Buyers and Builders
00:00:00 · Mikk, Mark Sinatra
[00:00:00] S0: Mark Sinatra has seen ETA from just about every angle. He discovered Search at Wharton, acquired and ran Staff One HR through the chaos of 2008, spent nearly a decade building and turning around the company, sold it to Oasis Outsourcing, then helped lead part of Oasis through its eventual $1,300,000,000 sale to Basics. Today, as a co founder of ETA Equity, Mark combines real operator experience with investor pattern recognition. Together with his partner Matthew, he has made over 45 investments on top of that various acquisitions, giving him unusual insight into what makes a searcher credible, a deal attractive and an operator successful over the long run. Thanks a lot for coming to the Buyers and Builders podcast, Mark. [00:00:52] S1: Thank you, Mikk. Thanks for having me. [00:00:54] S0: Let's start with your story of discovering search and choosing this unconventional path rather than just, let's say, working for someone else. [00:01:08] S1: Absolutely. You want me to start with just how I got started in search? [00:01:14] S0: Yeah. Because you did it some some time ago, so you can give us an overview of the timeline because you've been doing that for a long, long time.
00:01:20 · Mark Sinatra
[00:01:20] S1: So... Yeah. So, you know, this was back in, I would say, like, you know, 2005. This was actually when I first heard about search. And I was at business school, you know, full time program at at Wharton. Prior to Wharton, you know, I worked in consulting, finance, you know, large companies, went to business school for, you know, reasons why they exactly tell you to to not go to business school. You know, I didn't know... I didn't really know what I wanted to do, but I knew that I wanted to have a more tangible, direct correlation from my expertise, my, my efforts that led into my results. And it's only when I discovered entrepreneurship that I felt like that was going to be a path to, to ultimately achieve that goal. So the summer after my first year and second year, I I had two internships. I had a consulting internship with a smaller, more entrepreneurial consulting firm. But prior to that, I had an internship on campus via our, SBDC, Small Business Development Center, which I don't know if they're still around, but, anyway, it's these centers that were kind of government funded and, you know, we offer pro bono consulting to local entrepreneurs and small businesses in the area. And I remember I was working on a project, with a gentleman in the area who had developed this technology for the wheelbarrow. And I just... He was working, you know, this this corporate job. He had a family, but he he was so passionate about this startup. And, you know, we were trying to advise him on, you know, strategy and growth and and things like that. I remember sitting across the table from him. I was like, wow. Like, I just had such a high level of admiration for what he was doing. And I was like, you know, I would love to be on the other side of that table. The only thing was didn't have an idea that I was uber passionate about, didn't have the risk tolerance. Right? Had a had a lot of student debt at the time. But there was a classmate of mine who was doing some research, an independent study on this thing called search funds. And I was like, what, you know, who who... What exactly is this? And he he was kinda telling me, he's like, yeah, you know, it's when you raise capital and, you know, you're having find investors to support you to buy a small business, then you run it. And I just kind of looked at him.
00:04:07 · Mark Sinatra
Initially, I was like, okay, this is crazy that something like this would even exist. But the more than I... That I read about it, it just kinda instantly clicked in my mind. It was a level of of clarity that I never had in my professional life until that moment when I said, okay, this is the path. This is the path for me to to go what I call, you know, from the classroom to to the boardroom, and it's the most direct path for me to get there. And, you know, I proceeded then to to do... Now back then, of course, there weren't a a lot of resources, you know, that were readily available, particularly, you know, where where I was at business school. We just, you know, didn't really have a track record of folks pursuing search funds unlike maybe, you know, GSB or HBS. But, you know, I was able to talk to to to a few, searchers or former searchers, read a ton of case studies, and and ultimately, you know, decided that was gonna be the path for me. Now, my experience, as I mentioned, you know, prior to business school was in, you know, finance and consulting. I felt like I needed a little bit more operational experience. So I ended up initially taking a job right after business school with a venture backed outsourcing company. They had just closed, they're run by a couple of HBS guys. They had just closed on their series d financing. Looked like a great opportunity. It was like a leadership development. You know, I would have, you know, ownership of a P and L. Great opportunity. And about seventy five days before I was gonna start, company sold to a large public company, And to kind of change a lot, like the the course and, you know, the the role, the dynamics of it, the incentives. I still ended up, you know, starting there because it was a gap in my experience. I felt like I needed to fill before I pursued the search, was that operational experience. But I remember, you know, after about sixty days, I walked into my boss's office and he was the CEO of the business. I said, listen, like, I really appreciate this opportunity, but, I'm going to, you know, pursue this, the search fund. And, you know, again, for me, it was just I I tried it out. You know, I I felt like that time was the right time for me to pursue search kinda concurrently, coincidentally. A classmate of mine from business school was, he also had a false start on...
