Jeff Homer, welcome to Acquiring Minds. Morning. Thanks for having me. Jeff, another searcher had met you and thought your story, what they'd heard of it, seemed super cool and actually wanted to hear the whole thing. So, he put us together so he he could hear it. Uh when I got just a taste of your story, I similarly wanted to hear more. I thought it sounded really cool. You rolled up music schools. So, that is what we are going to learn about today. Let's get right into it. Start us off with some background on you, please, Jeff. Sure. So, I have a pretty traditional uh sort of private equity finance background. Um so, I went to Harvard. Um out of school, I worked for Bain Capital's credit fund in Boston. Um did a couple of years at a New York City uh private equity firm called Reservoir Capital. Um and it was around that time that I started to get sort of introduced to the ETA space. Um it was that time, mid um mid zero interest rate phenomenon where multiples for large cap businesses started to really expand. Private equity started to pay, you know, mid teens to high teens multiples for businesses and um sort of sort of wonder how we were going to uh create value and make money from such a high starting point. And it was right around that time that I started to get introduced to the world of the lower market where businesses were still for sale for, you know, three to five times and um I started to dabble with that. Um it was right around the time that I moved to Denver in 2018. Um I actually came here to join a family office. I was running a long short public equity strategy for a a family office here. Um and I got introduced to a woman who owned a music school and uh you know, I thought that would be sort of a fun and interesting side project, but very much a side project. I was envisioning that being something that I did on the nights and weekends. It was perfect for that because it's an after school program, so it's primarily happening outside of typical work hours. Um and yeah, it just seemed like a really fun and interesting community-based opportunity to do something tangible that exists in the real world. Trading stocks and doing investing can sometimes see seem a little abstract and uh, you know, spreadsheet-based at times, just divorced from the real world. Um, so it seemed like an opportunity to do something kind of in my community. Um, but uh, very small. let me stop you there cuz I got some follow-ups to your your background. The low interest rate environment, it often seems like when people come out of school and they get their first job or their first five or 10 years of their career, that kind of um, they assume that's what normal is. But you just finished telling us that it obviously having zero interest rates or very very low interest rates for so long was a very unusual environment. Do you feel but it also seems like you actually have that perspective even though those were kind of your formative professional years, you you understand how aberrant that was? Do you think it has had an influence on you? I mean, just say react to that. Yeah, I mean, I think I was sort of the frog being boiled, you know, at you know, like so especially sitting on the credit side of things, you're you know, you're looking at leverage levels for businesses creeping up to all-time highs, you know. I remember when, you know, you could get a second lien bank deal done that would, you know, that would have six turns of leverage on it and maybe a a holdco pick note sitting behind that going to seven times leverage and these were sort of new these were new structures that were created to reflect the fact that private equity firms that we were backing were paying more for the businesses they were acquiring. So it was actually somewhat easy to observe it happening in real time and and actually changing. And the the impact was, you know, it wasn't like rates went to zero and all of a sudden multiples went to 14. It was a it was a it was an incremental process whereby, you know, leverage was added to the system and hey, that didn't work that badly. Let's go even further and let's go even further and and I think, you know, it I was working during that time at a relatively conservative shop that was pretty mindful of what was happening both in the present context and in the context of history. And so, I think to your point about, you know, at 26, you know, how did I have that insider observation? It was because I had, you know, people around me that had a lot more experience with, you know, decades of of investing across cycles telling me that this was pretty unusual. Okay. And you've just given us a few examples of multiples that you were seeing first at six then into the teens. I was You're comparing debt and equity multiples. So, I was saying I was talking about debt leverage ticking up past six to like seven turns of of leveraged finance for a private equity buyout. And the private equity firm is paying the the difference between the debt at seven and the, you know, the actual equity purchase at at 14 or 16 times. Gotcha. Okay, 14 or Okay, well, there's the there's the multiple I was looking for, the EBITDA multiple, 14 or 16. Correct. Okay. So, a lot of people that I've interviewed who have come from finance backgrounds are have been exposed to multiples that in the public markets or in large cap private equity or what what have you. And then they see the kind of three and four number down here and their eyes go wide. So, what is maybe you've just answered the question. What are the multiples that people who come from institutional finance used to seeing that three is just unbelievable? 14, 15? Yeah, I mean, I think a a reasonably high growth, high quality business of the type that like if you took the the target profile of a traditional search, you know, enterprise SaaS, recurring revenue, like that, you know, all the things that you want to see in a in a traditional search business. And you made that business 10 times larger, it would trade for 15 to 20 times, I think, generally. Okay, great. So, 15 to 20 versus three. Three looks nice. On the pre-call, you also made a really interesting observation about down here in the lower lower lower middle market. Um not just about multiples, but about risk premium. Do you recall? Yeah, and just that that there's less heterogeneity in valuation in the lower market. So, you know, in in in the public markets and in large cap private equity, if you have a high-quality business, it might trade at two to three times the multiple of a business with perceived lower quality. So, you know, the difference between uh you know, traditional you know, low-quality business, I'm kind of like junior miner, speculative thing, you know, and like a Google, Facebook, Amazon. Like the difference in multiples between those is, you know, several times different. Um whereas in the lower market, you maybe the spread is like three two to three times for a lower quality business and five to six at the very high end for a higher quality business. And I think that um you know, that shows that there is not as much of a premium on quality. And that was sort of the starting place for my very very, you know, naive beginning to a self-funded search was just to say, "Hey, you know, down here in the lower market, there are probably some high-quality businesses. They are not going to be priced at nearly as much of a premium as they would in other, you know, in in larger capital markets. Um so, I'm going to just take the first initial approach of trying to see a bunch of volume, you know, go look at a bunch of businesses with the hopes of finding a couple things that, you know, that might fall into that higher-quality market with the confidence that, you know, if I'm successful in finding them, they're not going to be priced at a premium to the other lower-quality stuff I'm looking at. Um and that was, you know, that was truly the starting point for my journey in ETA. Well, I'm impressed that it was your starting point because I don't feel like I've had that observation made to me yet after 200-plus interviews, and it had never had quite crystallized to me until you said it. That's why I wanted to call it out. And and indulge me while I just kind of repeat it back to the audience because I think it's so profound. The band of multiples that we see down here is at the very low end two and a half and you'll see hear the random story of somebody paying even less than that. But let's call it 2.75 up to 4.25. So many of my The vast majority of my guests have paid in that range. And yet there's also, as you said, a ton of heterogeneity there, a ton of variety in quality of business. So the idea that you might just pay 4x for a business that's much higher quality than a business that's trading at 2.75x, that difference of 1.25 when you compare it to public markets or or um large cap private equity is is really really really not much. So you're getting a much better business without having to pay much more for it. And that's a unique feature of our market and an attractive feature of our market. So that's all right? Yeah, that's exactly right. And and I would even go one step further than that, which is you know, the the end of the Ensemble story, which we, you know, we're going to get into, is part of our value creation play was as we got to be a larger business. I mean, Ensemble today is a does about 65 million in revenue. As we got to be a larger business, we climbed up that value creation curve where, you know, now we're a middle market business and we're trading, you know, we probably should trade in that, you know, mid-teens kind of range from, you know, from our starting point. And so the value creation opportunity for a higher quality business as you scale from lower market to middle market is really profound and I think that's, you know, that's part of the Ensemble story, uh you know, in terms of why the lower market roll up, you know, it's one of the levers you have in a lower market roll up that that really is powerful um relative to a, you know, single single business, you know, buy and build organically story. Well, and and so what I what I just heard you say is that basically you you enjoyed multiple arbitrage if you can assemble these really small businesses into larger ones, the multiples that you're that are paid for the the group as opposed to an individual business starts going up. And and the audience will be familiar with that phenomenon, but you made it seem like there's something um specific to multiple arbitrage down here, but I thought I thought basically no matter how high you go, you can continue to realize multiple arbitrage. So, even