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- A mad-man, $4mm EBITDA holdco
Just a quick note before we dive in…
Follow up like a mad-man.
A true story from Ryan Serhant, who sells high-end real estate.
(Feel free to copy this technique for your fundraising or small <$1mm EBITDA business acquisition journey.)
Anyway, there was a gentleman with his lady, looking to buy a luxury penthouse apartment in NYC.
For some reason they lost the interest and Ryan didn’t get any response from them anymore.
Instead of giving up, what Ryan did? He followed up with this gentleman for more than 5-years. Eventually this man showed up and purchased one of the most expensive luxury apartments that Ryan has ever sold, generating a $500k commission.
The gentleman later said he had recently broken up with his wife and now wanted a place for himself.
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If you ever plan to invest in or acquire a traditional sub $1-5 million EBITDA company, or even build a portfolio of such businesses...
Here is what I believe a step-by-step game plan for doing this:
Do the work – go and talk to business owners, go meet with clients, talk to investors, try to sell stuff and make offers each and every day. Be curious and chill and ask others why they make such investments and what makes this or that company a good or a bad. Keep learning, read and soak up all the knowledge you can, keep an open mind when someone shares their experience and advice. It doesn’t even matter if you’ve made zero, 1, 6 or 21 investments. Keep showing up, keep doing what you said you were going to do. And most importantly, stay in the game – even if you don't have any results yet. Along the way, you'll develop skills, experience and a network that will be valuable for future partners, employees and transactions.
And here are 8 reasons why ALL of the above are vital:
(1) You get better at finding and recognizing really good companies.
(2) You will gain a better understanding of different industries.
(3) You will become a better communicator and negotiator.
(4) You get better at pitching ideas, expressing your thoughts, selling and raising capital.
(5) Ideally, you make some moves that lead to opportunities you never knew existed.
(6) If you do the work, in my experience, partners, companies, and clients are much more likely to work with you.
(7) Yes, again, I know this is all very basic, common sense advice, but the more you learn, the more you see that – the people who run the best teams, best investment firms, best companies – are clear thinkers and have clear minds. You want to have a clear mind too!
(8) Finally, you'll have a better understanding of your strengths so you can put more (ALL!) of your energy into your strengths and work with people who are 10/10 at what you're not good at. This leads to dream outcomes.
It still requires tons of work and dedication, but if you’re still here, reading this – go for it (or keep going for it).
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When you're ready to actually buy one:
You have to mute the world around you and then build your own.
As David Senra of the Founders posted the other day:
"Narrow your focus to your most important dreams and tune out everything else."
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Started this journey 2.5 years ago, talked to people who were searching, people who have founded companies and funds, people who manage other people's money, people who have bought 10+ companies and made various investments, etc.
I've been setting up materials,
Preparing the presentations,
Coming up with the list of companies,
Creating a sales/call script
It's all vital, but...
The MOST important thing to this day is that you continue to talk to business owners / brokers.
You can have access to all the capital of the world, but if you don't have deal flow, there's not much you can do.
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I enjoy meeting profitable brick-and-mortar businesses.
Owners in their 50s, 60s, 70s, where 99.99% of them haven't written a book and never will.
But with long enough meetings and prepared questions about their business, industry and life, they're like walking biographies.
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Last week I had 20 minutes until the next meeting.
I decided to be productive so I sent a cold email to three 10/10 entrepreneurs I've always wanted to meet/talk to.
One of them just came back to me.
We’re going to meet later this week.
Shoot your shot.
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"Write 1 cold email a week. Write a list of 25 people you want to meet. It could be anybody from Mark Cuban to somebody who owns your favorite ice cream shop on your block. Just write a cold email. See what happens. I guarantee you will meet the coolest people. Ever.”
–Nik Sharma
Same with Twitter DMs or any form of cold outreach.
And besides that.
Don't forget the warm approach.
Shift from
cold --> warm
Warm means: Provide value and share your thoughts through on Twitter
Play the longer game.
