00:16:54 · James Bohannon
[00:16:54] S1: Yeah. So I think look, there needs to be alignment and shared vision from the get go. So someone has to say to you like, look, our plan is to buy this $5,000,000 EBITDA business. And then we wanna do a bunch of add ons. And we ideally wanna hold the business for seven years. And then when it gets to 30,000,000 of EBITDA, we wanna sell it to either another sponsor or a strategic. Let's just say that's the standard vision. I think going into that, there needs to be sort of a shared, you know, there needs to be a shared vision, but also like strong economic alignment on how everyone's getting paid. And I say everyone meaning the sponsor, the management team, the team at the family office, and obviously the principal of the capital, like what the actual alignment of financial incentives is, is very important. And the flexibility really comes in when things don't go according to plan. And maybe they go awry in a good way or maybe they go awry in a bad way. And we can talk about two for an example. So let's just say in that example, all of a sudden a monster asset comes up that's like 23 of EBITDA. And that independent sponsor is like... Goes to the family, their biggest investor, the L pack or a couple of families. Like, guys, guess what? Like, I just found out I can get, like, the gorilla in the in the room, like, at a deep discount. This is, a huge opportunity. I know that this is sort of off mandate. It's not really part of our plan, but, you know, this is a big opportunity. Let's do it. A flexible and aligned capital partner will be like, hell yeah, let's do it. Like, this is why we're doing this to find opportunities like this. Whereas an investor maybe that's very confined to their exact plan, more sort of plain vanilla. They just wanna get their three x net or two and a half x net MOIC and, you know, hit a sort of 14% IRR. They're gonna be like, look, I I don't really wanna swing for the fences here. I just wanna get my number, you know, take my ball and go home. That's like in a situation where the flexibility in a good situation can be a huge add. On the negative, right, like there's sort of the opposite scenario. Things don't go well, etcetera. I think just having alignment about the conversation sort of upfront is crucial. And I will say like these paths are rarely just linear.
00:19:22 · James Bohannon, Mikk
Like it's never like the story I just told of you buy the $5,000,000 EBITDA business for 6X and you do add ons at 3X and you sell the whole thing for 10X. Like that story, it rarely plays out that simply. Like, either it's like there's a crazy bonanza situation, a Lollapalooza event as whoever says, which is so funny. And you just get these, like, crazy growth stories or, things sort of go away to the right. Like life and these business journeys are not so linear, right? And there's opportunities along the way. And I think having like partners that are really well aligned financially is crucial because there could be opportunities that go up. We're in a business in the media space that acquires post production visual assets. And there was a incumbent in the space that sort of had a bankruptcy and one of the core assets was available for us to take over in almost like an aqua hire fashion. And that was something that like we were super stoked to get the call on and super stoked to be a part of. And you know, like, it was... It wasn't in the it wasn't in the plan. But, like, we were glad it happened because, you know, man makes plans and god laughs at at it or or whatever the saying is. So yeah, anyway, go ahead. [00:20:41] S0: What are some of the like there are pros and cons of doing this? What about the cons when it comes to being so flexible, doing different industries? Because there is this world focus we keep hearing in the world of in investing circle of competence. You try to do so many things, it can be tough.
00:21:02 · James Bohannon
[00:21:02] S1: It's a great question. I think, look, bandwidth focus are crucial. Those are like sort of the things that everyone is is going up against in this world. And I guess if you have very rigid constraints, it's... You're able to be very, very focused. Right? And maybe you miss a lot of opportunities, but maybe you just do the exact right thing. You know, you're looking for this exact T. O. Box. I think you... In the in the family in the family capital ecosystem, I think to do that would be... You know, you'd miss out on a lot of great stuff, and you like wouldn't get to take advantage of one of the greatest weapons and attributes of family capital, which is the flexibility of sort of duration and style, etcetera. But you make a great point. The other side of that coin is, you know, lack of focus or the ability to do anything. Like, I don't think you can just say, hey, we're gonna do anything. I think you say like, this is kind of what we're looking for. This is what we're good at. And you leave some sort of buffer on both sides to be flexible. I think everyone sort of has their core deal box. When family have these families are always talking to each other or sharing their deal box. Everyone's like, yeah, this is what I'm doing, this is what I'm doing. And that's like sort of, it's like an eightytwenty, like 80% of what you're doing is falling into that box and then there's sort of like on the fringes, sort of more flexible things that come up. But yeah, I mean, I think there is definitely some truth to merit that if you're not mostly focused on what you're good at, you're gonna just be spread too thin, you're gonna have bandwidth constraint, etcetera, etcetera. And we face that at our firm now and we're always asking ourselves, are we focusing enough on the things where we're good at? And I think like within the world of what we were just talking about in those examples, like that still all falls in lower middle market private right? So you can be flexible. I don't think you can just say, look, we're gonna do quant funds and we're gonna do opportunity zone real estate and venture like that lack of focus you're gonna get smoked because you're competing against people that are 100% focused, a 120% focused. And I'm not suggesting that in flexibility.
