00:32:07 · Frederik Brandis, Mikk
So I'm speaking to all our investments, trying to understand how they've done things, why they've done it that way, which tools they've used, how did they use the tools, and basically centralize the learning and then build their best in class process. And that also takes so much time and just getting the learnings. It's never prior A for a company to share with us, but we obviously kind of enforce it, given the mutual benefit to everyone, and then building out this process and these learnings and making sure it's really our opinion that this is the best way to do it also takes a lot of time. And I think that is probably also underestimated. [00:32:52] S0: Now you being this so called designer and at the same time building for exit, you mentioned doing this three, four, five year sprint of consolidating a market. And you again, having this great experience of doing it successfully, looking back at this experience or experiences, what decisions were actually made on the early days. So you know that when this day comes, we are actually ready and prepared for a larger private equity to come in, whether it's growth equity, selling 100%, but you know you're ready.
00:33:30 · Frederik Brandis
[00:33:30] S1: So first, want to say, you know, design for exit. We are a fund, we want to exit. But I don't want to create the impression that what we do is like, you know, we just push them together and fast and let's go and sell it at whatever cost. Like, I think there's a world, especially with these companies that have so much value creation possible where, yes, we design for exit. Yes, our journeys are quick, but we are never quicker than we can excite the people for us. I mentioned that earlier. And one of the metrics that we use is that our groups are always net net profitable. So the subsidiaries will always cover the cost of the headquarter, and we will never have a headquarter that is as big that they would eat the profits of the subsidiaries. If you want to grow insanely quick, that's probably not going to work out. Same for debt. So we don't take debt levels where we have the feeling that if something just goes slightly wrong, the company, because the covenants are so tight, the company is taken away from us, but we rather take lower levels of debt, and it makes sense anyways because the psychology of people, again, is the limiting factor, where we also have some breathing space for times that may be not as shiny as we all want them to be. And at scale, we think that is the best risk return. Now having said that, or when do we know that you're exit ready, I think it's hard to generalize. It depends on market momentum. It depends, obviously, what company is in their life cycle. Generally saying, we think you need to have crossed at least 10,000,000 of EBITDA. And you need to show that you have built a functioning system in itself that can be the centerpiece for further growth. And that is the old magic code word for this integration. And that is the foundation for any exit. And then, you know, also designing for an obviously an outlier multiple, everything else is on top.
00:35:35 · Mikk
[00:35:35] S0: I wanted to ask this because I had a private equity GP of a B Fund on a show a half a year ago, Kai Doveska. They buy companies in Northern Europe. And he said that the mistake he sees constantly smaller private equity firms making is just squeezing everything out from this opportunity and then trying to sell. What they've done and what they see works extremely well is they leave quite a lot of upside for the next buyer. And by doing that, they've seeing many great outcomes.
00:36:08 · Frederik Brandis
[00:36:08] S1: I mean, I'm happy I've said it before in the podcast where you didn't prompt me towards this answer, where I said we do leave value creation for the next one and everything is a return on time. So I fully agree with that. If we do diligence, one core point is the equity story of the next owner. So you don't need your diligence like, hey, can I get a company to go to $10.15, 20,000,000 EBITDA, and is there enough and so on? What is the story of the next person? And they obviously want to see what you've done. They want to have it as easy as possible, and integration is kind of the foundation for that. But they also want to see that you have synergy potential. And of course, I can tell the story of synergies, but to give the story gravitas, I also want to have done it. But I don't need to do it in all of them because you leave value creation for the next owner. And that's also how you achieve outlier multiples. And that's also how you have enough space or time space is the wrong word, time for the founders to actually spend time on integration and M and A. So it's all a balance of where you spend your time and value for the next owner is 100% crucial to the entire journey. So I fully agree.
00:37:17 · Mikk
[00:37:17] S0: Now you as an investor, I want to come back to this finding those people, but maybe more specifically talking to those people and when it comes to building trust, reputation, credibility. Because I mean, some people enter the buy and build world with built in trust. There's through family, maybe networks, maybe institutional credentials. But then there is a lot of people who have none of that. And I was one of them, a lifelong salesperson. So what is your take when someone's listening and late twenties, early thirties, at the same time, they know how the game works. Are happy to grind, happy to work hard. What do you believe? What are some of the most effective ways on earning credibility and trust and then having a firm like yours to back them.
00:38:17 · Frederik Brandis
[00:38:17] S1: You know, so much into the kind of human game, as I mentioned before, I don't look is also a lie, but like I prioritize a conversation 10 times over a background. So for us, you could always reach out to us. We speak. And, you know, if you have great energy and, you know, you have, like, very analytical thinking and have a clear vision on how you want to do something, what you want to do, and why you want to do it. And that doesn't mean that you need to have an industry thesis kind of lined up, but it's like, hey, I'm looking for, like, I want to do a roll up. This is why I want to do it. I think this is super important. I've already looked into the markets, and these are my opinions. Like, what do you think? And, you know, just having a, you know, like, smart discussion goes a long way. So per se, there's nothing that you need to do from a background perspective. I do think that some deal making experience helps. It just makes you, especially at the beginning, much quicker. If you're n20, beginning 30, I think it's on the young side of things. I would probably recommend you whatever your background before is to maybe go, you know, as a funders associate or M and A associate or whatever in a roll up, no matter who it is backed by, whether it's an entrepreneurial roll up or PE back roll up, to kind of learn what really works well, to then take these learnings into your own journey, I think is probably the most effective way to also be interesting for investors. But I think interesting, be interesting to investors should always be a secondary motivator. The primary motivator should be, how can I really build a successful company or roll up in our specific case? And seeing what works is always a good idea, then doing that for two, three, four years, and then maybe starting when you're 34, 35 is probably good advice for where I stand.