35+ acquisitions, $6.75m villa

An interesting note before we dive in…

The more and more top 0.01% deal makers and PE GPs I talk and listen to, the more I hear where they write a sales document or memo on the first day after an acquisition; the story of how they want this business/purchase to go.

And more specifically, how it will look in 3-7 years, when the next buyer in the private equity chain comes along.

In the following years, every decision will refer to this sales document.

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Building a portfolio of profitable SMEs to buy a $6.75m home for your wife and kids?

You MUST HAVE this intrinsic hunger and desire to do the work.

There are FOUR layers to master and get very good at it:

1. Find VERY good deals – so how to do that?

Is it you who finds them?

Do these deals come to you?

In the early days, I have yet to find a better way than number one – go out and find them – by building your own dealflow, calling these founders and management teams, building relationships with brokers or even becoming one yourself first?!

To do all this… there is this need for that intrinsic hunger and drive to do the work.

Next...

2. Connect with 10/10 people

This COULD be one big competitive advantage…

Who do I know and trust who’s going to be able to put me in touch with someone else who they trust..

Your job is to become creative find ways to interact with these people

Building a network of people, which THEN creates these special opportunities.

Doing this, again, requires that intrinsic hunger and drive to do the work.

Finally…

3. What and where is your edge?

Is it a specific niche or knowledge of a specific industry you have worked in for the last 7 years.

Or… is it building your investing edge through networking - having people to share ideas back and forth.

The fact that you may be in the early days of your career… no problem at all. There will be many folks 10, 20, 30 years ahead of you, willing to give you time IF you have good questions and ideas to discuss.

4. Be patient, everything b2b takes a lot of time.

I started this journey 3 years ago. The biggest lesson so far is that things take MUCH longer than you think.

12-24 months longer than expected.

Even if you are very focused

So here we go…

There’s no way around it – you gotta master all four layers.

To do this, you need that intrinsic hunger and desire to do the work.

And when things go well: There is your portfolio of profitable SMEs and a $6.75m house for a wife and kids.

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Gas stations have a lot of revenue, but the profits come from $4 hot dogs, $3.50 coffees, and $2 energy drinks.

Mini supermarkets, as they say.

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There are few of those very special holding companies:

• No LPs as they own 100% doing what they love

• They do not take co-investments

• There is no one they report to

Two biggest advantage:

1. they can structure deals in unconventional ways

2. they provide patient and permanent capital to their portfolio companies

Call them lone wolf investors - the real bosses of their lives and capital allocation decisions.

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It's 7:03 am, you just woke up…

You're sitting on the couch with eyes closed and imagining what your investment strategy will look like:

• What type of businesses you want to acquire

• What is your MOIC for the first 3-4 years

• Who are the people you want to be running those companies

• How much capital you want to raise and manage

• What your office looks like

• Who are the people you meet/learn from along the way

• What is the IRR for the first 3 years?

Many folks think it's all BS, even though some of the best asset managers still do it.

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

Consumer loan company

A Nordic credit fund is doing a DD as they want to fund our portfolio over the next 2 years. (2-4M EUR in 2025 and the rest in 2026)

Traditional companies

Met a few traditional business owners who pay $500k to $1M a year in dividends but look drained and tired.

When asked why you still work so hard?

• Everything is on me - relationships, know-how, suppliers, customers - everything.

• Without me, the margins aren't as big, making selling the company difficult.

• Can't close either because it puts food on the table for 30+ families.

The worst part: the kids aren't interested either.

That said, I have found a much better company with management and a CEO.

And one of the founders wants to leave. The ongoing DD process is going well, I will try to come up with an offer in a week. I'll keep you posted on how things go.

Great news: We also talked to the bank and they are willing to finance 50-80% of the acquisition.

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This week’s podcast:

12 ideas and observations from a 56-minute conversation with Andrew Wilkinson, the the founder of Tiny, on building a 35+ business holding company:

1.  Starting companies is fun, but anyone who has done it knows it is a lot of work. Buying established businesses with existing cash flow isn’t as sexy so I suspect it is wildly underrated as a way of building wealth.

2.  He will occasionally pay 10x for an amazing business, but that is rare.

3.  Some CEOs will go 6 months or more without speaking with Andrew.

4.  Portfolio companies are not at all connected. They each operate independently.

5.  Cash is kept in the company based on historical working capital needs and any extra goes to the head office for new acquisitions.

6.  Andrew is willing to pay up and hire CEOs that have managed similar businesses at larger scales already before instead of trying to find underpriced less-experienced talent.

7.  They have a 60-70% success rate on hiring CEOs.

8.  Favorite interview question "What's the worst job you've ever had?" He finds that people that haven't had crappy jobs are less motivated.

9.  Incentives act as a magnet to get what you want done.

10.  Money is more meaningful to new CEOs than to founders that have been making great money for the last 5 years.

11.  The first CEO he hired was paid $250k base + a couple hundred thousand variable.

12.  Andrew’s strengths are: Laser focused on problems for a short period of time. Moves fast; Very good at 0 to 1. Burns bright for 15 days; Inch deep and a mile wide; Not good at execution or day to day details.

This has been the most watched episode of the HoldCo Builders podcast to date, with a total of 6,800 downloads.

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

That’s all for today.

Thanks for reading and I will talk to you next week.

Mikk Markus / PrivatEquityGuy