Daniel Sweet's Top 3 SBA Acquisition Secrets You Need to Know

 Summary

In this conversation, Daniel Sweet shares his journey in the world of mergers and acquisitions, detailing his experiences in acquiring various businesses, including an e-learning company, a coaching firm, and a SCADA company. He discusses the strategies employed for growth, the financial structures of the deals, and the importance of maintaining a strong network in Texas. Daniel emphasizes the excitement of entrepreneurship and the potential for future acquisitions as they aim to expand their portfolio.

Takeaways

Daniel Sweet's company focuses on acquiring Texas-based businesses.
The first acquisition was M-Link Technologies, an e-learning company.
Growth strategies include leveraging existing networks and expertise.
The importance of sales and marketing in scaling acquired businesses.
Sherpa Coaching was acquired to enhance leadership training offerings.
The SCADA company acquisition targets the oil and gas sector.
Future plans include expanding into HVAC companies in Houston.
Daniel emphasizes the importance of maintaining company culture post-acquisition.
The partners have a strong trust and communication dynamic.
Daniel finds joy in entrepreneurship over traditional corporate roles.

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Transcript 

Jon Stoddard (00:03.586)
Welcome to the top &A entrepreneurs. Today my guest is Daniel Sweet. Daniel, welcome. Daniel is actually driving today, so we only have him audio. Welcome to the show, Daniel. Thanks, John. I really appreciate it. I apologize for taking this driving, but this is how 2021 works these days, right? Yeah. Well, actually, we're driving back in before everybody be home with COVID. Good point. Good point.

So what, tell me a little bit more about your history with buying, selling, acquiring businesses. Where are you in this? So what we do, we're a Texas based company and we buy Texas based companies. So what we did is we put together a group of myself and two others and we buy businesses within our backgrounds. So for instance, my background is 27 years in IT. So we buy technology.

One of the other partners has extensive experience in energy, so we buy within there. And the other one in 30 plus years in construction. And so we buy construction companies all within the state of Texas. And our reason for that is just that the network that we've built up in the state of Texas for people to bring in as additional or replacement leadership positions is pretty vast. So it gives us an advantage as a small company being able to put people we know

in place to be in charge of these companies. Yeah. So how did you guys start this? Did you sit around a, you know, dinner table one day or you guys work together and say, Hey, let's start buying companies form a fund or what? So, actually while I was working for mega global corp, one of several, I actually started to, I talked to some and a guys that were there and that, you know, it was really interesting to me. I like learning stuff.

And so I asked them, there any reason this couldn't be done on a smaller scale? Because I, you know, I had done a lot of different positions within technology. started out as a giant nerd. I got dared into sales at one point, did sales and sales management, opened offices, did all that. And I understand, understood how we could build business within a small IT firm. And their answer was basically, well, there's no reason you couldn't, except for, you know, it's not worth the time and effort because they were doing billion dollar deals.

Jon Stoddard (02:31.095)
So, okay, well, I'm smaller than that. So I started it at a real small level with technology companies. And then, you know, down the road, the company that I was working for had invited myself and thousands of my closest friends to try something new, but they gave a nice severance package. And I decided I was gonna pursue this full time. And two of my buddies that were in a similar situation joined with me in this and brought their experience.

levels and we're able to approach this together for slightly larger businesses. And after we got started, we just got hooked. This is so much better than living in the mega global corporation world for us. And and now working for somebody else. Exactly. So when are you talking about the size? Let me go back to this. Did you guys have a fund?

put your pool, your money together and say, 33, 33, 33%, or did, was it, how do we buy these companies with, you know, leverage file? So let's say, so there were what we discovered was there's thousand different ways to structure a deal. So we did have our own money that we put into the deal. and we were just arranging what we would purchase based on each individual company that we bought. and so.

We, you the first company we ever bought, we did the thing that is probably the easiest to do on your first company. And that is we use an SBA loan. We all went in for the 10 % piece that we had to put in and use the SBA 10 years and low interest to leverage that up and got our first company. And after we learned for what was the company? Yeah, that was technologies. that one more time. Sorry.

I'm sorry, it's M-Link Technologies. They're a e-learning company. E-learning company, cool. What kind of revenue was that doing? So they were doing right over a million a year, give or take. Okay. A million, two million, And nice margins, because it was all in-house. It's just, it's a consultancy. So they're building interactive video training for Fortune 2000 companies. interesting.

