Buyers and Builders
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.
00:23:21 · Mikk
And maybe that's why I find this space so interesting, having notes in here. From far away, Rollups look like finance. Up close, they are operations, psychology, sales, capital allocation, hiring, negotiation, governance, culture and endurance. If you're building one of those RollUp's today, whether you are looking for acquisition number one or acquisition number 15, please reach out. If you're someone who new in this space, but you have what it takes, listening to all this, what I shared, listening to those stories, and you got yourself thinking like, okay, it's super interesting. I'd like to know more. I would like to do it. I would like to get access to investors. Please reach out. We see a lot of those special individuals and we want to see more of them early. One side. Another side is if you're an LP interested in this asset class, same, please send me a message. My ex is privateequityguy or my email, mikkprivateequityguy dot com. And let's connect. I hope you learned a lot. I really enjoyed doing this one. Thanks for listening. See you in the next episode.