The Anti-Private Equity Playbook: Buy Great Businesses and Don’t Change Them | Justin Escajeda

How to buy 12 trade businesses and change almost nothing

Justin Escajeda owns 12 trade businesses around Pittsburgh that together bring in more than $50m a year, and he built the group by buying companies rather than starting them. His playbook runs against private equity orthodoxy. He buys under $10m, tells employees nothing will change, keeps the culture and processes, and changes only the accounting. He pays up for forever holds, uses seller notes rather than banks, and treats key man risk as the central problem.

Takeaways

• Buy good firms and change almost nothing. He tells current employees before closing that he does not want to change anything. He keeps culture, processes, sales and margins, and says accounting is the biggest change he makes in almost every acquisition, plus some marketing on the residential side.
• Acquisitions are more sustainable than startups. After his first roofing deal in 2018, Escajeda concluded acquisitions were a far more sustainable way to grow than startups, and he says he will never intentionally start a new company again. He now owns 12 trade businesses with $50m+ revenue and about 250 employees.
• Key man risk is the biggest challenge. Most companies in his buying range depend heavily on the owner, and owners stay on only six months to a year after a sale. Replacing them is terribly difficult, so he needs a replacement in place or bolts the company onto another one.
• Overpaid for masonry company with misleading numbers. The company showed $5m in revenue and $1m in profit for three years, but it was the same four jobs. Revenue had been about $2.5m before and fell back to about $2.5m after they closed. He now waits for simple, easy-to-understand numbers.
• Seller financing keeps banks out of deals. He has used a couple of SBA loans and paid cash for two acquisitions, but prefers negotiated seller financing for the rest because it keeps banks out and lets him be creative. Deals come mostly by word of mouth.
• Four daily metrics run the portfolio. Escajeda meets weekly with each company alongside his CFO and stays in daily contact with presidents and controllers. The four things he personally checks daily are bank balance, AR minus AP, collections and backlog.
• Concrete division lost $300,000 and was shut. A concrete division added to a masonry company did prevailing-wage public sidewalk work and lost about $300,000, so he shut it down. Another company had management problems before its president fixed it. Last year was his worst for acquisitions and this year his best.