Episode 4 - Phil Desrochers, CEO of GLP Canada Ltd.

So the big question is this. How are entrepreneurs who aren't scaling tech startups or building lifestyle businesses from scratch doing it? How do acquisition entrepreneurs find businesses, buy them, and then create generational wealth while taking on less risk? Welcome to Surge funded the Entrepreneurship Through Acquisition podcast. Our guest today is Philip Desrochet, an acquisition entrepreneur who along with his partner Cameron Roblin, acquired GLP Canada, one of the largest H Vac distributors in Canada, in March of 2022, less than a year after launching their search. So if you don't mind sharing it again with the audience, I'd love to hear the story of how you and your partner got to know each other and how you two decided to pursue search fund entrepreneurship.

Yeah, absolutely. Nick, thanks for, for having me. Always happy to share a bit of our story to the search fund community. So thanks for organizing this from having me on your on your podcast. The idea of my partner and I to do a search fund actually go back to our time at INSEAD, which was in 2015, when both, both my partner Cameron and I were studying and got to learn a bit about the structured concept of search. Fun. We thought it was interesting and we always stayed in touch with that as an ambition at some point to likely not having like a startup idea or like being a bit maybe motivated or excited about the traditional businesses of services and industrials that we felt an acquisition of or succession, becoming the succession plan of a entrepreneur would be a great opportunity for us. Funny enough, after insead, we both didn't do it right away. We actually both went into consulting. I was in Europe, it was here in Canada, and we stayed in touch and we talked about it quite a bit. And it's in 2021, around early 2021, right in the middle of COVID that we felt ready for it. We just wanted to kind of, I don't know, take the jump, plunge into the process, understand a bit more about it and go for it. And that's what we did. So we raised our fund on the first part of 2021. We officially launched in June 2021. It was great. I think that the community in Canada is getting a bit more mature. It's for sure a bit behind of what you see in the US still, but there are clear partners that you can have in the Canadian market and we wanted to look in Canada, we wanted to search for businesses in Canada being from here and a bit of an own turf advantage we felt we could have. So we focused in starting there and making connection around Toronto and other big cities. And then we also got introduced to a lot of partners in the US and we ended up having a bit of a mixed partnership with Canadian and U.S. investors. And then we launched and we looked at a bunch of companies. Some really interesting that we didn't make it to the final round. Less interesting that we're happy we didn't go for it. And then we found GLP towards the second half of, of of 2021 and then we closed, we closed the transaction in, in March 2022. Yeah.

Yeah. Thanks for the overview. It's really cool to see not only did you guys keep in touch since but you were able to execute this so well and closed so quickly on such a great business. What was the thinking behind doing a partner traditional search together? Did you, did you ever consider any other options like a self funded search or solo search or.

Yeah, no, absolutely. I think it's funny, I hear that quite often with other searchers too. I think it's a big questions that people have in the start should I, should I go solo? Should I go self funded or a partner search? I think for me personally and I think my partner Cameron would probably echo the same feeling a little bit. I hope, I hope he does but we really wanted to do a partnership a partner search. We felt that being two with our backgrounds like two, two persons involved in solving problems, leadership and we were looking for. We were at least our objective at the time was trying to find somewhat of a bigger business and so we, we felt like two would be also a good fit if it's a larger company and just the. For the fun of the adventure of being the two of us was kind of a big part. So partner search was already pretty much this decided from the start. But we did explore the options of going oh should we do it self funded. Being mid career having savings, we thought maybe we should do self funded versus traditional. But then for us when we started to weigh like pros and cons of both approaches that we felt that jumping from the start with a group of investors that we kind of get to know initially also during the search it's just such a, such a good way to build the relationship just because you already in the process together. So we decided to go traditional looking for a bigger businesses. We knew that a lot of the things would end up being similar. So for us, I mean selfishly a bit less risky of course because you end up having be able to pay yourself a bit of money and cover a lot of expenses which was good but initially was mainly from a relationship angle being able to develop relationship with investors during the search phase before really going into the bigger partnership of owning a business together. So it was kind of a way to get the first experience with them.