Jon Stoddard (04:53.085)
How did you guys find that? Was that in your previous network of contacts? Well, actually, there was one guy who we partnered with on this deal who was in our previous network of contacts. He has spent his career in the e-learning industry, learning and e-learning, and he had known the owner of this company for 20 years. He was ready to retire.

He was looking for people to partner with who could bring the financial side of things so that we could all approach it and take a company that was doing well through the pandemic because everybody has to do video training now and expand that. What were your thoughts when you first saw it? This guy has been doing it for 20 years, it's only in a million bucks.

Is this the total addressable market or is this just guy doesn't see how to take it to two to five to 10? So with almost all of our companies, including this one, it's usually the latter. So they get to a comfortable size for them that gives them the lifestyle income they're looking for. And they maintain that size for a long period of time. And half of it is because everything has to go through the owner. So they have zero time left. And so they can't expand it because it relies on them.

And half of it is because they're real comfortable at that size. They don't want any more of a management burden. Frankly, they're not very good at sales and marketing at all. And so they do what they do so well that all these customers keep coming back to them. So they stay in business and they don't really want to grow it any larger because that would be too much of a pain. they're basically a fortune, know, Fortune 1000 companies doing e-learning.

Basically, he had to be saying no to a lot of potential prospects. Well, so again, the only way he got new customers was if somebody left one of his current customers, went to a new place and said, hey, these guys are great. And then they'd bring them along. So he wasn't doing any real prospecting for the last 20 years. Yeah. So what type of EBITDA or multiple did you guys set along with that and e-learning company?

Jon Stoddard (07:09.469)
So in this particular case, we were at two and change multiple. And so it was a real nice setup. the company itself was, again, set up for operations, very tight operations, but there was no real sales and marketing. we can see where it could grow pretty rapidly after that.

Yeah, so so to to multiple that's actually a very reasonable price in it. What kind of salary was he taking out of the business? It sounds like a family run business like lifestyle business, right? Right, so he was actually taking just over 100 out of salary. Yeah, and then you know, obviously the rest of distributions. He didn't stay with the business as a consulting or anything.

with the SBA. did for, we kept him on for three months. SBA has a limit of 12. If you're going to acquire through an SBA, you cannot keep the owner on longer than 12 months under any circumstances. Right. So we kept him on for three months to do the transition over. And that and now and you know, he was available by phone after that. But that that worked out real well. But by that time, you figured out how to run a million dollar business. There wasn't anything you could.

Exactly. I mean, was the good news about businesses like this is that more or less it's business as usual, because all of their business came from referrals and repeat customers. So if you stood around and did nothing, it would continue. Now, obviously, you've got debt payments and everything else to make, but it would be able to continue on on its own. So if you stood and stared at it, it wouldn't be bad. And then, you know, when you have the ability, you can apply.

the changes and the guy we had running the company was the person who had been the operations manager for 20 years basically. Yeah. Did you guys, the three of you, co-sign equally on the loan, 33 %? No, no. We were primary and we had the guy in Dallas who brought it to us and one of the other people that we partnered with, they were

Jon Stoddard (09:35.149)
both small minority partners. Was he kind of more like a sponsor share? Did he get a sponsor share of 10 % 15 %? So he ended up at 19 % just stay under the SBA window there. Yeah, if you're 20 % or above your lifetime limit of a five minute or your concurrent limit of $5 million for SBA is eaten into for 100 % of the loan regardless of what percentage you are.

So he stayed under that limit at 19. and the other, actually wanted to participate at 20. so they were both playing an active role, not a day to day role, but they were actively working with us to manage the company. Yeah. How did the books look when he turned them over to you? Were they ready to go quick books produced them in five minutes or was it, you know, it's a lifestyle business and I'll put my spreadsheets together when I get a chance.

