00:15:41 · Giuseppe Balzano
So this is a real experience, and, luckily, I'm I'm very full of senior people that can support my journey. On the other side, it's more, as you said, these quick and dirty, you know, data points, and maybe, you know, in a given day, you have 30, 40, 50 ideas, you know, coming from a leading, could be blog... Blogs. I have subscriptions to all the the holding, you know, roll up and and value investors kind of news... Newsletters. And maybe, you know, out of 50, 60 ideas, 59 are not interesting. You know? But there is one or two sometimes that that I like. At that point, what I do is to forward the email or the tweet or, you know, the interview or whatever to another email I have, which is a personal email that has a label with the with the object saying... The the subject saying, you should you should read this or you should listen to this. So I have a warehouse of of interesting material that I can, you know, consult when I have time. It can be, you know, at night or on a train or when I drive, you know, I can listen to podcasts or to interviews. It's very easy that I can just, you know, pull pull and and and and use. On the other side, you know, this is not time efficient. You know? Maybe you you need an information on one specific company, and the only way to form an opinion is to spend five hours straight on that article or on that, you know, numbers. Of course, you do that. I think it's part of of your job. I think as a CEO and founder, but more as a CEO, I think our two responsibilities are to set the direction, like deciding to go north, east, you know, twenty degrees, twenty five, and find people that can do the job better than me. These are the two most important jobs. And on the second, there is an annex. You also should be able to convince these people to stay when when they realize that they are the one leading the boat, you know, that you decided to direct maybe in one direction. You know? So it's a matter of finding the incentives. As someone said, you know, show me the incentive, and I will show you the outcome, and I will tell you the outcome, and and and finding the right direction. I think with this combo of industrial engineering heavy Italy SMEs, I think there is something here. There's a big thesis. I think we can we can make money. We can do a successful business without any issue. So the risk is more on the execution side.
00:18:17 · Giuseppe Balzano, Mikk
So what I'm doing now is to spend a lot of time with people that can join the company for the future and understanding the personality behind the the the business profile. [00:18:29] S0: Can you talk about the two acquisitions you've done? Because you mentioned like you've done... You've seen like 1,300 companies. That's a lot of companies to choose from. So these... And based on your experience and what you want to build and all that, there are some specific criteria. And could you please elaborate of why those companies and what those companies are doing?
00:18:50 · Giuseppe Balzano
[00:18:50] S1: Yeah, absolutely. So these are two engineering companies. So they do little components in two different fields. One field is the pharmaceutical and food. I don't know if listeners are aware, but Italy, of course, as food suppliers, you know, I think it's it's easy to to to to assume. But from a pharmaceutical point of view, Italy, Germany, and Switzerland are very important exporters. So we have big supply chains of of suppliers in in the same field. You know? So this specific company is a company doing one component that goes in the machines, in the machines with which the pharma and food companies make stuff. Could be a drag. Could be some pasta. Could be something else. But in these big, you know, lines of machines, there there are some components. I'm not gonna deep dive on on which com... Which component, but there is one component that is critical for checking the quality of of the products. And the company we found is the only one active in Italy doing one specific niche of a niche in in both supply chains. So they are solving an issue for both kind of companies. It's interesting because it used to be different. You know? Fifteen, twenty years ago, maybe there were 20 companies like that. But little by little, they became maybe distributors or commercial branch of big companies, or maybe they just went out of business, which is something that in in Italy happens very frequently. I I don't have the stats, but, you know, in in the order of hundreds of thousands of companies shutting down every year, you know, and sometimes it's because of, you know, a second generation transition happening. So now this is the only one doing what what what we want... What we wanted to do, so we are gonna buy it. The second company is in a completely different space. It's in the agospace, avionics, agospace, to not say anything more. And and they do a little component as well. So imagine helicopters or airplanes. You have a lot of commands. Maybe there there are buttons. There are levers. There are valve bolts or little pumps or, you know, indicators or lines. You know? There are many stuff. One little component, these guys have the monopoly. They have the monopoly in in the European market, and it's big enough and niche enough to be interesting. Because when you put together avionics, helicopters, and planes, you want to have some sort of sovereignty.
