Summary

In this conversation, Jon Stoddard interviews Adrian Pinto, who shares his journey from private equity to acquiring a landscaping business. Adrian discusses the learning experiences he faced in his first year of ownership, the transition from being an investor to an operator, and the challenges of navigating the acquisition process. He also delves into valuation strategies, negotiation tactics, and the implications of using SBA loans for financing. The conversation highlights the importance of understanding the business landscape and the intricacies of managing growth post-acquisition. In this conversation, Jon Stoddard discusses the importance of implementing proper systems for growth, navigating the challenges of mergers and acquisitions (M&A), and adjusting to rapid growth within a business. He shares insights on business valuation, transitioning into a new industry, managing employee relationships, and the significance of diligence and risk management in acquisitions. Stoddard emphasizes the appeal of the landscaping business due to its cash flow and the correlation between effort and results.

Takeaways

Selling a business is a significant decision.
Adrian's first year was filled with learning experiences.
The landscaping business grew by 30-40% in the first year.
Private equity experience shaped Adrian's approach to business.
Valuation strategies must align with the seller's expectations.
SBA loans provide opportunities but can limit future growth.
Understanding working capital is crucial in negotiations.
Networking is key in finding acquisition opportunities.
Adrian navigated the acquisition process with diligence.
Future financing options are essential for growth. Having the proper systems in place is crucial for growth.
M&A can be slowed by financing challenges.
Adjusting policies is necessary when experiencing rapid growth.
Business valuation can be impacted by historical performance.
Transitioning into a new industry requires transparency and learning.
Employee relationships are vital for a smooth transition.
Diligence is essential to mitigate risks in acquisitions.
Overcoming obstacles in business acquisition is a common challenge.
The landscaping business offers stability and cash flow opportunities.
Effort in business directly correlates with results.

 Watch the Interview:

Transcript:

Jon Stoddard (00:00.248)
to you by the Magnolia Firm. Building a business is a massive accomplishment and selling it is one of the biggest decisions of your life. When it comes time to get acquired you deserve the highest possible value and the best fit buyer. Unfortunately, most brokers out there have zero technical knowledge or experience owning companies of their own.

Let alone a digital business. That's where the Magnolia firm comes in. They're an &A firm specializing in helping digital businesses get acquired. Their team is made up of former digital entrepreneurs just like you. So they know what it's like to be in your shoes. To get a free 15 minute valuation and tips to maximize your exit, visit the link down below in the description. Now let's get on with the show.

Welcome to the top &A entrepreneurs. Today my guest is Adrian Pinto. Adrian spent some time, some years at a private equity firm, and then he bought a landscaping business in Georgia, Atlanta, Georgia. Yes. Yeah. One year later, how's it going? It's going, you know, it's going well. I mean, it's been a very busy year and lots of learning. You know, lots of, I think a lot of situations where

I probably did a good job kind of expecting what would occur and then a lot of instances where I probably didn't. And so it's a lot of reflection kind of over the last month or so to just kind of thinking back on that whole year. So it's been good though. Yeah. So good as a learning experience or good as you help the business get more profitable or grow? Both, which I think is a good thing.

Yeah, yeah. I guess to your first point, mean, it's definitely a learning experience. I so you kind of alluded to it a little bit. So my background historically was in, I started in investment banking doing &A at Credit Suisse in New York. And then I worked at two different private equity firms over four years, focusing predominantly on industrial and industrial services companies. First was doing kind of traditional leverage buyouts. And then second was more kind of growth investments.

Jon Stoddard (02:12.93)
but in all of those instances, we had exposure to management teams, but we obviously did not do that ourselves. We weren't operating partners. We were on the investment team. And so you're kind of looking at things with a bit of a different lens. And so you juxtapose that now with kind of what this role looks like. And obviously it's very different, right? It's kind of on some ways the polar opposite. And so I think that as you were asking about the kind of the learning experience, I mean, there's been a ton of that just in terms of

How do you work with and of lead in this position, a team of people like this and kind of tackling an entirely new industry? Lots of kind of learning experiences throughout the year there. On your second point, yeah, mean, the business has done really well. mean, frankly, I got fortunate to buy at a time when we were already kind of experiencing some good growth. So the themes are pretty strong as I came in on board, but then

you know, our first year we ended up probably somewhere between 30 and 40%. And so, you know, from a top line perspective, it's been terrific. And I think a lot of the initiatives that we've undertaken on the business development front, which has been kind of my priority have been really fruitful. And, you know, the pipeline for the next kind of 12 months looks as strong as ever. So, you know, really exciting stuff there. Yeah, that's beautiful.

