've got salespeople. And then I go out in the field and I ride around with all these people and I assume I know nothing about the business and I do discovery. I learn about what these people do for a living day in and day out. I talk to them about their jobs, what do they like, what they hate. The end result of that is when for the rest of the time I'm at the company, I'm looking at spreadsheets. I'm not seeing numbers and columns. I'm seeing people and jobs. It makes the company come to life in a different kind of fashion. And most of the time, when I do that discovery phase, I actually find the beginnings of that first long term strategic plan on. Here's what I'm seeing. Equally as important, here's what I'm not seeing that I expected I should see in a company of a certain size. Put those Two things together that's going to lead me to kind of The Jack Welch 5 or 6 initiatives that I'm going to drive. The measurement systems I'm going to put in place around those five or six initiatives. And these are going to be the heavy, quick hitters that are going to help me bend a curve and start to demonstrate a ramp up in growth or ramp up in margin and performance. An engaged workforce, the building of early culture and all of this gives me kind of the ability to create a sustainable momentum early on that we then build upon as time goes by.

How do you get the consistency when you start acquiring companies and they have their own cultures? What if that turns out to be toxic or something?

It's really. These are. Boy, you ask good questions. Because if you don't get this right, let me just tell you straight up. One bad acquisition can take your entire leadership's energy and strength and cause a distraction that could last years. And I've seen this play out on the bad side, a great baseball player. Let's use Ty Cobb. Highest batting average ever. He batted in the 400s, which means six out of 10 times he made an out. If you're doing mergers and acquisition, ladies and gentlemen, you need to bat.900 plus. You had best be batting damn near 1000 because one bad acquisition will just zap your entire leadership team's energy. So this is important. It's important that you build a culture that when you make an acquisition, you buy a company that fits. You spend a lot of time up in the front end of the funnel really defining what is the strategies I'm trying to accomplish. What are the characteristics or filters of a company that would meet meet those strategic goals and objectives and perform at a certain level. You know what? I don't just go buy any company as soon as I encounter that arrogant owner who's just, I'm God's gift to the world and you're lucky to have me. Goodbye. Someone else can partner up with that guy. I'm looking for the person that wants to be a part of something bigger. Maybe they're not ready to retire. Maybe they want to transition. They want to get some chips off the table, but they want to do a rollover. They want to keep going. They have passion for what they do. Oftentimes I'll solicit input from early companies I buy. Hey, who did you respect in the marketplace? Who do you think is a really good company and why do you think they're a really good company? I'm looking for best in breed If I'm going into a new geography, I'm not looking to buy the cheapest thing or the broken thing because I can get it for a cheap price. I want the best company in that territory that everybody respects, that everybody likes and wants to emulate. And if I buy and spend a lot of time upfront buying good companies, then it's much easier on the integration side to also integrate cultures. I do these silly videos in a Covid world. I can't always go and be there. But I do a number of different things. So first of all, I'm a transparent CEO. Every employee in this company knows who I am. I couldn't do undercover CEO. It just wouldn't work. If a person can be an undercover CEO, then they don't know their employees and that's a problem to begin with. So I hate that TV show, although it's very, very entertaining at times, even with makeup, people are going to know who I am in my world. So I'm a transparent CEO. I talk to people all the time. I have 3,000 employees. I'll hold general wide open town halls and sometimes have more than 1,000 employees tuning in. So kind of like you doing a podcast. I do my own stick and my own radio show and I'm talking to the employees of the company. I'm transparent. I make videos welcoming the incoming company if we're not there in person. We work really hard to buy good companies and to make sure that the employee's experience in an acquired company is either neutral or better, never worse. So as a part of diligence, we spend a lot of time analyzing things like pay practices and benefits and how does our benefits align with their benefits. And I tend to as a part of just my own core business, as a part of building that culture, I want to demonstrate that I'm going to take care of employees. So I have very good benefits. Every time I buy a company, I have to spend money. It's a negative synergy to get their employees up to the same level of benefits that I have. Happens every time, not once in a while, every time. So I want to make sure that the incoming employees experience is equal to or better than, hey, my benefits are getting better. Hey, I'm now part of a company. Instead of with 30 employees, they got 3,000. I can go to school, I can take jobs in new territories. There's a lot of promotional opportunities that didn't exist before. So it's all about making sure early day employee culture is positively impacted in a relationship with us. As part of a buy and build because there is going to be nervousness. Let's face it, anytime a company is sold, employees are looking up from the trenches and they're wondering how is my life going to get screwed up as a result of this? And you want to make sure that initially there's no impact or positive impact and there's no big rush to change the world overnight. Okay, calm down, look up, your leader is still there. So that's something that's pretty cool about CoolSys. In my second book I talk about there's two kinds of strategic buyers. There's those that turn the lights off and they just fully integrate everything and they jettison all the SG&A expense, close the offices, fire the management team and then there's those that keep the lights on or want you to join the team. And at CoolSys, out of 20 companies bought, 17 of the 20 entrepreneurs are still here. They're still investors. And when everybody looks up, they still see them there. So what happened to the other guys? They actually were older and wanted to retire and that was why they sold in the first place. And so we have had some folks transition out, but the majority of leaders are still within the business today, still running their business. So the guys look up and after a while it's like, when's the change coming? They keep looking up, change doesn't come or it comes and it's better and then it's oh, okay, no big deal. A lot of work goes in and diligence and upfront. Buy good companies, be transparent, talk to the incoming employees, manage their experience to be neutral or positive. Change does happen. Ultimately you do have to do some things in integration that are different, but you lay the expectations clearly up front. Here's what is going to change, here's why it's going to change, here's what the impact is going to be to you. In most cases, what I find is that integrations go very smoothly, they're positive. And here's an interesting tidbit. Oftentimes when we do employee surveys, recently acquired companies have higher engagement scores than those that have been with you for a long time. When you're doing a buy and build, if you've done it right, that's a typical outcome is people are excited and they're happy to be part of that.