Sure. Can you talk a little bit more about that fundraising process and relationship building with the investors? Did you have any strategy for. I think you mentioned that you had about half Canadian investors and half international US or other places. So was there any approach that you had or did it just sort of end up that way?

It kind of evolved from the beginning when we. It's not like we. When we started the process, we didn't really have an exact approach that we wanted to go for. I think talking to a lot of other searchers, talking with current like searchers who found, searchers who were searching, searchers who actually found, operated and exited all the, all the. The full spectrum there of profiles. I think we learned that in the end your investor group or the people backing you, not only of course they bring capital, which is one piece in the puzzle. A big part of it. Also the experience they bring. Right. That being able to either help you in a transaction or help you in running a company. Sometimes it's industry expertise that they might have. So for us when we as we got to meet people, get to know them, understand what they were, we. We started to craft a bit more our partnerships to have a mix like. Mix of more investor like private equity. Like a bit for me, coming from the private equity space, I think that mindset was an important part of the game too. But also having people who did exactly what we were doing. So mix of investors who were successful searcher who did well and actually end up becoming investors themselves and then also just other, sometimes more inet worth individuals that we knew that we had a good trust relationship and acted a bit as mentors to us as well. So we really looked for that balance and then we had a balance of of course US and Canada just to a healthy mix in the entire cap table. But we really went for the expertise and the diversity to be able. Because we were looking a bit broad into our potential acquisition. So we felt having a bit more of a diverse set of investors would also enable us to always have one or two that we could call for expertise on what we were looking into.

That makes a lot of sense. I think it's really helpful to look into the investors not just as a source of capital, but how they can. They can help with this.

Yeah, yeah. And some are just the source of capital and that's what they want. Right. Some are. They're there like to, to do the investment and, and be there. I mean I'm sure if you have a questions you'll reach out to them. But from the start they're also pretty clear that they won't be super involved. They don't want to take a board seat. Like they're a bit more on the passive angle and you have some others that on the contrary they want to be active, they want to be more involved. They, they will request for about a board seat. They will do a bigger check usually. And, and so you have, you have the mix and in the end I think for any searcher it's do you have a good connection with those individuals? Do you feel like it's a good healthy business relationship where you see it becoming a good healthy business relationship? I think in the end it's a long, it's a relatively long term adventure. Right. You do the search for let's say up to two years if you don't find quickly and then you're going to run the business for a few years as well. So you better enjoy working with those individuals since it's, it's a pretty long term relationship there.

Were there any investors that you chose not to work with or ones that you spoke with and you decided not to pursue further?

I mean we did find some that were. Not that we didn't like them per se but you could see they were more interested into software, tech investments and things like that. You could see they had more, they were open to more, I don't know, broader searches or, or geographically like for us we were Canadian. We're looking at a bit more traditional businesses, services and industrials and we were not that interested into going after software surprisingly enough versus most people are doing. But so because of that some not that they, not that they were not interesting but we ended up not going with them just for, for a fit. I would say like everybody we met were pretty amazing. The community is, is there to help the entrepreneurs. Like a lot of most of investors I would say are entrepreneurs first and want to support you and your quest there. So it was more almost a natural selection because of our interest and the mixes and profiles of the investor we talk to.

Sure, that makes a lot of sense. What were the reasons that you were mostly interested in more traditional businesses? And is H Vac an industry that you'd identified before starting the search or is it something that you came across while you were searching and realized it would be a good industry?