Let me go back to your P.E. world about what your assignment role was. You know, they, hey, go do diligence or go run the numbers. What were you doing for the private equity firms? Yeah. So typically the way it would work is, you know, especially at the first P.E. firm that I worked for, they would, you know, a lot of the deals that they did were bank sourced. So the banks would come to them. They did some proprietary stuff that, you know, through contacts or whatever, you know, they got kind of a relationship based sourcing. But

for the most part, banks would come to them and they'd say, hey, we're marketing this company, company XYZ, are you guys interested? So the partner would get that through his relationship with one of the major banks, they would kick it to an associate like myself, and they'd say, hey, can you get the NDA, first of all, complete the NDA on behalf of the firm, but then take a look at the materials and let me know if it's interesting. So we would kind of do an initial review based off of some things that we knew the firm liked, that that partner liked, whether that's certain metrics, return on invested capital,

Jon Stoddard (04:34.711)
you know, different things around margins and profitability. And if we felt like it kind of made some made some sense, we would then kind of recommend it to the partner. I mean, certainly there were times where the partner would kind of say to you, hey, I like this. I don't really care if you like it. You know, we're going to we're going to spend some time here. But a lot of times they really would kind of lean on the associate's opinion, mainly just as like a filtering tool.

And then from there, you know, it was the associate's job to kind of do the initial kind of financial analysis on the business. So looking at financials, trying to come up with a pretty high level firm case from an underwriting perspective and what would the returns look like in that case? And so, you you might spend a little bit of time and find out, well, the margins aren't very strong and there's pretty high capital intensity. So, you know, at a very modest level of growth, like this would only return, you know, blank multiple of invested capital. And so in an instance like that, you'd kind of report the findings and

partner might say, it's not really that interesting. Or, you'd spend a little bit of time and say, yeah, this actually does kind of check some of our boxes, like it's probably worth spending some more time. And then at that point, you would either kind of speak with some form of industry resource that the firm already had, like an operating partner who maybe knew the space, or you would hire an expert network, like a GLG resource, who might give you some insight into the market more broadly. So that way you can kind of get a more holistic picture. so

the whole time that's going on, you the associate is kind of the, I would say the numbers person or the data person behind a lot of that. And then as you kind of progress in the purchasing process, so, you know, first round, second round, final round, the associate kind of continues on in that role. So we would be responsible for building the, you know, the final, the model, a lot of the financial diligence and helping kind of, I would say liaison between the firm and a lot of our third party advisors as well. Yeah. What, what kind of,

When was, did you make the decision and say, I'm going to stop the private equity firm business and go buy my own. mean, what kind of data points started adding up? it, you know, some people say, geez, I, I want to get married. I want to spend, see my kid play soccer. I didn't want to work on our weeks for a private equity firm for somebody else. Yeah. I mean, it wasn't really any of that. I mean, certainly I, I had.

Jon Stoddard (06:53.005)
a similar view that like long-term, I didn't see myself working that much, because I was working a lot, obviously. I think for me, the bigger thing was like the firm that I was at, we did a lot of buy and builds, right? Where we would buy a platform and then grow through &A. When doing that- That was your last firm? That was the first firm that I worked for. Okay. And so when doing that, you get exposure to a lot of smaller businesses. I also just happened to have exposure to a platform. So one of our kind of major investments

which was one of my portfolio companies. And that was a business that had grown basically as a result entirely of these kind of small acquisitions. So that business started as, you know, one kind of small business in Connecticut, the founders, two founder and best friends did some of the &A themselves. They grew it kind of into a bigger platform. Ultimately we invested into it and then continued to go with that rollup strategy. But in learning more and more about that business, what I came to

you know, find out it was kind of the process that these guys went through, the process that these guys went through early on in their careers to find that business, to grow it, you know, all this kind of what they undertook basically during this process. And they had similar backgrounds to me. mean, one of them was a finance guy. One of them was more of an operating guy, but they were just two friends that kind of had this idea of like, let's go find a business and, you know, do this kind of thing ourselves. They know, let's leave the corporate world. And so

working with those guys quite closely because it was one of my investments. you know, hearing about their story and all, know, kind of throughout my time at that firm was always just very interesting of something that I was very attracted to. And as I kind of was coming to the tail end of my associate years there and thinking about, know, do I want to try to stay on there and kind of stay in the investment seat? What do want to do instead? You know, that kind of idea was always kind of nagging at the back of me, which was like, you know, why not try to do what

these two guys did, you this was something that was really successful. And so anyway, that's where it kind of the initial idea from you mentioned that in a Twitter post, November 18, 2021, you talked about former CEO, one of your past portfolio companies took an SMB bolted on seven acquisitions, created leader industry and 300 million revenue. That's the one you were referring to or? Yeah, I think it is, even though that

Jon Stoddard (09:12.981)
or just this one case, mean. Yeah, I'm not sure to be like, I mean, that there was a couple instances of this that may be the one. Although the business that I'm referring to is actually quite a bigger than that now, all of which through Yeah, this was a year ago. Yeah. Even a year ago, the one I'm referencing is actually quite was quite a bit bigger, but they were just incredibly successful at that strategy, basically. And, and again, like for me, it was

the combination of seeing the strategy, but also knowing the people and like their backgrounds. And that's, think why it seemed so relatable to me. Like, like I said, two friends, one of which was a finance guy. And I was like, like, you know, it wasn't like some bunch of ex CEOs that decided to go out and do this, right? It was just like a couple of younger guys at a business school that had this, you know, this plan. And so, you know, that's, think why it became so relatable. Did you want to do this by yourself or did you have a partner?

