$564m in revenue with 8 people at HQ

A quick note before we jump in…

“If you think you are on the right path, you are on the wrong path because there is no path. You are creating your own unique path every day.”

Well said by Jeffery Walker.

(Jeffery is a co-founder and a managing partner of Chase Capital Partners; $12 billion aum.)

There are many talented people around, but very few nurture their natural gifts with the focus and intention of becoming an elite high achiever.

Too many of these talents forget the importance of cultivating your natural talent and enjoying what you do (big one!!) OTHERWISE, it can become tough to keep yourself on the path for the long haul.

That being said.

Had a 3rd meeting with this company.

They equip and maintain animal farms with 500-4,500 animals.

• Designing young cattle barns:

• tethering, bedding materials, slurry handling equipment,

• drinking devices,

• ventilation equipment,

• lighting,

• door systems, etc.

$4.4 million in revenue / $482,000 net profit

Great news, they are already exporting their products to the Finnish market.

Out of this $4.4mm revenue 30% comes from Finland, and 70% from Estonia

The Finnish market is huge. 10x larger than the Estonian market.

I kindly asked the founder to write me a short business plan about the current situation and the future desired situation, and where he would like to grow this company.

Takes him probably a week.

(I will be sharing it with you once he send it back.)

The founder just turned 50; he’s willing to sell 60% of the company.

He wants to keep running the company together with us.

Good news: we could acquire the main competitor who manufactures a wide range of products which his company doesn’t.

The main competitor does $4m in revenue.

Putting these companies together allows to raise the prices 15% and provide a wide product range on the Finnish market.

Together it would be $9-10m revenue and $800,000 to $1.2m EBITDA company.

The most important thing is to have an operator in place, someone who has been doing it for the last 17 years. (This is another great news!))

- - - -

ex-CFO of Spotify’s recent $30M investment was into a Swedish HoldCo Röko which acquires traditional small- and medium-sized profitable companies.

They started in 2018, so in five years they have achieved the following (based on Q3 2023):

• 23 companies and 1,377 employees

• ONLY 8 people in the headquarters

• 2023 revenue $564M

• EBITDA margin 18%

• Return on equity 12%

They buy the majority in great companies, but interestingly, the great companies are often not willing to sell 100% of their business.

At least this has been the case with all 22 acquisitions that Röko has made to date.

2 reasons WHY:

1. Yes, the founders want to get chips off the shoulder; at the same time they see a lot of potential in growing the company so they want to be a part of the upside which they will achieve together with Röko

2. Röko does NOT want to operate the business, therefore they acquire the majority, but not 100% (knowledge wise, experience wise, time wise)

With Röko, they have a strong support system as well as financials (if needed!)

As Röko’s CEO Fredrik Karlsson said, “We don’t operate day to day – they’re great at it. Our main focus is educating operators to maintain profitability and raise prices.”

What a fascinating business model.

Exactly the same as we’re going to do in Estonia and the Baltics:

• Acquire majority in profitable $2-5M niche businesses with great operators

• Seeing clear opportunities for growth where we can bring in sales, marketing and finance to scale these businesses to $7-10M within 36-48 months.

While becoming more profitable.

ONLY difference — instead putting together a fund we go deal-by-deal.

- - - -

Haven't read anything this good in a while:

Very obvious advice to many high performers.

BUT STILL ALMOST NOBODY DOES IT!!

"Most people do not dwell on their mistakes. They prefer to think and talk mainly about their greatest triumphs.

However, the most successful few in any profession constantly examine and improve on their past performances, both winners and losers.

They know what worked, what did not, and how to improve the next time around.

Such is the case with the best PE and VC investors. The super successful, the masters of the business, succeed in large part because of their ability to learn from both their triumphs and disasters.

They remain students of their own histories and humble about what the future could bring - remarkable success or devastating failure.

- - - -

It is VERY interesting to invest in small private companies with revenues of 2-5 million dollars.

Why?

There is the need to work on long-term projects that require a lot of patience yet acting, when necessary, with great impatience and urgency.

I guess the goal is to enjoy both the process of investing and the hard work of adding value.

And the job description has very little to do with instant gratification.

- - - -

The 25% IRR opportunity for niche companies is there…

But how to actually grow a boring $2-5m niche manufacturing business:

This is my humble opinion or 15 of my opinions :)

(Btw these will work outside of niche manufacturing companies too.)

1. Bet on people who like to win in life. A good welder who doesn't drink and is always on time is worth anything he charges.

2. Build a brand. Be serious about websites and social media. Even if you sell cow cages. The farmer's daughter is already using Tiktok.

3. Create a short video introducing your company.

4. Have "meeting weeks" many times a year. Visit all your key customers in real life. It's a relationship game.

5. Be creative with your messaging. People are emotional, your customers are emotional, feed that emotion. Make them smile, or at least smirk

6. Distribution is everything. When a customer can choose between two brands, they choose the one they’ve heard about.

7. Follow up like a madman. Even better if you follow up without being too annoying.

8. Invite your customers to your facilities. They want to see where their products come from.

9. Send daily cold emails to potential customers. Ideally, include a Loom video showing what you're doing. Factory, people working, finished product.

10. Have an email list. Don’t trust any social platform. Bank on your email list.

11. Persist to the point where they give you what you want just to get rid of you. The squeaky wheel gets the most oil.

12. Constantly analyze the current state of your company. Map out the biggest growth opportunities. Execute on that.

13. Hire a professional to take care of your email workflows, technical SEO, CRO; someone who knows how to optimize your product pages.

14. Create your own product with your brand (if you haven't already). The more stickers the better.

15. Never lower your prices. Always increase your value. Instead of doing a discount, offer free installation.

BONUS:

Play the long game. Boring niche manufacturing businesses are here to stay.

Take care,

Mikk aka PrivatEquityGuy

P.S. To understand your interest in what we do, get on my list here and I’ll send you more information about the deals. (47 investors have already done this past 2 months).

Lastly,

I have interviewed 18 people on the HoldCo Builders podcast.

Here is a recent one with Mathias Calonius, who’s a co-founder of Finnish holding company acquiring boring businesses.

(Links to Spotify, Apple Podcast, and YT can be found in the comments section below.)

Thanks a lot for following the journey.