Yeah, no, good question. We didn't identify H Vac as something that we were actively going after, but we were open to anything regarding kind of tied to the construction industry. I mean in Canada I come from that area, I come from a family business in construction. So I'm very familiar with the entire kind of value chain in the ecosystem around it. And I'm having done mechanical engineer training and having worked in the industry before, more broadly, H vac 2 directly, I was very comfortable with those kind of businesses, just that I understood them very well and so we were quite open at looking at them. The this specific company ended up being through my personal network of knowing people and finding a. This company was owned by three partners and one of them was really in the age of retirement and the other ones were close. And since they were kind of a third, third partnership, it was. They were getting into a discussion of like either one of them buys whatever. It was kind of getting a bit interesting for them for the planning of the future of the business. So when we arrived in the picture as an option, they were like, oh well, yeah, I don't mind maybe going to retirement a bit faster if everything makes sense for me. And we ended up being a great solution for them because we, we solved the problem of one wanted to exit the other ones not necessarily wanted to go and rechange the entire structure or bring a complete outsider. So it worked well. But we kind of stumbled upon it a bit, to be honest. It was not like we were actively calling all the H Vac businesses. We were looking more broadly around. We looked at various companies in that space, those services that were linked to construction. Construction is such a big industry in Canada in general. As we keep building houses and buildings, we keep expanding. So it's a big part of the GDP and there's cool companies in that space. So we were looking at that broadly, but we, we ran into this company or the, the H Vac space. We were not focused on it from the start.

Sure. And I guess from what I'm hearing, it was sort of in some ways through your network that you came across this business. I was wondering if you found success through brokers or proprietary search the way that searchers often do because you acquired the business less than a year after you started your search. But I think you found it even like much more quickly than that. Maybe you can talk a bit about why you had a trip. You that quick turnaround too.

Yeah, for us. So we started the process. So we officially launched in June 2021 and then the first thing we did is, my partner Cameron and I, we just Reached out to an entire network of even the people that you've not talked in 10 years, but you've worked with or you're somewhat related a bit to that. We were doing this and we were looking for companies. We wanted to be a succession plan for a current owner and we just really got. We went that route first kind of proprietary, if you want, in that there was some brokers too, that we were able to build relationship and revive the communication and connection there. And by doing so we started to get inbound fairly quickly, which was half proprietary. I would send half kind of brokered because some of our contacts were brokers. We got a pretty good deal flow from the start. But this one, we actually had our first introduction with the previous owners in, in August of 2021. So it's only a few months after launching that we kind of had the discussion, talked to them, they liked us. Like we, we did a few. It was really kind of a trust building exercise, right. So we met them a few times, went for dinner, we met their families and then they were asking us what we wanted to do with the company and we met some of the suppliers. It was kind of a long process of meeting people and they wanted as much to assess the fit that we had with it versus the fit that we could have with them. So it was early. But if you look at proprietary versus brokered, we really use both channel for our search. I think in Canada in general you still have a lot of brokers that are not just the big houses and they have customers either through their accounting practice or, or another for us was through a wealth manager. So it was through a wealth practice. And then they have the connection. They're the first person they're going to at least tell that they're looking to maybe retire soon. And so you get inbounds from there and it's pretty fragmented. So you still have a good, a good way to get deal flow. I think the US is so much more mature that the brokers are just broadcasting the deal everywhere. Here in Canada they're a bit more. The broker is still a bit more selective of who they present the opportunities to. And so if you're able to build a trust relationship, you get a good deal flow. And then we did like every other search fund and searcher would do is we. We started to do our own proprietary outreach like via kind of more email campaigns, like digital campaigns. And I think the way we did it potentially different is we were, we didn't do massive blasts. We went really tailored into spaces. We wanted to look into and we did a lot of pre work to try to see if the company was a good match because then when we got in touch with the seller or the owner, we were able to have already a pretty serious conversation about their company. Knowing it a bit from the outside.

Definitely. That's really interesting. And yeah, it's, it's great that it worked out so well and so quickly. Both you and your partner come from consulting backgrounds. I was wondering how your experience in consulting helped either with the search itself or with running the business once you took it over.

