Elliot Edge welcome to acquiring minds thanks for having me well excited to be on Elliot you bought a managed service provider an MSP in San Antonio in December 2019 fateful timing now uh I didn't know this but San Antonio was really where covid hit the shores of the US first meaning your covid in San Antonio started earlier than for the rest of us which I Peg it kind of March 2020 so needless to say things moved fast during your transition and they don't appear to have slowed down matter of fact you just told me that we have a hard stop at at one o'clock Eastern uh so that you can give the day one speech for your latest acquisition which is closing today what a perfect the perfect little detail to have for your acquiring minds um interview Elliot Let's uh be efficient here therefore start us off with some background on you please yeah absolutely so born and raised in Oklahoma uh studied petroleum engineering in undergrad got my start in the oil business worked in a variety of engineering disciplines with a couple publicly traded EMP companies but always knew that I wanted to do something entrepreneurial um always planed to go back and get an MBA but with the uh wonderful encouragement of my wife uh reached uh applied to Harvard Business School school was fortunate enough to get in uh before going to HBS was very well versed in the ETA model and knew this is what I was going to do after graduation so graduated so you you you went to HBS to Harvard Business School already aware of ETA and indeed knowing that that's what you were there to study and network around and get Kraken on say a little bit more about that if you would yeah absolutely so uh again working in oil and gas knew I wanted to do something entrepreneurial uh had a good good friend of mine who attended a few years before me and we had talked maybe about someday doing something entrepreneurial together and I get a text from him one day who said hey there's this crazy thing where 30-year-olds who don't necessarily have any capital or business experience or buying companies you should look into it uh so uh he really introduced me to the to the ETA search fund model um I was on Rick and Roy's pre-release before the hbr guide uh was published so I came in knowing you know as close to blinders as you can probably have going to business school that that a self-funded search was was what lay on the back end for me that's great so Rick and Royce of course for people who don't know as you just implied they're the authors of the famous hbr guide to buying a small business and so I guess they were promoting the the the book's imminent release and you could sign up uh for an early copy or or to be on the notifications list or whatever which you did so one of the very first copies off the press you had in your hands and then took their class obviously yep while took all the classes uh while there yeah do they do they teach multiple classes or just the one so there's two classes during your second year your ecer there's what they call financial management of smaller firms which is your your typical case steady uh case method style HPS class and then they teach a course um called ETA that is more of a a field type Hands-On you go through building out a PM for prospective investors uh you go about um you know pitching uh actual business owners on the model so it's a little more uh handson specific just to Eta and search funds course well Ellie you know we we talk about on acquiring minds quite a lot about for those people who have don't have either a financial background or an NBA or both or neither uh what advantage those who do have and because it can be quite intimidating to hear the HBS crowd or the the the former investment bankers on here um and I have to say I'm not sure I had the color that you just gave me on what you learn at HBS to go buy a business including like like you just said doing the PPM like doing the deck that you present to investors and getting some practice there that's valuable that's really quite valuable because putting together a deck is is no joke for somebody who's never done it and then going out and cold pitching investors and presenting to them over Zoom so um that alone seems you know worth the cost of admission it's certainly valuable um and and I learned a lot and grew a lot during that experience uh but don't kid yourself you do not need a finance background you do not need an NBA and in fact I think uh in in a lot of regards um some some most success Searchers I know are people who came from military came from industry came with no kind of traditional uh ETA search entrepreneur background perfect thank you for saying that Elliot um I would have forgotten to and it's such an important Point yeah okay so you're at HBS and then you immediately day one after graduation by a business right pretty uh pretty much not not exactly so my um my my lovely wife who's been incredibly supp through my whole journey I would not have gone to HBS uh were it not for her I would not have bought the the company that I bought were it not for her uh she had quit her job uh to move to Boston for me to be able to pursue the MBA there and upon graduation she took a job she's also an engineer uh oil and gas and she took a job back in Industry with the KKR portfolio company out of Dallas so we moved to Dallas after graduation and that's where that's where I ran my search from uh um I was fortunate to be pretty fast in my in my first acquisition so started searching in July uh found the company in September was under Loi in October and and closed in December wow that is super fast and and by the way given that I assume it was a geographic search you'll correct me that is even more impressive because obviously if you're only searching in one geography the Pickins are Slimmer but you moved back to Texas or moved to Texas for your wife's job I assume that means you weren't going to uproot again and it was geographically constrained no the plan was to go wherever the business was um because I was not running uh you're you're correct that I ran a geographic search it was not industry uh specific but as you can imagine searching from Dallas Texas I ran in a search in five states uh so Texas Oklahoma Missouri Arkansas Colorado a lot of the reasoning being I felt there was just too much white space with no industry Focus there needed to be some way to create guard rails to build networks with prospective sellers uh to tell a meaningful pitch and story that could resonate with a seller Texas is a big place so I I did not get get very far and um and and we did relocate to San Antonio albeit there is an extended period where where I commuted back and forth between Dallas and San Antonio give us a little bit of the of the parameters of what you were looking for you've already said it was self-funded what else so I was looking for a lot of the same what I'll call uh sanitary metric criteria that a lot of self-funded Searchers look for because quite frankly they lend itself to the self-funded model being able to put a decent amount of Leverage in a business that's kind of hard to break for a firsttime operator so a good deal of recurring revenues uh durable cash flows industry Tailwinds strong margins and like a lot of guests I was looking for a business that was doing at least a million of eah and I found all of those in my first acquisition except for size so I ended up buying subm million uh for sure is there anything to learn from the fact that you were able to accomplish finding a Target so quickly or was it just was it just happy accident yeah I I certainly think uh luck and timing being the right place the right time played the biggest Factor uh I found a gentleman who was wanting to get a transaction done before the end of the year uh was concerned about potential changes to to cap gain's tax rates with a change in uh political leadership uh but also a seller who had a disdain for your typical private Equity uh MBA ETA type of acquirer and so wanted somebody local somebody out of Texas somebody who who he could see selling you know his business that has had had his name on the doors for over 30 years too um the two things that I do think played in my favor so I tell every prospective Searcher uh recognize that you're the buyer of Last Resort in a competitive market you have no Capital you have no industry experience you have no transaction experience so you have to you have to compete on other criteria uh to to win in a game that Stacks up in your favor so then I found a seller who was looking for somebody local and somebody who could do a fast transaction and I was able to lean very heavily into that the second thing is uh Jim Sharp who who a lot of listeners should be familiar with a wonderful resource to the community uh a mentor to to Searchers and an investor in the space um I had a call with him 30 days into my search and like my engineering background with lend me to I had this beautiful spreadsheet with all of these metrics how many Brokers I had put into my funnel how many qualified leads with prospective sellers I'd put in he asked me one question how many offers have you made and it was a uh a rude awakening but uh the one that I needed you're not going to buy a business without making offers and so I then shifted my Approach I was very early to getting comfortable making offers getting comfortable testing valuation which allowed me to be a lot more efficient in processing deals out of the funnel either that weren't the right fit for me or that I was not the right fit as a buyer for this is fascinating Elliot um I probably have run run across that that philosophical approach of Jim Sharps before um but there is a there's a there's a good philosophical debate there Jim's perspective obviously is that um kind of shots on goal and uh the more the better the counterargument would be that when you do find a business that you it seems like you