if you assemble two what we would consider very large businesses, there's multiple arbitrage to be gained above that. Is there something different down here? Like the multiple arbitrage there's there's kind of a curve and it's steeper down here and you can see better multiple arbitrage faster sort of thing? Yeah, I think it's it's the steepness of it, right? So, I think if you're talking about um again just that quality premium being absent in the lower market. You know, the spread between what you pay for it when you're when you're buying a business with less than a million of SDE versus what you can realize at, you know, 10 million of EBITDA, that spread is larger than, you know, if you're buying a $5 EBITDA business and rolling it into a $100 EBITDA business. Ah, okay. So, you were about to tell us the about the business that you found, but before we get into that, give us a picture of how your search what your search looked like. Yeah, again I want to be, you know, totally upfront that I embarked with on this with a very naive thesis, right? And just sort of talking about exactly what I said before, which is, "Hey, let's go meet a lot of businesses and, you know, let's hope to find something that, you know, that sort of is is really interesting among this kind of um I I just went digging through the haystack like looking for needles was was really my approach. So, I I'd love to or talking to your local accountant sort of thing? Yeah, yeah, local business brokers, BizBuySell, the whole bit. Um I was just looking to get in front of folks in in my local market that had a business for sale. And I was, you know, I was hoping to learn a bit through that process and maybe get a bit more refined over time. And I just had had the extraordinary good fortune of, you know, kind of finding something through that initial work that that actually worked for me. Yeah. But like I would love to tell you that I did a a wonderful, you know, kind of top-down analysis of the US economy and identified, you know, music and dance schools as being this sort of pristine roll-up opportunity that that had yet been yet been untouched. But that's that's just not how it happened. I mean, I I just I was out there, you know, meeting with folks and and it was pretty early on that I came across again this this listing for a music school. Um it it it sort of connected with my personal background. I have a uh I have a personal background in music. I took about 10 years of piano lessons as a kid. I was in my high school and college choirs. I took drum lessons for a year a few years when I was living in New York. I've I've lived that student journey. Um and kind of the original thing that clicked for me was, "Hey, I had the same piano teacher when I was a kid for like 10 years." And I don't think that's an unusual experience. This is a very sticky long-lived customer relationship that is, you know, at its core between a student and a teacher. Um and it's you know, it that's a really unique relationship in a child's life. It's often sort of the first non-school teacher, non-parent adult friend that that a child has. Um and so for that reason it's a really sticky, you know, powerful relationship. Um and yeah, there you know, as we did dug in, you know, there were other things to like about the business. It's a recurring revenue business model. The parents pay on the 1st of the month every month. It's credit card auto debit. Um you know, you actually pay the parents pay in advance, you pay a teacher in arrears. So, there's a there's a modest negative working capital cycle that's present in the business. There are lots of things that are, you know, that are to like about how this business operates. Um and you know, one major drawback which is that the majority of operators in this space, their passion and their background and their focus is music education. So, they're really focused on the product and the student experience. And they're not really focused or maybe even interested in the operation side of their business. And so they're not you know, they're they're just not doing the uh what I call the 10:00 p.m. task, right? They you know, they're often teaching during the day. The students are there in the afternoon. You know, after the students go home for the day and the staff goes home for the day, you know, that's when, you know, payroll gets taken care of and other things of that nature. And it's just not their focus and not um you know, something that lots of them have lots of operators in the space have experience with prior to owning and operating a small business. So, it's often just not done very well. Right. You said that's something not to like, but in fact, that was the opportunity. So, Sure. It mean it means it makes the the businesses maybe lesser quality than they could be, but of course, that was a that was in the pro column as you analyze the business. Yeah, I think in terms of like why why are these not higher quality business as a starting point? You know, that's generally why. Um and the and the ones that have been most successful generally are uh kind of uh husband-wife pairs where one party is bringing the you know, the music or dance education experience and one party is bringing a more of a commercial background to the table. Jeff, one of the thing to push back on is the long-time relationship as you put it between student and teacher. Uh and as we might put it in our clinical way, lifetime value, the lifetime value of a customer, right? Long time. On the other hand, I would imagine in this world there's an enormous amount of churn. How many of you know, for every for every one student that becomes a 10-year long relationship, 20 have gone to a lesson or two and and churned after, you know, a single lesson or 6 months. I mean, not every kid is is is committed. In fact, probably the few are committed and and the majority are uh churn and burn. So, when you look at the true median or mean or whatever, it's going to be lower than that than that 10-year example. Fair? That's fair, of course, but um one of the advantages we have is that many of the students that are not committed have an external factor driving their participation, which is their parent deciding that they should that this something that they should be doing. So, you, you know, there's there's some some amount of, you know, the parent signs their kid up for lessons, kid takes a while to figure out if they like it or not, you know, um our I mean, this is we're, you know, we're at the beginning of the story. This isn't information I had access to during due diligence, but today, you know, I can tell you with confidence that the average life of our enrollment is over 2 years. Oh, wow. So, that's that's true on an average basis, and the the child that comes in for two lessons is practically non-existent unless there's really a mismatch between the student and teacher, in which case they're more likely to go to somebody else as opposed to leave entirely. Hm. Well, and you also might for a student who comes up for literally a single lesson or two, you might not even count that as an actual customer, but just kind of a customer acquisition cost where Yeah, it's it's part of our trial part of our trial conversion, yeah. Yeah. The before we get off of your search and into more about the business, you were doing this on the side, correct? Mhm. Yeah, I actually And in the pre-call you had recommended that that maybe more people also do do it on the side. Say say what you told me, please. Yeah, well, this is a dangerous thing to put on the record, but uh my my observation here is that um the difference the level of time and effort it takes to be a high performer, which I expect is, you know, typical of most of the folks that are interested in ETA and interested in sort of making this bet on themselves, the level of time and effort that you are used to putting into your job versus the level of time and effort that will get you fired is, you know, more than enough time to run a search in um and uh yeah, that's now out there in the world for everyone to hear. Okay. All right. Um Well, I I I appreciate that. So, you are taking rather informal approach to your search, and you find this music school. Was it called Ensemble, or was that a later brand? No, so Ensemble is something we came up with after the fact. The school was called Dana V Music, named for the founder, uh based in Louisville, Colorado, which is a suburb of Boulder. Great. Okay. And can you give us some numbers about Dana V? Students, revenue, etc. All the bullet points. Sure. Yeah, so doing uh about 200 to 250 lessons a week. Um so that's the number of student enrollment. School would have had about 15 or 18 part-time teachers at that time. Um was only doing about half a million dollars of revenue. Um and margins were kind of in the low double-digit range. Not a high-margin business, but the insight just to just to distill what you said earlier was long lifetime value and probably a lot of opportunity to better operate to to improve the operations of the business because maybe not Dana, but in general a business owner in this category is more focused on delivering a great product, I eat music lessons, than they are digital marketing, let's say. Yeah. No, I mean there were really two digital transformation opportunities that were present in this business from the beginning. One was operational, so the business was, you know, sort of run on Google Sheets and pen and paper, sort of a mix of those two things from a scheduling perspective. Um and there, you know, like everywhere, um there were uh there were vertical SaaS solutions that that catered to appointment-based businesses and even music schools as a subset of that. Um so there were, you know, there were opportunities to you know, to operate the business a little bit more efficiently, save some office staff time, and then hopefully reinvest that in marketing. I think one of the things that we observe in the vast vast majority of the schools that we acquire is they're not full, meaning they are not sold out from uh you know, 3:30 to 7:30 Monday to Thursday kind of prime time. And they're not even close to full, you know, outside of that prime window. Um and, you know, the the historical marketing budget at Dana V was probably in the I don't know, 0.5% of revenue range. And when you think about the unit economics and the, you know, lifetime value of a customer that stays for 2 years we discussed earlier, you know, their their lifetime value measured in gross profit, not even measured in revenue, is in the thousands of dollars. Mhm. And, you know, we expect our customer acquisition costs to be in