50% carry on $7.5m Ebitda (with 10 PortCos)

Just a quick thought before we dive in…

IMO the goal in life should be to very quickly get to a position/job/career where what you do doesn't feel like work.

Am I too naive as a 31 year old?

- - - -

That said…

You're here because you (at least I hope) enjoy following my journey on building holding company of traditional cash-flow businesses.

Here’s a thing:

There are two brothers who have found their life's work – and what they do doesn’t feel like work!! – on top of that, they are constantly researching the most successful holding companies in the world.

Things like:

1. Numbers of portfolio companies

2. Strategy they follow

3. Valuations

4. Salaries

5. Acquisition multiples, etc.

 (I’ve heard they spend days on research while writing each article.)

Don’t believe me?

Read it and you'll see what I mean.

How the people at Chapters Group have built a holding company and how they've 6X-ed their valuation in a short 6 years.

Personally, I have so much going on in my life, but this one newsletter is something I look forward to every week.

Important to mention: I'm not getting paid to say this, Alex and Pavel - the writers of this - have just helped me so much in my career, so it's the very least I can do.

Click here and take a look at the special offer they created to you.

- - - -

$12M in annual net profit and a dream home in 33 Byram Dr, Greenwich, CT 06830

The formula:

A lot of folks want to acquire a profitable sub $10m traditional business.

Ideally, have a portfolio of 4-6 such companies where they own 30-70% of each.

Excellent goal yet VERY few ever go all-in and actually do it.

Even fewer succeed.

Could it be because they don’t have this high 121 IQ?

Or because they aren’t this hyper-focused excel wizard?

Or because they don’t have 10/10 communication and persuasion skills?

Not really. Most skills are learnable.

I believe more than ever that it comes down to having extreme mental toughness.

Every week at holdco builders podcast I interview one such person.

Discussions about their portfolio companies, their investment thesis, acquisition multiples, profit margins, % debt they use, portfolio CEOs, etc.

As well as….

Them looking for high-quality, sustainable, niche companies with continuous profit growth. Preferably led by an entrepreneur or a family…

Them building a diversified portfolio, products/services that have…

• a network effect

• a cost advantage

• intangible brand

• high switching cost, etc.

But still, why do so few succeed in this game of acquiring profitable $1M Ebitda business?

That’s because life can be, and is, brutal and hard AF.

And eventually it comes down to how you react when something unexpected happens… both in business and more importantly in your personal life.

Imagine not raising your desired fund for 2-3 years…

Imagine losing 10+ deals to higher bidders…

Imagine spending 6-figs on deals and still having no success….

Or take your personal life when doing it all:

Imagine your wife or gf leaving you because you still haven’t made it for the past 3 yrs…

Imagine losing your twin-sister…

Imagine losing your son…

All of this could… and probably did happen with folks on this journey.

So, again, it all comes down to mental toughness…

If you want to build a holdco that will eventually make a net profit of 7-8 figs per year...

You gotta be this psycho, crazy curious consistent guy who refuses to give up.

Because the price is and will remain very high.

Sad reality:

You need these madman qualities before you do anything, you need it when you have almost nothing... before you ever raise capital or buy that company that makes $970k in Ebitda.

Without these qualities, you will give up before you ever talk to this investor number 51 on your list, or send another follow-up to the business owner number 231 on your pipeline…

And because you don't have the crazy mentality, you think it's too hard and brutal and that you should do something else…

(Turns out, they both would be THESE right people – one who would finance your first deal and one who is willing to sell his business at 3.8x earnings and seller finance 60% of it.)

Long story short…

Having this mental toughness is really one of the qualities I've learned from talking to 40 gentlemen who buy, invest, run, and sell profitable businesses like pros, and as a result make $12M in annual net profit…

If not more...

While living in houses like 33 Byram Dr, Greenwich, CT 06830

- - - -

Every time I call another small niche business owner to introduce myself, it reminds me of the story of the founders of the Marmon Group…

They were buying small manufacturers no one wanted:

• tank cars,

• seat belt systems,

• piping & tubing, etc.

"The only reason owners of Colson and other troubled companies sold to us at bargain prices in the early days was because they had no place else to go."

Marmon grew into 100+ autonomously operated companies in boring low-tech industries.

They sold 60% to Buffett for $4.5 billion in 2007.

Find these niches and build your own Marmon.

- - - -

Every LP knows and understands that investing equity and debt in deals involves some risk. But at least if they decided to take that risk, they want to know that they took the risk with the right people.

Be that person for them and give it your all.

- - - -

Going through the list of companies… finding a traditional $450,000 EBITDA company.

“Private equity says it is the most dumbest thing in the world to buy a company that small — they say it’s going to take the same amount of time to turn that company around as a big company. Use your leverage.”

Despite that, you do some research on this same business:

• The gentleman has been running the company for 25 years.

• He doesn’t have a website.

• He doesn’t believe in google, he does no advertising.

• He’s got stickers for 25 years.

You can do the big boys multi-million EBITDA stuff in the future, but there is a particular opportunity in front of you and more people should take advantage of it.

- - - -

"Haha Mikk, long time no see. Well, after all these years... I'm still in the same business, same industry. I've seen it all, not every day, but it’s still pretty exciting."

Andrus, 64 yrs old, met him at the local market on Saturday morning.

The most fascinating thing about gentlemen in the 50s, 60s, 70s; folks who have been running the same business for the last two or three decades.

I've met and spoken to 200+ of them.

It's the fundamentals...of doing the same things over and over for weeks, months, years, and decades.

No matter how boring it might sound, folks keep doing it.

I call him “the farming guy”.

His business: Take cows and beef - they need robots to clean up after them, they need a place to sleep, and the farm buildings need ventilation.

It was so in 1993 and so it will be in 2024 and 2025.

- - - -

When talking to business owners, operators, investors, CEOs, sales people.

I sometimes like to ask completely off-topic questions, like what they learned from their father when growing up.

90% of folks say it's work ethic.

"Dad was always working, getting up early, staying up late. Long hours. He was never watching TV, he was out, working, fixing things, doing something. He just never sat on the couch and did nothing. Never. There was always something going on."

Turns out our fathers motivate so many of us to work harder, to persevere.

During tough days, people really think about it and then carry on.

I find it fascinating.

- - - -

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

Consumer loan company

We’re launching our own investment platform where people can start investing in Modena…

How will it work?

1. Create an account

2. Add funds to your account

3. Choose a loan or a group of loans to invest in.

4. See your investment grow and receive principal and interest payments to your account.

As promised, here is our detailed revenue, profitability and growth plans for the period of 2024 to 2027.

That said, we always raise additional capital to finance our portfolio.

Send me a message by replying to this email ([email protected])

Thanks and take care,

Mikk Markus / PrivatEquityGuy

- - - -

This week’s podcast:

Oh boy... I don't know where to start...

Because imagine this:

• First acquisition in March 2023

• Today a portfolio of 10 companies

• EBITDA is $7.5M

• Average acquisition multiple so far 2.5x (!!!)

• Last deal: $550k EBITDA business acquired for $850k

Craziest part, doing all that with ZERO personal investment and still making 50% of the carry

Show me a better salesman!

When asked how you did it?

“There are no rules. Literally.”

This conversation has everything. I hope you enjoy listening to it as much as we enjoyed recording it.

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

Thanks a lot for following the journey.