00:03:12 · Mikk, Greg Geronemus
[00:03:12] S0: Exactly. Yeah, [00:03:14] S1: so we were both business school students and we were not in a position to consider this sort of self funded path. There weren't nearly as many people going down the self funded path back in that time, but really, the only viable option for us was to do a traditional search fund where we raised search capital to fund up to two years of runway for us to hunt for, identify, and then acquire a business. So we raised that search capital during our second year of business school from six investors. We had a intentionally smaller search capital investor group because we wanted to have just a more intimate and sort of closer relationship with our investors and keep things a little bit simpler. But what raising Search Capital did was it allowed us to to have some current income while we we search for a business to buy. So we weren't as as stressed, let's say, as somebody who's who's self funded. Not to say that we weren't stressed because it's an inherently stressful and challenging path, but we had some current income as we were looking for a business. So it took us about a year and change until we acquired the company and happy to get into that process. But no, we had some current income, that was certainly helpful and not only helpful, but necessary for both of us. [00:04:50] S0: Okay. Now, the decision was made, a bit of search capital was raised. Tell me about the the sourcing and the search process. And maybe if you... It it was some time ago, but maybe I remember, like, how how was your typical week?
00:05:12 · Greg Geronemus
[00:05:12] S1: We were big believers in the extremely high volume approach. So a couple aspects of our search, not only were we traditionally funded, so we had search capital. What was a bit different about our search is that we were geographically constrained. So my wife was in the middle of her very long medical training journey. She was just finishing up medical school and starting residency and had committed to four years at a hospital in New York City. And Dave's wife had a job, Lindsay had a job that she loved in New York. And so we were really only looking for businesses in the New York, New Jersey, Connecticut area, parts of Pennsylvania. So it required us to be fairly industry agnostic because we had a geographic filter. And the approach that we took was just let's go super high volume, throw a bunch of stuff at the wall and see what sticks. We probably sent a thousand emails a week. It was an easier time then to be a mass emailer than it is today. But we didn't just rely on the email channel. We talked to countless brokers. We did a lot of old fashioned sort of, know, pounding the pavement, meeting with people. Anyone who would meet with us that touches the lives of sort of small business owners in the Tri State area, we would sit down with them. Accountants, lawyers, insurance brokers, wealth managers. We were talking to anybody and everybody. We just felt like the more we put ourselves out there across every dimension, the more likely we are to have interesting opportunities to sift through. And we had a very active pipeline. We saw a lot from the mass outreach channel. Always still surprised how many people respond to an email out of the blue about buying your business. We saw some interesting opportunities from brokers. But ultimately, what led us to smarTours, the company that we eventually acquired and operated and then sold, was old fashioned networking. So it was just... It was an interesting daisy chain of events. It started at a business broker breakfast that they hold once a month at 7AM in Long Island about 40 about forty five minutes outside of Manhattan. Sat down with a bunch of main street business brokers. They typically sell gas stations and car washes. They didn't have anything actionable, but they suggested that we talk to an insurance broker who was very well connected. So we talked to the insurance broker.
00:08:09 · Greg Geronemus
He said, why don't you talk to my friend, Todd Kinney, who was the relationship manager for private equity at BDO, the big consulting and accounting firm. So we talked to Todd, and Todd said, why don't you come to my happy hour that I host monthly in Midtown Manhattan? So we went to the happy hour. At the happy hour, met a lot of interesting people. One of them was a guy named Jeff Pfeffer. At the time, he was a commercial banker at Capital One. And he said, oh, you gotta talk to my buddy. You gotta talk to my buddy, Bob Cohen, who we were in high school together fifty years ago. He has this client. I I think they might be for sale, and it's a great business. So a few days later, I met with Bob in his office in the Empire State Building. And in that in that meeting with Bob, we we have a little bit of pleasantries, a little bit of chitchat, ice breaking the ice. And then I just see him starting to sketch on a piece of paper, not at the back of a napkin, but a piece of paper where he starts writing out the... I didn't know what he was writing about, but he... I thought he was taking notes on the meeting. But in... Instead, he was writing the structure of the deal that he thought would make sense for his client, the company smarTours, for a potential acquisition. And he slides the piece of paper across the table. And mind you, I didn't even really know what the company did. I I didn't know I didn't know much about it, really anything about it. But he proposes a, you know, a very modest entry multiple, you know, a little under five times EBITDA for a business with about 5,000,000 of EBITDA. So not not too small in this ecosystem. He proposes a 60% seller note. He proposed that the seller would finance 60% of the deal at a pretty advantageous interest rate of 4% and asked me what I thought. And so I tried to play it cool and said, I'll reflect on it. I want to learn about the business. I want to meet the seller. But I was pretty excited, to say the least. Then And subsequently met the seller, then off the races from there. But it was a pretty circuitous path to finding the deal. And I think the takeaway for folks that are going down this path is getting out the value of just meeting people in person, always asking...
