00:00:43 · Greg Geronemus
[00:00:43] S1: It was 2010 when I entered business school at HBS. I I went to business school not to pursue ETA because I had no idea what ETA was. If you had asked me what the acronym meant, I wouldn't have been able to tell you. I had never heard of a search fund. But I went to business school because I wanted to do something entrepreneurial. I had worked for just a few years at Goldman Sachs in one of their private equity arms, and I had this this notion that I... And this this instinct that I wanted to bet on myself and work for myself. And so I... My plan was to use my two years at HBS to chart my entrepreneurial journey, which I assumed had to be a start up. I didn't... I wasn't aware that you could acquire your way into entrepreneurship. It was a different time then. Now everybody knows going into business school about all these different options. But I played around with a few startup ideas, and then I learned of of the search fund path, the traditional search fund path. There were... Not only was ETA broadly a lot less well known, but there were fewer variations of entrepreneurship through acquisition. So I learned of the traditional search on path, learned about it around the same time that my good friend, section mate, and eventual business partner, still business partner, David Rosner learned about it. And we just started, I think we became obsessed, started consuming as much information as we possibly could. And it seemed like a great way to pursue entrepreneurship, to leverage our shared experience in private equity prior to business school. And it really resonated with me personally as a more compelling risk reward than a zero to one startup. So it was sort of love at first sight with search, and we decided to jump in.
00:02:46 · Mikk, Greg Geronemus
[00:02:46] S0: Okay. And you and David, where were you financially? Because a lot of those conversations, you talk to people, it takes a long time to find a deal, to close a deal. And how was it for you? Where were you financially with David? [00:03:04] S1: So just to clarify, as it relates how we were gonna sustain ourselves during our search or [00:03:12] S0: Exactly. Yeah,
00:03:12 · Mikk, Greg Geronemus
[00:03:12] S0: Exactly. Yeah, [00:03:14] S1: so we were both business school students and we were not in a position to consider this sort of self funded path. There weren't nearly as many people going down the self funded path back in that time, but really, the only viable option for us was to do a traditional search fund where we raised search capital to fund up to two years of runway for us to hunt for, identify, and then acquire a business. So we raised that search capital during our second year of business school from six investors. We had a intentionally smaller search capital investor group because we wanted to have just a more intimate and sort of closer relationship with our investors and keep things a little bit simpler. But what raising Search Capital did was it allowed us to to have some current income while we we search for a business to buy. So we weren't as as stressed, let's say, as somebody who's who's self funded. Not to say that we weren't stressed because it's an inherently stressful and challenging path, but we had some current income as we were looking for a business. So it took us about a year and change until we acquired the company and happy to get into that process. But no, we had some current income, that was certainly helpful and not only helpful, but necessary for both of us. [00:04:50] S0: Okay. Now, the decision was made, a bit of search capital was raised. Tell me about the the sourcing and the search process. And maybe if you... It it was some time ago, but maybe I remember, like, how how was your typical week?
00:05:12 · Greg Geronemus
[00:05:12] S1: We were big believers in the extremely high volume approach. So a couple aspects of our search, not only were we traditionally funded, so we had search capital. What was a bit different about our search is that we were geographically constrained. So my wife was in the middle of her very long medical training journey. She was just finishing up medical school and starting residency and had committed to four years at a hospital in New York City. And Dave's wife had a job, Lindsay had a job that she loved in New York. And so we were really only looking for businesses in the New York, New Jersey, Connecticut area, parts of Pennsylvania. So it required us to be fairly industry agnostic because we had a geographic filter. And the approach that we took was just let's go super high volume, throw a bunch of stuff at the wall and see what sticks. We probably sent a thousand emails a week. It was an easier time then to be a mass emailer than it is today. But we didn't just rely on the email channel. We talked to countless brokers. We did a lot of old fashioned sort of, know, pounding the pavement, meeting with people. Anyone who would meet with us that touches the lives of sort of small business owners in the Tri State area, we would sit down with them. Accountants, lawyers, insurance brokers, wealth managers. We were talking to anybody and everybody. We just felt like the more we put ourselves out there across every dimension, the more likely we are to have interesting opportunities to sift through. And we had a very active pipeline. We saw a lot from the mass outreach channel. Always still surprised how many people respond to an email out of the blue about buying your business. We saw some interesting opportunities from brokers. But ultimately, what led us to smarTours, the company that we eventually acquired and operated and then sold, was old fashioned networking. So it was just... It was an interesting daisy chain of events. It started at a business broker breakfast that they hold once a month at 7AM in Long Island about 40 about forty five minutes outside of Manhattan. Sat down with a bunch of main street business brokers. They typically sell gas stations and car washes. They didn't have anything actionable, but they suggested that we talk to an insurance broker who was very well connected. So we talked to the insurance broker.
00:08:09 · Greg Geronemus
He said, why don't you talk to my friend, Todd Kinney, who was the relationship manager for private equity at BDO, the big consulting and accounting firm. So we talked to Todd, and Todd said, why don't you come to my happy hour that I host monthly in Midtown Manhattan? So we went to the happy hour. At the happy hour, met a lot of interesting people. One of them was a guy named Jeff Pfeffer. At the time, he was a commercial banker at Capital One. And he said, oh, you gotta talk to my buddy. You gotta talk to my buddy, Bob Cohen, who we were in high school together fifty years ago. He has this client. I I think they might be for sale, and it's a great business. So a few days later, I met with Bob in his office in the Empire State Building. And in that in that meeting with Bob, we we have a little bit of pleasantries, a little bit of chitchat, ice breaking the ice. And then I just see him starting to sketch on a piece of paper, not at the back of a napkin, but a piece of paper where he starts writing out the... I didn't know what he was writing about, but he... I thought he was taking notes on the meeting. But in... Instead, he was writing the structure of the deal that he thought would make sense for his client, the company smarTours, for a potential acquisition. And he slides the piece of paper across the table. And mind you, I didn't even really know what the company did. I I didn't know I didn't know much about it, really anything about it. But he proposes a, you know, a very modest entry multiple, you know, a little under five times EBITDA for a business with about 5,000,000 of EBITDA. So not not too small in this ecosystem. He proposes a 60% seller note. He proposed that the seller would finance 60% of the deal at a pretty advantageous interest rate of 4% and asked me what I thought. And so I tried to play it cool and said, I'll reflect on it. I want to learn about the business. I want to meet the seller. But I was pretty excited, to say the least. Then And subsequently met the seller, then off the races from there. But it was a pretty circuitous path to finding the deal. And I think the takeaway for folks that are going down this path is getting out the value of just meeting people in person, always asking...
00:10:58 · Greg Geronemus, Mikk
When you meet somebody, asking who else you should be connected to, who else they recommend you meet with, and just continuing to follow leads as far as you can. And, you know, a lot of people hide behind their computer screen and send out emails, but there's a lot of value in in getting out there and meeting people in the flesh. [00:11:23] S0: Mhmm. So I would add here, like, just before our call, I was reading a tweet from one man, LBO, and he was saying that looking at search fund their posts, I'm always amazed that how few people cold call business owners. I didn't didn't last year, but if I had to do it again, I would I would I would probably do that. And it's a very long tweet, and he was sharing something that if I had to design an M and A sourcing strategy from scratch today, I focus on one industry theme and implement something along those lines. A, five to eight email sequence offering value add, whether it's insights, data. B, three cold calls, chasing the emails. C, two pieces of highly personalized direct mail. And d, LinkedIn content strategy, educational posts, videos, if hopefully your target demo is using LinkedIn. So things you just said as well, I think it's it's just mixture and every story is just different. But I think I I just found this just Yeah. For our our