00:06:57 · Mark Sinatra, Mikk
He was trying to launch a new venture and didn't work out, so he was looking for something to do. And he had a really great complimentary skill set personality to me, and we knew each other really well, and we decided to partner up. And so I felt like at that point in time, you know, with that partnership to to raise for the search fund, I felt confidence and conviction that we would have, you know, be able to do so, be able to launch that search. So we launched our search in January 2007. So kind of long winded answer there, but I wanted to make sure you, you know, the listeners, got a good sense of just, like, my thought process and and, you know, my rationale for pursuing search. [00:07:47] S0: Now, when it comes to sourcing, how did you find the first acquisition? How was the fundraising? Maybe you can shortly talk about this and then we can get into the post acquisition and all that which happened with this firm.
00:08:00 · Mark Sinatra
[00:08:00] S1: Sure, sure. So on the fundraise, you know, I remember, I was really fortunate, during my fundraise to have met the, you know, the the grandfather, right, of, of search, Irv Grousbeck. And I remember asking him, well, you know, for each stage of the search, how would you rate the complexity and how hard it is? He said, well, the fundraise is about, he said an eight out of 10. Running the business is more of like a, you know, five or six out of 10. The actual search was really a three out of 10, and just in terms of like how, like just, and so, you know, search part, you know, is obviously the the hardest there. The raise would... Was probably the the easiest part. But for me at that time, you know, you really had to have at least at least a half of your your fund from your network. Problem is, you know, I was... Think I just turned 30 at that time. Didn't have a, a wide network of folks that, you know, would just write me a check for for my search. But we were we were super resourceful and scrappy. You know, just reached out to obviously to to anyone and everyone, former colleagues, classmates, professors. And I will say, thankfully, like the the Wharton network was was extremely helpful and supportive in, you know, really getting us to to launch, you know, officially launch our search in January of o seven. So the search itself, going to the other part of your question, how I found the acquisition, you know, we employed a strategy of of really going, like, deep and wide as it related to brokers and investment bankers. You know, that's still a a strategy that's used to some degree nowadays. But but we also employed, more of a proprietary thesis driven approach. We started to develop a real strong interest in, you know, on what I'll call just like outsourced business services. And if you kind of like look into that and zoom in, you know, HR services was a segment of particular interest for a lot of reasons. You know, large growing market, large addressable market, recurring revenue, fragmentation. Also at the time, you know, we thought like that industry was gonna continue to to grow at mid to high single single digits at least, every year. And then lastly, which is really the x factor.
00:10:42 · Mark Sinatra
Because I know, you know, Mikk, you you you talk to a lot of, you know, investors and the x factor with the search is that you have to envision yourself really, you know, running that type of business. And there has to be some, you know, alignment of of either interests or passion or skill sets with that type of business. And I remember there's a point in time, there's an inflection point of the process where we had two deals under LOI. And one was, you know, this this, you know, outsourced HR company, PEO company, which is the one we ultimately closed on. The other one was a manufacturing firm. It was a larger deal, had some really interesting... It had grown quite a bit. There's there's a little bit of of a hair on it that we had to to diligence. But at the end of the day, you know, kinda ask ourselves, well, you know, what type of business could we actually see ourselves running and like, you know, enjoying and being, you know, impactful at? And the answer is really more the former, you know, we said, listen, we had this thesis driven approach on, you know, outsourced business services. Let's, you know, there's a reason for that. Let's go in that direction. We thought it kind of lended itself well to, you know, we viewed ourselves as generalists, right? You know, we didn't have an experience in the industry, but we thought, well, we have a good team in place. We can learn the ropes in the industry and the business, you know, initially, and then, you know, do do a good job being being really hands on running it. So that is the important distinction, you know, and what I, you know, really advise searchers nowadays is, you know, where does that relay line, right? Where, you know, the company is, is, is a good company. The industry is, is an exciting industry that that has attractive investment dynamics. But in terms of you seeing yourself in the CEO seat, where does that all align from a passion, a skill set, and an interest perspective? And and if you can figure that out, then you found your answer in terms of, like, where, you know, what's your ideal company to to run.