Did you talk to the owner before this? No, I've seen it 100 times. That's exactly what it was. Yes, and it works for him. Like I said, forever. He did his books on spreadsheets. He was very detailed and meticulous because he was a tech guy at heart. And he handed him off to his accountant and said, there it is. Go do something with it. that's ultimately there were no there was no application.

really, there were no quick books. was nothing that was intended for financial transactions. Yeah, there's a business I'm looking at right now. It's a translation business, Spanish, know, teaching people Spanish. And it's been around for 10 years. So the HRAPs are great. SEO is great. The challenge is that you didn't keep any books over any of the years. So I said, look, I got to get your bank statements. I mean, I don't know if you're making money or losing money.

And you co-mingling it with all your other projects here. So I'm not making an offer, not sending you any money until we see your bank statements and that is being slow-walked. Yeah, I can imagine. I can imagine. Yeah, the bank statements plus tax statements is the only way to validate that. Yeah. Yeah. So what did you guys look at this business and say, hey, this could be a 5 million or $10 million business and you knew exactly what to do?

Jon Stoddard (12:02.301)
The guy we partnered with was the industry expert and he was showing us the comparables for other companies. And it turns out e-learning industry is really fragmented. So there's no real 800-pound gorilla there. So the growth through a combination of actually adding a sales team and potential other acquisitions that we could add to it just from other regions, the potential was at least 10 million over our hold periods five years.

at least 10 million over five years.

Did you, is it, are you in the reinvestment stage, everything, all cash flows go back into the business or are you actually taking some kind of profits out where, distributions out for, as the owners? Usually what happens is the first year all cash flows end up going back in the business because of the expansions that we do. We, we, we spend all that money on growth. after that we do a, a,

fraction of profits paid out quarterly to the ownership.

Okay. Yeah. And are you seeing that right now? By the way, what was the profit margin on the e-learning company? And the reason I brought this up is four or five years ago, I was trying to buy an e-learning company that had all of his courses on Udemy. And he had, it was doing 2 million a year, 97 % profit margin. Wow. It was just, he was a cash machine. He put $5 million in his bank account.

Jon Stoddard (13:40.909)
That's crazy. Well, so the difference with this company is that they're doing custom e-learning. So everything they do is a new creation. So that's the downside. that's a coding. Yeah. So IP is generally owned by their client. So in that case, but it was still a 25 % profit. No, that's great. Yeah. Yeah.

Where, so how long ago did you buy that and where are you at in the, results, the planned results metrics? we bought them, so that one we bought a little year ago, roughly. Yeah. and we have, we have spent all the money on growth. absolutely. so the, but we, we've had a surge of sales as a result of that. And so.

rolling into the new year, you know, with all these works in progress, you you've got billable milestones. So as we get into the new year, there is a huge amount of outstanding AR that we are now beginning to collect. So we're kicking it into gear for the second real full year, second calendar year anyway. And it's,

shaping up really nicely. We've got a lot of new clients. And there were a lot of delays from 2020 that happened in 21. But among these Fortune 2000s, there were some of those projects that were delayed even further. So there's a number of projects that are coming up in 22 now that are really nice for us. Yeah, what are you training at a revenue now? One year, 12 months later? So we're pushing 2 million. Right. the

This coming year, we expect that to accelerate pretty nicely. Yeah. Have you guys figured out a system of like, this is the best type of business, this rings the bell, let's not do that? We found a lot of not do that. Realistically, what we tend to end up buying, I don't want to say we specialize in this, but that's what we end up buying.

Jon Stoddard (16:01.069)
Seems to be mostly professional services firms, which I would not say are a thousand times growth in a few years. That's not them. But we've gotten pretty good at getting the professional services firms up and running and with a sales and marketing system in place so that they can increase nicely over the period that we hold them. Yeah.

not recommend professional services to most people, but it just happens to where our backgrounds are mostly. where what's your plan for this? I mean, is it to grow, you know, let's say five million, keep it hold, keep it hold or what buy and hold. So for this particular one, because it's so well positioned for additional add ons, we're probably going to hold this much longer than the five year period. We've already added a

executive coaching and leadership training company to it. that fits real nicely because they go after that same fortune 2000 buyer of training. So where one side is looking at leadership training and improving the leadership behaviors that make their teams more effective. The other side is focused on generating skills and improving the skills of a much larger population of workers.

