00:39:08 · Greg Geronemus
There was some terrorism in Europe, the European migrant crisis. There were a lot of things that were creating some headwinds to our business. But that year, we figured out that we had two things, and these were the big sort of unlocks for the business and from a top line perspective. One, sort of going back going back to the future, we we discovered the power of direct mail. So our instinct was digital, but the actual silver bullet was direct mail. We we learned that's really what resonated with our audience with the older traveler. They like something... Even in the digital age, they like to have something physical that they could hold on to. And we also identified that there was a significant opportunity instead of selling all of our products direct to consumer to harness the power of the b to b to c distribution model. And by that, mean selling through universities, church and synagogue groups, retirement communities, chambers of commerce, companies that would would take trips as... For their... With their team, and so on and so forth. We hired a salesperson and and really ramped up that effort. And in year three, going into year four, we we started to see some really accelerated top line growth, which was very gratifying. Continued margin improvement, continued delevering, and then we got a we got a knock on our door in in late twenty sixteen from a potential buyer that then sort of resulted in the next part of our journey.
00:41:16 · Mikk, Greg Geronemus
[00:41:16] S0: But when it comes to running this cyclical business, again, you said you dealt with Ebola, terrorism, Zika, regional crisis. This... Did did those experiences change how you think about leverage when it comes to running this type of businesses? [00:41:38] S1: You know, the business has held up. I mean, we more or less grew EBITDA every single year. We didn't grow the top line every year. I don't think it necessarily changed how we viewed leverage per se. I think it changed how we viewed the challenge of growing the top line. And not to take it for granted. We a... Aside from a little bit of elevated exposure to South Africa, we had a pretty well diversified business across the globe. And so, you know, one regional, geopolitical, or public health event was not, you know, was not gonna really be terribly problematic. It was just gonna make it harder to grow. And we had such a loyal customer base that more often than not, when there was something going on in one part of the world, travelers would just sort of reshuffle their bucket list and say, okay. I'm not going to South Africa in this year, but I'll I'll go to Thailand this year. I'll... Hopefully, things will be fine in South Africa the following year. And so it made us appreciate the challenge of of growing the top line, but not necessarily, again, not necessarily sort of the leverage question. [00:43:12] S0: And the debt you were able to pay, like, $45,000,000 down every single year while owning the business?
00:43:12 · Mikk, Greg Geronemus
[00:43:12] S0: And the debt you were able to pay, like, $45,000,000 down every single year while owning the business? [00:43:17] S1: Yeah. Yeah. So aggressive delevering. There really wasn't much to... There was so much... You know, there's no CapEx. There's no... Nothing to buy. And, you know, asset light business. So we, you know, first year and a half or so, we had this sort of... Even though we were focused on sort of learning, we were still frustrated that things weren't sort of budging on the top line. Because a lot of people measure themselves on on revenue, but, you know, as as we reflect back, you know, being able to still grow EBITDA, thanks to Dave's great work on, you know, beating the heck out of our suppliers and improving cost of goods sold, and being able to delever so meaningfully, we were still adding a tremendous amount of value to equity holders. [00:44:11] S0: Okay. And now the decision to sell Great companies are bought, not sold, so someone reached out to you and why did you decided to sell eventually?
00:44:26 · Greg Geronemus
[00:44:26] S1: A financial buyer reached out in late twenty sixteen, and we had a couple conversations with them. They presented an offer that struck us as fairly compelling, more than honestly what we we thought the business was probably worth. And we were also aware that, you know, we... Although we had sort of unlocked some key drivers of of top line growth that we believe... We sincerely believed in, we were also aware of, the challenge of growing the top line that we had experienced in the first few years of our ownership. That at any point, we could face a recession. At any point, there could be a series of public health disasters. We didn't predict COVID by any stretch of the imagination, but we were just aware of the business that we were in. It was not a, you know, it had great repeat and reoccurring traveler activity, but it was still cyclical inherently. It was not sort of your subscription revenue, SaaS business that had 110% net revenue retention. So we didn't want to take what we had for granted. We also spoke to one of our board members, this guy Michael Michael Klein, who's... Who runs Littlejohn, a large private equity firm. And he's... He explained to us that he's never had seller's remorse. He's had buyer's remorse. Not that often because he's been remarkably successful, but he's never had seller's remorse. And that really struck with us. And so rather than just negotiating with one party, we decided to interview a few bankers and try to figure out, you know, is this a real offer? And do you think potentially you could do better? All three bankers thought that they could do better for us, and we were lucky enough to align and engage a firm called Fidus Partners led by John Ross. They did a phenomenal job, they ran a robust process. There was, I think that we had 78 company... 78 firms that signed NDAs. We had 34 indications of interest. We narrowed it down to 12 management meetings. We had eight LOIs. We narrowed it down to three parties and then picked one winner. And the Fidus to their credit was able to generate a premium relative to that initial offer we received. The initial unsolicited offer, there was a premium of 25%. So they did 25% better than that initial offer. Yeah. More than paid for their fee many, many, many times over.
00:47:52 · Greg Geronemus, Mikk
And, yeah, it a great outcome for everybody involved, and and it was pretty much right on the four year mark. So we we bought the company 10/11/2013. We sold on Halloween, 10/31/2017. And, yeah, and then embarked on a two year transition plan with the firm that bought us. [00:48:18] S0: Okay. And how was the outcome when it comes to... Can you share the numbers? [00:48:24] S1: Sure. So it was it was about... It was just under a five five x net to investors, just under a 50% net IRR. We benefited from a mix of, you know, dramatic debt pay downs. So we we we paid down... We had $19,500,000 of debt when we bought the business. We had just a few million dollars of debt when we sold the business. We had a, you know, a meaningful amount, about 50% EBITDA growth despite adding, I think, over $2,000,000 of OpEx to the business. So in our view, you know, we built not only a bigger business, but a... You know, we completely took away the key person risk. We put in real systems. We had a real team. I think we quadrupled the size of the company in terms of employees and grew, you know, EBITDA meaningfully. And then benefited from meaningful multiple expansion as well. So we we bought it for around five times. We sold it for around nine times EBITDA. And, you know, all things considered, yeah, that got us to, you know, the outcome that I mentioned.
00:48:24 · Greg Geronemus, Mikk
[00:48:24] S1: Sure. So it was it was about... It was just under a five five x net to investors, just under a 50% net IRR. We benefited from a mix of, you know, dramatic debt pay downs. So we we we paid down... We had $19,500,000 of debt when we bought the business. We had just a few million dollars of debt when we sold the business. We had a, you know, a meaningful amount, about 50% EBITDA growth despite adding, I think, over $2,000,000 of OpEx to the business. So in our view, you know, we built not only a bigger business, but a... You know, we completely took away the key person risk. We put in real systems. We had a real team. I think we quadrupled the size of the company in terms of employees and grew, you know, EBITDA meaningfully. And then benefited from meaningful multiple expansion as well. So we we bought it for around five times. We sold it for around nine times EBITDA. And, you know, all things considered, yeah, that got us to, you know, the outcome that I mentioned. [00:49:47] S0: Thinking back maybe now, you knew you're coming to talk about this this period and the journey, maybe you had another long walk to just think of this business you bought and build and period of your life. Is there any lessons learned if something that that comes to mind from this period?