27 acquisitions, 5yrs, $110m EBITA

Wild stats before we dive in:

In the first 9 months, the Swedish holdco Röko did $568mm in revenue and $110mm in EBITA.

With 27 companies in the portfolio means the average EBITA per company is around $4mm

Now the shocking part...

They manage all this with only 8 people at HQ 

Röko is a sector agnostic serial acquirer with focus on

• High margins

• Consecutive earnings growth

Röko invests in founder-owned and family businesses

Local management remains or becomes shareholders in their companies

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A game plan in case you want to start a PE fund one day:

1. Bring deals to people – “here's a transaction, here's a deal. Would you consider investing?"

2. You do this long enough you end up raising capital for one of your deals. (Make sure it’s a no-brainer deal)

3. Once this deal gets going and goes well (hopefully!)...

4. Use that success to repeat it all with deals #2, #3, #4, even #5, #6, #7.

5. And then, only then, let's say you've done six or seven deals. They’ve largely gone well,, you can say your track record is getting better and better.

6. You continue doing more deals; or you now go and try to raise a fund structure.

I believe these previous steps from 1-5 are going to make it easier and MORE realistic to ever do this.

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I've come to the obvious conclusion:

If you look at the best fund managers, serial acquirers and business builders…

Look at their actions... not what they say they did, but what they actually did. Actions speak louder than words.

You will understand the difference only when you start researching someone, either one person or one's company. 

You learn this from the books you read, the interviews you listened to, and the annual letters and annual reports you read.

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Knowing this will allow you to copy and replicate what they have done.

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• 3 or more kids

• $250m+ assets under management

• First 2-5 deals with wild returns

• 8-fig designer house

Common things for folks who started their investing and M&A journey 20-30 yrs ago and running large PE funds today.

Is there anything else to learn from them?

1. The deals that made them successful won’t make you successful…

2. Copy no-one; follow your own strategy and start walking your path ASAP

As someone posted: “If you follow someone else’s way, you are not going to realize your potential”

That said…

There is no right or wrong BUT you gotta do very good deals and build a VERY strong and attractive track record.

In order to get there...

- Are you willing to ask your dad for $25,000 to start a small wholesale business, build it to $5.5m in sales, and eventually sell it for $1.5m; pay your father back and then start your next firm? All this during a long journey of 8 years…

- Are you willing to wait 3.5 years to FINALLY find that 10/10 deal that will allow you to finally get into the business acquisition game?

- Are you willing to keep your day job, have no hobbies and days off so you could build a deal flow while saving money to finance your self funded search to chase that one $1-3m EBITDA business owner who is willing to seller-finance at least 50% of the acquisition?

To sum up:

It doesn't matter how smart, attractive, experienced or hardworking you are – it all starts or ends with the first 2-5 deals. These are crucial.

They all must be VERY good… we're talking about 2-3x MOIC, if not more… per deal.

At least that's been the story for the FEW who manage $200M+ aum in the 2/20 structure today.

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There is this conventional wisdom that businesses must grow, get to the NEXT level... or die.

And there are tons of investors who demand constant growth in sales, profits, market share and EBITDA.

And if this doesn't happen, or if the companies even decrease, they look for an exit.

IMO what's even more interesting:

I've met a lot of private companies that don't grow much, if at all, and they don't die either. On the contrary, they're quite healthy and stable.

As a result, the founders have been running it for 20+ years and are still crazy rich.

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Now I know why 80% of traditional businesses with founders over 60 prefer stability and AVOID growth at all costs:

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A game plan for a holding company that can trade at 20-30x earnings post-IPO.

1) Portfolio of profitable traditional businesses with following key investment highlights:

- Highly experienced acquisitive management team

- Stringent investment criteria safeguarding quality investments

- Perpetual ownership and decentralised structure is very attractive to private family businesses

- The diversified portfolio of companies creates a very resilient business model

- Continuous profit growth with high double-digit EBITA margins

2) Include financial goals, such as:

Growth -> Achieve EBITA growth each year (excluding the impact of acquisitions)

Profitability -> EBITA margin of more than 15%

Capital structure -> Net debt (including minority debt) in relation to EBITDA below 3.0x

A potential result:

20 P/E ratio holdco in the public market

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“We are in business to make our shareholders unconscionably wealthy and that’s what we get up every morning to do.”

A very honest take from the president of a large holdco.

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How has been the week in the small private equity world?

Traditional business

• 450 km drive 

• 2 hr meeting with the owner

• Biz does $2.1mm EBITDA

• Lots of real estate 

• Active management and CEO in place

• Kids in 20s but not interested

Another meeting booked. Let’s see.

PS! There is an ongoing DD at a profitable brick-and-mortar company.

I will keep you posted.

Consumer loan company

There is a Nordic fund that wants to finance our portfolio with 10M EUR (2-4M EUR in 2024 and the rest in 2025).

They are doing DD too and we will hear from them soon.

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This week’s podcast:

Selling the very first flooring business for $30k turned into a long-career of starting, buying and selling B2B, B2C service businesses.

A total of 6 different companies in different industries:

• 2 residential flooring companies

• 2 commercial flooring companies

• 1 restoration company

• 1 commercial cleaning company

My conversation with Robert Lombardi , the founder of Lombardi Group.

He’s sharing a journey of making plenty of mistakes and falling on his face MORE than anyone would like to admit (and this being a major part of the journey and something he’s STILL grateful for).

I hope you enjoy.

Here are the links to Spotify, YouTube and Apple Podcast.

That’s all for today.

Thanks for reading and take care,

Mikk Markus / PrivatEquityGuy