Where did you find that? Was that in the ecosystem of this e-learning company? It wasn't. We're constantly in acquisition mode, so we look at a ton of companies. We do a lot of networking, which is usually where we find these. We actually found this company that had been operating remotely for four years plus. COVID was no big deal for them. They had already done that.

and so we, was a company based out of Ohio that we moved back to Texas, and put underneath, Emlake. Yeah. What kind of, was that a revenue producing company profitable? Yeah. So they had been around. Sherpa Sherpa coaching and they had been around for 24 years, I believe. and it was the same thing. The couple that owned them had fantastic at developing this training for fortune 2000 companies.

Jon Stoddard (18:23.629)
It had a process and a procedure and a methodology that worked every time. They were great about it and they had set a specific limit that they didn't want to grow beyond because again, it was just those two running it and that's as much as they wanted. But it's a fantastic company. They do all sorts of amazing training for these Fortune 2000 companies to keep coming back because it works. It's just that they also didn't ever really

do any real sales and marketing. Do the customers overlap between the first company you bought and this Sherpa Consulting? Beautifully, they do not. There's a lot of cross-selling going on now. Yeah. What kind of revenue was that due? Almost the same. mean, they were at, think, 1.3 when we acquired them. That was in August.

We're doing a number of things to increase the sales, implement the systems, but they're doing really nicely. There's a lot of untapped fruit there. So for instance, one of the largest automakers in the world uses them and has for 10 years for all of their leadership every year, and they keep coming back. And so what we bring on a fractional sales manager and the fractional sales manager, one of his first questions is, so,

when you went to all the other auto manufacturers with this, what did they say? And the answer was, well, yeah, we didn't do that. don't go out and do sales. Sales comes to us. Okay, fair enough. So there's a lot of room for growth there that we're starting to tap into now. Yeah. Were there dangers like the risk of having too much concentration of customers? That usually happens when you have contracts with

Fortune 500 companies is like, know, 50 % of my business comes from GM. So there was a concentration of concern in that their top customer was, believe it was, I've seen a lot of companies since then, but I believe it was 30 % of their business. Yeah. But when you combined it with M-Link, that diluted out and it wasn't a big deal anymore.

Jon Stoddard (20:50.409)
Interesting. Now you've got what how long have you owned Sherpa coaching? So that's been since August. Since August. How many of you how many businesses have you acquired? So right now, we have acquired this year, those two and one other. And we are scheduled to acquire one more business. It'll be in December before the end of the year.

Yeah. How did you, how did you finance the Sherpa acquisition? So Sherpa was a combination of, lending and sell, traditional lending and seller financing, primarily. so we did a, structure that worked for everybody, with those two factors, and the, owners were happy and certainly the, the, so what we found is a lot of these employees that have aging old owners.

In the back of their mind, they're always saying, okay, what happens next? They can't do this forever. So when we come in and buy the company and put in a new leadership, they're actually relatively relieved because they can now see, well, okay, my job is going to continue. This thing can go on for a good long time. And they get pretty excited about the growth changes that we're planning on making. Yeah.

Did they, what was important to that Sherpa coaching owner? mean, it was getting the right valuation from it. You know, upfront or did they want, you know, a hundred thousand dollars a year for the next five years? What, what, were they looking for? So it was a combination for them. really what was important to them. And this is, we find this to be true in a lot of our acquisitions. What was really important to them is that they find people who understand their industry.

who are going to keep their employees on, keep the company name going, and be able to take what they've done and grow that to the next level. So, you know, they want somebody to look after their baby, as I've heard it say, because they've spent so much time with this, they don't want it to just be dissolved or absorbed and just taken to the customer list, or they're looking for people to really take care of their business as one of the most important qualifications for somebody who's gonna buy them.

Jon Stoddard (23:14.187)
Yeah, that doesn't change from a million dollar company to a 500 million dollar company. Well, I haven't done that deal yet, so that's good to know. I, but that's what I've read. Yeah. So what was the, now, what was the third company that you purchased? So a third company is a SCADA company. So they do oil and gas pipeline networking. So they,

are primarily an engineering firm where they do the design and consulting around SCADA systems, which what is it? I don't know. So so a SCADA system is think of it as a network for machines. So factories, pipelines, power lines, they all operate on a what they call an OT network that is

separate from the network that you get email and everything else on. Because if something goes wrong with OT, well, then you get the colonial pipeline situation. So it's specifically kept separate from major networks and even the internet. So that, you know, in this case, for pipelines, it can see where the oil is flowing, what the temperature is, specific gravity, they can control the valves all throughout miles of pipeline.