really could transact on and it's going to be important that the transaction be as smooth as possible that you get along with the seller as much as possible and so on having an an Lo spending time on the LOI and thinking through the transaction so that you don't have to retrade later or disappoint or frustrate your seller uh is is valuable in a different way so taking taking your time with an Loi does have value it's not just about being overly cautious as a first-time business buyer how do you respond to that yeah I don't want it to sound like I was not thoughtful with the LOI and did not spend time making sure that I had a a properly structured deal and that I wasn't going to need to potentially retrade or be surprised during diligence but for instance uh a lot of listeners are are likely familiar with industries that have become very hot that they might like to buy a business in and if you are willing to pay four or five times but the expectation from the seller is eight to 10 times you're never going to buy that business and you're wasting your time and so if you can identify what expectations are and either close the gap or um you know self- select or or select out of out of a process you're saving yourself time that being said if you're running a very Niche narrow industry search if you are bringing something unique and specific to the table uh that that would be a different situation and certainly a different sort of search approach than than what I was in and what I was taking so in terms of volume of Lois it's and versus a carefully crafted Loi it's not either or it's kind of both and high volume but also making them considered well-crafted thoughtful offers as well so trying to kind of do it all high volume of high quality yeah exactly and really just getting comfortable making an offer and talking valuation I know that that that can be very uncomfortable for a first-time business uh acquirer and I've spoken with Searchers that are 6 12 months into their search and they haven't actually formally made an offer yet and you'll never buy a business without making an offer well this would be the opportune time to plug a webinar that I did with Sam Rosati a couple months ago the anatomy of an Loi where we go through an actual Loi template uh to get people to understand what the contents of one is and really just get people comfortable with it the idea being that it is this big mental hurdle that many Searchers need to overcome um and it can like you said it can really be and I guess like to Jim chp's point it can really be something that uh impedes a search just that psychological friction there of getting comfortable sting out offers now Elliot one thing you said about your seller and by the way I loved how you said you're as Searchers business buyers were the the the buyer of Last Resort from the sell's perspective just unattractive back of the line so we need to do what we can to make ourselves attractive and you kind of rattled off you know he didn't want a PE type he want somebody local um he didn't want a PE type he didn't want an NBA you know yes you were local but you you were defin you know you're a Harvard MBA so you're you're you know you are the the picture of somebody that a grizzled uh SMB owner is gonna say I don't want you know that whipper snapper buying my business so you weren't you know you weren't the perfect picture of his of his imagined successor yeah what I would say to that um look I I I leaned everything into my positioning of who I was as a buyer and my digital Persona during my search to align with with the type of search I was trying to run u i stripped HPS you know off off my LinkedIn it's that's not what I led with in any of my pitches and I steered clear of using our favorite felter or six-letter phrase uh IAH in any and every communication I said look I'm an entrepreneur out of Texas looking for a business that I want to buy and grow I'm going to move to your community I'm going to step into your shoes in the business full-time if that resonates let's talk and and it did so he was receptive to that and had he been courted by private equity and other types of buyers that he didn't like absolutely was it competitive absolutely as as I'm sure we'll we'll get into the IT manage services space is is very active uh very active with lower metal Market private equity and I was nowhere near the first uh or or or highest offer in his process and where did you find the this business through a broker through a broker I was actually looking at another business that the broker had it was a tire recycling uh plant uh so it was like two business two two businesses together in one and he said hey I know this is smaller than you said you you wanted but I've got this great IT services business you should take a look at and let me know if it's interesting or not okay we're about to return to size but before we do tell us about the this business this MSP yeah so MSP out of San Antonio Texas been around since 1990 serving clients there in South Central Texas um for folks that aren't overly familiar with with what an MSP is it's outsourced it predominantly small to mediumsized businesses a little bit in the mid-market Enterprise space a little bit in the in the local government uh entity municipality space uh but it is largely being an outsourced help desk an outsourced uh it consultant and strategy and outsourced it procurement Department uh for for clients and there are many shades to this business as many as there are permutations of technology that an organization would have so and and of course you have msps that specialize in X versus I mean Niche upon sub Niche but just to understand I mean so much of techn Technology's gotten a lot simpler as we all know you know an MSP in the 80s and 90s was a very needed technical thing because far fewer people were Technical and and and stuff wasn't in the cloud and it was just technology was just in general a lot less self- serve today a small business can turn on Google cloud or Google whatever Google um work what is the thing Google workspace thank you I'm I'm a customer I don't even what it's called Google workspace and you know have kind of a light you know system for all of their necessary Communications and so on so anyway just give us a picture uh examples of what it looks like the tech involved to manage an organization today yeah absolutely and and I'll first start by saying technology is a lot more accessible than it's ever ever been but I don't know that that means that it's simpler uh our demands of Technology the demands that every business makes of Technology are increasingly uh on the upward to the right trajectory it's got to be secure it's got to be seamless it's got to be easy uh to access and so a lot of our clients um we do a lot more uh in the Microsoft ecosystem although we do support a number of organizations that are that are Google workspace shops uh but we will uh manage and administer their Cloud environment make sure that we understand their business processes and that we're able to bring the right technology for their need get it configured in a way that works for them put proper security protocols in place we assist them with navigating uh Insurance renewals um any specific security or Regulatory Compliance requirements that they have uh will be desktop support for their users so if uh I know it's 2024 there's still a lot of people who need to print things out and printers break and don't function all the time um there's an Ever NeverEnding change new features released from Microsoft and Google into their Cloud products uh case in point we've spent a lot of time with clients this year uh late last year but has accelerated this year on leveraging AI in their business whether their data storage is in box Dropbox SharePoint Google Drive you name it all of these Solutions now have ai capabilities those AI capabilities need to be managed properly to protect govern uh data data governance data controls and so we help businesses navigate find the right solution configure it correctly and then support their end users when they need help one of the appeals of msps is is the kind of forever demand as technology marches along as you put it um it's it's more and more accessible but it's also our demands of the tech or our needs of the technology uh are growing maybe even faster than its own capability so so the the demand is kind of you can imagine it being just permanent um the um other appeal of this is because of the complexity of technology and because every organization is unique I imagine you're you're very entwined in the organization once you become its technology service provider because it's so layered and all of the kind of all of the um variables about about the particular implementation of Technology within a particular organization uh is not something that they're going to they're that one of your clients is going to be particularly comfortable just swapping you out and swapping in one of your competitors so you become quite embedded into into your client organizations is that is that accurate yeah absolutely so one of the reasons why I found this in industry attractive for my search aside from loving technology and loving to to help people is highly recurring revenues highly durable cash flows so we're about 80% of our revenues are are contractually monthly recurring and our average customer relationship is more than more than a decade wow and is that profile common in MSP land or is it is is the quality of your Revenue at the business you bought particularly High as you mentioned earlier MSP means 12 different things to 10 different people uh if you're talking about your your traditional it managed service provider that has a decent uh decently High degree of operational maturity then yes that that quality is uh pretty consistent and so makes it super attractive uh it can also make organic growth hard though