Bigger team, take care of people and save a lot of headaches later.

Absolutely.

Can we talk about some of the deal process? How do you find opportunities?

So in my world, where there are 4,500 plus companies for me to look at and buy. That's a lot. And I only have a deal team of six and it's growing to nine, but really just four professionals that are working deals every day, all day. Because lawyers also do other things besides M and A. And so we use a company, it's a front end company, call it. And there's a number of them. And I'm going to give a special shout out to Dave Harvey out there, Harvey & Co. In Southern California in Orange County. And I use Dave Harvey to shake the trees for me. Dave has over 100 employees, analysts, people assigned into groups. They work with companies, multiple industries. And it's like, hey, Dave, there's 4,500 companies out there, go find them, shake the trees, do my early outreach and let's see if we can find companies that potentially are interested in having a conversation. And then Dave will hand those warm leads off to my deal team who then reaches out. Hey, I'm Kuran Agarwal and I'm the vice president of corporate development at Coolsys. And hey, let's talk. And one of the great things is it's harder early when you haven't done this and you're starting buy and build. I've bought 20 companies. You can talk to any one of the 20 people that have sold to me and to Koolsys. And now I've got testimonials and hey, did they say what they were going to do? Did they do what they say? What was your experience like during the process? What was it like after the process? I have testimonials now. I don't just have to find one who's going to say nice things. I can give you a whole list. You can call all of them and talk to them because we now have a track record. So we've become the acquirer of choice in the industry. We're not perfect. No company. Company's perfect. We aspire to be perfect, but we have a lot of work to do to get there. A lot of work. And so it's also a fixer upper as well as a buy and build with a lot of aspirations to be a great place to work for all employees. My one goal and objective for all employees, Create an environment where you can spend your entire career in one place. To do that, I have to do four things. Pay a fair wage or I'll lose talent, have great benefits, have a great retirement plan, and then the most important thing, create opportunity for advancement. So for those people that want to run and have their career go to different places. You have to create that superhighway that lets them navigate north up the org chart if that's where they want to go, or navigate horizontally across geography if they're seeking other opportunities within an empire or in a different area. And so a lot of focus around that goes into what we do. But I use an outside firm to help shape the trees, create some warm leads. Of those 4500, we've probably had outreach with about 1400 of them. And I probably have 150 of them in my active funnel. They fit the mold. They're the right kind of company, the right size company. And as a result of that, let's go. And now focus on those. So that's the top of the funnel and then work their way through. But it's a process for sure, and it takes a lot. Now listen, I've worked in other industries where there were only really a couple hundred players. And I was doing buy and build. And in that kind of case, I didn't need to use outside firms or consultants to help me shake the trees. My internal deal team that we built could effectively do outreach. The industry had great trade shows where everybody went and you could meet everybody. I literally would go in my last company, I'd go wherever the trade show was. I'd get a big suite in a hotel up above with a living room. My business development guy would work the floor and he'd bring people up to see me and we would find and prospect that way. And so there's different ways to do it and you have to build one that works for the industry that you're in based on the fragmentation.