I never really considered having a partner, but I mean, it's certainly something that I see the value in. But, you know, my, I think my kind of close friends and people that I share kind of professional interests with, you know, they all kind of do have their own thing going on. And so it just, was not like a natural situation. Certainly a lot of those same people are like, continue to be, you know, resources for me today to kind of.

So, some people work better with a partner and some people are better running it by themselves. Yeah. I don't, I mean, I think if there was a natural like, Hey, this person also wants to move out of New York and they also want to move to Atlanta and they also are interested in this. And like, I maybe would have shifted my opinion on that, but it just, because of all of those factors, just, you know, didn't naturally kind of fit. Yeah. So you were in New York and you, you hired somebody to do a buy side search for you, right?

I did not initially. so I initially kind of undertook that myself. And then basically what happened was after the period of maybe six ish months of kind of limited success in terms of, finding opportunities that were actionable. that's when I ultimately was like, you know, what else could I do here to kind of improve my pipeline? I was doing it part-time while I was working at this, you know, my, second firm that I worked for. and so.

Jon Stoddard (11:29.869)
I had the luxury of kind of having additional time on my head. it wasn't something where I needed this to happen in six months or 12 months, or like, you I was in a tough situation. Like, I fortunately had income coming in, which enabled me to kind of look over a little bit longer period of time. But that said, like, I didn't want this to take three years. And so after about six months of kind of limited success is when I had gotten connected with a gentleman who lived in Atlanta. And his whole pitch was essentially like,

know, Ben here is a life knows a bunch of, you know, people in this market and business owners. And he, you know, could introduce me to essentially two people prior to them kind of coming on market. And it was it an on market deal through a broker side investment banker was it off market? It was soon to be on market. And so it was essentially kind of like an early look. Yeah. And you

you know, you got the SIM or you get the financials and you ran through the due diligence. You said this, this means the kind of criteria I'm looking for. mean, how big was it? We were talking about, mean, two to 5 million or two to 10 million somewhere in that range. Yeah. The former and on the higher end of that range, but the former and yeah, I mean, sort of, I mean, I think the way I approach it was like, you know, an initial screening.

more on the market than anything else, because I didn't know a ton about the market. And then as I learned like, Hey, the market actually checks a lot of these same theme boxes that I was hoping for. you know, we're gonna like, it's, seems like it's worth kind of spending more time. And then it just kind of snowballed from there, basically, like then I had, you know, the first discussion with, his prior owner and that, you know, was positive and learned a little bit more and that was positive. And then just, like I said, just kind of continued to check a lot of boxes and,

produce kind of positive diligence results. So why did he want to sell? He had another business, wanted to focus on that, been doing it for a long time. And I think, you know, just wanted kind of a change. Was that a bigger business or was he just stretched? No, was a smaller business. Yeah. And then had more potential upside than this. Or did he? I don't know how he would answer that question. I mean, I think it I think the like the factor of doing it for 20

Jon Stoddard (13:51.159)
some 25 years, know, that's, yeah, 22 years. Like I think that was a huge, huge driver of it. You know, just like ready for kind of something, you know, change. old was he? 16, 15? Yeah, the latter. Yeah. Yeah. And when did you decide you did the due diligence on the business? Financials look clean. Did you do your own audit or did you have somebody else look at it? Did my own. I think

you know, part of it was like that. I think that component of the diligence wasn't overly complex. have a couple of friends that are accountants that kind of, you know, shed some eyes on, you know, they kind of looked at a couple of things on, you know, with me, but in general, that to me wasn't like one of the bigger, you know, kind of diligence items. Yeah. So you had a, an early look under the hood. Was he asking a rational amount of valuation for the business? He knew.

Like, Hey, this landscaping business is our selling at two X EBIT or whatever that is. Yeah, essentially. I think the other thing is like when I was earlier on in this process, well, you know, before the buy side broker, the first business that I looked at seriously and submitted an LOI for, I, know, I think I got pretty cute with how I handled the valuation of it. You know, I kind of took this like PE approach of like, well, you got to pro forma for this and adjust for that. And, know,

next thing you know, the resulting valuation is this. And it's like trying to present that to you, you know, an owner of a business is like very challenging. like, cause they kind of were like, are you talking about? Like, no, you know what I mean? Like I think in general, lot of the, you know, a lot of owners and I've continued to see this when we've looked at add-on opportunities, it's like they have a number in their mind and unless 15 offers come in well below that number, like they're probably not budging off of it. And they, know, that's a number that they're kind of, they've circled. And so,

in that first example, you know, I clearly was just taking this approach, which was just like, didn't make sense for the situation. And so when I, I kind of had told myself like, if I get into this situation again, and I like the macro themes, and I think that it checks a lot of these boxes and you know, the diligence seems, you know, moderate, basically, I'm not going to get like overly cute with how I approach valuation, right? Like ultimately, I think it's a binary outcome. Either you got it right on the macro, or you didn't, but

Jon Stoddard (16:15.979)
you know, a couple hundred grand either direction is not going to change, you know, the outcome over the course of a 10 year SBA loan. And so, you know, I'm sure I could have taken a similar like, ooh, adjust this pro forma that approach to valuation. But I kind of said this next time, like that feels reasonable. This could support that on a debt service coverage, you know, ratio standpoint. And your loan, it's got to six or something. Yeah.

