Buyers and Builders
00:02:20 · Mikk
All this together hopefully will be like a small masterclass on how to build a RollUp. And part one, find a pain you enjoy. This came from a co founder of Strata, Bart. He said something super simple, like just find the pain that you enjoy. It's just so hard to do this. You listen the schedule of these guys, their team members. I mean, these people are busy and they're grinding. They're really going after it. You have to find what is the pain you actually enjoy. Because if you think about this, doing outreach, visiting companies, getting rejected, working on a deal, working on a transaction for, I mean, like six months, then losing it. All these things have been happening, will happen to you if you build anything. Find the pain you genuinely enjoy and go from there. This is actually like an incredible way of thinking about selecting a RollUp strategy because everybody likes the outcome. I mean, There were over two fifty people there. Everybody likes the idea of owning 15 companies. Everybody likes saying we've done 70 acquisitions in four, five years. We've built 300,000,000 of revenue, but not too many people talk enough about the pain underneath those numbers because there is always pain somewhere. Maybe the pain is spending four days every week driving around meeting small business owners. Maybe it is waking up incredibly early and going to industrial warehouses. Maybe it is calling 200 founders before finding five who are actually interested in. Maybe it is recruiting technicians, integrating ERP systems, cleaning up accounting, fixing working capital, negotiating purchase agreement over and over and over again, and eventually replacing CEOs when you realize the person you originally backed wasn't right? All of those are my notes from the conference, from folks who shared their stories and experiences on the stage. And if you just think about this, the guys who started it in 2018, it was a long, long time ago, but there were many people who started those platforms at 2022, 2023. A lot has happened in just short three years. Find the pain and learn how to enjoy this. Otherwise, it's just something you don't want to do. Whatever business you choose, somewhere inside the model, there is something difficult, which you are going to repeat hundreds or potentially thousands of times.
00:04:40 · Mikk
And Bart, the founder of Strata, his point wasn't that you should find a business without pain because that probably doesn't exist anymore. The point was almost the opposite, which is that you should find the type of pain which most people hate, but which you can actually enjoy and tolerate for a very long period of time. That's a great starting point because when people select industries today, so much of the analysis is financial. Is the market fragmented? Is revenue recurring? What are the EBITDA margins? What are the acquisition multiples? Is the industry growing? How large is the TAM? Obviously all of that matters, but there is another question which is much more personal and probably just as important. Do you actually want to spend the next ten years doing the work required to win in this specific industry? Maybe you have statistically discovered the greatest RollUp industry in Europe or in States. But if the only way to build the platform is spending four days a week drinking coffee with 60 year old owners and you absolutely hate doing that, then the Excel model isn't going to save you. And Bart knows a little bit about this because Strata today has 15 platforms and roughly 600,000,000 under management. And when somebody with that amount of repetition tells you that the roll ups are really, really hard, you should probably listen. One of the things which came up again and again in London was niche. Go narrower, be more specific and don't be afraid of looking too specialized in the beginning. When people are starting a RollUp, there is naturally a temptation to select a huge market because a huge TAM feels safer. But if you've completed zero acquisitions, you probably don't need a 100,000,000,000 USD or Euro market. You need a market where you can become unusually knowledgeable unusually quickly. Because once you focus on something very specific, every single acquisition teaches you something that can improve the next one. And every owner conversation makes the next owner conversation more useful.
00:06:43 · Mikk
You start learning what good margins actually look like, which adjustments owners tend to make to EBITDA, which suppliers really matter, why one company operates at 20% margins while another does 8%, what good employee retention looks like, which businesses look great from the outside, but are actually durable, which owners you would love to work with and which ones you probably shouldn't buy from under any circumstances. One of points, which I think is especially relevant to anyone currently sitting there building an industry thesis was that the pipeline doesn't come after the research. The pipeline is part of the research. Again, the pipeline doesn't come after the research. The pipeline is part of the research. And now I want to talk about Anders, co founder of Aspira. They started six years ago, twenty twenty. They've done six platforms, more than 100 add ons, and they do more than 500,000,000 in pro form a revenue. They've raised over 170,000,000 and one of their early platforms called Teqt, T E Q T, has been described as growing roughly from 25,000,000 to around $250,000,000 of sales in less than five years, which gives you some sense of what can happen once you actually find a model which works and then you just repeat it over the years. He was giving extremely specific examples on how they won some of the deals. There was a business in Finland and somebody else was basically about to win the deal. Their signing was supposed to happen on Monday and Understeam calls the owner on Friday and essentially says, Please just don't sign yet. Let us come and meet you. They went there, sat at the owner's home, ate traditional Finnish food and ultimately they just won the deal. That's why I really enjoyed those presentations because folks were really sharing real stories on what is going on on day to day basis, like how far they're willing to go to win deals. And if you listen to this, there are no secret technology, no clever algorithm or AI or no sophisticated financial trick. They simply cared enough to show up. You just book a flight and you just go and you just meet the guy. Luis Reyes, who was on the podcast as well, he was describing the same mentality in Spain where his team can be doing something like 15 physical owner meetings per week. Every single week, they go into those industrial warehouses, they meet the people at their companies.