the 200 to 300 range. Um and there are not a lot of opportunities in the world to get that kind of LTV to CAC. And the reason it exists is because, you know, this school wasn't marketing itself and the school is a is a well above average school in the context of music schools and music teachers. And so there's just not a lot of competition for that, you know, piano lessons near me kind of keyword. It's a $3 to $6 click on Google. Um you know, we can convert that at a reasonable percentage and and that's where we get to that kind of couple hundred dollar customer acquisition acquisition cost. Um so, you know, that those were the two opportunities we saw was was, you know, save some operational time using some, you know, using $200 a month worth of software, reinvest that in marketing, and, you know, deploy a marketing budget. And you mentioned earlier that the starting starting margin profile of the business was not very high, but the incremental margin is very good because you're, you know, your gross margin, meaning the difference between what you charge your student and pay your teacher is about is in the is in the low 50s. So, every dollar you add, you know, minus a little bit of of, you know, kind of additional operating cost or variable cost below the the COGS line is coming in, you know, at at 45, 50%. Um and so there's opportunity as you do marketing and you grow the business to actually grow margin significantly. Um so that was kind of an opportunity that we saw that tied to that that digital marketing opportunity. So, should should we all run to Google now and see what other services, quote, service near me has a $3 to $6 CPC and start buying these businesses? Especially if it, you know, if it has a high lifetime value. I mean, I think that's, you know, that's the other side of this that that was that was attractive. But but yes. Um Yeah. And, you know, like just to make the point, which I'm sure will be intuitive to many people that are listening. I mean, this was this thesis is pretty similar to folks that rolled up veterinary medicine and dental clinics and, you know, all sorts of places where you have a specialized service provider that, you know, is sort of force forced into business ownership in order to provide their service. And, it has been a lot of success of sort of divorcing those two things and having somebody operate the business and letting the letting the vet letting the dentist letting the music teacher letting the dance teacher just focus on teaching lessons. Yeah. Um and, you know, both parties are are happier in that arrangement for the most part. And, the business is much more successful. And, I think that's, you know, that's again, sort of looking at looking at, you know, searching on Google to find, you know, things to, you know, industries to focus on, you know, this was sort of something that rhymed with with a a thesis that was pretty well tried and true at that point. Just sort of hadn't found its way to to this market in particular. And, to your point about kind of bringing in a pro-business attitude to just running the business as opposed to it kind of it just being artists who are in business cuz they have to be that that just happens to be the way they deliver services. You got to have a some sort of business entity there. Was there any cultural um friction there? You business guy coming in and and making things more, you know, more efficient and and more operationalized? Or, is it like, "No, fine. Like, help me do my job better." I'm I'm now speaking both the owner reacting to you this way as as well as the teachers. Yeah. It's a great and and very insightful question because there is absolutely a negative predisposition to all, you know, kind of business or commercial activities, uh you know, for many artists, right? So, you know, growth is not intrinsically good. Um you know, lots of lots of the things that we want to be doing are, you know, they they're sort of they're subject to immediate suspicion and sort of guilty until proven innocent uh from a you know from a from an implementation perspective. So I I had to do two things to be successful. One, I had to really sand down the elements of my personality that were like Harvard, New York finance, you know, like these No, I was like no, hey, I'm a pianist. Like that's that's going to be my identity when I'm in this building. Um you know, I'm a pianist who knows some stuff about running a a music school or that I think would be applicable in running a music school. Um I'm not a private equity guy kind of coming in from the outside and um yeah, I think that's I think that's a journey that a lot of searchers, especially searchers with you know, pedigreed backgrounds end up in you know, blue collar or kind of blue collar adjacent fields have to go through. Um you know, this is obviously different, but I had to you know, I had to really work on on that and then also trying to put myself in the shoes of the teacher and sort of identify like what what of what we're doing is relevant to you? And you know, really it comes down to hey, like do you like filling out a paper time card? Do you you know, like do you like having to look after this thing for the week and like place check marks and you know, um not get real-time email updates if one of your students cancels so that you can come in later if that's your first student of the day. Um so that seems good for you, right? There's a time savings and a and a and an ease of use here where you you're going to have an iPhone app and you can check in your students right there and like that's all you have to do and you'll get an email if they cancel and um that seems like a a benefit to the teacher. And then the other obvious one is our teachers are all paid by the hour, right? So if they don't have a student, they're not getting paid. And so our efforts to market the business and grow our student count are going to go directly into their paychecks. And so those are kind of the two core value propositions that we offer for teachers are hey, we're going to basically make it easy for you to show up, teach and leave with a minimum of administrative overhead. Um so you know, do what you love, don't do what you don't like to do. And, you know, we're going to give you the maximum earning opportunity that you can fit into whatever time you would like to dedicate to, you know, to being here as a teacher, and make sure that your time is full, and and that your paycheck, you know, grows accordingly. It's a pretty It's a pretty compelling compelling value prop. And I imagine particularly to artists the the the basically increasing their paycheck specifically that category because that category of person, a professional artist, because being an artist is notoriously a difficult way to make a living. So, they're probably much more enticed by you know, being paid more than than maybe plumbers who can pretty easily get a job at the, you know, the plumbing shop down the street if that's the business that you bought. Um really enabling artists to support themselves by teaching, or at least supplement their income in a in a in a material way, um is probably really really appealing to them. Yeah, I mean, this ends up being sort of the low beta part of their earnings portfolio, and then they have, you know, some sort of performing or composing projects on the side, you know, for the most part. So, you know, they're in their band, and they're, you know, they're out there gigging and working, and having fun playing, and then, you know, Monday to Thursday afternoon, which are not, you know, big nights for gigs, you know, they're coming in and they're teaching the next generation, which can be really fun and rewarding for them, but also is sort of the stable part of their of their earning portfolio across, you know, two to four different jobs, you know, to try to make ends meet, which is a an unfortunate statement about, you know, how arts are are remunerated in our, you know, in our society, but that's a that's a topic for another time. Okay. And then, give us a visual. Paint a picture of what this business looks like. Is it's a physical location where the students are taught? So, what does that look like? Yeah, so it's it's kind of a honeycomb of a bunch of private lesson rooms with a front desk. So, you know, typical layout for, you know, for one of our schools, which is, you know, kind of approximately true of Dana V, is you sort of walk in, you have a waiting area, there's a front desk, there's somebody there to greet you, and that person is doing kind of schedule and administration. It's, you know, if you called the business, that's the person who would pick up the phone and and talk to you about uh lessons and and scheduling. Um and then there's, you know, eight to 12, in Dana V's case, 11, uh private lesson rooms. So, it's a room with a piano and a music stand and a mirror and a bunch of books and, you know, space for a teacher and a student and a parent and uh yeah, the the it's it's loud um in a in a really fun and positive way. There's music leaking out of every practice room. And um that was one of the things I really liked about the business, actually, was it was uh it was very immersive. It felt really fun to be there. Um you know, the space is designed to be engaging and exciting to an 8-year-old. Um so, it's it's bright, it's loud, it's fun, um and it's so different than the kind of sterile corporate finance environments that I'd been in previously. And being there actually motivated me to practice more and to get back in front of the instrument. And I'd I'd bring my piano books and I'd play at the end of the day when the rooms were empty and um it was just really it was really fun for me, and I think that's part of you know, sort of advancing the story a little bit. You know, this is sort of how this became, you know, more than a side hustle for me and more of something I knew I wanted to focus on was sort of the combination of two things. One, I got really immersed in it and I really enjoyed being there, and I wanted to spend more time in that space relative to the other things that I had going on. And you know, the things that I that we talked about as being kind of low-hanging fruit improvements had success and had impact, you know, right away. To the point where I started to feel like, "Hey, this is probably not a one-off opportunity. There are probably other schools out there that have this profile of outstanding product and student experience and sort of uh opportunities for operation improvement, and you know, we can probably create a platform to go do this." Again, back to that, you know, vet, dental, specialty medical