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?
00:21:13 · Mikk, Greg Geronemus
[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? [00:21:32] S1: He was tired. He was tired and he wanted to move on to the next phase of his life. It wasn't all, I mean, was in his sixties. He had, the business was generating more, you know, around $5,000,000 of EBITDA and free cash flow was equal to the EBITDA because of the working capital dynamics, negative working capital, no CapEx. He was making... He had made a ton of money from the business. I don't think he he didn't need any more he didn't need any more money, but he was tired. And he had also, despite having a decent sized business, you know, 30,000,000 or so of sales, 5,000,000 or so of EBITDA, he had only six people working for him. Only six. And so he he constructed a highly highly profitable cash machine, but he he did not... He was not optimizing for his quality of life, And he had his hands in everything. He was still working really hard. You know, perhaps if he had built more of a team over the years, he would be... He would have been less fatigued. Maybe he would have, you know, he would have left, you know, let the the team continue to run the business. But because of the way he had set things up, he was so he was so embedded, so entrenched. And I think that's the only way he knew how to do it. So it was either continue to do that or sell and hit the beach.
00:21:32 · Greg Geronemus, Mikk
[00:21:32] S1: He was tired. He was tired and he wanted to move on to the next phase of his life. It wasn't all, I mean, was in his sixties. He had, the business was generating more, you know, around $5,000,000 of EBITDA and free cash flow was equal to the EBITDA because of the working capital dynamics, negative working capital, no CapEx. He was making... He had made a ton of money from the business. I don't think he he didn't need any more he didn't need any more money, but he was tired. And he had also, despite having a decent sized business, you know, 30,000,000 or so of sales, 5,000,000 or so of EBITDA, he had only six people working for him. Only six. And so he he constructed a highly highly profitable cash machine, but he he did not... He was not optimizing for his quality of life, And he had his hands in everything. He was still working really hard. You know, perhaps if he had built more of a team over the years, he would be... He would have been less fatigued. Maybe he would have, you know, he would have left, you know, let the the team continue to run the business. But because of the way he had set things up, he was so he was so embedded, so entrenched. And I think that's the only way he knew how to do it. So it was either continue to do that or sell and hit the beach. [00:23:14] S0: Okay. Can you walk us through the final purchase price and deal structure overall? How were you able to put it