because as you mentioned uh you become entrenched you become ingrained and it can be hard to switch uh from one provider to another just one more on the tech is the landscape of Technology offerings that small business small and medium businesses choose from today does it basically bifurcate into Google workspace in whatever Microsoft's offering is called or are there yet other ones or is it basically those are the two you know Google and Microsoft are kind of duking it out for small and medium business email calendar etc etc etc yeah two two primary ecos two dominant ecosystems yeah I think that'd be a good way to characterize it they're the two dominant players um even within those two players how much you fully embed in their Cloud ecosystem versus multi-home you know we have some businesses that have they might do email in in Google uh because that's what their team really likes it works well with their marketing program but they need some of the Enterprise applications within Microsoft there are still a significant portion of businesses even small businesses that require a physical on premise footprint now whether that's server sitting in a closet in their office or in some third-party data center uh there's still a good portion of of the business community that still has some sort of on- premise infrastructure so you've got to integrate that with the cloud environment but yeah at a at a high level those are the two big players duking it out for for the small business uh Community great Elliot thank you for that now back to the deal okay so how many people were what is the business called first yeah so the business we acquired Palmer Technology Solutions uh we have as we've grown we've rebranded uh so we are now vonix Technologies and uh Palmer Technology Solutions eight people eight a team of eight we were doing just under 2 million of Revenue and about 700k of of true iita okay so that's 700k number let's return to that now smaller than you were looking for which was the kind of Standard 1 million IA if you could get it um but you went for it anyway why going into HS my wife uh being very well plugged into the search Community knowing I was going to do a a search on the back end and and HBS did a lot of programming around partners and what the experience of being a partner of a Searcher is like uh went in very eyes wide open to what a search process looked like so she asked me over a glass of wine uh while I was working on this acquisition what do you like about the business and I rattled off all the criteria and she said what don't you like and I said size it's it's too small she said okay you know you know the statistics you could spend the next 18 months searching and having not acquired in a a million doll ibah business or you could grow this business well north of a million ebah over that time period if you think it's a good deal I think you should do it man should be interviewing your wife here Elliot what are what are you good for well you know and the other thing about that advice is not only that you get into the game sooner rather than spending another 12 or 18 months looking for a million dollar business you could just grow yourself to that point but also you your entry point is lower your the the business the the what you're paying for a business of a smaller size is lower so in 18 months you either you can find yourself at a business with a million dollars of ebata that you bought when it was six or 700 and so you've captured all of that value or you've searched the whole time dwindled your own balance sheet spent down your own balance sheet by not having any income and paid more for the business and kind of be at the same place but you know you w you know you paid much more for the business therefore you know your you know when you go to sell the business or whatever whatever you do your basis is going to be higher and therefore you're going to make less money so so there's kind of multiple reasons um to do it the way she recommended now obvious Counterpoint to that is you're taking on more risk you're there's the risk that you won't be able to grow it to a million or at least not in the time frame that you're hoping million yeah yeah and and you know I know you recently had had Robert Graham on and he talks a lot about uh the value of buying bigger and and you are making a tradeoff what your day-to-day looks like in an 8% you know 700k iitop business is very different and yes you spend a lot of time working in the business making sure that you make payroll and and vendor invoices get processed as opposed to just working on the business great elot well I want to hear what life was like when you get into the business but before we do that is there anything more to say about about the actual transaction of Palmer yeah I think this would be a good time to introduce Talis because I did partner with them right out of the gate uh with the first acquisition so I know you've had at least one other operator uh Luis Aguilara the commercial laundry facility uh he's another uh Talis partnered Searcher um I got connected with the Talis team during my first semester at HBS at that that point in time they weren't investing in the ecosystem maybe the same way with the same structure that they are today through Talis uh but I went and actually Spent My Summer internship in business school working for the family office um supporting some of their Industrial Services and and Energy Services businesses and I loved the team I knew I wanted to do a search and moving to New York was just not a good fit for my wife and I so stayed in contact with them and while I was under y I reached out uh to the principal to get a gut check on you know I was so early in my search I was 90 days in and I'm under Loi on a business is this a good deal like or am I just seeing the first opportunity to get in the game uh coincidentally as a lender they had been in msps uh I think more than more than a dozen times so they were very well versed in the space and they uh pitched me on hey if you want a check in a cheerleader give us an allocation we we'd be happy to be involved if you want a little more support if you want some more mentorship from a group who has sat in your chair and done what you're trying to do many times over we'd love to be involved but we'd want all of the outside Equity rise and thought long and hard about it uh had to go have some some tough conversations with some wonderfully supportive folks that had committed to funding uh the acquisition as part of my Equity raise to tell them hey unfortunately um I'm gonna cut you out of the opportunity because I'm going to go this this Direction with Talis great well there's there's um a bunch here I'd like to follow up on before we do that Talis is what how would you define the group yeah so they're part of a family office of uh an individual that has been a Serial entrepreneur a gentleman by the name of John Fitz Gibbons and uh Talis is is a part of his family office and a group of fantastic investors and operators who have probably the best track record that exists most people would not believe their track record uh if they saw it uh because they they're that good at what they do um that likes to be very Hands-On very operator supportive and focused in mostly serial acquisition but it doesn't have to be a rollup strategy but Direct Buy and Build uh investing and so that might mean that like in your case Searchers uh ETA lower Middle Market uh but it might it also mean are they a traditional search fund investor are they inde do they get involved in independent sponsor deals so because they're a family office they don't have a necessarily narrow mandate right they're not going in raising money from LPS with a PPM of saying this is what we do and this is all we do they don't typically do a lot of traditional search fund investing um and they do a fair bit of Direct Buy and Build themselves so they will Source businesses buy them um inject their own operator from across across the the variety of business is in their ecosystem and then they'll also uh work with supporting Searchers and operators at the time of acquisition like they have with me great Elliot and then they so they made you this offer they said a check in a cheerleader uh and so you know more of a passive I don't love that word but uh a less involved role more just capital or a quite involved role where they would be support they would share their playbooks they would be at the other end of a phone call Etc but we want to be your sole Equity check your sole investor what was in which is the you chose option b what was the your Calculus there why did you like that offer because and and and give us some um context here about how one might broadly think about having a single Vestor investor versus multiple yeah absolutely so I think in a lot of scenarios having one single investor uh can can be a challenge you've got to have a very high degree of trust uh that the two of you are going to be aligned and that when you're not when misalignments come up that you can easily work through them I built up that trust uh you know working for them over the summer and and maintaining a relationship uh during my second year of business school with them so I had a very high degree of trust a lot of the calculus for me was um I plan to spend the rest of my life buying and building uh Enterprises through an ETA type structure and so for me the most valuable commodity I have is my time and do I think that they can help me get there faster in terms of growing and developing my capabilities as an operator because as much as I love HBS and you can learn a lot of things there's very little you learn about actually running a business in Business School uh and so did I think that they could help get me faster and the thing that I think they uh bring more than anything is do I think they could take my chance of failure on my first