consolidation thesis, you know, start that started to ring true for me. Um and that's where this turned from being, you know, a neighborhood music school that I was going to be involved with on the side of my, you know, my day job, you know, working at a at a family office to, yeah, I think this is a a full-time, you know, national consolidation, you know, roll-up opportunity. And just to be clear that I got the improvements that you made, it was better Google advertising basically piano lessons near me, and it was out with the pen and paper, in with whatever SaaS tool can run a music school. Were there Were there other levers that I missed? Uh they would fall under those two buckets, right? So, you know, payroll software and getting rid of paper checks and um you know, uh like as you know, investment in SEO, SEM, you know, Facebook, things outside of Google in particular. But yeah, sort of digital transformation and digital marketing would be, you know, two of the largest levers that that we pulled there. Great. And just a little bit more cuz there's an interesting history here on why this opportunity continued to exist. Yes, we understand that the profile of somebody who starts a music school is probably not somebody who's thinking in terms private equity or roll-up or or giant, you know, build building an empire of these. They're going to be a teacher first and foremost. There are private equity people and searchers now in the over the last 5 and 10 years looking for opportunities like this. That's kind of what this podcast is about. So, I I still wonder um why this has been totally overlooked. Why somebody else hadn't had made the observation that you had. Um and and really maybe what So, I want to hear a little bit of the history here. Um because I'm not saying that people are going to go out and go after music schools, which is kind of now being done. But what abstract principles might we learn from your case to find other industries with maybe similar characteristics or similar history? Yeah. So, maybe a little bit of history on music schools. So, I I mean I think there's two factors that are are relevant here. One is, you know, industry structure. I'll come to that second, but but the first is just sort of there's a natural predisposition to associate kind of arts businesses with nonprofits, right? So, there's sort of a blurring of that line that exists where when you think, you know, when you think music and performing arts, you think nonprofits in a lot of cases and, you know, charity and fundraiser and, you know, the need to support the arts in a way that they appear in many cases do not to sustain themselves on their own merit. Yes. So, I think there's that predisposition where and I certainly I faced a lot of it's easy in hindsight to be like, oh, well, we own 65 music and dance schools and this is a, you know, this is a large enterprise if for people to say, okay, well, that, you know, that seems obvious in retrospect. But, when I had five schools or one school, it was preposterous that this is what I was, you know, that's what I was doing when I told my friends and family that I'm quitting my hedge fund job to, you know, to go, you know, to go continue a roll-up that, you know, at the time had about 2 million of revenue. Um but, yeah, so I think there's a natural kind of predisposition there where you know, you think arts, you think artists and and again, back to the level of operatorship in the space, there hadn't been great examples of people that had done this really well. Um and you know, even the ones that were successful, you know, these are people that were making a good living in their community, you know, we see schools that gross, you know, maybe as much as two to two and a half million of kind of four-wall revenue in their neighborhood, you know, they're maybe they're making 4 500K off that. You know, that's a great living, but it's not interesting to a, you know, private equity story. Um the other the other piece, you know, goes back a little bit further, which is um sort of the the prevalence of of music in our society has kind of been on a steady decline for, you know, for 100 years. And, you know, every home used to have a piano in it. That used to be kind of a primary source of entertainment. Everybody could play. That was sort of a universal principle of, you know, kind of pre-radio society was that that was, you know, that was where your entertainment would come from would be you'd have a piano in the home so you know you get around you sing you know that that would be how it would you know that that was a lot of of of again pre-radio entertainment. So you know every every every community had a music store in it to you know to meet those needs and and fulfill that. And it was during the kind of you know 70s 80s 90s big box transformation that you know the Guitar Centers and Music & Arts kind of sprung up and started to you know very Walmart-esque started to set up you know next to the community music store and you know offered big box prices and big box selection and you know sort of gradually put those music school music stores you know kind of out of business and generally speaking the ones that survived were the ones that made a successful transition from offering retail which was now you know being done at the big box level and then further you know ended up being done on the internet made a transition from retail to lessons and so your your local music store became a music school and sort of you know hacked off the back 1,000 square feet of their building and built a few lesson rooms and you know over time that 15% of their square feet generated 50 plus percent of their revenue and often a lot of their a lot of their profit. So that's you know that's kind of where we are today and and it's interesting to actually see Guitar Center now starting to offer lessons like they're now on that arc themselves where um yeah they they they've done exactly the same thing they you know a lot of their stores now have lessons they've built these lesson rooms off to the side they didn't used to be there you know so they're they're sort of coming down that path. Um but yeah that's that's sort of the history of the industry is you know you used to have a lot of community music retail it was substituted first in at the big box level and then on the internet and a lot of those folks either you know went out of business entirely which unfortunately was a pretty common you know story at at time or pivoted to offering uh you know, lessons as a as a as a complimentary service and also one where you then own that student relationship. And you can, you know, it's a lot easier to do retail if your student's coming in to your store every week for a lesson because now you're a convenience factor, right? If if they need strings, they need a book, they need a, you know, read for their instrument, like especially on the accessory level, you know, they're already there. You're faster than Amazon at that point because they're, you know, they're in the building already. Right. Sure. Well, it's why when I go get my hair cut, I'm always offered some shampoo or other product to put in my hair. That was a great history lesson. Thank you for that, Jeff. And and give us now, what what are the terms of your deal on this first business, this first $500,000 revenue business look like? Can you share that? Sure. So, we bought 90% of the business. Um it was uh there was a we did not use the SBA, so we didn't have uh we did not have limitations around equity rollover. So, there were two um there were two owners of the business, um both of whom were were sort of key teachers. One was, you know, looking to you know, one was pretty motivated to leave, one was open to staying and sort of being involved on a go-forward basis. So, um that second individual, her name's Dana Vachrajani, she she ended up rolling about 10% of that stake. Um and you know, is still involved in the business today. She's um you know, she's helping us to um ensure that we have, you know, great um resources available for our teachers. Now, you know, we have teachers today, you know, she's still in charge of making sure that those folks have access to professional development opportunities and networking opportunities within our portfolio. Um so, you know, fast-forwarding a bit, that it that ended up working out great. Um but so, she, you know, we bought 90%, she rolled 10%. Um we funded it 100% in equity, you know, sort of cash off of our personal balance sheets. And um you know, sort of we're going to plan it to use it as a as a learning experience. It seemed, you know, it's a small business. It wasn't something we needed to finance. It seemed like something we could finance in the future if that made sense. Um so, you know, I think the the 100% equity structure is, you know, not something that you're going to see very often, but um I think it was sort of the the right thing for me and uh and for this business in terms of, you know, being able to get in there and really learn about it before having to to go out and pitch this to a lender. Yeah. Well, yet another difference between our market, what can be done here at our market, and and my and much bigger businesses. You can buy buy a business outright. What you paid for the business was typical multiples that we'd hear, three to four. And so, we we already heard what margins were on this business, so we can do some napkin math to arrive at a number that's one, two, $300,000 sort Yeah, we paid we probably paid in the high twos, and just below two times. Okay. All right. And side project, how long is it a side project? Uh you're putting in these you're putting in place these changes, you're loving being at the place like this this kind of opportunity is continues to expand and excite you. Um but you are working your day job, so when does it become your the your sole focus? Uh I did both until we had five schools. Um so, we bought the first business January of 2019. Uh I quit my day job February of 2020, which turned out to be auspicious timing uh if you if you remember. We remember. But uh yeah, and and also, I mean, the part that sounds kind of dizzying in retrospect is it was only about four months from closing on the first deal to closing on the second one. Um and that still sounds incorrect to me. I don't know how we managed to do that, but we did. The second one was more of a it was more of a test balloon for the roll-up. So, it was based in Las Vegas. It was a smaller school even than the first one, which was small, you know, to begin with. And it was really intended to be a test of whether we could run one of these businesses