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
00:12:39 · Greg Geronemus, Mikk
[00:12:39] S1: I... Look. I think there were there were some aspects of our search that we were... Because of our geographic constraint, we could not be industry focused. We're big believers in industry focus whenever possible. I I like the content of the tweet you just read. I think probably one thing that that... Was it one man l b o? I like that. I... What... That he that he missed. Wherever possible, Yeah. If you can harness the power of a warm introduction, that's... That trumps everything else. So... And that's even... You know, you avail yourself to those potential warm intros even more so when you're industry focused. If you get deep in an industry, you'll get to the point where they're, you know, you're not too far removed from anybody and everybody that you wanna be connected to. So being really systematic and aggressive about getting warm intros, I I I think is an underrated and highly, highly important part of sourcing. [00:13:50] S0: Okay. And now let's talk a little bit about the acquisition itself. So what happened after this meeting?
00:14:00 · Greg Geronemus
[00:14:00] S1: So initially, we were excited. We learned... First thing I did was, you know, I was... I walked home from the meeting. The meeting in... The meeting with the accountant was in Midtown Manhattan. I lived on the Upper East Side at the time. So I had about like a two mile walk north and I was just sort of, you know, I probably should have been focusing more on avoiding danger as I was walking through the streets of Manhattan, but I was was googling around about the... About smarTours, trying to figure out what the heck the business did now that we had a potentially actionable, sizable, you know, attractive deal on our hands. And my first reaction was, oh my gosh, this website looks like it was made in 1995. Think it was... The meeting was in 2012. I think the website was maybe 17 years old. My next thought was I had no idea these businesses existed. I mean, is old school tour... Travel tour operator where you send it... You take typically older Americans, some Canadians, and send them on group trips, bus trips to foreign destinations all around the world. I thought that was a thing of the past. I thought everyone just booked on Kayak or Expedia at that point. And I was just just just struck by... I was struck that this business even existed, which gave me a little bit of pause. But the more I learned, the more intrigued I became. I discovered that the company had a... An absolutely wild cult following, that people would brag about taking 10, 15, 20, 25 trips with the business. So it had this incredible repeat traveler activity and decided that, you know, that there was an... So maybe, hopefully, I think enough there with the business and a compelling structure. You know, why don't I go sit down and meet with the seller? Met with the seller in a coffee shop, also in Midtown Manhattan, and learned that not only was he, you know, a really nice, honest, just straightforward guy. I learned that the business had been remarkably resilient in 2009. So that's, you know, any anytime you have a consumer service or, you know, consumer facing business, you're you're worried about cyclicality. The business held up on the EBITDA line, you know, pretty darn well in one of the worst downturns imaginable. So that was pretty comforting. Learned the degree of the repeat revenue just year in, year out, people coming back again and again and again.
00:17:17 · Greg Geronemus
Learned that, how far in advance people book their trips. So people will often book twelve, fifteen months in the future. So at any point in time, you actually have great visibility into what the next year and sometimes even longer will look like. And so you can you can take comfort when you're... When you step into a business like that that, you know, at least you're gonna have, you know, assuming the future looks bright, you'll have good performance for the year ahead. Because of the nature of people booking and putting down money very far in advance, learned that it was a remarkable, you know, cash flow generative business, negative working capital, get paid way in advance, pay out vendors much later, no CapEx. And then started to get excited about some of the tailwinds around baby boomers and active seniors going through their bucket list and wanting to travel more and more. And just got pretty jazzed about the industry, the business, the deal, and some really interesting opportunities for growth. And we started pushing forward, got the business under LOI, but it still took a long time because the... It was a first time seller. He had a small team. He didn't want anyone on his team to know about the transaction till the very end. A lot of the business still ran quite literally on paper, and they were just doing a little bit of Excel at that point. They were proud that they had migrated a little bit from paper to Excel in twenty twelve, twenty thirteen. So getting data was just immensely difficult. We were going through paper files late at night in the office because he wanted us there after hours, so the staff wouldn't see us. It was a real challenge to get the business to the point where we could present information to lenders and investors. It took about a year from start... From that first meeting with the accountant to closing the deal. That was from... Well, not about a year. Exactly a year from 10/11/2012 to 10/11/2013. So finally got the deal done and yeah, and then off to the even more challenging part of the process.
00:20:10 · Mikk, Greg Geronemus
[00:20:10] S0: Did he ever hire someone to represent him or it was just him all the time? [00:20:14] S1: No, it the accountant who we later learned had gone rogue and started what he was sketching out in terms of this potential deal structure, we learned that he never got the blessing from his client to propose those terms to a potential buyer. He just threw them out there because he thought that they would, you know, that was sort of where the market was. But yeah, it was the seller, Ellie, the accountant, I mentioned Bob, and then he did hire an M and A attorney. It was great. But it was... Yeah. He did not... It was... In many ways, we were doing a lot of the work for him that an advisor would have done or normally you'd see from the sell side. We were stepping in and doing that work for him. [00:21:13] S0: Why was he so motivated to sell? I'm asking because this one year, it was a lot of lot of work for him the day to day and then staying till the office staying in the office till the midnight to do this after our due diligence. So why was he so motivated to sell the company?