Really good call. When it came to standing up your M and A function, what'd that look like? It seems like you have to do that from scratch every time you get involved with the new platform play.

I do. A lot of people ask me the question, do you bring an entire team with you when you come to a company? And the answer is no. Oftentimes I'm working with people who have industry specific expertise. And I am a generalist. I run service companies, but they could be in any industry. And so oftentimes the skill set of the great sales leader is industry specific or the great operations guy is industry specific. And so I tend to assemble new teams everywhere. I go with a combination of the existing talent that's there, augmented by new positions where we don't have the talent inside. I'll give you a little secret. When I build an M and A team, what I have found is my Hunting ground is go to the big accounting firms. They all have transactional diligence teams. And so these are people who work on nothing but M and A transactions all day long, only it's not for their own benefit and it's not for their own company. They're the hired guns who help people do quality of earnings reports and market studies and normalizing accounting and doing all the financial diligence. And so a lot of the big accounting firms have transactional diligence teams. And these people really know the nuts and bolts of M and A. And so if you can find a charismatic guy or lady who not only knows their stuff, but has that ability to then take it to the next level and be the front end of a deal team or the leader of a deal team. I also look for private equity analysts that they worked in private equity earlier in their career, worked on a number of deals, they left to go to business school, but then they never went back. And that's the common play in private equity is you go as an analyst after your undergrad work, you stay for two or three years, you go back to do an mba, then you come back again to private equity. A lot of people don't find their way back after that first iteration, or I'll find people who've got investment banking background. But I tend to favor the transactional diligence folks who really understand the nuances of doing diligence. Because a big part of an M and A team in house in a company is leading diligence. They don't necessarily do all the work, but they've got to do some of the early work. And they have to quarterback external resources that do the work. And they have a real good understanding of how that process works. And so for me, it starts with one leader. I build a department around them. I hire the leader. I don't hire the worker bee, I hire the leader. And they're going to roll up their sleeves and be the worker bee. But then we're going to build a team around them and add additional deal professionals. And I focus on kind of a two tiered approach. A senior deal person working with an analyst or a more junior person, very capable people. But the dynamic is such that the senior guys are the hunters. They're out finding the deals, developing the relationships. The analyst, the senior analyst type person is working with them or assuming control of a deal, guiding it through diligence while the hunter is out. So they kind of work as a wolf pack, a couple of them together. And so I build teams, I Don't hire individuals, I hire teams. If I'm hiring one, a second one's coming close behind. Hire two, another one's coming close behind. And I build the team in that fashion with a mixture of senior and mid level people. And they, amongst themselves, really develop their own cadence. And it's a little bit different in each company that I've been at, but it starts with one, it builds fairly rapidly. We're at four deal professionals today. And now, like I said, now we're adding integration teams. Because I want my deal guys focused on the front end, on the deals, and when we close it, I want them to be able to throw it over their back and let someone else catch it. And I'll run with it from there to make sure it gets integrated and that things happen smoothly and effectively. In the early days, your bottleneck is always people. So when I got to a deal team of four, my secondary people would get bogged down in diligence because I didn't have diligence teams. And that slowed down the front end of my deal process. And my ability to get more deals done was impacted by how much time the deal teams were spending on integration with those relationships. So we needed to add that high class problem, Right? So it works so well that one guy got so busy, I needed two. Two became four. Four are so busy now. I'm adding the integration folks on top of it. It's like a snowball rolling downhill. It picks up steam, it gets going, and then it just begins to get larger and more effective.

These people you hire and bring in, do they come in just knowing what to do or do you still gotta do a lot of oversight?