remotely and whether it would, you know, burn to the ground either figuratively or literally if we didn't go check on it, you know, every day, which is kind of what I was doing at the end of the music. I was you know, I was there pretty often cuz it was in my it was in my backyard. So we bought this business in Vegas and it was really intended to be a test of is this going to work on a, you know, sort of national semi you know, semi semi absentee is not the right word, but you know what I mean in terms of we're not going to be there every day. We're not going to be able to drive over if there's a problem on site. Is that going to, you know, is that going to be a successful operating model? It's a it's a question of not only can it be done remotely, but can this scale? I mean, you are you as the entrepreneur are in the business every day. So is there is there some way that this can scale without your attention and presence? You said that doing going from deal one to deal two in about fourish months and that that was dizzying and you and you still kind of marvel at how quickly that happened. One thing that that tells me is just how decisively proved your thesis was. I mean you must have just had a lot of confidence. You're like, "Wow, that really works well. So well. Let's do it again." You know, I I I just kind of feel like the speed there is is an indication of of of bolstered confidence. Do you? Yeah, I I think that has to be true and also, you know, just sort of some of the work that I had done during the search process actually generated that second opportunity. So it's sort of like a latent thing that kind of like washed across my desk. I was like, "Oh, like that could really work." Uh um and, you know, you start to see the upside where you say, "Hey, like, you know, if this works then, you know, then we have something for real here." Um and so, you know, it's worth it's worth trying, you know, for that reason. And and you know, the risk was very manageable relative to, you know, I'm still employed at a, you know, at a good job and I'm, you know, I'm I'm I'm doing fine if this, you know, if this check is a zero, which is very unlikely since we're buying a profitable business, but if this check is a total zero, you know, I'm going to be okay and you know, this like this is so different than a you know, multi-million dollar SBA personal guarantee kind of you know, this was a this was a trial balloon and it was sort of sized appropriately. Man, I feel like the more guests I have, the the stronger the argument to buy very small becomes. Uh you know, we we we generally the conventional wisdom is not to buy small, buy as big as you can. Million dollars of SDE is kind of the coveted uh number. But um you're I don't know, the fourth story in just a couple of months where it was like buying really small had all this merit. And namely, in your case, it was very little downside, tons of potential upside, which is in fact what happened and we're going to hear. But very little downside. If this thing went to zero, as you said, you could absorb that. Yeah, you look, you need a path to to getting to you know, multiple millions of SDE, right? So, you know, for me buying these two music schools, if that was my full-time living, like that wasn't going to work for me. Um so, there needed to be a path to something different. That's part of why I held onto the job as long as I did was I wasn't buying something that could replace that, you know, even if I was willing to take a pretty significant, you know, even if I was willing to to meaningfully downsize my expectations from a lifestyle perspective. Um so, I I I think you know, you need a path to getting you know, to getting out of buying a job and into buying something that has enterprise value that you can compound over time. Um and I think if you're going to buy one, it's got to be big, but I do think that the lower market roll-up opportunity is really, really interesting. And uh you know, this is this is fast forward to the end, but I'm spending a lot of time now talking to you know, searchers and prospective searchers about exactly that, which is you know, hey, you can go buy a million dollars of of SDE in four transactions instead of in one transaction. And there are lots of great reasons to do that, but you need reasonable confidence that you can actually go find four, you know, four deals that are going to total to that level. If you buy one, you're in a really unhappy position, you know, sort of on on an extended basis. Yeah. Yep. Well, I want to return to that in just a second, but one question first just about the framework of owner and operator. So, you kept your W-2, which meant that you had, I guess, Dana in the business operating it for you? Dana and and the front desk person and whomever. Give us a picture of that. Yeah, so our partnership at that time and also, you know, at most of the businesses we've acquired in the future in in, you know, further down the road is is generally not with the owner. So, and and Dana's motivation for selling the business at that time, she had, among other things, two kids under five. You know, she wanted to focus on being a mom. She wanted to go back to teaching as her primary activity as opposed to administrating the business. So, she was looking to step out of, you know, running the business in that in in the way that she had been and focus her time in different areas. So, it was really a partnership with the front desk person who we elevated to being, you know, true general manager of the business. And she was the one who was really working hard on implementing, you know, software changes and a lot of the things that we wanted to be doing. Mhm. So, you know, Dana was present and her presence was really valuable because she had, you know, all the experience in running the business and lots of ideas and opinions about, you know, what we were doing well, what we could be doing better. She wasn't implementing. And so, it was really it was really myself and Chelsea, the general manager, you know, who were responsible for a lot of that transformation. And and that's typical of of the majority of the situations we have where either the owner is either the owner is leaving entirely and, you know, that's just because they've, you know, they've sort of by the time they're talking to us about selling the business, they're good and ready to leave. You know, selling is not celebrated in you know, back to back to sort of um predispositions in the artistic world. You know, selling is almost sort of like defeat in some circles and sort of you know, I understand why. Yeah, yeah. Isn't that that where the phrase comes from from like musicians? Yeah, maybe. He sold out. Yeah, he sold out. So yeah, I think we're you know, we're trying to reposition that as being a really you know, a really exciting and milestone for a business to have that grow to a level where it can stand on its own and sort of outlive your personal involvement and continue to serve your community and we have a lot of messaging around around that in our B2B marketing to sellers. Um but yeah, so so the the majority of the time the owners are either leaving entirely or focusing on teaching which was their original passion, right? That's what they got into the business to do. It's what they love to do. Um very very very infrequently have we had owners that have truly operated the business post closing and if they did, it was mostly because they were sort of on the fringe of retirement and they wanted to sort of sell the business now, be able to quit their job at some point in the future sort of retain their their income. And as the platform grew, we gave them the opportunity kind of narrow their scope of responsibility to just sort of hey, lead the community, welcome the students, you know, be part of the faculty. We'll do payroll, marketing, finance, accounting, tax, HR for you. Those are the things you don't like about the business. Um so we've offered folks as we've as we've become more of a mature consolidation platform has been part of our value proposition for certain sellers has been hey, sell the business to us and let us you know, do the un-fun things and you can just do what you like to do. Um but but for Dana, you know, she was in that that that second category of hey, I'm you know, I'm a teacher at heart. I want to be in the classroom with my students. I don't want to be in the office taking phone calls and you know, dealing with with customer complaints or or worse implementing software changes that I you know, in my 15 years of owning of owning the business didn't feel like were you know we're worth my time to do. So I definitely I'm not going to do it for your benefit. Um but yeah, so it was myself and and the general manager there and that's typical again of our of our structure where we really rely on those general managers to to lead those communities and be responsible for that on the ground implementation at a lot of levels. Well, speaking of scale and figuring out if it could work in using Vegas as a test balloon to figure out if this could work across the country and beyond the market where Jeff lives. This question of having competent general managers or elevating somebody who's at the business to general manager, this too is is is kind of the entire project hinges upon your being able to successfully do this. So I don't know if you want to speak generally about that. You you kind of just did give us a picture or just in the case of this first school where you elevated Chelsea. She was front office. Maybe maybe that would be the direct question. How did you What did you see in this front office person that you thought they could be general manager and I'll just add some color to the question. I feel like most many of my guests if anything they fumble there where they feel like they've identified somebody in the business that they can elevate to general manager and then learn the hard way that oh actually being general manager is a very different job profile than the one that this person I'm promoting had before and it's they don't and if they don't necessarily do well as the general manager. Did you get lucky with Chelsea or was there some special sauce there that you could share with the audience? I don't think we got lucky because we've been successful at this you know 55 to 60 times in a row. Okay. So I think we've had a lot of success being able to take either a front desk administrator or even a tenured faculty member that that has been part of the community for some time is going to have the respect of the peers of their peers and the folks inside the building and elevating them into a