It's a control system specifically for computerized devices. Yeah. It's a software solution. Yeah, basically. How big was that in revenue? In revenue, we just acquired them and they'll be at 1.6 this year. 1.6. Wow.

You guys interesting that I think your your partner step up and goes, hey, now, why do we need to get a O and G software solution so I can have some contribution? Well, mean, everybody's got to play, right? So there's no overlapping O and G with the link or the Sherpa coaching. But what's the potential with that? So we're in a.

Jon Stoddard (25:32.745)
In my opinion, and lots of people do disagreement with me on this one, but in my opinion, we're about to see a massive expansion of oil and gas related projects. Now, that's not exploration of production because that is they're very nervous on that side right now. That's not what the Biden administration says. Well, so what the every time the Biden administration speaks, I love it because the price of oil goes up.

They released 50 million barrels of from the reserve and the price goes up to 82 bucks. Well, that's because now you've taken the reserves we have that last there are several days usage and you've gotten rid of them. So now you've got nobody's drilling new wells. You've got more demand than supply. You have regulatory constrained people who want to develop more oil.

And you've gotten rid of the last that we had in the tank. So now there is no control on price and it's going to rise for a long time to come. Gosh, you would just think that somebody who knew a little bit more about that law called the law of supply and demand. Is that still something? Is that still something we observed today? I heard it was a law, not a theory. So in the oil and gas world, if you're doing oil and gas services, the biggest determinant of how well you're going to do that year is what the price of oil is.

And with the price of oil regularly rising, it's great for those businesses. In order for the price to go down, more supply has to come online. OPEC has said, you know what, we've had enough of your shale nonsense. We've been spending out of our reserves for five or six years. We're going to go ahead and reap the rewards while we can. And in the shale world in the U.S., the drillers out there do not feel comfortable drilling because they feel like

not without good reason that they're being targeted. now you've got these operating wells that you've got to make live as long as possible. And you've got all these pipelines that must work because the option other option is you can truck out the oil or you can put it on a train either way has larger environmental concerns. And so all of the oil field services companies that have survived 2020 competition is reduced because there's few of them.

Jon Stoddard (27:54.253)
And now that the oil prices are over $80 and going to spike from here, they're in great shape. So this, what, $1.6 million acquisition, what did the, was that profitable? yeah. Yeah. And the guy that owned that, was he around for 20 years also or 36, 36. Interesting how you're finding all these companies where the guy is probably.

stagnant or just exhausted? Exactly. Yeah. And we can breathe a little new life into that. Yeah. What was the financing deal stack there? What did that look like? How did you present that offer? So we went through a lot of things. This owner was blessed with two lawyers to help advise him. And that created a lot of complexity over time. We signed. Yeah.

We signed a LOI with him and after his lawyers got through with it, it got more more complicated. So in the end, we just said, okay, let's assume we just do an as is deal right here. What's the price on that? And so now that ended up being a combination of our money and bank financing, just effectively one single payment at a nice discount because we were just

doing all upfront. But also other half of that is this owner is going to stick with the company for three years to ease into retirement. And he's also going to effectively be mentoring his replacement for the next three years. Did he keep a percentage of the company or was this some kind of seller financing or what? So he in this particular case, he didn't retain any percentage of the company. He is being paid on salary still.

But again, his main concern is that it gets handed off smoothly and the company continues to operate. So we found a really qualified number two for him, lieutenant, who he is going to be mentoring for the next three years and offloading a lot of the stuff where he's the bottleneck, like statements of work, so that we can grow the business. Was this person number two in the company or outside the company? No. Again, this is somebody that was in our network.