00:23:07 · James Bohannon, Mikk
I guess what I'm suggesting ideally is you have your deal box and then you have sort of flexibility within your circle of competence. [00:23:15] S0: Right? That's so great that you mentioned that. I thought it's gonna be like AI warehouses planes, but now it's it's just like lower middle market as you said and there Yeah. It can be extremely... Okay. Good. [00:23:25] S1: Yeah. I mean, I think even Berkshire, Berkshire had a, they had things that they would never flex on in terms of like investing in honorable people and good management teams and etcetera, etcetera. But then there was flexibility in like the type of business, right? I mean, there was things they definitely wouldn't do, but in like how those deals were sort of done, right? So I think there's a nice balance between, you have your core values of what sort of most important that never moves. And then you have the ability to be flexible in things that sort of, you know, on the other vector, if you will.
00:23:25 · James Bohannon, Mikk
[00:23:25] S1: Yeah. I mean, I think even Berkshire, Berkshire had a, they had things that they would never flex on in terms of like investing in honorable people and good management teams and etcetera, etcetera. But then there was flexibility in like the type of business, right? I mean, there was things they definitely wouldn't do, but in like how those deals were sort of done, right? So I think there's a nice balance between, you have your core values of what sort of most important that never moves. And then you have the ability to be flexible in things that sort of, you know, on the other vector, if you will. [00:24:01] S0: Let's talk about the guys and gals who you work with and about to work with those sponsors, emerging managers. You once in a while getting calls from those people wanting to leave and you said this is the fun part of your job, having those conversations. You've seen a lot. I don't want you to give advice, business and life advice here, but just like the fact that you've seen so much and considering your own background as well, not coming from investment banking and PE, but being like this entrepreneur. And then you have this, what you've mentioned, F2E, which you mentioned on the previous podcast. Maybe you can cover the type of individuals you see and how those conversations look like. And there's clearly people we could call now seeing the track record absolute stats. So how would you describe those people and what you've seen in the conversations and emerging managers?
00:25:02 · James Bohannon
[00:25:02] S1: Look, I think we're in an interesting part of sort of private markets and private equity firms and, you know, assets necessarily aren't trading as much and rates are higher and there's just less liquidity, which means carry is, you know, not been crystallized in a lot of these firms. And a lot of these people that started these firms ten, fifteen, twenty, twenty five years ago, they're in their 50s and they're not leaving anytime soon because they haven't sort of gotten their big payday. And there's a lot of firms in that size. And let's just say PE funds that are like 2 to 20,000,000,000 in size. There's a lot of those, like thousands of those, right? Maybe, or yeah, as we've all seen the stats. And if those 50 year olds aren't leaving, those like 32 year olds are like six layers from the top. And they're like, all right, like I'm not gonna get paid for sort of seven or eight years on this. I don't think this guy is sort of retiring. And like my chances of really making like good money here, I'm just gonna grind away or maybe not that amazing. And in today's world, there is just a huge market for independent sponsor deals and the silver tsunami of businesses changing hands from boomers. So it's like you got all these forces coming together that if you're like 30 to 45 and you're sitting in a seat where you don't own a meaningful part of the GP, unless you're just getting lights out paid at some of these firms, which you can. You If you have one of these like few select seats, you're a team like running, you're the seventh guy on the tack ops team and whatever. But a few from those very few seats or like, hedge funds, etcetera. Like, a lot of people are like, look, I can run out, go find a go find a business, get a couple families to back me, some family friends. Like, I know a few LPs. I can control my own destiny. I have sort of unlimited upside. And then I also have like on the downside, like, look, it risky? Sure. But like I'm buying a cash flowing business that's been around for forty years. So it is risky, but it's everything's risky. Staying in your PE fund job is risky, especially in the world that we're entering, right? Like with all the technological change, etcetera. So I think everything has risks. Everything is hard. Everything sucks a little bit. It's just choose your own hard.