00:10:58 · Greg Geronemus, Mikk
When you meet somebody, asking who else you should be connected to, who else they recommend you meet with, and just continuing to follow leads as far as you can. And, you know, a lot of people hide behind their computer screen and send out emails, but there's a lot of value in in getting out there and meeting people in the flesh. [00:11:23] S0: Mhmm. So I would add here, like, just before our call, I was reading a tweet from one man, LBO, and he was saying that looking at search fund their posts, I'm always amazed that how few people cold call business owners. I didn't didn't last year, but if I had to do it again, I would I would I would probably do that. And it's a very long tweet, and he was sharing something that if I had to design an M and A sourcing strategy from scratch today, I focus on one industry theme and implement something along those lines. A, five to eight email sequence offering value add, whether it's insights, data. B, three cold calls, chasing the emails. C, two pieces of highly personalized direct mail. And d, LinkedIn content strategy, educational posts, videos, if hopefully your target demo is using LinkedIn. So things you just said as well, I think it's it's just mixture and every story is just different. But I think I I just found this just Yeah. For our our
00:12:39 · Greg Geronemus, Mikk
[00:12:39] S1: I... Look. I think there were there were some aspects of our search that we were... Because of our geographic constraint, we could not be industry focused. We're big believers in industry focus whenever possible. I I like the content of the tweet you just read. I think probably one thing that that... Was it one man l b o? I like that. I... What... That he that he missed. Wherever possible, Yeah. If you can harness the power of a warm introduction, that's... That trumps everything else. So... And that's even... You know, you avail yourself to those potential warm intros even more so when you're industry focused. If you get deep in an industry, you'll get to the point where they're, you know, you're not too far removed from anybody and everybody that you wanna be connected to. So being really systematic and aggressive about getting warm intros, I I I think is an underrated and highly, highly important part of sourcing. [00:13:50] S0: Okay. And now let's talk a little bit about the acquisition itself. So what happened after this meeting?
00:14:00 · Greg Geronemus
[00:14:00] S1: So initially, we were excited. We learned... First thing I did was, you know, I was... I walked home from the meeting. The meeting in... The meeting with the accountant was in Midtown Manhattan. I lived on the Upper East Side at the time. So I had about like a two mile walk north and I was just sort of, you know, I probably should have been focusing more on avoiding danger as I was walking through the streets of Manhattan, but I was was googling around about the... About smarTours, trying to figure out what the heck the business did now that we had a potentially actionable, sizable, you know, attractive deal on our hands. And my first reaction was, oh my gosh, this website looks like it was made in 1995. Think it was... The meeting was in 2012. I think the website was maybe 17 years old. My next thought was I had no idea these businesses existed. I mean, is old school tour... Travel tour operator where you send it... You take typically older Americans, some Canadians, and send them on group trips, bus trips to foreign destinations all around the world. I thought that was a thing of the past. I thought everyone just booked on Kayak or Expedia at that point. And I was just just just struck by... I was struck that this business even existed, which gave me a little bit of pause. But the more I learned, the more intrigued I became. I discovered that the company had a... An absolutely wild cult following, that people would brag about taking 10, 15, 20, 25 trips with the business. So it had this incredible repeat traveler activity and decided that, you know, that there was an... So maybe, hopefully, I think enough there with the business and a compelling structure. You know, why don't I go sit down and meet with the seller? Met with the seller in a coffee shop, also in Midtown Manhattan, and learned that not only was he, you know, a really nice, honest, just straightforward guy. I learned that the business had been remarkably resilient in 2009. So that's, you know, any anytime you have a consumer service or, you know, consumer facing business, you're you're worried about cyclicality. The business held up on the EBITDA line, you know, pretty darn well in one of the worst downturns imaginable. So that was pretty comforting. Learned the degree of the repeat revenue just year in, year out, people coming back again and again and again.