Right, so I was like, it can handle all of this and so sure, I will do that, I will do that price. That's exactly, so you, he made it, this is what I want to sell it for, did the broker influence him to do that or was he was a buy side broker? think, I mean, that's it. Well, there was two, I mean, he had his own. Mine did not get involved in the discussion really at all.

I think the only thing that was maybe debated around that was the handling of working capital. And that's because I came from a PE approach where like there is no such thing as keeping working capital, right? Like you said, a peg and then that, know, you that changes like basically a business is left with a appropriate amount of working capital in the PE space, right? And so that's kind of what I was expecting. he wants to take the working capital. Yeah, there was a lot of AR in the business. And so I mean that

was the only kind of sticking point, I think. And so we kind of came to a bit of a middle ground on that, I would say, but as a related, just purely to kind of purchase price. What's the middle ground? what do you, he wants to say, let's say there's 500,000 in for a year's worth of working capital. Yeah. I mean, basically like collectible AR was take like, I forget exactly the terms that we use, but I mean, essentially he kept the majority of it.

But any like anything that had additional costs required to still service because of how certain things were booked, like some things might've been booked already, but Nest weren't technically completely, you know, satisfied from a, from a expense perspective. Like that was all, you know, net, like I wasn't stuck with that, with that, those costs. Yeah. I'm not, I'm not going to, it's AR. We haven't completed the project and there's going to be costs to that project. Right. I'm not going to borrow extra do that. The business should be paying for that.

Jon Stoddard (18:35.981)
Right, so in those situations, like that was all agreed to and appropriately handled. And there was really no, you we didn't really have any contention around that. Was there anybody else trying to bid on the business or were you? Yeah, I think I had heard that there was one other one. And, you know, I think I got a bit fortunate just at the time of when I signed my LOI to

even when I close, like, you know, last year was a crazy year valuations across the board, right? And all kind of financial markets were going to gangbusters. I was fortunate that the LOI was initially signed in like February. And so it was, I think we kind of missed or, know, I was kind of ahead of some of that from a timing perspective. Well, the valuations went down, but the interest rate went up. I think this year. Yeah, certainly. But last year, right. That was the, know, that wasn't the case. Right. And so I think the general market was

quite a bit more highly valued than it was six months prior. And so thinking that regards like, you it was a pretty, a fair situation for me. Yeah. Did you always intend to use SBA money to finance the business or did you think about, how can we get into this a little bit faster? SBA is a three to six month process. I mean, he's like February, March, April, May, June. That's, you know. Yeah. I mean,

Ownership percentage was very important to me. I kind of, once I figured out that that was a thing, the SBA note was a thing, like a thing that existed. It was pretty clear immediately that that's something I wanted to do. I think that there, it's a double-edged sword. You talk about like the speed at transaction, which I think is a fair point in a hindrance. Mine ended up being okay. I think the bigger issue in my opinion with the SBA is,

the impact that it has on future growth opportunities. mean, you when you do an asset sale and you create this new entity that has no credit history and you're using that to purchase the business and you fund it with an SBA loan, you now have, you know, a large loan that has seniority on all, you know, all assets, right? They have a blanket mean on all assets. And so by doing that, you put yourself into a very difficult situation for future finance ability, whether you're looking for a line of credit or you're looking for a vehicle.

Jon Stoddard (20:57.933)
any of these things, right? Because other future lenders are looking at this and they're like, what do I have? They're all subordinate. There's just right. Exactly. So that has been a separate issue that I did not appreciate during diligence or even a close was like, well, if we end up growing at the rates that we have grown and we worked, we've looked for more sophisticated financing options like now, like in the line of credit or simply just like several vehicles that we're going to need to hold on or add on. Yeah, I mean, would be like, yeah.

even bigger example of it. Any one of those things that like you put yourself in a very difficult position there where like, you know, there's not a whole lot that you can do. And if you can do it, it's gonna be at atrocious interest rates. So I think that's where the SBA it's tough, right? Like it does give you this amazing opportunity, but then it also kind of handicaps you from a growth perspective. Yeah. Have you thought of any ways to remedy this aside from like, okay, refinance and pay off the SBA faster? I have a couple ideas in my mind that, know, I'm

toying with, I mean, I think, well, in the near term, the only one that really will, know, the nearest term situation will be, it's looking like we'll be able to get our SBA lender to subordinate themselves on our AR, which would allow us to then take an LOC with the lender taking priority on the accounts receivable, which I now have gotten a couple of lenders with some interest in.

all the last year basically though that wasn't an option, which from a cash flow management perspective was frustrating at times during spikes in working capital. But I think we'll be able to kind of navigate out of that if this ends up working as I hope it does. I think there are options to fund future &A. I mean, you could do another SBA loan, or you could just try to acquire enough so that the pro forma business is large enough to get traditional bank financing.