Jon Stoddard (30:19.741)
And because we have connections within the oil and gas world, we can pull him in and he is much younger and is the perfect replacement over time. Yeah. What kind of multiple did you get on him before? What was he asking before the cash discount and what was it a different multiple, like, you know, a point or a whole point or two points or something? So in the end, the

what he was looking for was really, again, it's so to back up a second, a lot of professional services companies where there's no ongoing contract, so there's no ARR effectively at all. They'll go for between one and two times EBITDA or some version of EBITDA. Yeah. Let me ask you about this. That is really low.

and I used to be in software. So how old was this code at 36 years old? Well, so again, they don't, so they're not developing code per se. What they're doing is they design networks. So they stay up to date on what the industry is doing. They do a full design on our network that may go over like a third of a country. And they just stay up to date on what the latest standards are so that they can put in place.

this design for a network. so for the last, as an aside, for the last 20 years, they've been doing pipeline cybersecurity, which was, you know, piece of what they did, because you got to protect the networks so that people, you know, ever since Stuxnet, it turns out there's countries trying to get control of our infrastructure. they have done pipeline cybersecurity for 20 years, which now is a very hot commodity.

since the Department of Energy and the Department of Transportation has told all pipeline owners, you need a cybersecurity plan, you need a remediation plan, and you need to tabletop this thing, and it all needs to be done in the next 90 days. No. There's no way that's going to happen. Is that a requirement? And do you get any tax deductions on that? Because put that in place? is just a new cap expense? So all of that is a requirement of the pipeline owners. So that means a ton of business for this company.

Jon Stoddard (32:41.549)
Cause there aren't many companies that have cybersecurity, specifically pipeline cybersecurity skills. But the Department of Energy is forcing every pipeline owner since Colonial to put these plans in place. So it means a ton of new business for this company. Yeah. So it's more like an IT services firm to design a network. It's not a software like, you know, pay monthly kind of deal. No, no, no, no. Okay. So they'll go in, they'll do a design for

you know, the super majors, the majors, they'll go in and they will even write the specs for the RFP and sometimes write the RFP for the hardware firms that are going to bid on this thing. So there's lots of, there's lots of SCADA based hardware that controls all the pipeline and valves and everything along the pipeline that are going to bid for this business from a, you know, super major oil firm. And so this company does the design for the network.

to make sure it's secure. And then they do the RFP and set up the specifications. And then they'll also project manage the implementation if that's what the customer wants. Yeah. And your partner has the domain expertise in this particular niche. What does he think the company can be? so the biggest limitation on the growth of this company is really the skill set. There are a lot of folks who know

pieces of Skada networking. This company has some guys that have immense backgrounds in this area. And what the biggest limitation is we're going to have to bring in younger guys or gals who have this skill set, but it won't be nearly as mature. And we have to train them up in everything they need to know. So that's the growth limitation is just the number of people with that skill set we can bring in.

So you've got now a $2 million Emley company. got a Sherpa coaching company and then a SCADA O &G networking company. You're doing about $5 million in revenue now and all profitable. Exactly. That's how we buy it. Yeah. Yeah. What's next? Are you going to stick with the million dollar average age 20 years old or look

Jon Stoddard (35:08.621)
That's not the intention. That's just what comes to us. I love that boring stuff because that you know that they're really tired. They're looking for a transition. They're exhausted and they're stagnant. Exactly, exactly. So next we were actually approached by somebody in Houston that has 20 years of experience in HVAC and wanted to acquire his own company. So we've worked with him and some finance partners.

And before the end of December, we'll have closed the first HVAC plumbing company for him. And then we're going to, where the plan is to do about a $10 million roll up of additional small HVAC companies around Houston and tack them on for this guy. Yeah. So he's going to do the operations cause he's our domain expert. We're going to identify and negotiate and buy the companies that tack on. And we're going to grow this thing to a,

a significant size. Yeah, interesting. I did a interview with Adam Coffee, who, you know, buys 10 to 20, 10 to $50 million HVAC companies around the country. Yep. Yeah. How is this? Go ahead. Sorry. I'm sorry. HVAC in Houston is just a no brainer. They're always profitable. Yeah. Yeah. Well, it's hot and humid. All the time. Yeah.

So what's the structure of this? You have a holding incorporation company at the top and are these LLCs, each separate LLCs or something different? So most of the HCAC companies are S-Corps and then we have a holding company above them, yes. Yeah. What about the other software company? How do you have that set up? So we have both software companies are a S-Corp with an S-Corp holding company above them.