one down to as close to zero as one can get uh and that that's really a big benefit that they bring they're patient they've got a lot of operational expertise they're willing to bring in resources when and where you need them I thought okay if the biggest commodity I'm trading is my time uh I need to put a win on the board on the first one and if I can get there faster in terms of becoming a good operator then it's absolutely worth the partnership great great analysis and and you know one one phrase I might throw out to the audience in terms of thinking about a single investor versus multiple is leaning on the customer concentration that we talk so much about having if a business you're considering buying has but a single customer or excuse me a customer that represents too much of the revenue maybe a single customer but maybe one who just has an outsized portion of the revenue you can apply that concentration Concept in all directions coming out of the business supplier concentration vendor concentration and investor concentration and the point is when things are too concentrated uh the risk of that relationship goes up uh or or the kind of the kind of uh the vulnerability uh in that in that link in the chain um kind of goes up and so you just need to um be a aware that and it sounds like you traded some additional risk there for you were compensated for for that risk with all of the the value that they were going to bring and the things that that you just described um so very interesting anything to add to that do I have that right yeah the only thing I'd maybe add um if you go out and Syndicate and you run a competitive process there is way more Capital chasing Searchers and operators than there are Searchers and deals to be had and so you can negot neate down more attractive terms for the Searcher if you're going that route so if you're only ever going to buy one business and you you know you want to run it that one single business for 30 40 50 years and I hate the term lifestyle business because that implies that that you're not willing to grow it you're not willing to run it professionally but if you're if if that sort of structure is more where you want to go you should desperately hang on to every sliver of of equity percentage and and preferred return uh that you can so you know kind of depends on what what are you trying to get out of your career by going down this path and um you know what what's what's the right tradeoff and the point there is because if you're thinking about buying only a single business for for the duration of your career that every point of equity that you negotiate with your investors will follow you I mean that will be the structure from here on out whereas in Elliot your case you were you know this is a chapter of your career there will be many others so a point here or there isn't going to dictate the cap table of your life yeah exactly I think that I think that's a great way to put it and Elliot the other thing I want to make sure we highlight is in your conversation I believe with Talis or maybe the principal at Talis that gut check conversation in I you know is this I've only been out my search for a couple months I find this business looks good little small but otherwise looks great there was another piece of advice in there yeah absolutely do a roll up do do you know where I'm going okay yeah yeah so um like I said they had been in multiple MSP platforms uh as a lender on the credit side and they knew the industry well they knew the wonderful aspects of it they knew some of the challenges of it and the the feedback was this is a great business it's entirely too small you need to get to more scale and you need to get to more scale fast and the best way to do that is going to be through a rollup so you were thinking about this as maybe the only business you buy or you were open to doing inorganic further Acquisitions at some point but it wasn't this like gunning hard to acquire acquire acquire uh correct and then they shifted your thinking is that right yes yep okay um and why what what what was the what was their kind of the reason behind this forceful piece of advice they were giving you so there's a lot of benefits to scale for your customers um as I mentioned earlier technology is more accessible but it's increasingly more complex so the the depth and breadth of technical expertise you need to have on the team to be well uh positioned to be able to grow with your clients uh is is becoming quite large as well as trying to get some purchasing power with your vendors and so they knew that scale to be able to deliver the value you want to be able to deliver to clients is important and organic growth can be hard because all the things that make us sticky with our clients also make our competitors sticky with our clients or internal it departments uh that we might be either partnering with or displacing sticky with the clients as well and so we needed to get to scale we all recognized that and then the question became how and if we think organic growth is going to be slow the other option is inorganic growth and if you've got really highly durable cash flows and it's a very very fragmented industry it's estimated that there's somewhere in the ballpark of 40 to 50,000 msps in North America alone that uh inorganic growth could be a very very attractive way to get there and just to be clear on the the idea in case somebody in the audience is looking at an MSP and isn't convinced or hasn't considered doing an aggressive rollup but they just want to buy the one business the the vulnerability of not being very at scale is that it will be hard to keep up with tech to to basically have your bench your your employees the knowledge base of your team to be both Broad and deep enough to keep up sort of because technology is so fast moving yeah absolutely that's it that's it basically that's it it's it's a lot of the reasons why we pitch the value proposition of an MSP to businesses there's no way they that most organizations I would include up to two 300 employees can economically staff all of the needs of technology that they have you need a networking expert you need a security expert you need somebody who knows Cloud compute cloud and cyber security AI you know the list can go on and on and on you need all of that expertise uh to be able to to keep up and and serve your customers well and and it's hard to get all that expertise with a small team and then if you have a small team any one player leaving could create disruption to the business right so you need some redundancy because there goes your cyber security guy or whatever yeah absolutely absolutely so you need a deep and Broad bench of talent okay so you raise from you raise just from Talis and can you give us the terms of the acquisition yeah so it was uh 2.7 million uh 2.65 million in Enterprise Value uh we put uh about 450,000 of equity into the deal um and the remainder was made up with uh bank note and seller note SBA yes did go SBA and of the 450 Equity that was all Talis and and some from you yeah yeah it was about 85 Talis 15 85% tals 15% me all right now I would like if there's nothing else on the transaction I would like to hear about uh what month one looks like Co hits you're in San Antonio and going back to the working in versus on the business you bought a smallish business meaning you're more likely to have to work in it start wherever you want absolutely so I had this uh beautifully laid out and admittedly probably pretty naive uh 100 day transition plan um first time running a p&l first time managing people first time working in the IT industry although I did have a lot of Technology experience for my time as an engineer and spent a lot of time learning how to go through post m&a transition so there's a lot of blocking and tackling that has to happen day one after close uh particularly if you're in the business I like to say all of my friends in private Equity clink glasses at closing dinner move on to the next deal and for those of us that go down this ETA world that's when the work actually starts uh so trying to learn the industry um we were living in Dallas at the time I'd gotten a an apartment in San Antonio I'd leave at 2:30 in the morning on Monday uh so I could be at the office before 7 and I'd get home around 11: p.m. or midnight Friday night uh and uh just trying to to soak up and and learn everything I I could about about our customers about our vendors about the industry so we acquired the the the week of Christmas was when we took possession of the business in December and uh very surely shortly thereafter uh Co happened so la as you mentioned Lackland Air Force Base uh was where a lot of people were being brought back to quarantine uh from China it was essentially Ground Zero uh for for covid so we started hearing Rumblings in late January about uh this potentially Black Swan disease event that we all knew how it played out um I went to my team in early February and had us run a simulation on if you can't come to the office tomorrow can we still function as an organization and I think the team thought I was crazy first I'm this I'm this new guy in the company new guy in the industry and now I'm having them run this this crazy deal and the former uh owner had been adamant no remote work everybody has to be in the office butts and seats five days a week no exceptions and about two weeks later uh San Antonio be County shut down and by the way Elliott did you feel confident in in making the team do this make making this weird request or order as the case may be being new guy never managed people before at a left field seems paranoid um I don't think I had uh the same degree of confidence that I have in in my gut decisions today uh but it was pretty clear to me uh there was almost no risk to us doing this uh there was potentially existential risk to us not being able to operate if something