You know, there's challenges obviously with all of that stuff. So, yeah. What's that, that idea you got from being in the private equity where this guy grew to 300 million or billion, you're talking about what, what, when they talk about the chassis, were they talking about like a, accumulator role or a platform company or a holding company or a roll up? You're saying like, what did he specifically mean by that, that term? Yeah. Yeah. Yeah. I think he was talking about like the platform, right? So.

Jon Stoddard (23:20.769)
you know, having the proper systems in place at the platform level so that when you go out and you do these small add-ons or even a large add-on, but like when you do something, you can instantly implement kind of a certain system or pro you know, set of systems so that, you know, you create a 30, 60, 90 day plan, whatever it may be. and you say, okay, you know, HR, we're going to, you know, implement them on this and their, you know, supply chain.

procurement, they're going to come onto our system here and something where literally day one, you can kind of flip a switch and a lot of these things start kind of aggregating. And they had done it really, really well. And it costs a lot of money to set some of that stuff up. And I'm sure at times in the beginning when they were a bit smaller and they had some of it, like it was probably kind of expensive to have, but I think they're a great example of where you see the fruit of a lot of that later on if you're going to do that many. Yeah. You're familiar with Mark Leonard over at Constellation Software. I mean, where he has

You know, he's probably acquired, I don't know, 500 plus businesses, billion. Yeah. I've heard of them. Yeah. Yeah. And he just creates this. He's an accumulator where he shares operational excellence programs. Were you talking about the H.R. accounting and the systems in place where the next acquisition comes in? There's product differentiation. They don't share the same customers like they'd be in a marine software and then maybe mining oil software completely unrelated. But they share.

operational excellence programs. Like you were talking about that and that Twitter feeds like the ERP system. Right, exactly. Now, have you implemented that? Like, is this like a playbook? You said you're to come in, I'm going to implement, or are you still getting your head around what's happening in the business year later? Yeah, I would say somewhere between the two. I mean, there's absolutely things that we have implemented.

already. I think as it relates to &A, think that as we just were talking about, like the financing has definitely been a bottleneck there. Well, you know, there have been some opportunities thus far. We're getting a little bit more, I would say, kind of serious and aggressive at looking at a couple other ones. But, you know, in Atlanta or outside anywhere that think the goal would be here first.

Jon Stoddard (25:37.253)
huh. it doesn't necessarily have to be like in Metro Atlanta. Like in fact, I actually think there's a lot of value in looking outside of Atlanta because of the, you know, lot of the growth in Atlanta is kind of the surrounding suburbs. but I don't know if you've spent much time in Atlanta, but like the process of probably a couple of times east to west of Atlanta is a nightmare. And so like, you might as well be in another city. So, you know, simply we're on the east side, you know, if you were to simply look on the west side, it's like you would drastically expand your opportunity set and you would cut down on travel time. I mean, there'd be a huge,

kind of synergies associated with drive time by doing that. So that, think there's a lot of value in that. But like I said, we've kind of been, I would say slowed by the financing side. And then the other thing is like, I think, you know, something that we've experienced this past 12 months is when you grow in your first year at a rate like that, specifically in certain segments that have a lot of, you employees. 30 % in a landscaping business was all employees. Like, and it was a lot more, it was more than that. I think it was 42.

And yeah, was a lot of additional heads. And I think what we experienced is like, you need to make sure you are adjusting your policies and practices and procedures in line with that growth. And if you don't, it's going to have an impact. And so I think we experienced kind of come springtime when we are getting a lot more employees and the weather was ramping up and there's a lot more work to do. All of sudden, we.

there were certain, I think, policies and practices that we had which were probably not cut out for the new amount of people, whether that was the onboarding of new hires or how we approached over time or, you know, a few things like that. And so I think that there has been enough to do, or, you know, just because of the organic growth, there's been enough to do internally this year that has kind of taken the focus away from looking for &A. think my focus has been, let's.

try to get our in-house operations in as good of a position as we can be before we go try to tack on additional things. Because the worst thing I think you could do as a small business, or specifically in our position, would be to fight off too much more than you can chew. And then all of sudden, you've added two other businesses. And these internal policy problems are just kind of metastasizing into your additional add-ons, basically.