No, these are smart people. Do they always know everything to do? No, but they know so much about it. It can be very successful and it makes for a quicker ramp up. And so each private equity firm that I've worked with also has their own flavor and way of wanting to do things and how much level of authority or approval they want or involvement they want. I've been with firms that virtually are hands off. And my team does everything and we create what I call white papers or diagnostic decks. Here's the company, here's the verticals, here's the market served, here's the price, here's the why we want it, here's the synergies, blah, blah, blah, and we'll do all the work internally. And I've also had it where the private equity guys want to look over your shoulder every step of the way. And then I've Also had the private equity firms that offer up analyst capacity to help out. Especially in the early days when you don't have the deal team, a lot of the private equity firms have enough capacity to where they'll step in and provide you with some additional bandwidth. And so there is a lot of learnings that's taking place. It's not that you hire a team and abandon them. They do get oversight, both from senior leadership in the company and also from the private equity sponsor. But they bring a lot of skills to the table.

Hey, so this sounds like a big part of your role and responsibility, building out and running this M and A function. What percentage of it do you think consumes of you?

I'm 57 years old and I've been a CEO for over 20 years now. And so early in my career, I was the superstar operator guy, the turnaround guy, the spreadsheet KPI guy who could go in and analyze and fix anything. As I've gotten older and more mature, my real ability to help and to accelerate growth in a business is to be the M and A guy. So I spent a lot of my time building relationships with entrepreneurs, overseeing the M and A function, the buy and build function, working with the capital markets, the rating agencies, the lender syndicates, the investment bankers when it's time to exit, to work with the incoming investment community. And so my specialty is buy and build, provide oversight goals and objectives, strategic objectives, to a leadership team, but to really empower my leadership team. And so I work with a very strong CFO who can run the financial side of the house, a very strong COO who can run operations. And that frees me up to focus on buy and build and M and A in the capital markets. And you put that together and that's the recipe for that 30% compound annual growth rate and getting something up north of a billion dollars. It's a different world, and you get there really quick at a 30% growth rate. And so as a result of that, each senior executive plays a role and I assemble a team of people to provide a total package. But my focus is predominantly capital market side and the M and A buy and build type stuff. You're working hard, it's fun. You know what? It's fun. Takes a village to run a company for sure. And we're having fun.

Hey, when it's fun to work hard, that's a beautiful thing. Adam, what's the craziest thing you've seen in M and A?

The craziest thing I've seen in M And a. I'll start with prices. If you're an entrepreneur or a founder owned business out there today and you've been in business for any length of time and you have any kind of scale and you've been thinking for a while, I wonder what's a good time to exit. Well, let me just set the stage for you right now, this very second. There are 6,000 firms with 1.5 trillion, trillion with a T. The only people who spend more money than that is the federal government, 1.5 trillion in cash out looking for your company, wanting to buy it. And the competition to put money to work means that record prices are being paid for businesses of all size. And then you got the government who's indicated the current administration has indicated a desire to raise the capital gains tax rate from 20 under Trump up to a potential of 43% by early next year or to be in place for early next year. And even if nothing happens, the Trump tax cuts expire and so cap gains goes back to 28. If you were ever thinking about selling a company, the best combination you could have is record prices, record multiples and a low tax structure. And if you can get the deal done between now and the end of the year, you're gonna save at least 8%. We know you might be saving 20% in taxes. All of that coupled with all the money chasing deals right now, I would say that the craziest thing I'm seeing is just the high multiples companies are trading for. It's definitely a seller's market in terms of having a ton of qualified buyers with a lot of capital to put to work and they're wanting to pay very high prices for businesses. So if you have scale, especially if you're a business that's got a hundred million in revenue and 10 million or more of Ebitda boy, now is the time for you to go.

Today's time is the craziest thing. I agree. Adam, thank you so much for your time today. I enjoyed this conversation.

I enjoyed it as well. I hope everybody out there did. You can find me@adamecoffee.com or on LinkedIn. I love hearing from people. I spend a lot of time interacting with people on LinkedIn and enjoy it tremendously. So, so thank you for having me on. Good luck to you and your listeners.

I appreciate it. Ironically, the next book I'm working on is how to Stand up at M and A Function From Scratch. So we may have to interview, do little book reviews at the very least.

There you go. That's a specialty area I had not contemplated doing a specialty book on.

This is the third book I'm writing and I'm taking a very collaborative approach. I'm anticipating about 40 to 50 industry contributors. We'll have to follow up on a conversation. I can get a whole section for you to talk about, buy and build. Building out a function.

That would be fun.

Adam, thanks so much again for your time.

You too. Thank you.

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