You will be amazed who’s watching.
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From a gentleman who started a holding company in 1996 by raising $15,000
"I had a basic idea of combining many profitable companies into one powerful corporation."
Today, he is in his 40s, leading a company with more than 22,000 employees, while they only have 4 people at HQ.
"This may be a good place for me to share a semi-philosophical thought: The ideal business is one that earns very high returns on capital and continues to generate high returns on incremental capital. But businesses of this sort are exceedingly rare, and it is even rarer to purchase one at a reasonable valuation."
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How has been the week in the small private equity world?
Consumer loan company
From October 3rd to October 10th we will issue another round of bonds.
The bonds are secured by our portfolio and will be trading on the Nasdaq Baltic.
The size of Modena’s issue of secured bonds is EUR 850,000. Each bond has a nominal value of EUR 1000. It comes with a fixed annual coupon rate from 11.5% to 13% with quarterly payments.
Let me know if you’d like to learn more of what we do (I am more than happy to have a meeting where we show our back office and everything).
This is how our projected growth looks over the years:
2024 portfolio: 5.5 mEUR, profit: 250 kEUR
2025 portfolio: 8.5 mEUR, profit: 800 kEUR
2026 portfolio: 13.5 mEUR, profit: 1.4 mEUR
2027 portfolio: 20.5 mEUR, profit: 2.4 mEUR
2028 portfolio: 29.5 mEUR, profit: 3.6 mEUR
2029 portfolio 40.5 mEUR, profit: 4.8 mEUR
2030 portfolio 52 mEUR, profit: 6.1 mEUR
What about the risks for the debt provider?
As of today, the net value of the portfolio is nearly 5 million Euros. The money of external investors not related to the owners is 3 million Euros.
The rest of the money is related to the owner, so the LTV (Loan to value) is about 60%, which varies slightly over time.
Our goal is to keep this LTV at the 75% limit, so that there is sufficient overlap.
If there is a worst case scenario:
In the event of liquidation, the money of investors unrelated to the owners will be repaid first. Only after that, the money goes to the owners. The guarantee agent is the law firm Widen, which in case of liquidation takes over the management of the bank account and makes payments. The owners have put money into stocks rather than buying bonds and have no bond guarantees.
We do not use external debt collection — we have developed everything ourselves in-house, and we carry out the debt procedure ourselves all the way to the court.
So… If you are interested in financing our portfolio, we offer interest rates between 11.5% and 13%; depending on the period.
The last two weeks of September brought us new debt worth 145,000 euros. All first time investors of Modena.
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This week’s podcast:
Two acquisitions
Ca $4m in EBITDA
He is 24 years old
What would you say to him?
Well, instead, I decided to invite him to HoldCo Builders podcast.
So, imaging that for a moment…
You are 24 years old and want to acquire a business…
You pick up the phone and make your first cold call to the founder who owns two companies in the $1-2mm EBITDA range.
Founder says Yes, and four months later you are the new owner of a small holding company with two traditional businesses and a combined EBITDA of $4mm.
Some notes from the conversation:
(1) Writing The Wizard of Oz Film Class Essay was the moment he decided university wasn't for him - "I decided to drop out of university because I knew I would be better off in life if I bet on myself."
(2) Words like EBITDA, LBO, leverage were like foreign words - he didn't know there was such a thing; so he decided to learn what they mean.
(3) Although the company has very high key-man-risk, it is very consistent, with the same amount of profit on the same revenue for the last 5-6 years.
(4) It doesn't take 10x this company to put food on his table. “If it goes on like always, I'll be very good.”
(5) He was able to acquire two companies at the same time, which helped him save costs on fees.
This conversation is amazing. Ethan Macdonald from Macdonald Financial has a wild journey.
Here are the links to Spotify, YouTube and Apple Podcast.
That’s all for today.
Thanks a lot for following the journey.
Take care,
Mikk Markus / PrivatEquityGuy