Yeah, I think both. So we come from consulting. Both different a bit. So CAM was more into large digital transformation in the bigger corporate world, Fortune 500 type projects and companies. I was at Bain & Co. In their private equity practice and I did a lot of transformation like post acquisition transformation with private equity fund or a lot of diligence to acquire companies or make investment moves etc. So for me the skill set that I learned there was super helpful at getting to assess an industry or a market very quickly, make up my mind on a company very quickly, build investment thesis, understand what would be the growth levers we could pull. And so Cameron and I, the beauty of it is not only we had some sort of work ethic built through our years of consulting that we were able to get to things very quickly and move ratively quickly. And we were kind of basically communicating in the same way. We were talking the same language, which was great for that. I think it gave us a lot of skills that we could build on to understand the operations and make plans to how to transform what we need to transform and then just act on them like we've both been. Also I've led some big transformations in the corporate world. So in the end it's how to build trust with colleagues or employees, et cetera, drive teams to results. So having that experience gave us at least confidence that we would find boundaries we could rely on and understand a bit the process doing it ourselves from scratch.

Sure, definitely. I think all that makes a lot of sense for being a successful search fund entrepreneur. And also having similar ways of executing would make it easier to work with a partner who has a similar background. So that makes a lot of sense. Do the two of you have any long term goals for this business in terms of an exit or anything else?

Our goal is primarily growth and long term thinking. And that was the thing that actually I probably should have mentioned in the start when we were also talking with investors, we wanted to make sure that they were also aligned that we're in this story for the long run. Like, I think we like the company, we like what we found and Cameron and I are willing, if we keep this like 10, 15 years, like and we grow it and we keep the challenge, will keep becoming different and different, the company will scale. And every day that I spend at a company, even now, it's a bit of a different challenge, which is really cool. So for us personally, I think my ambition was more to get back into those more entrepreneurial kind of environment and build something. So for us the importance was to have partners that are willing to and see that same vision that we can double triple the company over time and we'll see where it takes us. But at the moment that's our main vision being also with investors. Of course we never know, right? If the right offer comes to the table and it's also the right thing for the company and the team and the partner or the next owner would also bring a great growth story for the company. I think we would for sure look into it and have the discussion. But right now Cameron and I is all about growing the business for the next years to come.

Do you have any thoughts on where the H Vac industry is going, particularly in Canada and what may be different between, between the US and Canada in that industry?

Yeah, I think overall it's pretty similar. I mean there are, I mean of course, like in anything, the US is a market that is significantly larger than ours and we have, we're more similar to the north part of the US of course is climate wise. So if you think about the south of the U.S. the South Belt is very different. Like they don't sell many furnaces there, it's more air conditioning and we have a mix. What seems interesting in the industry is it's of course somewhat cyclical. Some markets can be cyclical because it's tied to construction and it's a reality of the industry. However, if you look at the broader macro trend of energy efficiency, sustainability and just the aging installed base of buildings, there's just a lot of good trends that are supporting the demand for H Vac equipment. And the trend in H Vac equipment not only to become more efficient, that's kind of the main one that everybody think about. But if you just look, if you would go in a lot of the houses in Canada, probably the furnaces or the equipment dates already from 15, 20 years. Because if you look at the cycles of bills in Canada like it's when they happened. So there's always a bit that constant Demand with products that are getting better and better and. And more efficient. So there's a lot of good trends behind the industry that will keep driving demand for the products. And then I think that the biggest challenge that the industry will face in general that we start to see is more labor. I think we'll have a lot of demand for equipment. We'll run out of people to install them. So it's not like there's a lot of people graduating into the trade to go become and start their own H Vac company or take the own H Vac services of their dad or uncle or whatever. So I think it's interesting we hear more and more that the challenge will be too and we see it too that even if you have a lot of equipment you want to install at some point you're tied up to capacity of the trade and the labor market.

Do you have any thoughts on how to address that lack of labor in the future?

Yeah, I mean it's more. It's really just like my own view or opinion, but I think it would be interesting to see how the government might support and incentivize young people to get into those jobs. Right. And publicize that. It's a good job that you actually as a. As an H Vac technician today, you can get a pretty decent compensation. And if you start your own, of course, if you start your own company, it's a different game. But it can be a great profession to be in. I think we just don't really hear about it. Like it's really. If you think about your friends or my friends or people a bit younger, it's not the first idea. You have to go to a trade school and learning the trade. But in the end, if you look at. They are my customers today, if I look at a lot of them, they have actually really good businesses. Of course it's not as easy as being into an office every day and when it's warm or cold that you're working and you know, there's of course the plus and minuses of like in any other profession. But I feel if there was structures to better promote what the job is and what it can be for the new generation that comes into the labor market, it would help for sure. I think now it's not even really promoted per se.