Jon Stoddard (27:52.341)
Yeah, that's like, there's always great books about that, you know, Wayne who's in the roll up and just created havoc when you acquire three or four businesses in a month. Yeah, I can only imagine. So, I mean, I think we're getting to a point now where I would feel much more comfortable, you know, doing that and kind of taking on that challenge. But yeah, certainly, you know, I think if you asked me day one, I would have said, immediately, that's going to be an immediate focus. And then I think after six months in, I was like,

I don't know. we have, there's been, there's plenty to, know, to kind of work on here. So it's, that's, think that desire is kind of fluctuated throughout the year. How did you grow 42 %? mean, it's, you know, coming from a PE firm. Did you, did it come from the owner saying, y'all, you know, sometimes they create these, Hey, here's how you grow a 42 % by doing this and this. didn't do it. They just said you should be doing it. Yeah. And I mean,

I would be obviously, I would be lying if I said like that was all driven because of me, right? Like it was just a, it was a combination of good things. I think it was a great macro backdrop. was, you know, share of wallet expansion with existing customers. was new customer growth, which I think was something that, you know, like something we've kind of really kicked off since, you know, I've been here. was probably COVID.

there's a contraction and then 2021 come around and then 2022, it just said, hey, you know, we have some more money to spend. Yeah, certainly on the like our work that's tied to new housing starts, you know, where we kind of will install landscaping and new neighborhoods being developed. I think there was obviously good kind of macro backward tailwinds there. But yeah, I think ultimately, it was just a combination of like several factors that have kind of all happened at the same time, which is great. And I mean, you know, I think it in

more so than anything else, just enabled us to, I would say, of start doing things sooner than we probably otherwise would have, you know, in terms of whether it's hires or, you know, looking at &A or, whatever that may be. you know, a lot of that wouldn't have been possible if it was not for kind of this, you know, the environment in which I kind of closed. me ask you about the multiple. I'm going back to this in the seller. I work with an SBA lender that, you know, wants to see

Jon Stoddard (30:15.469)
history of the business. And that could be in three years average of EBITDA. And so he throws out 2020 because that's COVID. I mean, I put a business in front of other day and yeah, they lost money in 2020. 2021, was barely less than $100,000. And he goes, look, this is just doesn't have enough history. mean, you could offer them one or two times, but we just don't have enough history to lend on it. How did he do?

coming from COVID, I guess, rebounding. I mean, think the business was down 4 % during COVID, so hardly any impact. I mean, that's the beauty of landscaping. Was that reflected in the multiple, though? Or did he just say, hey, it's 25-year-old company, and I'm going to sell it at? I mean, if you look at, I think it was like a six-year run of revenue, I mean, it was like a 5 % annualized growth.

over like a kegger over that period of time with, you know, the kind of small dip during COVID. So, I mean, it, there, I think the beauty of the business was the stability, which, you know, certainly lenders appreciated and, you know, basically the multiple that was being asked was, it wasn't really that different if you looked at it in 2020 or 2021 or LTM, you know, was because the business was so stable. It's like,

you felt pretty good about your ability to support that regardless of what period you really live in. Even if you came in and screw it up. Yeah. mean, well, and I think that's the beauty of growth, right? Is it getting growth cures a lot of sins. And so think for a person in my position coming in, not having run a business before, you what you love to see is the fact that this is occurring and therefore we can maybe take a little bit more risk trying to do some things, seek new customers, make some hires and you know, worst case scenario. Well,

The good news is the market's growing and the business is growing. so, you know, that'll help kind of cover things. Fortunately, I don't think that, you know, we haven't made too many mistakes, fortunately, nonetheless, would. Cures a lot of sense, doesn't it? Yeah. Yeah. So how did you wrap yourself around landscape and business? Like, you know, some people spend the time in a private equity or engineering like myself. So like, I'm going to look for a software company, right?

Jon Stoddard (32:37.837)
but the multiples are still high, they're coming down and you focus on that. But then there's all of these great simple understand cashflow positive, driving by you every day. He hey, buy me, buy me. mean, how did you wrap yourself around a landscaping business? I mean, think part of that is like, I never was working with or on, I never had anything to do with those kind of like high growth, sexy businesses. Like think if I was at

you know, one of the big software investment funds, I maybe wouldn't, it would be maybe a bigger jump from that to this. But I the reality is it's like, if you look at the businesses that I worked at both in banking, when I was doing on the industrialist team at Credit Suisse, then at the PE firms, it's like, these were aerospace businesses, niche manufacturing, home services, like things that aren't, you know, far outside of kind of this, this area. So I think my kind of comfort,

level with that, those industries. And frankly, like my attraction to a lot of like the themes of those industries, like stability and fragmentation and &A opportunity and, you know, et cetera. Like I think that led me to kind of be eyes wide open to this, whereas maybe someone, you know, would have initially been like, no, I want 30 % growth or I'm not interested. Right. Right. Well, that's good. How was it coming in?

with the new employees. I had a great interview from a guy in the UK. He came in with the seller and the seller didn't tell anybody about the sale and say, by the way, here's the new owner and walked out. It was not like that, fortunately. But I mean, was, you know, I think in any situation like that, it's very difficult.

especially when there's long standing people that are with the business. How long is the longest staying employee there? 10 years. 10 years. That's great. Yeah. Yeah, which is great and super important. Someone that we can rely on every day. So that's great. But yeah, mean, it's a difficult scenario whenever I think this happens. I think it obviously is exacerbated when you have a guy that has not worked in the industry or...