prevented us from being able to come into the office so it it seemed like a no-brainer to me of something we needed to do and the fact that you did it two weeks before San Antonio shuts down you do the test did you find that in fact you could operate remotely and it was fine or did you find holes in being able to operate remotely that you scrambled to plug over the next eight business days and were able to plug and so then when you went remote it was okay we found that we could operate I think more seamlessly than anybody expected remotely that being said we we found a few gotas along the way we had to change a few things in our phone tree phone system routing uh we had to figure out how my controller and I the business that I acquired while being an IT business ran entirely on paper every invoice every check so we had to figure out okay how are we going to get checks to vendors how are we going to get payroll process for employees um and and so we worked through a few a few gotas but I think we were all pleasantly surprised how well we could function uh having never done it before well it was um probably recognizing that Co was an awful event the fact that you do this mandate that this you mandate this test and then two weeks later everything shuts down that probably instilled in the team confidence in you that oh wow this this new leader of ours is saw around the corner he's a Visionary was it kind of a management an early management win for you uh I mean I'd hope so I I I I don't I don't know if it was but um you're not going to take credit you're not take credit I'm not g to take credit te tell us a little bit more about just for somebody who's never managed before this is um a common pattern for Searchers although not one I I usually double click on but any anything else to say about your your experience managing people for the first time yeah what I would say is that what I found pretty quickly and probably still not as quickly as I should have is that uh if you treat people fairly you try to bring some sort of um human component and that doesn't mean you know forgetting the data not setting goals but you try to be a reasonable person treat people fairly and trust your gut you'll get it right more often than you won't and that there are very few mistakes uh that are going to be um either not fixable or detrimental to the business I know Jeff Bezos has talked a lot about one-way doors versus two-way doors most decisions you make as a as a manager and an operator are two-way doors well let me but let me push on that Elliot because because what I'm hearing you say is you know just treat people well uh and you know be wary of making decisions that can't be undone that's the one way door versus two-way door thing what was what was the other thing kind of maybe feel some confidence in your gut and yet there is such thing is good managers and bad managers so it can't be it can't be all that straightforward um so may maybe you know say more for the skeptic yeah so what I didn't know then that I that I use now and I'm I'm actually stealing a a phrase from uh my director of operations uh who joined us via our second acquisition is uh good management means you're leading people and you're managing processes and if you're not doing either of those or you're only doing one of those you can't be a good manager and leading people uh means working with them at least to me working with them to set them up to be uh the most successful they can be in their current role and it's not just you know Rah high fives and happy hours or talking about where somebody wants to be in three years five years it's sitting down with them understanding what is getting in the way of them being able to do their job well uh it's taking ownership of have we adequately defined a process have we adequately documented a process have we adequately trained you on how to do this successfully and if you haven't done any of those things you need to look inward uh for accountability before you start start looking at at members on your team thank you okay Elliot well we you've done a number of Acquisitions since actually why don't you why don't you give us the end of the story how many Acquisitions have you done including the the one that you just did this morning a couple hours ago or whatever it was how many have you done so today will be number seven number seven wow y um number seven over so that is we're in 2024 29 2020 so four years four years and change um so two-ish a year or a little less than two a year the so we did we did five Acquisitions in the first 26 months then went to years with with no Acquisitions working on operations uh working on building out the team and and then now we've done two Acquisitions uh so far this year okay great well that is a perfect segue let's hear about that pace and then slow down and if it if there's something there to unpack but um maybe be so obviously we're not going to go through all the next six of these um is there any particular acquisition that you want to give a little bit of a story too from numbers 2 through six 2 through 7 yeah I think the I think the first bolt-on acquisition uh was really meaningful so uh because of Co you know expected to probably do a second acquisition in in the first six months maybe uh hope that was hopeful uh because of covid a lot of the time was spent adapting to the Ever Changing whips off uncertainty whether it was from regulations or um you know new new laws and rulings and so did not do an acquisition in 2020 but close on the first Bol on in 2021 in February and this was in Southern California in LA and a lot of people thought I was crazy this was at a time when the prevailing news story was people leaving California businesses leaving California to come to Texas and here I was in Texas going to California uh and because of covid did not have the ability to go on site uh to do diligence in the traditional sense that a lot of people think of and do uh during a small business acquisition um so ended up closing on the business uh essentially entirely remotely and uh my my answer to yeah so to to all the detractors what how did you rationalize those three things that all seem like weakness bu to this deal yeah um how I think a lot about businesses today particularly when you're looking at a a rollup strategy is what again coming back to what I'll call the sanitation metrics you know customer concentration make up of the revenues between product and and Consulting and and recurring Services you know once you kind of check okay okay those are are fit uh th those check the box whether it's a good F or not all comes down to culture and can these two teams mesh together and in all of my conversations with the owner and operator with a few members on his team you know we spoke the same language we had a lot of similar goals uh these two organizations fit very well together just culturally there was kind of a just cult similar philosophy a similar Vibe similar philosophy ilar Vibe and um I you know in the industry that we're in a lot of our work can be delivered remotely you know I don't know that I would feel as comfortable in every industry the first bolon being that kind of step out uh but in IT services and we had just gone through a year of learning how to function uh remotely uh so I get very comfortable with those things yes California is becoming a more and more challenging place place to operate as a business owner every single year but there is no decrease in demand for people wanting to live in Southern California it's a wonderful place it is a beautiful place and I believe that that trend's going to continue to carry forward so long as there's an ocean and there are mountains and there's a beautiful sunny Beach there yeah that's kind of how I feel about California yeah um and so was was this business by the way what was the name of this business your Bolton simplicit Technologies simplicit was simplicit remote I guess of course every bus in February 2021 every business was remote so they'd gone remote had they been historically remote they've been historically uh a little bit hybrid uh in they had a physical office uh as anybody who has driven in La knows you don't measure things in miles between uh point a and point B you measure in in hours of traffic and so because of that uh a lot of their team necessarily didn't see each other uh day in day out you had you had your team that was down in the city you know Santa Monica West Hollywood downtown LA you had your team that's up in the valley and they might see each other once a year even if they're all physically going into the office together in addition we had a couple members of the team including the CTO who is our CTO today uh who worked full-time from Israel uh so he' lived in the US had worked in the US for the business for a number of years uh but had been working remotely from Israel since I think 2014 um so they were a little more accustomed to culturally that uh dispersed nature of operations and some bullet points on the simplicit acquisition roughly what it look what did it look like in terms of Revenue I mean in headcount yeah so we picked up uh about 13 14 team members uh on head count um and it was very similar to The Palmer acquisition slightly larger so I think it was a little over three million of Revenue uh still Sub sub one million of EA and and we paid uh just under five times for it and so at this point you're now the entire organization is in the north of five million in Revenue yep and how did integration go so if you're to to put a fine point on this the rollup strategy of course mean integration is often the biggest sticking point of a rollup strategy how do you take all of these disparate businesses and make them cohesive uh and it can it's a huge challenge often so this was your first attempt at that and you you know this is something you're going to have to get right if you're going