00:43:12 · Mikk, Greg Geronemus
[00:43:12] S0: And the debt you were able to pay, like, $45,000,000 down every single year while owning the business? [00:43:17] S1: Yeah. Yeah. So aggressive delevering. There really wasn't much to... There was so much... You know, there's no CapEx. There's no... Nothing to buy. And, you know, asset light business. So we, you know, first year and a half or so, we had this sort of... Even though we were focused on sort of learning, we were still frustrated that things weren't sort of budging on the top line. Because a lot of people measure themselves on on revenue, but, you know, as as we reflect back, you know, being able to still grow EBITDA, thanks to Dave's great work on, you know, beating the heck out of our suppliers and improving cost of goods sold, and being able to delever so meaningfully, we were still adding a tremendous amount of value to equity holders. [00:44:11] S0: Okay. And now the decision to sell Great companies are bought, not sold, so someone reached out to you and why did you decided to sell eventually?
00:44:26 · Greg Geronemus
[00:44:26] S1: A financial buyer reached out in late twenty sixteen, and we had a couple conversations with them. They presented an offer that struck us as fairly compelling, more than honestly what we we thought the business was probably worth. And we were also aware that, you know, we... Although we had sort of unlocked some key drivers of of top line growth that we believe... We sincerely believed in, we were also aware of, the challenge of growing the top line that we had experienced in the first few years of our ownership. That at any point, we could face a recession. At any point, there could be a series of public health disasters. We didn't predict COVID by any stretch of the imagination, but we were just aware of the business that we were in. It was not a, you know, it had great repeat and reoccurring traveler activity, but it was still cyclical inherently. It was not sort of your subscription revenue, SaaS business that had 110% net revenue retention. So we didn't want to take what we had for granted. We also spoke to one of our board members, this guy Michael Michael Klein, who's... Who runs Littlejohn, a large private equity firm. And he's... He explained to us that he's never had seller's remorse. He's had buyer's remorse. Not that often because he's been remarkably successful, but he's never had seller's remorse. And that really struck with us. And so rather than just negotiating with one party, we decided to interview a few bankers and try to figure out, you know, is this a real offer? And do you think potentially you could do better? All three bankers thought that they could do better for us, and we were lucky enough to align and engage a firm called Fidus Partners led by John Ross. They did a phenomenal job, they ran a robust process. There was, I think that we had 78 company... 78 firms that signed NDAs. We had 34 indications of interest. We narrowed it down to 12 management meetings. We had eight LOIs. We narrowed it down to three parties and then picked one winner. And the Fidus to their credit was able to generate a premium relative to that initial offer we received. The initial unsolicited offer, there was a premium of 25%. So they did 25% better than that initial offer. Yeah. More than paid for their fee many, many, many times over.
00:47:52 · Greg Geronemus, Mikk
And, yeah, it a great outcome for everybody involved, and and it was pretty much right on the four year mark. So we we bought the company 10/11/2013. We sold on Halloween, 10/31/2017. And, yeah, and then embarked on a two year transition plan with the firm that bought us. [00:48:18] S0: Okay. And how was the outcome when it comes to... Can you share the numbers? [00:48:24] S1: Sure. So it was it was about... It was just under a five five x net to investors, just under a 50% net IRR. We benefited from a mix of, you know, dramatic debt pay downs. So we we we paid down... We had $19,500,000 of debt when we bought the business. We had just a few million dollars of debt when we sold the business. We had a, you know, a meaningful amount, about 50% EBITDA growth despite adding, I think, over $2,000,000 of OpEx to the business. So in our view, you know, we built not only a bigger business, but a... You know, we completely took away the key person risk. We put in real systems. We had a real team. I think we quadrupled the size of the company in terms of employees and grew, you know, EBITDA meaningfully. And then benefited from meaningful multiple expansion as well. So we we bought it for around five times. We sold it for around nine times EBITDA. And, you know, all things considered, yeah, that got us to, you know, the outcome that I mentioned.
00:48:24 · Greg Geronemus, Mikk
[00:48:24] S1: Sure. So it was it was about... It was just under a five five x net to investors, just under a 50% net IRR. We benefited from a mix of, you know, dramatic debt pay downs. So we we we paid down... We had $19,500,000 of debt when we bought the business. We had just a few million dollars of debt when we sold the business. We had a, you know, a meaningful amount, about 50% EBITDA growth despite adding, I think, over $2,000,000 of OpEx to the business. So in our view, you know, we built not only a bigger business, but a... You know, we completely took away the key person risk. We put in real systems. We had a real team. I think we quadrupled the size of the company in terms of employees and grew, you know, EBITDA meaningfully. And then benefited from meaningful multiple expansion as well. So we we bought it for around five times. We sold it for around nine times EBITDA. And, you know, all things considered, yeah, that got us to, you know, the outcome that I mentioned. [00:49:47] S0: Thinking back maybe now, you knew you're coming to talk about this this period and the journey, maybe you had another long walk to just think of this business you bought and build and period of your life. Is there any lessons learned if something that that comes to mind from this period?
00:50:17 · Greg Geronemus
[00:50:17] S1: You know, several. I think, you know, the the power of of of being price disciplined at at entry, I think that price and structure, you know, matter a lot. It's the one thing that you can't change. What you pay and how you structure the deal, that's fixed. If you make a... You know, once you're operating, if you if you try something on the marketing side, it doesn't work, could pivot, try something else, but you cannot change the price that you pay and the structure that you enter enter into. And it really allowed us to take our time, it allowed us to focus on key person risk, and it allowed us to manage the business, honestly, fairly conservatively. I mean, we did not swing for the fences. We did not need to swing for the fences. We were able to grow profitably, grow thoughtfully, and delivered an exceptional outcome without being super aggressive, without betting the farm, and frankly, without being operating heroes. I mean, were we were... I think we were fine operators. We did some really good things. There were a lot of things that we, you know, could've done better, but we didn't didn't need to be heroic during the operating phase to generate an excellent return because of our ability to pay down debt, because of how well we bought that business... Bought the business, because of the amount of... It was a decent amount of leverage as a percentage of the total enterprise value. But most of it was seller note and we had very loose covenants. So I think we really set ourselves up for success at the entry. I'd say during the operating phase, you know, I think while I wouldn't change the, you know, the approach that we took in terms of being journalists in the first year and really learning and soaking up everything from the seller, in hindsight, might have leaned into focusing on bringing in some even better talent earlier on in the operating journey, I think that would have served us well. We did add a bunch of great people. But for a number of years, we still worked very much in the business as opposed to on the business, and did not have a ton of opportunity to lift our head up and say, oh, well, about... Should we think about M and A? Or thinking a little bit more big picture and strategically. I wish we had given ourselves the ability and the opportunity to do that. So that is one regret. But frankly, I wouldn't I wouldn't change much.
00:53:26 · Greg Geronemus, Mikk
And I certainly don't lose lose sleep about it. [00:53:31] S0: Okay. We have one minute left. One loaded question. Maybe you can quickly answer. After selling smarTours, why investing instead of buying another company?