Jon Stoddard (34:52.639)
never run a business or things like that. Who is this young guy taking over our business? What do you know about landscaping? I used to my own lawn. know how to... Yeah, essentially. For me, it was really just being very transparent that I'm going to be relying on them. I have zero intention of coming in, changing a bunch of stuff day one because I don't know anything. I tried to really spend the first

four to six months just learning, asking questions. Sometimes I would write down questions and not necessarily ask them, wait until I could try to figure out if I could learn the answer myself, you know, and maybe I'll figure out the reason we do something as opposed to just like asking and maybe- Sounding stupid. Commotion. Yeah, not just that, but because I don't necessarily care if I sound dumb, but for me, I just didn't want to like concern people that I was, you know, investigating and going to change a bunch of things. And so I would just kind of, you know, this is something I want to look into. Yeah. And then-

Two weeks later, I might find out like, by the way, that's why we do that. Okay, nevermind, cross that off. And so by the time we had a more kind of full team discussion after say six months, I think I was much more informed on a lot of the topics. And so the things that I still wanted to talk about and ask questions on and stuff were, think, better questions and more relevant to the business, frankly. And I think it led to a good discussion. Yeah, did anybody leave because of your new management or style? Nope. No?

Congratulations. mean, we've obviously had, you know, there's obviously been turnover at the crew level. would mean, maybe some of it is related to me, I would say probably not. I think it's just a pretty fluid. Yeah, it's not gonna be good drinking beers with your employees now. right. And so, yeah, no, no major issues there, which is obviously very fortunate. And certainly, I mean, that's an area, you know, we were talking before about kind of diligence issues. I mean, to me, that's

one of the biggest one risks, right? And it's a really tough one to diligence because in these SMBs, like, mean, I, I, anything pop up? looked under the hood and it, we didn't talk about, and it was just a big red flag. I mean, well, I'll give you one, maybe one small example, but what I was just going to say is like, I think in these SMBs very infrequently, if ever do, you know, does the owner want you kind of.

Jon Stoddard (37:15.809)
full like open kimono with the team and prior to close, right? Because of the risk of like, well, what if it doesn't work out? You know, and then he's just alerted everyone. Scared everybody who want to crap because the first thing they do is come down and goes, I'm going to get fired. Right, totally. And so this was no different than that. And so I didn't have that access prior to close. And so you really are. I mean, I that's a massive risk, obviously, that you're taking and you're putting a lot of faith in what the owner, you know, the seller is telling you.

that the team is what they say they are and that they'll stick around and all of that stuff. So, that's obviously a huge risk, but I got very fortunate there that it turned out to be true. Yeah. I think to answer your other question though, I mean, there's a lot of things that during diligence, I maybe thought one thing and then it turned out to be something a little bit different. But that's not something he tried to- No, there was nothing that he was disingenuous. I wouldn't say that there was anything that he was disingenuous on or anything like that.

the only thing at all. again, don't really, I wouldn't classify this as disingenuous. It's just, I his role in the way he described some of his duties was slightly, I think he was more involved than he probably went on at times. And I think, I don't know that he did this maliciously at all. I think it was more just like, yeah, like I guess I am kind of important for that, you that too. You know what I mean? Where like, maybe he didn't see himself in some of those ways. And so I think I kind of uncovered pretty quickly like, you know,

he is actually pretty important in this capacity. And yeah, he does do a little bit of work in this capacity. So it was really just like, know, filling some of those things. Which again is- Let me ask you about this. there's a stat out there about 90 % of people that start looking for a business and actually don't purchase one. They make too many obstacles in their way. Was there anything that you made bigger than it was and almost like an obstacle and now that it's realized?

You were like, you know, I shouldn't have made that so big. that's a good question. I would say no, I think as I kind of mentioned with the whole valuation point, I think after I went through that first experience, I kind of pulled myself like, I'm not going to do that. like I'm going to accept a little bit more risk if I have to, and I'm going to, you know, as long as within reason, I'm going to probably just kind of go in at the ask.