to really want to scale your rollup so how'd it go it went very slowly so a lot of what Searchers are taught when you buy a business you know spend six months don't change anything um and uh that that was a lot of the approach to to the acquisition in the integration you know is very slow we're going to bring systems together but we don't want to disrupt the team's ability to to deliver services to the client um I don't want to upset the apple cart with the new team by instilling a bunch of process change so if I could sum it up in one word it went slow and um you know as as I think we may unpack here uh we've taken come 180 and have a very different approach to integration today okay and yes we definitely are going to get to that but you do eventually integrate if slowly if conservatively um you learn a thing or two okay let's now hear you did four more Acquisitions over you I think you said 26 months you did five and 26 months and then you slowed down for a while so C can I guess here that it's because you you bit off a lot and you needed time to digest is that why there was the kind of slowing down that you slowed the pace down what can you tell us about your trajectory here yeah bit off a lot needed to digest um I was wearing too many hats uh had not really built out the management team and while I was continuing to look for additional Acquisitions it was hard to do in any kind of meaningful way um because the operations of the business uh required so much of my time it wasn't just the operations it was the Finance and Accounting um and uh through that process of the Acquisitions you know had had outgrown the SBA so needed to go refinance so had to run a process to find a find a new lender that new lender brought you know different requirements in terms of uh compliance certifications and just additional process and I hadn't built out the team to be able to uh absorb all this additional additional work um and we were because we were going slow in our integration uh we'd stacked up a lot of integration work that needed to be done uh so merging systems trying to get teams uh operating uh as one unit and so there just wasn't enough bandwidth and capacity uh I brought last year a CFO on board uh one of my good friends who had left his job to to start doing a bit of a search I convinced him to to come join me as our CFO and that was a huge unlock and so it's no coincidence to me that that he's joined us and now within call it seven seven eight months we've found two great Acquisitions and and closed on them and when you had done acquisition number five and then stopped for a while was it like was there something about that acquisition or that time period where you were like I can't this is a break if I keep doing this sort of thing or did it kind of you just by default you just kind of slowed down or was or the wheels about to come off sort of thing like what was that like yeah I don't know that I'd say the wheels were about to come off but you know there's there's 168 hours in the week you can't make anymore no matter how hard you tried you you you might try and so Acquisitions three four and five came really quick acquisition three was a really small Bolton out of Austin Texas in December of 21 and then four and five were simultaneously closed the same week uh in February of 22 and so there was just a lot to digest and and work on there uh given you know those three Acquisitions were within 60 days of one another and Elliot I'm not sure we we returned directly to buying Big versus buying small your Palmer was small um then simplicit was larger but anyway H how did the fact that you bought small play out I mean you've also just finished telling us that these Acquisitions five businesses you didn't have the management layer there to to to keep doing them so maybe that's the answer but just um what how do you reflect back on the size of business that you bought in Palmer yeah I I think the the story we've heard time and time again on on this podcast and and in this industry is when you buy small have to spend a lot more time working in the business and that just you know is is capacity it's it's important it's critically important I think sometimes we um well the goal is to work on the business and create as much leverage out of your efforts as you can uh we shouldn't lose sight of the fact that like being a good operator uh is is is critically important and there's a lot of just day-to-day blocking and tackling needed to do so and and you know because of that I I was trying to do both uh work heavily full-time in the business and then work full-time on the business doing m&a and lining up Integrations and I think had I invested earlier in building out some some capacity in the leadership team um I know a lot of people may say five Acquisitions in 26 months it's really fast I think I could have gone a lot faster MH and and and yeah in that first 26 months and then potentially avoided uh not avoided but potentially shortened the ingesting time between uh the grouping of Acquisitions there in you know early 22 uh to now so now let's return to that directly the ingesting in the change management and how you were conservative initially and you've gone 180° rip the now you're 180 degrees rip the Band-Aid off guy talk to us about that Evolution and and what you would Advocate absolutely so now our fundamental approach is is we want to be fully integrated in 60 to 90 days we'd like to be even faster but we've got a few uh limitations with some of our vendor uh processes on on getting systems merged uh that that we have to navigate around um and we really want to go beyond just merging systems we want we want to merge processes we want to learn from each acquisition and potential pull through and change processes across the the company and and we want to get where we are talking in one language operating as one fonx team uh so that we can bring what what is our Northstar Enterprise capabilities and services but with that local touch and feel um and and support one another internally as a team I have come to the uh belief that with ch change management going slow doesn't make the change any easier for people to digest people don't like change and going fast doesn't necessarily mean being careless I think that and I am going to 100% be rephrasing uh one of our professors from HBS Francis fry who uh has a book that's called uh move fast and fix things which is trying to reorient the business world away from the the famous Zuckerberg quote move fast and break things that there's this then presumption that if if you're moving fast or being careless uh there's a way to move fast and get through the change and get through the change with the team fast with a big degree of care you've got to build trust and you've got to know what needs to be changed on Acquisitions uh one and two I could not have moved fast because I didn't know what needs to be changed what needed to be changed I hadn't fully refined The Playbook and what post integration should look like the uh and it's not just me it's also my leadership my leadership team as well our CTO our director of business operations our CFO we all know the things that need to be changed and so we can move fast and get that change behind us because prolonging it doesn't make it any easier for people if somebody's hearing this and and saying yeah but but you just come in you're a new owner and all the employees are going to revolt if you you know just dump all of this on their on their virtual desks all this new process and so on you'd say to them no they won't or what would you say to them how would you how would you assuage somebody's just concern that it's just not going to be received well yes if I come into a new team and I say vonix is now the owner this is now the way you need to do things and you need to do it this way by Friday they will revolt and they should Revolt right so you've got to uh first pitch them on the vision why is change necessary what's going to be the benefit for them for the clients you've got to uh set expectations and say this is what we're going to do and then follow through on it and build that trust and once you've done those things then you can move a lot more quickly but you can't move fast without doing those things because yes you will break the business you will create a Revolt um and so you also need to make sure that you are learning along the way on every acquisition if we don't identify something that that team is doing well that we need to pull across the rest of the business I have not done done my job right so it's not here's the vonic way and you now need to do it this way it is we need to standardize for these reasons uh your team has been great and built up these phenomenal client re relationships and we need to preserve that Legacy we can't we can't disrupt that but we need to standardize let's understand everything you guys are doing from a process St point and best answers when and best answers aren't always biggest answers and what I have found often times through that process a uh people feel seen and heard uh B you learn something that you can pull across and make the entire business better and see you almost always generate some quick wins that build up uh some rapport with the team oh we really needed an expert in in you know InTune but to be able to leverage an InTune expert across the broader business we had to be speaking the same language they had to have access to our documentation systems Etc and because we're merging systems and because we're changing a few processes we're able to benefit and our clients are able to benefit as a result so let me try to distill that start the kind of keys to a successful to successful change management that is done quite rapidly after an acquisition start with the why start with why thank you Simon cynic or whatever his name is um why are you doing this and how will it be beneficial