$14 Million Net Profit PER YEAR

A quick note before we jump in…

The more I talk to people who went out and bought a company.

The more it comes down to THINKING in years, and ruthlessly ACTING in days…without losing enthusiasm.

That is just what it takes…

What’s probably the “funniest” part is that the REAL work, the stress and execution, it all starts post-acquisition.

What I hear is still ZERO regrets about pursuing such an opportunity / journey.

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You will learn 100x more about small business, decision making and delegation by talking to an actual small business owner than reading about Jeff Bezos, Elon Musk or Steve Jobs

These guys are swimming in much different waters than you when building a traditional $2-10M business.

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Words of wisdom from a local small business owner who has it all:

• 2 children, 5 grandchildren

• 30+ years of marriage

• Zero debt

• 25 yrs in the businesses, never had a losing year

When we talked about different personalities, he got a little philosophical.

He said that personality is simply what you think, how you feel and how you act.

Although it comes with a twist.

You can think positive but if you don’t feel positive, and if you don’t act positive. NOT GOOD

You can talk integrity, but if you are not honest and act honestly. NOT GOOD

What you want to do is how you feel, how you think, and how you act so that everything is aligned.

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To be honest, at first, it took me 2-3 minutes to understand what he said. Finally I think I got it.

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Pick a thing you want to accomplish with your life and your career.

Otherwise you will do nothing.

You are not an old man on the beach with the metal detector looking for your destiny. You’re not sitting there, “oh what if there’s some gold down here somewhere…”

No, no, no.

You are the artist on the canvas. A big white board in front of you and you’ve got a 100 paint colors in front of you — you can paint WHATEVER YOU WANT.

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Sometimes it’s more important that you decide than what you decide.

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“We are looking for exceptional businesses.”

A phrase used by most fund managers, investors and M&A folks.

There is a reason for this:

Exceptional business doesn’t always mean cheap and vice versa.

There can be low quality businesses that are cheap but can do well…

Still most prefer to search for really excellent businesses.

The reason being is if they find a really excellent business with true competitive advantages that can protect all sorts of return on invested capital from competition over time…

They can often make multiples of investors' money…

BECAUSE they have this great niche they dominate. And their competitive advantages prevent that return on capital (by price competition, or whatever else it may be).

Another good thing with excellent businesses is, they CAN hold them LONGER vs a cheaper (not good) business which they can build up but then they have to sell it.

So, they look for a dominant business with a competitive advantage, and that they can understand.

That can be:

• A network effect

• A cost advantage

• Some intangible brand

• Switching cost

Whatever it may be – they REALLY try to understand it by talking to customers; by talking to suppliers; by anyone they can talk to in the industry to better understand how this business really makes money? How does it compare versus competitors?

Once they understand this, they can wrap their heads around:

1. what business is worth and translate that into a sort of IRR over a certain time period;

2. then comparing different IRRs that they’ve calculated based on their own estimates.

To conclude, their goal is to have a systematic process of developing the absolute best portfolio that they can.

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When looking for a $700k+ EBITDA business…

It’s important to be industry and geography agnostic… as much as possible!

It’s very difficult to find a great company.

And if you limit yourself to one industry, it makes it that much harder.

It reduces your probability to get it done in 24 months, or however long your timeline is.

At least that's what I've experienced.

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There are no guarantees in small business acquisition, M&A and deal making in general.

Chance favors folks who are well prepared:

Hard work, industry knowledge mixed with experience, showing up on time, wearing a clean (preferably white) shirt, and using deodorant — it all helps.

At the end of the day, most successes are caused by very few “windows of opportunity”, failing to grab one…

One will always be average!

To sum it up, the goal is to follow all these good qualities mentioned before and to hope you become VERY lucky.

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Gone are the days of financial engineering in private equity.

There was a time when you could use 3% equity and 97% debt when acquiring a business.

Crazy!

Again, fast forward today this is not the case.

Reading about a very very large fund, billions in AUM.

"On average, our portfolio is 53% equity and 47% debt."

Today you don’t make money with leverage....

You also don’t make money with multiple expansion – buying it cheap in a private market, selling in public.

Today, performance comes from the business concept of managing companies... it's about growing the business, improving EBITDA.

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Talked to the owner of one of the largest gas station companies in our region.

100+ stations; revenue $600-700M per year

When asked if he would invest in our bonds (12-14% per year)…

He said that while gas stations and the oil business are extremely asset heavy industries, it has served him very well over the past 30 years.

But he's still considering investing in what we're doing. Mainly because our company has had constant growth and more importantly, I've been giving him quarterly updates on how we're doing.

In addition, we have met three times and talked about different biz opportunities, one of which is the consumer loan company, the other is "boring" traditional companies with stable cash flow.

Lesson:

• Reach out to people

• Introduce yourself

• Build cool stuff

• Keep people up to date

• And don’t give up

***That doesn't mean he's investing, but it doesn't matter. Playing the long game.

There will come a time and opportunity where he will commit, even if it is $50,000. I believe in that.

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Since the 80s, private equity funds have outperformed the public market by roughly 4 percentage points.

Few reasons why:

Private equity knows everything about the company at the time of investment.

Everyone is much better incentivized.

Lastly, to achieve this, PE funds have found industries with a lot of tailwinds. You can have the best management in an industry that is dying... there's not much you can do.

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

Traditional companies

The deal I worked on till Thursday:

$4m valuation

$1m on day when doing a deal. (I didn't want to talk to the bank before signing the term sheet.)

The rest seller financing over the 6 year period

$4m - $1m = $3m    3 / 6 yrs = $500,000 per year

• Year 2025 $500k

• Year 2026 $500k

• Year 2027 $500k

• Year 2028 $500k

• Year 2029 $500k

• Year 2030 $500k

Had a long conversation with the owner today...

He said he was in talks with a team that he would potentially sell the business and they would have new owners. He then gave them 48 hours to think & then they had another meeting...

Not interested... and as the owner said, "the company has made a lot of money over the years, so there is no point in changing anything."

Whether that was the real reason or not, who knows. But he is a good man and said that if he would change his mind in the following years, he would give me a call.

Did I get a little emotional after a call? Of course, I felt a bit down for an hour or two. I'd be lying if I said no.

But I always have to sleep on it and the next day I'm okay.

Closing such a deal is way harder than it looks... I got punched in the face... again.

Funny enough, I'm not alone, I had a guest on the podcast on Friday, he said he had 6 or 7 failed deals before the first successful one.

Today, 4 years later, he runs a HoldCo which generates $20 million in revenue and $4 million in EBITDA.

Next.

*I am already buying a new database of profitable companies. The journey continues.

Consumer loan company

A little milestone we hit over the weekend:

Step-by-step the portfolio is growing.

From May 1 to 15. We issue bonds publicly on following terms:

Some people have already reached out and we have raised $140,000

Let me know if you're interested, happy to send you a portfolio overview and balance sheet and income statement.

Take care,

Mikk Markus / PrivatEquityGuy

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This week’s podcast:

What would be your potential reward for mastering the fundamentals?

Whether it's small business acquisitions, private equity investing, or the financial media and newsletter business…

In Matt’s case the reward is approximately $14,000,000 in net profit in 2024

All this with a team of 16 people.

(Links to Spotify, Apple Podcast and YouTube)

Thanks a lot for following the journey.