general manager role. I think you know looking at school number one, you know, all we had access to was my personal services, right? There were no there were no there was no infrastructure beyond, you know, the fact that I was going to be there and I was going to support it. But, as the you know, as the story advanced, we you know, we now have infrastructure set up where we're doing a lot of things on behalf of our general managers to the point where we've sort of simplified the job to take care of the people that walk through the door. So, your students, your parents, your teachers, make sure that they have what they need to be successful and make sure that the trains kind of run on time from an administration perspective. If you can do those two things, you'll be successful as a as a general manager because we will take what you've done, you know, there and sort of facilitating the interaction between our clients and our service providers and we will run the rest of the business, right? So, we will do payroll, we will do marketing, we will do HR, we will do, you know, tax and compliance and like all these other things. And um that job is is not easy by any stretch of the imagination, but it's it's doable. Um and someone who cares about the business, which you know, the the the biggest advantage that we have in our in our staff is without, you know, with with very, very few exceptions, they truly care about performing arts education and the experiences that our students are having in the classroom. They want those to be to be good at they're passionate about it and it's not just a it's not just a punch the clock kind of corporate job. It's not, you know, it's they could be making a lot more money at other places, but they they value the fact that this is this is music, this is dance, this is something that they're uh that they're personally excited about and, you know, enjoy that environment as much as I told you that I enjoyed being that environment. Mhm. Um so, yeah, we we've really we have had success taking that general manager, wrapping them with, you know, in the early days my personal services, in the later days, you you sort of a a community of people, you know, today our our what we call our shared services function is like 35 people. Um so those folks are working to support those schools and giving them lots of support and lots of specialists in each of these areas that they need help with. But we're trying to make that job, again, just like a if you can be a competent administrator and a great customer service person and leader of that community, you can be successful as a GM and that's probably not true of, you know, being GM of, you know, a larger business like the ones you're talking about maybe having difficulty with that transition. Jeff, one more question before we bang through about 20 20 acquisitions that you that you're just you're perched to to do. The you said when we were talking about size, buying small versus buying a million dollars of SDE, you need to see a path to multi-million dollars of SDE. You need to see some sort of con- consolidation possibility. Add more uh color to that maybe in your own case. What what did the market opportunity look like to you? You said to yourself, "If we can buy and integrate these, then the market opportunity looks like what?" Yeah, I mean, there there are probably 3 to 5,000 music schools in the country. Um and on top of that, there's, you know, tens of thousands of individual teachers teaching out of their living rooms or out of small studios. Um it's a large market, it's very fragmented. There are very few um multi-site operators. There are very you know, there's a couple of franchise systems that serve this space, you know, School of Rock at top of mind. There's also a a smaller program called Bach to Rock. Um School of Rock only has about 300 US locations, right? So their you know, their market share is, you know, below 1% and they're by far the largest operator in the space. And interestingly, there are very few multi-site operators within that franchise system. So this is not like the McDonald's or Wendy's franchise system where you have folks that are operating hundreds of units. You know, these are largely mom-and-pop operators within these franchise systems as well. So it's a very fragmented, very mom and pop space. Um my original pitch to uh to investors uh sort of, you know, friends and folks that I worked with was that we would we would consolidate 40 schools. That would get us to uh you know, something on the order of 20 million of revenue and 3 million of EBITDA. Um and uh that that would be enough to where the business was, you know, could be exited for, you know, a uh we could capture some of that multiple arbitrage. And maybe we'd trade for, you know, six, maybe eight. Um that was sort of the original pitch. And so, we would kind of, you know, you'd be creating kind of two to three times uh multiple accretion, you know, from three to three to six or eight or nine. Um and, you know, we would have organic growth opportunities within the portfolio as we went. So, hopefully that would be, you know, that would add to that um you know, to that. We'd have cash flow in the interim. But that was my pitch was let's go buy 40 of these. It's going to take two to three years. And uh you know, there's a there's a really interesting uh you know, kind of threshold we're going to cross around that level where we're going to become you we're knocking on the door within kind of throwing striking distance of kind of what is middle market in in uh you know, in institutional finance land. Jeff, the number that jumps out to me most in your plan there, your pitch, is the two years. I mean, that's a lot of acquisition activity to be signing up for. You said let's get to 40 schools in two years. Is that what you said? I mean, I I said two to three years. Maybe maybe I should maybe I should say three to four instead. But look, from the beginning, I mean, we if you look back at at our history, we've we've executed on about an acquisition a month. Um you know, obviously, there's some acceleration in that period of time. But we've done a deal a month for five years. And you know, that's how we that's how we turned a bunch of little, you know, small businesses into a into a decent size opportunity. Was um yeah, just doing it one at a time really consistently over a longer period of time and and you know, compounding you know, has had its effect over that over that period. And so kudos for having been able to do that, but still as you bring this pitch to me, your prospective investor not having done it, I'm going to say that that's that that seems like too high a frequency. So I guess one question would be integration. So I see to to realize frequency at that level one a month, one every two months all over the country your the integration needs are pretty low. They're really templatized, right? So these businesses are highly similar, you know, and so we have the ability to you know, to do a good job of integrating in a in a repetitive system you know, sort of programmatic way. You know, so there is a really there are there's not a lot of range of starting points in terms of what we see. You know, in terms of you know, folks that are farther along on the digitalization or or sort of operational path, you know, that's only work that we don't have to do when we get in there. So you know, you're either starting at the beginning and we run the whole playbook or you've done certain portions of it and you know, we can sort of do pieces of it, but yeah, I mean I think I had the good fortune of you know, having worked in finance, I I had lots of peers that you know, were now 10 years into their journey, had money, you know, knew me, had seen roll-ups work, you know, sort of I got a very friendly reception, which I'm very grateful for. But they sort of saw the thesis and sort of said, you know, I've seen this work in other spaces. I'm sure you'll figure it out. And you know, I'm going to invest an amount that's not you know, super personally meaningful personally meaningful to me, you know, good luck and let me know how it goes. Okay. All right. Uh and so at at after acquisition number what you you went out looking for growth equity. This was after Vegas, your number two acquisition, or had you Yeah, so we we raised equity around the sort of concurrently with our third and fourth acquisition. So, October of 2019, we did two deals. One was in Tampa, one was in Boston, and we we we closed on our equity round that same month. So, that was sort of To me, that's when this becomes, you know, sort of a real commercial venture, you know, in its own right. Um and yeah, I think you know, if I can offer just sort of a couple milestones from there in terms of where, you know, where we went. So, you know, so we raised some friends and family money in October of 2019 for, you know, for for schools three and four, sort of concurrently with schools three and four. Um we got a a local bank involved called First Western Trust here in Colorado. They were really they were really creative given our size, right? In terms of sort of giving us an underwriting box and saying, "We get what you're doing. We've seen, you know, we've we've seen five opportunities of this type. Um we're not going to give you any back leverage, meaning, you know, you know, you funded the equity in the business that you funded, but we'll give you leverage on a go-forward basis at around two times. Um so, you can, you know, we got we were able to meaningfully sort of start to scale our equity dollars and from that point forward. Um in January 2021 at at 12 schools, we raised our first tranche of institutional equity from a growth equity firm called Newground Ventures. Um pretty tight connection with a a guy there who was founding partner there who whom I'd worked with at Reservoir. He was a managing director when I was an associate. We'd you know, we worked on a few things together. He was out on his own doing doing growth equity deals and and he thought the Ensemble story was interesting. Again, kind of back to this kind of tried and true roll-up thesis. Seen it work in a lot of spaces. Hey, you're you're now at 12 schools. That seems like a good amount of traction. There's some really good case studies that we can that we we dive through. You know, it's 2021. You've survived COVID, you know, good job. Let's keep doing, you know, let's keep doing what you're doing. Um and then uh we, you know, we got we did we did get to 40 schools uh in January in I guess about the 40th in October of 2022. Um so, you know, pretty much exactly 3 years from when we raised the