00:09:07 · Mikk
Luis was saying many times like, These are not glamorous places, but the businesses can be fantastic. Not too many people just don't want to do this and don't want to spend time doing this. That naturally takes us to seller psychology, why the highest price doesn't always win. One thing which came through very clearly in London Summit is that price matters. Yes, it's extremely important, but price is not the only thing the owner is selling for. This is where Satep, this French HVAC RollUp becomes like a really interesting example. Louis was giving a speech on a stage and they started in 2022 and neither of them came from HVAC. Louis had done M and A and Investor Relations and then went to Harvard where he discovered ETA, while Lucien came from technology entrepreneurship. They didn't try to pretend they had twenty five years of HVAC experience. Luis talked on the stage, they had a very clear message when they started. They pitched the first potential platform acquisition where they talked to the owner and they said like, We know nothing about HVAC, but we are extremely ambitious and we want to build around you. They had this extremely high energy. That's what the founder loved. And the founder had said to them that you give us energy. That is the reason so many companies are selling to them. They've done close to 20 acquisitions now. I found this super interesting. The guy's going into HVAC, something they don't know anything about. Then they're super transparent saying, We are extremely ambitious and we want to build around you. And he repeated that so many times during this presentation that like, We were just so ambitious, which leads me to another part of seller psychology because people assume that every founder who sells wants to retire. But the theme from this weekend was a lot of them don't. The folks are 35 to 55. Some of them have been doing that. The older guys have been doing that for twenty, twenty five years. Maybe you're a bit tired, but you still love the company, love the business, you don't want to retire, you just want to keep building. They offer exactly this. And Satap was sharing a bit of data. Their average partner is 49 years old. Those owners, founders typically rolling 30% or more into the group. They deliberately call them Sate partners and not sellers.
00:11:27 · Mikk
Even that language tells you something about the model they are trying to build. Sate partners and not sellers. And Anders, he said that as well, founders 35 to 55, and they're only looking for the ones who want to continue. Because in many small businesses, the founder is not merely somebody you need to remove after the transaction. The founder is part of the asset you're buying. If you want to build a huge group, it's essential to have those founders on board. Another big one is that don't scale something you don't understand. And in Satep's case, they made their first acquisition in 2023, then they made the second one. And after that, despite being a RollUp whose entire business model is supposed to involve buying companies, buying just more companies, they effectively stopped acquiring for around a year. Why is it important? They wanted to understand whether the model actually worked before they really scale this. What happens after we buy the business? Do the founders actually enjoy being part of Satep? Can we genuinely create value? What should be centralized? What should remain local? Which systems are missing? And what are we actually good at? And only after spending time learning from those first two acquisitions did they restart the acquisition machine. Today, Satep, they have a portfolio of 20 businesses doing around 85,000,000 of run rate revenue. And the very same thing actually was true when attending to the event in March in Stockholm. I said something like the slower can actually be faster because you don't get extra points for doing 10 acquisitions in your first year. The real score is what you have built seven, eight, ten years later. Then we have another important note. M and A is not value creation. That was something Ramsay from Evergreen, which they started in 2017 together with Jeff Totten, when they were mid-20s. And at the beginning, the M and A organization was basically Ramsey sourcing and Jeff helping execute the transactions and two of them finding CEOs to run their companies. Fast forward today, roughly 160 acquisitions, revenue 1,800,000,000, EBITDA more than $250,000,000. Ramsey gave a long speech and listening him, you really saw what got him really thinking was some of the early mistakes. What he said was that he wished they would start to focus on organic growth and value creation much earlier.
00:13:50 · Mikk
They said the first half of building this all for four and a half years, they didn't really focus on that. It was all about just buying a lot of businesses. But how do you actually improve those companies is something Ramzi wished he would start at much earlier. Next thing is integration. And Satep gave a good example, the HVAC RollUp. The businesses keep their local brand, they keep the local culture, the founder remains involved, technicians can continue making technical decisions because they actually know what they're doing. But underneath that, the group can standardise the accounting, ERP and IT. They can support HR, help with recruiting, negotiate with suppliers. They can improve websites and run digital marketing and introduce CRM to those who don't have it. From the customer's perspective, it can still look like exactly the same thirty year old local HVAC company they have always known. But under the surface, the infrastructure has become much stronger. I think this is much more useful definition of decentralization because decentralization does not mean doing nothing. If you buy 20 companies and leave absolutely everything untouched forever, maybe you're not decentralized, maybe you're simply passive. Now there's this wild example of the company, the Italian pharmacy RollUp Hippocrates, founded in 2018. Today we're talking about roughly six eighty pharmacies, 1,200,000,000 in revenue and around 3,000 employees. Rodolphe on the stage was mentioning something like that they're doing 100 acquisitions per year. An interesting note, someone asked how much do you spend on due diligence? And for them it's €30,000 of diligence costs per transaction. Now let's take a step back for example, capital partners. Don't get married before your date. Start the relationship before you need the money. Bart from Strata was saying negotiation itself is one of the best forms of partner diligence. And human psychology, we don't really enjoy those negotiations because there are things that we may agree and the other side will absolutely disagree. But I think my mindset changed during this event. Part was just saying, just enjoy that. That's such an important part of actually doing this because you're negotiating, you're discussing ideas, pros and cons. You like something, someone don't like something, vice versa.