So the idea is eventually when we do sell them, they'll all be combined together in the single holding company and we'll sell the holding company. Interesting. What are you trying to get this to? Do you have a vision for what size of revenue you want this to be? So we don't have a regular vision so much as we have an annual acquisitions goal. Because there are rules for our acquisitions, as in

Jon Stoddard (37:34.177)
They must be profitable. We have to be able to get them at a reasonable rate so that when we step into them, they're still making money. Yeah. They have to have a customer base and all that. So we've got rules behind what we do. We just set a goal for acquisitions for the year. So this year, 2021, our goal was four. We're going to hit four. So good news there. With some new people and techniques that we're looking at, we're actually looking at eight for next year.

Yeah. Why is this? you bringing a new partner is or is you just got better deal flow? So we have definitely have better deal flow and we're going to bring on additional analysts and salespeople to be able to go through that deal flow in a much more rapid pace.

Let me go back to this, how you guys are paying yourselves a distribution of profits or are you an employee of the corporation at the top or is it you guys just, you hey, here's the cashflow out of this business or it's not cash flowing. Here's your share. So I am an employee of Sweetview Partners and

So as we put together each of these deals, it's a, in a lot of ways, it's a lot of a law firm model, but it's, you eat what you kill. So we all have the opportunity to participate in on whatever acquisitions we bring on. Usually we each are buying in with our own funds. And the funds that come back are based on that profitability.

that we pay out quarterly. Yeah, and are you looking for a specific number, an IRR number?

Jon Stoddard (39:31.113)
So for our own company or for the portfolio in general? Yeah, portfolio in general. So again, there's no specific number we're looking for. We know that if we acquire healthy companies that have no idea how to do sales and marketing, and we apply additional leadership and infrastructure and fractional sales manager, fractional marketing manager to each of these. When we buy them, we know they'll grow.

So it's just a matter of time as to how much money they'll produce. So that's not a pressing concern for us. Well, I mean, certainly profitability is a concern for us, but we know if we do the right things with these companies, they're perfectly situated to grow. So again, we focus on the number of acquisitions we can do. And since all of our acquisitions have to be self-supporting and healthy, each one we acquire will mean IRR down the road. And we don't worry about what that specific

target is for the portfolio as a whole. We look at these as individual companies and we have individual profitability targets, which will in the end bring us the money we need to keep things running and keep us fed, going on cruises, all that fun stuff. Yeah. Yeah. No, makes sense. mean, some funds or some groups that require companies, their criteria weigh their criteria, the IRR that they need. So they work backwards about what that profitability takes and

Maybe growth from a 1.6 to 5 is not as big as a deal.

to do that. So generally speaking, again, we have each company has to meet certain requirements and certain profitability goals. So the targets take care of themselves. What we look for is we look for focus on the key items that we can best produce profitability right now with this company. And those obviously keep changing over time. So we implement things.

Jon Stoddard (41:38.059)
We relook, you know, it's using operating systems of various sorts. We relook at what's out there, what's the best opportunity for us. We get involved with those next few items. There's always a just way too much low hanging fruit for us to go for when we first get in. So it's a matter of prioritizing the low hanging fruit. And we know if we go after it, profit will result. Did you guys, your partners,

Did you learn anything about, knew about your partners that, you know, only shows up after the crucible of fire about something going right, something going wrong that you didn't see before? Or you guys old enough and been around long enough to say, know. Yeah, we're, you know, any partnership you're always learning about each other. You know, you learn.

you know, what people's real risk talents are, you learn how they approach hardship, you learn all these sorts of things. But in the end, the three of us have a really good mixture of skill sets and views. So we get a whole lot more out of the three of us looking at any given company, whether it's pre purchase or post purchase, than you do with any individual. you know, sure, do we sit around and argue about them? Yeah, we do. But in the end, you know, we're not, you know,

We have a good enough relationship that we're not looking to attack each other or we don't distrust each other. So you do have to have that trust. so that when the argument is over, we go, okay, well, that's how we're going forward. Let's move on. Yeah. Does each one have a veto power over that or, you know, as somebody has ever stood up and said, Hey, no, we got to go for this one because I know we can do this. And two other guys say, no, I don't.

think that's possible to do, but they don't have any experience in that industry. Right. We don't get involved in deals that we don't agree on. We haven't specifically, again, we're a small company, so we haven't put together a list of rules that says anyone veto means we don't do it. But in the end, if we can't convince the other partners to do it, then there's enough opportunities out there that we're all going to agree on, and it's not worth creating the

Jon Stoddard (44:01.441)
the infighting among the partnership to go after a deal that we don't all want to do. There's lots of companies out there. Yeah. You're just looking in the Texas area. Well, you bought one from Ohio back then. Yeah. Right. We'll bring them back to Texas if we already have a headquarters here, but we're looking for all of our companies to be based in and the companies are seated in Texas. Yes. Yeah.