initial tranche of equity, so we did what we said we were going to do. Um and we also did what we said we were going to do in terms of uh you know, actually sort of looking to sell the business and and taking on a single, you know, majority financial sponsor at that time that you know, was more appropriate to the size of business that we'd built uh you know, at that moment in time and and sort of, you know, rather than my friends um you know, getting a a real institutional sponsor that was, you know, capable of supporting the business at its current size and, you know, taking it to where we thought we could go, you know, in the future, which is sort of taking that initial goal of 40 schools and saying, "Hey, this is really working. We've got a lot of momentum. This is fun. Um this space is still really fragmented and our market share is still zero. Um you know, so let's let's let's take what we've built and and sort of run an institutional volume of capital through it with the goal of getting to maybe like 2 or 300 schools." Um and so that was that was January 2023, we closed on that on that transaction. I sort of view it as being two separate things. I feel like I sold the business and I got rehired as its CEO in sort of two different transactions um you know, to continue doing what we're doing. is that not kind of a typical seller stays on to run the business, rolls some equity? Why is this Why that sounds very kind of conventional to me, but you're making it seem like it's a little different. No, I agree with that. I just feel like in terms of mentally how I So, maybe like I think this is of interest to your audience, but like I I got into ETA for the personal freedom, right? I was like, "I want to bet on myself. I want to be my own boss. I want to have absolute control over my time." Like these were some of the things that I was, you know, motivated by as I got into the space. Sure. And I gave up all of those things in the course of taking on a majority investor and a board and a you know and a sponsor. Um and you know so I viewed it as getting hired again and that's specifically what I mean it's like I I took the job of CEO. Um and yeah I'm a you know I I still have a material equity stake in the company it's still really important to me I'm I'm super motivated and and focused on it every day. But I have a job again and you know my job is to be CEO of this business that is um of now of a very different scale than the one that we started in 2019. Um that was you know maybe more typical of like an ETA size business. Um so yeah it was a really interesting professional opportunity for me to go be CEO of a you know eight figure and growing uh you know mid-market business but uh that's a different value proposition than the one that I took on when I was like hey I want to quit my job and be my own boss and and kind of run my run my own thing. It's not like you just took a job. You did get a paycheck like a a payday. I have a a really big payday when you sold your business. Uh but I I I take your point. Jeff I want to hear just a little bit about the two um moments where you got debt and then equity. Because we hear a lot on this podcast about what the terms of of a first deal of a first acquisition look like like we spent some time on yours typically it's an SBA deal not always. But uh the so let's do the first the debt with that local bank that you talked about and then growth equity from the person who'd been the managing director at What was the name of your previous firm? Reservoir. So the debt uh assume not a not a ton of knowledge about about the non-SBA uh debt. You said they offered it at two times what did you mean just walk us real slowly through that? Yeah so so basically what what the bank said was we think what you're doing is interesting. And you know we've done this five times now we can see the merit of the strategy. We are not willing to give you back leverage on your portfolio, meaning, you know, we're not going to loan you against what you've built so far. But we'd love to support you going forward in your future acquisitions. So, um basically, you know, for school number six, we said, "Hey, you know, it's making X." And the bank said, "Great, we'll pay you you know, we'll loan you 2X against that." And so, from the bank's perspective, you know, 2X is a reasonable threshold to advance on any business, but they also have the coverage of, you know, the the portfolio. I mean, so they have, you know, they have some some equity coverage behind them. And then of course, you know, this is this is regional bank debt, so this is fully personally guaranteed. So, you know, they they also have, you know, uh they have me on the hook, you know, behind that. So, I think it was, you know, I don't think the bank took an extraordinary risk or anything in doing that, but nonetheless, it was a very creative structure for a bank to, you know, to take, particularly given that the business was like a $2 million revenue business. It was a small business at that time. Um I think that's one of the great things about the banking ecosystem is there are so many small and medium-sized kind of regional local banks in this country. Um it's just a numbers game. You know, if you go talk to enough people, somebody if you have a reasonable, you know, business propositions, you'll find the right bank that's willing to do it. And and we were fortunate that we got in touch with which with First Western Trust, and they're you know, they're great to work with. Um but that was sort of how that structure worked was it was a facility for funding go-forward acquisitions, where they said, "We get what you're doing. We get that you're going to do it a bunch more times. We're not going to ask, you know, you to to sort of take us from the beginning every time that you're doing it. We're going to take the cushion that that exists in the business, and we're going to use that as the basis for giving you kind of a programmatic delayed draw facility. So, you know, here's a cap that you can draw against, you know, up to that cap as long as it meets this criteria, just like email us and we'll, you know, we'll advance you the money. And so, let's let's let's play with some easy numbers as an example. So, say acquisition number nine had a hundred thousand dollars of of cash flow and you were going to buy the school for three hundred thousand dollars. They would they would give they would give you a check for 200. 200. Right. Because it's cash flowing 100, they'd give you twice what it's cash flowing. So, they basically give you 66% of and then you and then the remaining 33% you'd bring from your cash flow from the existing business. Correct. Okay. Got you. Uh and you had enough cash flow to do that again? I mean, you had to bring 33% basically for every acquisition. You had enough cash flow coming out of your acquisitions to do another however many it was. Well, I guess that's why you had to go get the growth equity then. Right. Exactly. Yeah, so yeah, so we we raised I mean, we we did I mean, cash flow was a meaningful portion of that of that story as well. But yes, we, you know, we raised we raised three tranches of equity over five years to get to where we are today. And so, can you give us a sense of what growth the growth equity what a growth equity deal looks like? Again, assuming here that a lot of folks, including me, don't really understand what a typical growth equity structure looks like. What does it look like? Yeah, so so the both of the the first two deals were sort of were structured in a similar way to a venture kind of series A financing. So, you basically set a mark for the business and say it's worth X today and, you know, you're we're investing Y and as a result, we're going to want we're going to own Y over X percent of the business when all is said and done here. So, um you know, we did we did two deals of that sort where we basically said, "Hey, there's a business that exists here. Let's value it. There's capital coming in, you know, that's you know, it's worth what it's worth as a percentage of that on a post-money basis." And so, we we basically sold two, you know, 15 to 20% stakes in the business in succession. Um so uh yeah, that's that's how we got there and um you know, the first one was was a really friendly, you know, kind of like I said, sort of friends and colleagues kind of, you know, kind of deal. And the second one was was very institutional in nature, but they had fundamentally the same structure, which was value the business, you know, decide how much capital is needed. That's, you know, from there the math is easy in terms of what percentage you own. There's some negotiation around what rights, you know, you're getting beyond that in terms of liquidation preference and board rights and governance and controls and, you know, what can management not do and not do with the money that you've that you've put in the company. Um but it, you know, it's exactly like a a venture or growth equity series A, you know, term sheet. It's kind of the the nature of what we did. I keep coming back to this cuz it's such a spectacular story and people are just going to be listening to this and being like, oh, how can I go do what Jeff did uh in in some in somewhere else. Have you seen, and you probably won't want to share what it is, other industries where you're like, oh, I could go do what I did here in that industry if I weren't CEO, if I hadn't taken on the CEO role and, you know, your hands are full. Um or do you feel like you really found something that is quite unique and it would be hard to find something like this again? I I think both are true. So, you know, one of the reasons why I tell people I'm still really excited and motivated about, you know, the opportunity that's in front of us is I don't think that I could sell the business, you know, spend the obligatory six months on the beach and come back and find something that was as interesting and and also as personally meaningful to me as, you know, as the performing arts is. But I definitely think that there's lots of opportunities that are out there. I mean, I think even if you even if all you want to do is is sort of use the lens of kind of specialty service provider and folks that end up owning, you know, owning small and medium-sized businesses because they are trying to provide a service and not because they're trying to run a business. I think there's tons of examples of of that out there and you know, we've gone, you know, we've done music and dance, but you know, gymnastics, tumbling, um cheer is fully rolled up. Um Varsity, which is a a Bain Capital portfolio company, is a big is is the, you