Jon Stoddard (39:41.229)
on for evaluation and not try to, you know, basically be, like I said, be cute with, you know, pro-forming different things. Not a P, a P. Yeah. I think honestly, I mean, in some ways I would probably say like the opposite. Like I think that there are in hindsight, I think there probably were a couple of things that like looking back on it, I'm like, I probably should have honestly, like I, worked out. Thank goodness.

but I probably should have made a bigger deal about this or should have pushed harder on that or should have really got someone to do an inspection of all assets. That's something that whenever people ask me, like, would somebody do differently? I would have done that. I would have gotten an independent mechanic to come in and inspect everything. Yeah. But what would that have done if you spent money, you looked at each lawnmower, each blower, each like,

hedge trimmer, whatever it is like, well, you know, it's three years old. Well, well, I think on balance, if you do that and you do a couple other things and the net of those is all kind of in one direction, you give yourself a little bit of, of kind of leverage to say, listen, I want to do this. I want to close. I'm trying to be reasonable here, but then my guy just looked at all the equipment, right? You're saying there's whatever number of trucks and you whatever you think the value is. My guy is saying that like,

two of them aren't working, this one's gonna stop working and the value really is this. Like I think that you give yourself a little, you give yourself some room to say like, I think we need to adjust purchase price for the risk that day one, like I need to go buy two new trucks basically or something to that effect. Sure, and those are $35,000. Yeah, and like I said, maybe you don't do it just over that, but if you...

The assets is one example, speaking with customers, again, something that worked out really well for me, but could have gone the other direction. something that people don't want to give you exposure to pre-close, right? Because of the same risk we were talking about before. And so that's another one. it's like, depending on how that discussion goes, maybe you speak to a couple key customers and they say, well, I'll give you a chance, but I'm not going to guarantee that I'm going to resign with you or something, once the deal goes through.

Jon Stoddard (41:56.725)
Again, if you have a few of these things that are kind of on the margins and really presenting themselves as risk after spending a bit more time on them, like I think that may give you kind of the ammunition to push back on some valuation points. But again, I just was, I took the approach of like, he's being reasonable. I'm trying to be reasonable. This seems fair. He wanted out and he was a motivated seller. He's like, yeah. Yeah. And honestly, he's just a reasonable guy too. Like I think he's smart and he understands like,

what he was asking for was fair and it wasn't crazy. And so someone's gonna be willing to do that. Do you think landscaping business, I interviewed another guy in California that owns three landscaping businesses doing a roll up there or an accumulator or a serial acquire. Anyway, he loves the business because it's reoccurring revenue. Yeah. But it's a low multiple easy to understand. I mean, what did you love about this business that said like, I like it, I'm gonna go for it.

I love the cashflow reoccurring. Yeah, that's a question. mean, I think the thing that I think my answer to that is probably slightly different and that's somewhat because of the makeup of the business for us at Close. Now it's shifted a lot and a lot of our growth has been in the recurring side, which was my kind of goal to begin with, but it wasn't that was not the focus, you know, initially. I think my answer to that though would be, I really liked that it is in business where effort is truly correlated with results.

And so I think as an example, you know, I had looked at one point at like a niche manufacturing business. made cardboard boxes for munitions and department of defense and things like that. And it was like incredibly well insulated from like downturns, You're, know, in a recession, like I don't see what's going on with this business. Like, you know, they have great contracts and all this stuff. I have zero idea how you could grow that. You could send 15,000 emails to people.

you know, talking about how great you are and all your, you're not going to get one more defense department. You're right. So unless you're going to create a new product and, know, do work for Amazon or I have no idea. Like it's just, I don't think that, I don't think you could put all the effort in and I'm not sure that you would get any results. This isn't the opposite. I mean, this is truly like to the point where like, I, kind of have rough idea of averages at this point where it's like, if I send a thousand emails, right. Using some automated outreach system, which I've kind of devised a whole.

Jon Stoddard (44:18.573)
kind of plan around basically. But if I send a thousand emails, I know that I get X percent responses, which are asking for proposal opportunities from there. Our close rate is Y and therefore a thousand emails equals blank amount of new customers, right? And it's proven pretty true over the course of the year. And so it's like, I wanted to right now, could sit here and spend three hours and pull up a bunch of more emails and send this mass outreach and probably get some more proposal opportunities. to me,

as someone in my position, new industry, new business owner, all these things, having that kind of safe net, safety net is massive because we were talking before about hearing sins. Knowing that I could maybe make some wrong decisions, but if I spend a lot of effort on this, I can help us get growth. That's a really, really reassuring thing, I think, as an individual in my position.

That's been huge. And in some of the times where, you we've been, I've been the most stressed about different things, like being able to rely on that and just get back to the kind of the grindstone of like reaching out to people, building this pipeline, meeting with people, getting new, you know, business. like, makes you feel better. It's like, all right, well, I'll be able to get through some of these other challenges. Cause I know like we still have this pipeline going. Yeah. Adrian, lovely. I want to thank you so much for being on our podcast. Yeah. I appreciate it. Yeah. Thank very much for having me.

Good luck with the business. Good luck with your future acquisitions too. Thank you. Hopefully it works out. Yeah. Take care. All right. Have a good one. I hope this video has inspired you. If you need help buying your first million dollar business, make sure to visit me at dealflowsystem.net. If you like this video, make sure you subscribe down below. Comment on it, share it, tell everyone about it. And thanks for watching.