00:17:17 · Greg Geronemus
Learned that, how far in advance people book their trips. So people will often book twelve, fifteen months in the future. So at any point in time, you actually have great visibility into what the next year and sometimes even longer will look like. And so you can you can take comfort when you're... When you step into a business like that that, you know, at least you're gonna have, you know, assuming the future looks bright, you'll have good performance for the year ahead. Because of the nature of people booking and putting down money very far in advance, learned that it was a remarkable, you know, cash flow generative business, negative working capital, get paid way in advance, pay out vendors much later, no CapEx. And then started to get excited about some of the tailwinds around baby boomers and active seniors going through their bucket list and wanting to travel more and more. And just got pretty jazzed about the industry, the business, the deal, and some really interesting opportunities for growth. And we started pushing forward, got the business under LOI, but it still took a long time because the... It was a first time seller. He had a small team. He didn't want anyone on his team to know about the transaction till the very end. A lot of the business still ran quite literally on paper, and they were just doing a little bit of Excel at that point. They were proud that they had migrated a little bit from paper to Excel in twenty twelve, twenty thirteen. So getting data was just immensely difficult. We were going through paper files late at night in the office because he wanted us there after hours, so the staff wouldn't see us. It was a real challenge to get the business to the point where we could present information to lenders and investors. It took about a year from start... From that first meeting with the accountant to closing the deal. That was from... Well, not about a year. Exactly a year from 10/11/2012 to 10/11/2013. So finally got the deal done and yeah, and then off to the even more challenging part of the process.
00:20:10 · Mikk, Greg Geronemus
[00:20:10] S0: Did he ever hire someone to represent him or it was just him all the time? [00:20:14] S1: No, it the accountant who we later learned had gone rogue and started what he was sketching out in terms of this potential deal structure, we learned that he never got the blessing from his client to propose those terms to a potential buyer. He just threw them out there because he thought that they would, you know, that was sort of where the market was. But yeah, it was the seller, Ellie, the accountant, I mentioned Bob, and then he did hire an M and A attorney. It was great. But it was... Yeah. He did not... It was... In many ways, we were doing a lot of the work for him that an advisor would have done or normally you'd see from the sell side. We were stepping in and doing that work for him. [00:21:13] S0: Why was he so motivated to sell? I'm asking because this one year, it was a lot of lot of work for him the day to day and then staying till the office staying in the office till the midnight to do this after our due diligence. So why was he so motivated to sell the company?
00:21:13 · Mikk, Greg Geronemus
[00:21:13] S0: Why was he so motivated to sell? I'm asking because this one year, it was a lot of lot of work for him the day to day and then staying till the office staying in the office till the midnight to do this after our due diligence. So why was he so motivated to sell the company? [00:21:32] S1: He was tired. He was tired and he wanted to move on to the next phase of his life. It wasn't all, I mean, was in his sixties. He had, the business was generating more, you know, around $5,000,000 of EBITDA and free cash flow was equal to the EBITDA because of the working capital dynamics, negative working capital, no CapEx. He was making... He had made a ton of money from the business. I don't think he he didn't need any more he didn't need any more money, but he was tired. And he had also, despite having a decent sized business, you know, 30,000,000 or so of sales, 5,000,000 or so of EBITDA, he had only six people working for him. Only six. And so he he constructed a highly highly profitable cash machine, but he he did not... He was not optimizing for his quality of life, And he had his hands in everything. He was still working really hard. You know, perhaps if he had built more of a team over the years, he would be... He would have been less fatigued. Maybe he would have, you know, he would have left, you know, let the the team continue to run the business. But because of the way he had set things up, he was so he was so embedded, so entrenched. And I think that's the only way he knew how to do it. So it was either continue to do that or sell and hit the beach.
