Buyers and Builders
00:00:00 · Mikk, Greg Geronemus
[00:00:00] S0: Okay. Today in Buyers and Builders. Back in 2013, Greg and his partner David acquired a tour operator generating roughly 5,000,000 of EBITDA. And over the next four years, they pay down most of the company's 20,000,000 debt load. They grew EBITDA by roughly 50% and significantly de risked the business and they eventually exited at approximately nine times EBITDA, about four turns higher than where they acquired it. And today, Greg and David run Footbridge Partners, where they back and support some of the most promising search fund entrepreneurs. So thanks a lot for joining me on Buyers and Builders, Greg. [00:00:45] S1: Thanks for having me. Excited to be here. [00:00:48] S0: We discussed during the pre call that it would be a wise idea to do two episodes with you. One about the overall ETA market and what is going on in this scene, and one about your story. Today we start with ETA market. We are going to cover first about the evolution of search, then the impact of the Harvard ETA course, then the increase in the self funded search, and the last one will be the rise of committed capital vehicles and holding companies in this space. First, let's go back in time. You discovered Search around 2010, 2011 at Harvard Business School, most younger searchers don't realize how small and obscure the community was back then. What did the ecosystem look like compared to today?
00:01:44 · Greg Geronemus
[00:01:44] S1: Search and ETA today bears no resemblance to search in 2010. It's, you know, it's night and day. I I... It's hard to describe how much of a micro of micro niche it was back then. I'll I'll share some stats because I was I was reflecting in advance of the... Our conversation. And in terms of the number of searchers back in 2010, I looked at the Stanford GSB search fund study, there were 10 traditional searchers across the country and very few self funded. I remember meeting one or two self funded searchers and they were considered mavericks at the time. So it was 10 traditional searchers and very, very little on top of that or outside of traditional search. If you look at the latest study, there'll be a new one coming out in a few months. But if you look at the latest study, which looked at the number of traditional searchers in The US in 2023, there were 94 traditional searchers raised. So almost a 10 x increase. And that's just the tip of the iceberg. The 94 traditional searchers dramatically understates the number of people going into ETA more broadly, which we'll touch on the different variations later. But many more people are doing self funded than traditional alone. Then you have committed capital vehicles. You have incubated models. You have independent sponsor models. So it's it's really going from 10 to, we don't have great data outside of traditional search, but I would say 10 to hundreds to several 100. So it's a dramatic increase. As I mentioned, variations of search significantly... If you look in 2010, it was really just traditional search and not much else. Today, there's there's so much so much more. If you think about awareness at MBA programs across the country in 2010, I would say if you took if you took a poll of my HBS graduating class, we were... We entered in 2010, we graduated in 2012, and you asked for a show of hands for, yeah, who could explain what a search fund is at the day... At graduation? So this is after two years on campus. Maybe a quarter of the graduating class could tell you what a search was. And there was only one class at at business school programs nationwide in in the 2,010 time frame. That was at Stanford's GSB. Today, it's a may... Many students... Incoming students not only know about search, but they select their MBA programs because of...
00:04:38 · Greg Geronemus
They're because they're evaluating which one can offer the best path towards ETA. So people will choose HBS because of Rick and Royce or GSB because of their search legacy or Kellogg because of their Zell Fellows program or Booth because of their initiative or Wharton, and the list goes on and on. There are roughly 20 different MBA programs in The US that have ETA courses, and it's become a big topic of conversation on campus. And it just could not be more different than what it was ten, fifteen years ago. And even outside of MBA programs, in 2010, you know, even though there were just whispers on on MBA campuses, there was very little discussion outside of MBA programs about the ETA ecosystem. And today, it's very much on the radar of people on... In PE, investment banking, consulting, even the military. There are podcasts and... Like like yours and platforms like searchfunder.com, books. It's just the ecosystem around ETA is dramatically different. I could go on and on. There's the financing availability. Very few lenders would lend in to ETA acquisitions back in 2010, 2011, 2012. Now that there are many banks with entire search fund lending teams, equity investors were few and far between. There was a small club of investors that were affectionately known as the search fund mafia back then. Now there's a much larger group of investors and quite a number of funds, including ours, Footbridge. So it's it's really transformed. It's wonderful to see. It has some implications around competition, but it's really transformed in in ways that I don't think anybody could have imagined back in the day. Mhmm.
00:06:40 · Mikk
[00:06:40] S0: And when you started, how was the fundraising scene you covered? Like, can you have some specific stats about, like, financing availability? But I think over the last fifteen years, the people who are... Who have made the decision going down this route, they've been just educating the investors as well. So how was it back then when you started when it comes to actually raising raising capital, raising debt to go and acquire a business?
00:07:09 · Greg Geronemus
[00:07:09] S1: Yeah. It was it was very different. I mean, you had to... We... You know, there were a few known quantities of investors that had been investing in search for a long time. You know, a firm like Pacific Lake Partners, you know, names like Kent Weaver. And, There were folks that had been in the ecosystem for a long time, and many others, those are just to name a few. But it was a small list of people. And in our case, went not only to many of those folks, but we also went outside of the search ecosystem. And to your point, it was a process of education. So we had to explain what the heck this model was, how it had performed historically, sharing the Stanford study, which had some data points far fewer than there are today, and the while also educating the potential investors on the deal. So it was a it was a much more difficult task. You had to explain the concept and explain the deal simultaneously as opposed to today, know, so many... There are so many potential equity partners. You certainly don't have to explain the model. You're... All you're doing is just selling, you know, explaining and getting people excited about the deal. I remember the debt process and when we were trying to raise debt in 02/2013, that was particularly difficult. And my business partner David did an amazing job, including leading the charge on the debt capital raise as my wife and I took our honeymoon to the South Of France. But he... I can't tell you how many. We probably talked to 50 different lenders, and we weren't asking for much debt whatsoever. We had a large seller note for about half the transaction, which was fantastic. Happy to get into that at a future episode. But raising debt was painful. We weren't asking for much, but there were just so few groups that were familiar with this search fund concept. And many of them just said, yeah. We're, you know, interesting asset, but this is not a this is construct that we would consider.
00:09:37 · Mikk
[00:09:37] S0: Despite the great growth we've been going through, I think like yourself, what you do on day to day basis and probably many people you discuss ideas with, we are in still in this small bubble, like not all the people know that and and think of buying a business. So I think still there is a lot to go. But what are your thoughts when it comes to the tailwinds and tailwinds changing in a way that back then maybe you've... You first had to educate the investor, educate the business owner to sell the business. Today, the business owner is just a a great business. They're just getting so many inbound call for potential searches from from people wanting to buy a business. So I believe the... Again, you still have to be tough, but tough in a way that there is now more competition and not so much about educating the investor. So in order to get the deal done, you still need to be tough. This hasn't changed overall.