00:21:42 · Giuseppe Balzano
So, you know, the Italian companies hopefully will not buy some other contents, especially in this decade, I would say, unfortunately. So it's important to have someone in your continent that you trust, you know, to do this component. Without the components, there is no flight. So they're not gonna... They're they're gonna leave land, and they're not gonna work. So it's either you buy from me, us, or you decide to put something which is critical for the success of your flight, as you... And you and you can imagine, you know, what kind of flights, you know, could be civil or not, in the hands of someone else. And and the question then is, who is the other person? Who is the other company? What kind of interest that the company has? Who's behind? You know? So it's it's a sort of regulatory macro kind of defensibility. On the engineering side, it's not... They don't have they don't have an IP. They have 700 IPs, so they have a class of IPs for different applications. But it's important to notice that there are two, three other companies in the world that can do the same stuff. So the same application with different IP. So it's... Technically, we have competitors. But that kind of component with that design, with that use case is not gonna be the same in another company. So then the question is, if you wanna change your supplier, are you ready to change 20,000 helicopters? And maybe you you have to to to buy the component from another, you know, country. So this kind of stickiness, you know, is what I'm looking I'm looking for in the in the companies we buy. Third acquisition is a... And first strategy for me in another sector is in the water management. And the water management is another industrial company. They do a system, okay, that can be used for, you know, managing to to create some pressures in the in the water system... In the... In water systems in a way. It's like a mix of a of a pump and a filter that can do that can do two kind of jobs depending on on the application... The final application. Hopefully, we have this company. Maybe for for the next interview in in in some years, I will tell you if we ended up buying it. But for now, there is an exclusivity, and we are trying to win the deal.
00:24:24 · Mikk
[00:24:24] S0: What is your approach when it comes to post acquisition, having been working the VC firms? VC firm, you have to grow those companies reasonably aggressively. So what is your approach now when it comes to improving and growing those companies organically?
00:24:43 · Giuseppe Balzano
[00:24:43] S1: As another mentor of mine says, and he's also the chairman of the company, he will tell you he will tell you, let's try to not go backwards. So all good, but don't go backwards, which is completely different than venture capital. You know? I remember pushing back on some founders growing 15, 17, 20% per year and saying, you know, we should deploy faster. We should grow faster and hire more people. Then what happened is, you know, the the bubble popped in in some geographies, including Italy and and Europe, I would say. US is different. You're you're you're just painting money, you know, so you have cash indefinitely in the future. No. Just joking. But venture capital, I think, also went under stress. You know? And and the way you do deals is very different than in the twenty eighteen, twenty nineteen kind of investment thesis. I don't know if you remember Tiger. You know? I don't like to do names, but it's famous. You know? The Tiger Global started to put hundreds of millions here and there. You know? Or gorillas in Italy. You know? They had an amazing, you know, clash after after an amazing loaf. You know? I just wanted to go far as much... How do say, as far as possible from from that kind of of of of system. Because the only way to make that kind of deals work is you have to go indefinitely in the future. There's no... And we have some sort of... There there are some synergies now now that I'm thinking with some compounders, you know, also new compounders. There is this need of buying, buying, buying, buying. Because if you don't buy, you're not justifying, you know, the the the amount of leverage or the cost of capital or the valuation that you have. You know? And as soon as you start to be more patient, bam, you collapse. You know? And and this is something I never told, so thank you for the interview. What I'm looking for post acquisition is to keep the company as it is. If there is a big opportunity whose return on invested capital is clear, like, have orders in Asia. If we if we hire someone, if we open the office, we will have 50 orders. It's gonna cost us then, you know, that... Let's see if we do the the deal or not. That is clear. I try to avoid those deals in which the founder or the the living founder has an expectation of a lot of CapEx involved, which is tricky.