Buyers and Builders
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.
00:16:11 · Mikk
If you just do it, obviously some negotiation will end up in a bad place and you find out that, okay, this is not the right partner. Excellent. Excellent. That's what you want. Next, have market selection. And here's I have a note that fragmentation is not enough. One of the more unusual presentations was from Arne Alewark and Mavi Capital. They are operating at the intersection of real assets, private equity and technology because all three founders, they came together. One had a real estate background, one had a PE background and one had a technology background. And I'm sure you're curious like what markets do they target? I mean, the areas are campsites, marinas and car washes, which again, initially sounds like a completely random collection of sectors. But when you actually understand the logic, there is a extremely common theme. Let's take campsites. They have been building Hola Camp in Spain and Portugal. You were sharing on a stage that between those two markets, Spain and Portugal, there are 1,300 campsites and they bought 17 and they're the biggest player. That just shows how fragmented the market is. And some campsites can be very small, like EBITDA could be just 100,000, but they able to they really understand this space. They have a playbook. They can turn that 100 ks into 200, 300, 400 ks and the economics of the RollUp become completely different. Next is like when you're building something, build an institutional platform, not a pile of companies. This was another theme from Luis and Anders, because eventually if you're building towards an exit, what does the next buyer actually want? Louis kept using the phrase, build an institutional platform. Everyone has a different number on their minds. Louis was mentioning he has this 20,000,000 of EBITDA. If you can accomplish that, you will be rewarded really, really well. Anders said they're at €40,000,000 at the moment. Then there was a question from the audience. Okay, you do 40,000,000 of EBITDA and then a strategic buyer or a PE comes and buys and pays for it 12 to 15 times. Like how it will make sense for the next buyer. Louis used the phrase terminal value because they just have better access to cheaper capital, number one. And number two is just the growth, the importance of growth. That's why it makes sense for them to pay 12, 15, maybe even more times EBITDA for a platform like this.
00:18:36 · Mikk
Next, we have another real asset, which is not maybe discussed often enough, but it's reputation. At acquisition number one, nobody knows you. At acquisition number 20, you can potentially have 20 previous owners selling your next deal for you. And Louis, the French HVAC holdco, he said when they approached their first owner and said essentially, Join our network. The logical response from the owner was, What network? If I join the network is just me. And that's true. At the beginning, you have nothing. You don't have founder references. You don't have proof. You don't have a track record of treating sellers well, etcetera. But once you get to 20 companies, the situation changes completely. The next owner asks, what's it really like after the sale? And you don't really have to answer that yourself. You can just say, here are 20 founders, just give them a call. And according to Luis, the previous founders have been super positive about the experience, even though they don't yet know exactly what the rollover equity will ultimately be worth. And this is why I think reputation is a very real economic asset inside a RollUp. Because at the end of the day, this one specific niche, it's a super small world. And I think the best way to understand the entire model is probably as a flywheel. You start very niche and learn the markets. You talk to owners, you find the first good company. Somehow you convince the first founder to trust you, even though honestly, you really don't have much proof yet. You then buy the company, you treat that founder well, you learn how to integrate, you discover one or two things which genuinely make the business better. That founder becomes a reference and the second acquisition becomes slightly easier. Now you have more knowledge, more references and more credibility with investors. Maybe you get better depth, maybe better people are willing to join. I think it's important to mention here, these are outliers. I mean, group acquiring or doing 20 add ons, it's world class. It's unbelievable. It's so hard, but I still really wanted to do this episode because I found this to be extremely practical. I mean, is not investment advice, obviously, but more importantly, these are outliers. These are exceptional talent, exceptional work, grit, perseverance, hard work. I can add so many things here. These are those people. These are those groups.
00:21:00 · Mikk
Coming back to... It's always relevant. What Bart said and the comment he gave in the beginning was to find the bane you enjoy because none of this is easy. You're going to lose deals. You're going to buy a company which disappoints you. You're going to hire somebody who doesn't work out. Integration will go wrong. If the only reason you choose this strategy was because the Excel model showed the 35% IRR, eventually you're probably going to hate it. But if you actually enjoy the underlying work, if you like meeting owners, learning industries, building organizations, solving operational problems and trying to make small businesses stronger, then maybe you keep going long enough for the compounding to actually show up. I sincerely believe these individuals covered in this podcast, covered in this specific episode, these are people where other people will go and write books about them. I mean, I'm already doing episodes on them. Give me a bit more time. There might be a book about them because these are those special individuals and they're still young. I mean, guys are in late 20s, 30s, 40s, buying a lot of companies, creating a lot of value. Very special. Again, these are outliers and we can all learn from them. Now just summarizing, I mean, Bart has seen dozens of platforms and says RollUp are really hard. We have Ramsey who has done roughly 160 acquisitions and says, It isn't obvious how to become good at acquisitions. I forgot to mention this. Someone asked from the audience any lessons about acquisitions and how to actually do this. Ramzi was just saying the same thing. It's not obvious on how to become good at it. It's still hard. Many people will see like 160 acquisitions and these guys must buying like everything, overpaying companies and all that. But Ramsey is saying on my previous podcast, they are the most disciplined group when it comes to acquisitions. So there are lessons here. Louis did two deals and then deliberately stopped for a year because they didn't yet understand enough. Rodolfo has built an organization capable of acquiring a company every few days, which means M and A itself has become an operating function. Anders and their team is willing to drive to an owner home on Friday because they understand that one relationship may be worth more than another week of Excel work.