00:21:32 · Greg Geronemus, Mikk
[00:21:32] S1: He was tired. He was tired and he wanted to move on to the next phase of his life. It wasn't all, I mean, was in his sixties. He had, the business was generating more, you know, around $5,000,000 of EBITDA and free cash flow was equal to the EBITDA because of the working capital dynamics, negative working capital, no CapEx. He was making... He had made a ton of money from the business. I don't think he he didn't need any more he didn't need any more money, but he was tired. And he had also, despite having a decent sized business, you know, 30,000,000 or so of sales, 5,000,000 or so of EBITDA, he had only six people working for him. Only six. And so he he constructed a highly highly profitable cash machine, but he he did not... He was not optimizing for his quality of life, And he had his hands in everything. He was still working really hard. You know, perhaps if he had built more of a team over the years, he would be... He would have been less fatigued. Maybe he would have, you know, he would have left, you know, let the the team continue to run the business. But because of the way he had set things up, he was so he was so embedded, so entrenched. And I think that's the only way he knew how to do it. So it was either continue to do that or sell and hit the beach. [00:23:14] S0: Okay. Can you walk us through the final purchase price and deal structure overall? How were you able to put it
00:23:14 · Mikk, Greg Geronemus
[00:23:14] S0: Okay. Can you walk us through the final purchase price and deal structure overall? How were you able to put it [00:23:21] S1: in Yeah. The So the accountant really anchored everything about the deal, but that's not exactly where the deal landed. So you know, the deal ended up, it was a $29,000,000 purchase price, a little bit high. I think the accountant had said 26 or something. So he worked us up a little bit. The seller note, instead of 60% of the transaction value, was down to 50%, which is still a monster $14,500,000 seller note. The way that we financed it, so he financed 14.5, we were responsible for getting another 14.5 plus 500 ks or so of fees. We raised some third party bank debt, which was senior to his seller note of 5,000,000 from a group called Tamarex, which became OFS. And the guys who worked with spun out and became RF Partners. And RF, I'll give a plug for them. They're a great partner to ETA and lower middle market acquirers. And then we raised 10,000,000 of equity from not only from our existing... Our original Search Capital investor group, but also we went... We we had a gap, and so we needed to go beyond our group and brought in a bunch of folks that weren't part of the original search. [00:24:56] S0: Okay. Now the deal deal is done after this busy busy year. Now tell us about the the first hundred days and how much during this one year period, like before close, you actually learned about the business and now going smoothly to actually now operating it? So how was the first hundred days for you and David?
00:25:20 · Greg Geronemus
[00:25:20] S1: We learned a lot over that year, but I think it's important to keep in mind that neither of us had any operating experience. I was only a handful of years out of college, including my two years of business school. I had very little professional experience, period. Dave a little bit more than I did, but not a whole heck of a lot. None of his experience was on the operating side. We did not know what we were doing. The one thing that we did know was that there was enormous key person risk. I I described the nature of the team. It was Ellie, the seller, plus six people. He had his hands in everything. And so we needed to not only... We we knew that we needed to absorb as much from him as we possibly could. So we we didn't really do much over the first hundred days or the first hundred and eighty days other than just kinda be a fly on the wall and learn from him. You know, I remember... I felt like a journalist just taking notes, just furiously taking notes on what he was doing, listening in on calls. We weren't hiding, were still part of the calls, but doing a whole lot more listening than talking, realizing that we only had him, we had a nine to twelve month transition period arranged, and we only had so much time with him, and we needed to learn as much as we could. So we didn't touch much, we actually do much. You know, there were some post close items and we had to get the financial reporting in order, but for the most part it was learn the business, get to know the team, learn from the seller. And the good news is, we felt empowered to do that because we had bought the business pretty well. So, you know, one of the luxuries of a low entry multiple and a well structured deal with this big seller note, big cheap seller note, is that we didn't feel like, oh my gosh, we gotta get in there right away. We gotta, you know, grow the heck out of the business. We felt if we're flat for a year, if we're flat for two years, this business is gonna throw off so much cash. We're gonna aggressively delever, create equity value by delevering, but also just derisk the business given that it's inherently cyclical, that we're gonna be creating meaningful equity value even if we kinda preserve the status quo. So that was very much the lens that we went into for the first year.