Sure. I think it'll make a lot of sense to promote these trades more. I mean, looking at the future, these are one of the businesses that are skills that's less likely to be automated. So it would be great.

Yeah. And like look at the price of changing a toilet today because it's the same in the plumbing space, right? It skyrocketed pretty quickly because the. And correctly so too because the person having the calls is booked for three weeks. So sometimes some of our accounts, some of our customers are booked for the year in advance in terms of jobs and work they can do. So if you really want it at some point, yeah, okay, maybe I'll go, I'll squeeze you in, but maybe for a bit more money. So it's interesting, it's. It's a good. And it's a bad trend. It's a good trend because it makes the job maybe more lucrative for people doing it. It increases the price and everything. So it's not a contributor to inflation in general. But it's an interesting challenge we'll need to navigate just because of a lot of people going to retirement that are not directly replaced anyway.

Sure makes sense. You've worked in the construction industry previously, so it may not have been as big of a jump for you. But I guess my question would be coming from consulting, working with all these large corporations, then moving into more of the blue collar world. I was wondering if there's been any large cultural changes you've had to navigate or surprises that are different in the work culture from what you're used to.

Yes, there, there's definitely differences for sure, but for me I was pretty familiar with them having grown into that space. Like I've been work in the family business. I started into a bit like as a journeyman in construction and so I was pretty familiar with it. It's still familiar today. Same a bit with my partner Cameron, more indirectly though, but he was also pretty familiar with it. So I think for us it gave us the opportunity to be able to really connect with both type, not only on that more staff side or if you think finance roles and these things coming from consulting or if you think about all the conversation we need to have with the executives of our customers or suppliers, like where we talk the same language and consulting was a great way to learn skills into those levels of corporate management and governance. But having both lived and ran more kind of blue collar or technical type work with larger group of people too. I think we were pretty familiar and that's why we were so also kind of, we felt it was a bit of a differentiator for us. Like having been into those space, we just felt very comfortable with those companies and I could imagine it's not true for every searcher. Like if you've been More into the financial side and then it might be more dampening a bit to, to get into this. But in the end everything, it's, it's people, it's trust. They want to know you're there to support them to do their job. And you know, so it's take the time, don't make any rush moves or rush decisions and just listen. Listen more than you talk. You know, it's a big part that we learned to is gather a lot of input and then take action versus going too quickly.

Sure. Yeah. Listening is probably one of the top leadership skills out there in terms of running the business. Was there much technical knowledge that you had to acquire? How was that process and are there any certifications needed to run an H VAC business in Canada?

In my role, not really. Not that I need a certification per se. My engineering degree I saw a lot of mechanical engineering so and building mechanical kind of systems. So I was pretty familiar with it. What I needed to learn was more some specifics of the brands and specifics of the products themselves that we sell. But overall what they do, it was pretty familiar. I was already pretty familiar with that. So it was not a big, a big jump. There's always some nuances to learn and all these things I think the biggest nuances to learn were more about learning about the company, the customers, like the different relationship dynamics. I think these are the things that actually is more. You need to take your time and figure out how the previous owners were doing it and you kind of want to jump into this. I think Cameron ICE philosophy was like let's jump into this. If not we don't need to change much. Like let's learn from it first and then we'll start to improve and tweak things that we, we feel could be improved but taking our time and learning. Those were more the biggest gap that because every company will be unique technically not really. It would be an asset if like I had more of my technical degrees like like a gas ticket or whatever. It would for sure help because I could probably access more things but at my level I don't necessarily need to. But we make sure that in our team we have all the right skills and technical certifications, etc. To be able to cover everything.

Yeah, I guess as a CEO it's more executing and management rather than.