to your new employees the larger organization the clients of the organization so give them the why and then build trust by making commitments and delivering on them absolutely and and then kind of always be learning so look to the acquired Target for Best Practices that they might already do in their organization that you're not currently doing in the mothership or across your existing businesses and look to roll those out or Implement them or um bring some value from the newly acquired business out into the other businesses which will as you said well first of all it's just if it's if it's good process it's good process so you should do it anyway but it also has the added benefit of your newly acquired employees feeling heard feeling seen yep yep I like to say I tell every team before close after close and you just keep repeating the same message and following through with it with your actions till they believe you we have no sacred cows it's going to be best answers when we did our second acquisition uh our P Professional Services automation system uh we merged into their tenant because their tenant was more mature and more built out we did our fourth acquisition they had specific documentation processes that were Superior to what we were doing so we merged our documentation system into theirs even though they were a six% team and you know we were four or five times five or six times that um uh on on our side uh they had a better way of doing it and so that's what we were going to adopt across the board well so then it sounds like Elliott that when you make a an acquisition that the change doesn't go one way you you're going to change the organization that you've just acquired but that there could be changes that are then imported into the existing businesses so if you're already one of the acquired businesses you don't just experience change when Elliot acquires you there could you're going to maybe experience change every time Elliott acquires another business yeah it's uh it's it's a dynamic it's a dynamic environment uh we are big fans of uh lean or big fans of Kaizen uh continuous Improvement in fact one of our annual goals that we track on our kpis for management is how many Kaizen events how many continuous Improvement changes are we making and running across our business um um it may sound like a uh continuous change environment and in some ways it is um and I believe nit as rapidly changing as our field is uh that's what you got to do to to survive and and Thrive and and serve your customers well great and uh before we leave this topic I'm I'm just watching the time and I boy do I not want to keep you uh past your hard stop there are new employees waiting uh the change management approach and how youve what you've learned and what your approach is today and how it's evolved is I I I just want people who haven't yet bought their first business I'm just I'm just careful that they not necessarily copy paste what they're hearing you say because this is change management in the context of a rollup so how do you think your approach today or does it at all apply to somebody who hasn't yet bought their first business if you have the experience in the industry to know what change is needed then I think you should move fast I don't think that there is a ton of benefit in delay I think there are almost no firsttime acquires of a business that are going to have that experience in a great case in point um I spoke to a searcher I do a little bit of investing in other searches now so I talked to a lot of Searchers in the in the community spoke to a Searcher this probably about a year ago uh it was a bluecollar business run entirely on paper he was like okay first thing I need to do I need to change how we process payroll we're going to move this all to direct deposit and he realized after three four uh five months that coming into the office on Friday to pick up the paycheck was the only time the team was together was the only time his managers had an had had an opportunity to interact with the Frontline team uh and and so I actually ended up rolling it back and and going back to paper checks so things that you may say oh well this is obvious I know if you haven't worked in the industry if you don't understand how the business functions at a really deep level I would question whether you really know which as you said is going to be most people that they are going to be Outsiders to the industry into which they acquire and so therefore for most people listening they're probably best served being more conservative in their changes absolutely for their first acquisition absolutely but once you've identified the change and you know go ahead and and move fast because all you're doing is wasting time and delay so so the distinction there is change management you you want to be careful of making changes when you just don't understand why things are the way they are the Ripple effects the method to the madness you know that perfectly applied that cliche here because it's like things might not seem to make sense to you new owner it's like why do they do it this way and then you know you're there for another few months and you realize oh sure glad I didn't change that or stupid me for changing that because it was done this way for there was a reason for that so that stuff you want to not you just aren't smart enough yet to to know to to be changing tweaking 100% the but but but the other reason to go slow that you'll hear is to give your employees time to adapt and to get used to things and that's what you're pressing on that is not a very good reason I think the reason for giving the employees time is to build trust and I don't think building trust and time are synonymous nor should they be I think that there's this assumption that oh if they just see me coming in first in last out sitting in the chair working with them over time I'll build trust and yes it does organically happen but I also think you can be deliberate about what you do to try to build trust and that's the reason for going slow is it's it's not time it's trust good great distinction yeah because I think we probably think that those are they are correlated time and trust but you shouldn't think that there's a that you just need to wait to build trust you can more proactively be building trust to accelerate how quickly people trust you all right Elliot I want to start wrapping us up and on the topic of structure and really the the numbers the money involved here we hear about rollups the numbers can sound really big impressive but it can be very opaque what does it what does a rollup actually really mean for the Searcher for the principal for the sponsor for the entrepreneur so two things I want to basically hit here uh try to try to unpack that via two inroads first is you mentioned earlier that you refinanced out of your SBA loan after one of the Acquisitions um so so let's get into the weeds there what did that look like please yeah so I think a lot of people are familiar with the with the uh borrowing limits within the SBA uh which I'll put an interesting cavat and plug out there a lot of people think about it is you can you can borrow five million of of SBA debt and that that's actually not the limiting factor it is that the SBA will uh guarantee 75% of 5 million so it's really that SBA guarantee number and there are some banks not not a lot but there are some banks out there that you can actually get to take down the amount of SBA guarantee they take from the bank and potentially upssize uh your SBA borrowing limit uh so it's a it's a it's a unique interesting thing that I don't think enough uh Searchers are aware of or maybe even asking their lenders for uh that they should be uh but we had maxed out on the SBA borrowing capacity uh we had some additional Acquisitions we wanted to do acquisition number three we just did with the on on balance cash and we had Acquisitions four and five and we needed some additional senior debt and uh the bank we were working with said uh no we're we're tapped out so we ran a process to go find a lender uh who would lend into this space we reached out to it's about 40 lenders um some Traditional Bank kind of conventional Bank debt but a lot of what they call sbic Credit funds and folks in the middle Market lower metal Market private Equity space would be uh a lot more familiar with these types of non-bank lenders it's where a lot of the financing packages uh for lower and Middle Market private Equity come from are these non-bank credit funds um you know they'll look I think a lot of people will will throw out the term mezzanine debt uh they may not necessarily be MZ debt lenders they may be senior cash flow-based lenders uh but they're willing to to lend um and oftentimes are looking to lend into serial acquisition platforms where they can have an opportunity to continue to put Capital to work over time excellent so you and and so was it an sbic credit fund that you went with yes okay and so can you give us the structure of what that looked like you refinanced out of the SBA loan so you paid back the SBA your your SBA lender you paid them back and then took out larger loan with this new lender um and so kind of give us give us some bullet points there of of that new structure yeah so one thing that we wanted to do is uh as you can imagine refinancing can be a pretty inefficient thing to do um in terms of your time uh it takes a lot of time uh run a process we did a bunch of management meetings you know people flew down met with us in our office uh you've got pick the right partner ideally uh you want them to be there for for the long term uh because you're also going to uh incur fair fair number of financing fees uh around a refinancing and so we were also looking for a partner that would put uh what is called the delayed draw Term Loan so we weren't just looking to borrow what we needed for those two