Are you going to look at any B2C companies or all B2B type companies? So our focus is B2B companies generally. Now there is always a an exception and usually it involves guns these days. So lots of our people really like gun stores and shooting ranges and that sort of thing. Yeah. So if we get involved in B2C, it's probably going to be something around that.

but our focus is really B2B. I trained in Six Sigma and we try and lay out our rails and say, listen, if we stay within these guard rails, we know what we're doing and we will stay within enough of a lane that we won't get ourselves into such a bad situation that it will crater any given thing. Yeah, circle of confidence. Exactly. Yeah. Because have you...

Changed any learned anything from when you started and where you are today about you know who you are like We are kind of guy today or what are just happier because I did what I the risks I'm taking So we are constantly learning and changing that that's Without that. I don't know that we would be able to keep doing this but the reality is one thing that

One of the partners keeps saying to people we're interviewing, we're doing some interviews right now is, you know, are there stressful situations? Sure. Is there trouble? Absolutely. Is it potentially multiplied the more companies you get? Potentially, yes. But I would never trade this for any regular job ever again. I don't feel like I'm working here. We're just having fun. Yeah. Yeah.

Jon Stoddard (46:27.531)
You're never going back to the ordinary world. No, I don't think they would take me. No. Unemployable. Yeah. Pretty much. Good. So you've got another HVAC closing five deals in the hopper or even more than that next year. What's next? mean, are you thinking about raising some capital to help you acquire these companies faster? Not really.

So in looking into that, having your own fund is a special layer of hell apparently. So what we tend to do is we tend to partner with those companies. So we were talking to a guy who has a fund he spent the last year putting it together. I think it's a $20 million fund now and he cannot find a company to buy that meets their requirements to save his life.

So they're looking and they have a real difficulty finding companies that aren't either way overpriced or falling apart. Yeah. And the money or is he talking about acquiring the company for you? So we would become equity partners with them. Yeah. So we've only the next. I'm sorry. Controlling interest, he would become a controlling interest. I mean, sometimes a file.

mandates that say, we got to own 51%. So we don't do that. Our, our basic setup is that the money will never control the company. So we, we develop, you know, very amenable arrangements, the, the agreements that we have make sure that their rights are protected, but we don't do a 51 % funded deals.

Yeah. So, but, you know, in this environment, it turns out that they've been good at raising money in a fund, which they have to deploy. It turns out that we've kind of lurched into being good at finding companies that are for sale that haven't been, you know, misled through advisors at this stage. Yeah. And so the partnership works really nicely. Yeah, it's like two matches right there.

Jon Stoddard (48:53.889)
I mean, he needs companies and you may need money. Does he to return the money if he doesn't find investments or is there some kind of a sense of urgency? Well, there's always a sense of urgency when you can't find something to buy. Yeah. Because the people who gave you money said, I could have put it in the bank on my own. You better do something with it soon or I go take it back. Exactly. Yeah.

Well, Daniel, I mean, this is a great conversation. I really appreciate you sharing details about your deals and your deal flow. I really wish you the best of success on this. Thank you. I appreciate it so much. I appreciate you having me on. Yeah, we always talk to people about this. And frankly, we spend more time talking to investors and actually individual companies who we won't end up doing business with in the end.

Not because we don't like them, just our situations don't match. And half of the fun we get to have now that we're not part of big companies is we get to help everybody we talk to. We get to push companies. I know investor that does what you want, they're over there. Or I know of a company that you're looking to buy, it's over here. And we just create a community that really serves each other. And that's half the fun. Yeah, you're less compartmentalized. Right. Versus being.

know, inside a company. Exactly. Yeah. Well, geez, I want to say thank you very much. We've come to the end of our time and I really appreciate you being a guest on the top &A entrepreneurs. I appreciate it, John. Thank you so much. OK, take care. All right, bye bye. Bye.