Yeah, no, but I like to still be pretty, pretty involved and on the field. So like even last week here in Calgary I was with one of my technical support team member here and we went to visit customers to do A bunch of adjustment on furnaces and I was with him and try to help out. So I like to be in the product too because that's how I feel. You, you understand it a lot more and you can really talk about it versus always being on the brochure type level, you know. So when you go in the field and you, you start to out to play with tools and you see things and you understand the struggles that a tech might have. I think you, you do just a way better job at advising them in the future. So I like to get still pretty involved to the extent that I can.

Yeah, totally. And I mean I definitely understand that you learn a lot better from hands on experience rather than just getting rapport from someone who tells you what's going on. But you don't actually.

Yeah, exactly.

So how do you and your partner split duties and is that something that you planned prior to taking over the business or did you figure it out as things came?

We figured it out primarily during the diligence I would say as we were getting to understand the business and we were thinking about our fellow first hundred days plan and because when it's happening, it's happening the day post close you're, you're in the seat like we were lucky. I think we have a great relationship still today that with the sellers. Some of them are still partly involved in the business with us and, and it's, we have a really fun and good relationship so they've been great mentors to us on how to fill their position. But from the day one like it's, yeah, it's your show, it starts to be you're, you're, you're making the call, you know, you're taking decisions so you need to be ready. The way we, we thought about it is since I was coming from the technical side, the products engineering, I took more of the sales outside facing role of the business and Calgary being a big location for us. I also covered more of the Calgary aspect and all of our accounts in the west are a bit more technical in some ways so I covered that. And Cameron just way much more experience in finance than I accumulated over the years. So he took more of the kind of CFO role and a lot of supply chain role and he covers the east part of the business. So we kind of divide like this which is great because there's things, we're pretty close together and we collaborate pretty closely on delivering what we need to deliver. But there's things that we can just keep also fully by ourself and we more rely on the other for advice or thought kind of partnership more than anything. It's been good and it worked well so far.

Yeah, sounds like a great setup for you Found really a good business that fit both of what you guys can bring to the table. I guess just one last question I have is what would you say the environment for search funds in Canada is right now and do you have any advice for someone looking to raise a search fund, particularly in Canada or anywhere else right now?

I think the space is still really good. I mean of course it's a bit scary when you look at interest rates and of course blah blah, blah, it's increasing and I think every day we read one of the worst recession tagline you can in a newspaper. But when you go a bit where the search funds usually play into the kind of lower mid market to mid market, those companies sometimes are not too exposed to cyclicality. They're still really good and, and the banks are still willing to lend. Of course you don't get the same deal which during COVID was like historically good, right in terms of rates. So you need to deal a bit more with maybe a higher rate there. But I think it's just in the end as the structure of the deal ends up being a bit different, you maybe take a bit more equity than before, you leverage a bit less and you can still. We hear deals getting closed still in the same way. I think what is changing and I think there's probably still a bit of impact in 2023 is sellers expectation on valuation, on price. I think in 2021 or 2022, everybody, there was so much activity in the M and A market as a whole that everybody's sending a business that they would get super high, multiple and kind of crazy valuations. This is calming down. But there's still some people who live in their head. They're like 12 months ago or 18 months ago, which they think they can get a crazy valuation so it makes the process slower. Now I think people are just a bit more diligent. But overall there's still a lot of activity. And if you look at the investors, there's a lot of capital that they want to deploy. There's still a lot of searchers that are coming to the space and raising capital and launching their search. It's a very active. Canada is like there's thousands and thousands of small medium businesses, most of which are owned by people that are 50 plus or close to 60 and like this project is the 100 searchers. So we're barely touching the surface of what's possible there. So I think there's a lot of room still and it's it's going to continue to grow, I think, as an industry in general. Awesome.

Very helpful advice and thanks so much for taking the time out of your day. It was really enjoyable conversation.

Well, pleasure, Nick. Always happy to also talk to fellow NC owners. Thanks for reaching out and hopefully these advice can be helpful to people who are looking around the space and happy to be helpful.

Yeah, thank you.