Acquisitions and for refinancing our SBA but we wanted to make sure we had a structure for ideally the next three to five Acquisitions and so we found that uh with this lender so in total uh we had 18 million worth of borrowing capacity uh we drew about half of that down uh fiveyear note uh interest only and and a bullet at the end so they you negotiate with them $18 million worth of debt with with a five-year term no amortization of principle just interest so paying interest the whole way whole way along um it's it's more expensive debt in terms of a higher interest rate than than what an SBA would be uh but uh I was able to to wipe my personal guarantee off the table which makes everyone uh uh every every operator uh typically happy to do um and uh we we knew we had runway for the next three to five Acquisitions with this structure the other thing that'll note uh a lot of lenders a lot of these credit funds in the market would also like an opportunity to have some exposure and participate on the equity side uh so we we did allow a a very small minority co-invest so this is uh an equity check that would have otherwise come from Talis that we just carped off and let them co-invest alongside that structure so and to be clear there you know when we think about Banks Banks are pretty much just in the business of Lending they're much more focused on just protecting downside they care often not at all about upside they just want to know they're going to get their interest payments and get their money paid back that's how Banks kind of think these sbic credit funds are a little a bit of a hybrid so they're lenders and they make money from interest payments and Loans but they also can allow themselves to to enjoy to look for upside as well in the form of equity injection yeah I think similar to Banks they Banks care about principal protection right they they want their money back with a with a with a small return but if if you dig in a lot of banks have specific Charters and things they're trying to accomplish whether it's lending into a specific region or Community Etc you you'll find that same uh experience in in these sbic credit funds some only want to be on the debt side and they'll only land hyper conservatively uh on the debt because they're most focused on principal protection some are going to lean in a little more want a little more Equity exposure and it all comes down to what have they pitched to their LPS you know some have pitched a a lower uh return but a lot less risk taken and some have pitched we're going to be a little more aggressive and you're going to get compensated for that that was great Elliot and so just to sorry to round it out so you refinance out of your SBA loan that loan goes away Elliot knows no longer has a personal guarantee hanging over his head you have $18 million now to go out and do more Acquisitions you immediately tap about nine of that for Acquisitions three and four and so then you have another nine to continue using to acquire yep great okay Elliot you have a call I want to do one last question the this was my second question related to understanding rollups and what it can mean for the the entrepreneur the principal you can you kind of net this out for us this whole project this whole Adventure you're going to acquire up to X number of businesses get to Y Revenue Z eida you've got Talis in there as an equity holder now you've got the the the sbic has a little sliver of equity as well you presumably have a majority or a big slug of the equity at the end of the day in your fantasies how much money do you think that Elliott could walk away from this with when it's all said and done yeah so I think I think a good framework is I'll walk through a hypothetical scenario and these numbers are going to be very industry dependent but okay if if we buy 10 million of EPA and we pay five times for it there's been 50 million of capital invested into the business business and if you get three turns of senior debt one turn of seller debt in one turn of equity from outside investors you have $30 million of senior debt 10 million of seller debt and 10 million of outside Equity now if that business is valued at 10 times and again the multiple changes are going to be very industry dependent and as are the capitalization you now have aund million Enterprise Value company less your 30 million of Bank debt less your 10 million of seller debt you are left with $60 million to flow to the equity investors so you return your preferred equity and different Equity has different structures some require preferred return some it's just liquidation really all depends on what the right fit for that business and that strategy is then there's $50 million left to float to the common um today I own uh I think it's about 40 45 46% of the common and so if there's 50 million left to flow to the common um you can see a world where uh you know there can be a a generational wealth creation opportunity here talking north of 20 million that was fantastic Elliot thank you very much that was very generous for you to share that with us that was an education people can write that down as I have and study it or relisten to it um very very kind of pulling the veil back I really appreciate that yeah I would like to dig into just a couple things there if you'll indulge me oh of course yeah so one that assumes no organic growth no pay down or amortization of your existing debt um so the numbers can get even more interesting than that but even more importantly it is fun to look at that in an Excel spreadsheet and the reason why a lot of people pursue rollups is the Excel looks very interesting and exciting but damn you Excel but uh you know I think you have to think if if you're going about a rollup why like why is the value creation mechanism there and and be pretty disciplined in your industry about why you're creating more value why somebody would compensate you for the more value uh because I see a number of of folks talking about doing rollups in Industries where all they're doing is just jamming together revenues and earnings uh and they're not necessarily creating any more intrinsic value and and they think okay this is this is going to be great because the multiple Arbitrage is is fun in Excel and so I would caution everybody you know get to your first principles how are you creating more value for your customers how are you creating more value for a potential owner who would want to buy that thus now larger business and be willing to pay you a higher multiple than they would the smaller business and why isn't the answer Elliot isn't a good enough answer that more IA is worth more money there's again an underlying assumption there that bigger businesses and more IAH are more durable cash flows because they're more operationally mature and in a lot of cases that could be true but that is an assumption that that needs to be proven out uh in the way you go about doing a rollup in in and building a company I don't think that same sort of multiple Arbitrage uh would play out if I was buying um you know greenhouse and nurseries and they were spread all throughout the US and there was no value to the customer base of my scale there was no value from a purchasing power or from a logistics and that the cash flows weren't any less risky that there were just more of them that an investor or or or somebody would be logically willing to pay a higher multiple for him yeah it's interesting it's almost like a quality of Revenue thing for every dollar that the organization the business generates in in sales is that dollar a more valuable dollar so in your Greenhouse example a consumer say there somebody's rolled up a 100 nurseries is it is the consumer that's going to the nursery in Little Rock and P buying a plant getting any more additional value for those dollars no although you could argue that they have might have buying power from their their plant supplier so maybe they're getting better pricing and and maybe they're a little more uh resilient to like Regional weather trends because you know they're more dispersed I I know very little about the Nursery and Greenhouse business so if anybody out there looking at doing a roll up and they're like no he's wrong this is a great industry I may be completely wrong my point being that you need to be making the cash flows less risky uh in in my opinion um and and so let's let's apply it to your business Elliot and so how are how is every dollar that is coming into your larger organization now from your customer higher quality than it was as as going into one of the disperate units when they were still all independent businesses and then we'll that'll be our last question yeah I think that today Von X is so much better positioned to service our customers we should be able to service our customers longer uh with lower turn because we do have so much more depth and breadth in our team because we uh have so much more uh resiliency in the systems and processes we've made a lot of investments into systems and processes to try to identify where any of these risks in the business are and take them out um and and so that that that's why why they should be worth more Elliot good luck of your speech here in in 12 minutes thank you very much for keeping our call and not rescheduling on me and being so transparent this was a really a strong interview thank you sir if people have questions how should they reach out yeah you can find me on LinkedIn uh absolutely that'd be a great place uh to reach out and I know a lot of the listeners here are business owners themselves or prospective future business owners if you need help with your technology and systems that's exactly what we do well earned plug Elliot all right thank you very much Elliot uh and uh let us or let me know how how this uh Speech goes we'll do I hope you enjoyed that interview make 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