know, more than 800-lb gorilla in that space. And so, there's there's another example of what this kind of looks like at maturity. Mhm. Um but, you know, like chiropractic, like, you know, physical therapy, wellness centers, medspas are really attractive roll-up opportunity right now that lots of people are doing. Um you know, professional services, accounting firms, consulting firms that are, you know, kind of subscale and part of that kind of roll-up ecosystem. There's there's tons of examples of um and you know, some of those I know because I've talked to people that are doing them and some some of them I, you know, just sort of have in the back of my mind, but I think there's a there's a there's a lot of of white space out there still. Great, Jeff. Anything that we didn't get to that searchers should know about your story, should understand? Well, uh I mean, the the big the the the the last incremental shift in the business is is when we expanded from music into dance, right? So, that's not a that's not a small leap. Um in terms of, you know, those things are adjacent, but they're they're pretty different. Yep. Um so, and it, you know, required bringing in, you know, folks that would be more authentic in dance world than I am. I mean, I took a a couple of dance classes as a young boy, but uh you know, certainly certainly not the same level of personal experience with it that I have with music. And so, yeah, we had to kind of retool our leadership team to make uh you know, to make dance a a you know, a priority and a realistic possibility within the business. So, that was that was a 2023 project was, you know, kind of after, you know, one of the things that I credit our our new, you know, partner and sponsor with was, you know, pushing us to get into dance sooner and in a more in a larger way than we probably would have on our own. I kind of always felt like dance was a natural adjacency, but it was just sort of out there and we'd get to it eventually. And they said, "No, it's let's do it now uh before somebody else does." You know, to your question uh from a few minutes ago. Yeah. Um so, I think that's you know, that's the other big change in the business is you know, we had a we had a really large high-velocity opportunity in front of us in in music that was working and we actually, you know, sort of stood up a second vertical to kind of mirror that and leverage what we're doing in in music and then figuring out the incremental pieces that we needed to do dance well and and going out and finding those and standing them up so that we now have kind of twice the service opportunity and we're now we're now doing two acquisitions a month. Um so, you know, it's kind of helped us from a velocity perspective to have that additional service area, but um yeah, totally we kind of transformed the business, yeah. Operationally. and contrast a little bit. So, so starting with what is the bigger market just crudely? Are more kids doing dance or more kids I assume are doing musical instruments? I assume dance is a smaller market. Dance is a larger market uh and in in some ways that's because a lot of what you're thinking of as being music is happening in public schools. So, it's not part of the TAM. So, like I can't I can't do school band, which is a meaningful portion of like musical instrument participation in the United States. So, dance is private dance is bigger than private music. Yeah. Um and the biggest difference in the two business models is dance is primarily taught in a group setting and music is primarily taught in a private lesson setting. And there there are big pros and cons there. So, private lessons really sticky, one-to-one relationship um high customer lifetime value, lower margin. Dance, group lessons, less connection between a student and teacher um much higher margin, but the the margins vary, you know, the incremental and decremental margins are very large, right? The the ninth student you put in a class is nearly 100% profit. Um and so, you know, the the um coefficient of uh you know, of profit to revenue is really high. And so, taking you know, taking a school from break even to you know, 20 to 25% margins is you know, is is a matter of growing revenue by 10%, but the reverse is also true. Um so, you have kind of this kind of super high beta product in your portfolio where you know, when times are good, they're really good and you know, when times are less good, uh you know, can be a bit of a challenge. Mhm. Mhm. And what about the footprint? A music dance studio takes a lot of space, whereas if you as you described it in a in a um a music center, it's kind of a honeycomb and you've got you know, basically two chairs and a a music stand, that's all you need for a to deliver a lesson. Yeah, our music schools are probably 3,000 sq ft on average. Dance schools, you know, 5 to 8. Um so, you know, twice twice as big on average. Really interesting. Jeff, um and so, by the way, since at every stage you were kind of talking about what the the goal was and where once you reach a certain threshold, what the liquidity event would be for the business, is that also something that you're the the the institutional buyer who acquired you and now you're the CEO of the business for that they have a goal and plan for? I mean, does it go public or is it to sell to yet another larger private equity concern? Yeah, I think public is not a realistic expectation for you know, for a business in this space. Um so, yeah, I think it's it's really just sort of you know, we'll be privately held and we'll be you know, kind of traded amongst financial sponsors for you know, for the remainder of uh of my time here. Um yeah, I just think you know the minimum size and and growth opportunity for being a public company has meaningfully increased over the years and there's there's lots of reasons why that's actually not you know not very desirable. Uh just from a compliance perspective. So no, I think I think we're we're a private company and you know, we'll we've grown the business to a point where we don't actually need to we will not be significant the business will not be impacted by who owns it to a large extent. Um and you know, that's part of you know, in terms of like what what is the value creation that searchers are doing in the lower market? It is taking jobs and turning them into financial assets, right? So that's the that's the scale up process that you're doing is you're you know, you're going in and you're buying a a business that previously was somebody's full-time job or you know, um or less depending on how kind of lifestyle oriented it was, but it was a job for them. And you know, you're turning it into something that can be it can be invested in at an institutional scale and that's where the that's the driver of multiple arbitrage is why it exists. And um you know, we've now crested that and we are now a financial asset and um you know, on the investment side that what you tell your music teachers? Well, I was going to say exactly that which is like my job is to insulate them from that at the you know, at the operating level, but at the ownership level, you know, that's definitely true and and so yeah, we you know, our business exists to provide you know, outstanding classroom experiences to tens of thousands of students each week. Um and that's how we you know, that's how we create value at the student customer and you know, societal level, but you know, at the institutional equity in the in the world of institutional equity, you know, what we've done is we've sort of taken a space that was previously incredibly fragmented and sub-institutional and turned it into something that that they could get access to and you know, by the way, the like kids extracurricular sort of youth enrichment spaces is is all the rage right now. So, we were we sort of benefited from a a uh kind of thesis evolution that happened, you know, independent of us, where people are really excited about that space and sort of just believe that parents will spend any amount of money on their kids and their experiences, which uh to a first approximation we've seen to be true. You've seen that to be true and that and that trend will continue because I feel like Sure hope so. a father of a young daughter myself, I feel like there's grumblings among parents that, you know, we're going to do it differently. We're not going to be schlepping our kids all over the suburbs to this practice and that game and that whatever extracurricular to the end of our days. Um so, but maybe every parent grumbles about that and they do it anyway sort of thing. Any So, personal question of a personal interest here. Uh no no no slowdown in sight for that sort of culture of extracurriculars. No, not not that we've seen so far. That's great, Jeff. Uh I think that is it. If people want to get in touch with you, how would you prefer they reach out? Do you like LinkedIn? Yeah, LinkedIn. I'm on there. Uh the uh Jeff Homer on Summit Music Schools um and uh yeah, I I mean, I'm actively looking to connect with folks that are interested in ETA. I'm in the I'm in the sort of dispensing free advice, you know, phase of things um with the hopes of connecting with folks that have kind of interesting uh interesting theses and interesting opportunities that might align with kind of what we've done and um you know, I am looking to to reinvest some of those proceeds back in the search space. So, um eager to hear from folks. Careful, Jeff. You might You might get barraged with uh that was a a very open and generous invitation. So, take him up on that, everyone. Jeff, if I if I search piano lessons near me, I mean, how many schools do you guys have now in the portfolio? We have 65 music schools and five dance schools. 65 music schools and five dance schools. So, are you in kind of all the major markets and then some? yeah. Look, there's some big places we don't have a presence like Dallas, but you know, we're in yeah, we're in we're in the majority of other kind of top 15 markets. Great. I'm I'm so curious to just kind of Google around and see see your your local outfit here in the DC area. DC area? Yeah, Middle C Music, Cantilon School of Music. Okay, great. I'll check it out. Jeff Hamer, what a what a story, fascinating, very educational for us. Thanks for walking me through a bunch of the finer points and congratulations on this on this outcome. Thanks. I mean, it's been super fun. So, appreciate it. Appreciate you having me on and happy to chat more about it. Okay. Thanks, Jeff. I hope you enjoyed that interview. Make sure you subscribe to the Acquiring Minds channel below. 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