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- [00:00]
Will Smith
Today's guest is two for three on his business acquisitions. His first was a small FedEx route that he eventually parlayed into nine routes, then exited them during the Go Go Covid years when E Commerce and therefore logistics boomed. A nice seven figure outcome for someone who just four years earlier had been working in equipment sales. Matt O'Brien then got back into the game with his acquisition that is the subject of today's interview. A commercial fencing contractor, it was doing about 2.5 million when Matt bought it in 2022. He since almost doubled it. He explains how so Those are Matt's two wins. But recall I said he's 2 for 3. He also shares with us what happened with the unhappy third acquisition on which Matt lost about half a million dollars in a year's time. Painful? Extremely. But the lessons learned invaluable, including take your time when stacking acquisitions. Looking at you Holdco Dreamers okay, Here is Matt O'Brien, owner of Professional Fence M and A Launchpad is back for its spring show. M and A Launchpad is a one day event that brings together searchers and independent sponsors, seasoned business buyers, owners and private equity investors to go deep on buying businesses, finding and closing acquisitions, meeting investors and lenders, learning value creation from those who have done it. These are just a sampling of the workshops and panels that are packed into a very full day and that day is May 3rd. The show is in Houston. The organizers are running a promotion just for us. $200. Off with the code acquiring minds go to malaunchpad.com and use the code acquiring minds. All one word or use the link in the show notes. Also next Friday, Heather Anderson will host her monthly SBA and Lending Office hours. Heather is a prolific SBA loan broker and a name many of you will recognize. And she's going to lay out the process of getting an SBA loan to buy a business step by step, stage by stage. There are so many moving pieces, as you know, and Heather will show you how to fit them all together to successfully close your deal. That's next Friday, April 11th at noon Eastern. Register at the link in today's show notes or on the Acquiring Minds homepage. Acquiringminds co welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs, and on this podcast I talk to the people who do it. An SBA loan broker, as opposed to a direct lender, doesn't work for a particular bank. Instead, the broker pairs you with the right SBA lender for your deal based on industry terms, risk thresholds, then helps you navigate the process better than many lenders themselves do. Matthias Smith of Pioneer Capital Advisory is just such a broker. Matthias worked at two of the country's top 10 SBA lenders. So he's been on the inside of the SBA process and knows well the pitfalls and hurdles and how to avoid them. He struck out on his own to laser focus on the ETA in search space. Our niche is his niche. You'll see Matthias at all the ETA conferences. He's closed over 30 search deals since starting Pioneer in May of 2022, including some acquiring Minds guests. To learn more and get in touch, go to PioneerCapitalAdvisory.com or click the link in the notes. Matt O'Brien, welcome to acquiring Minds.
- [04:24]
Matt O'Brien
Well, thank you for having me, Matt.
- [04:26]
Will Smith
You were in the insurance business but had an entrepreneurial itch. You eventually scratched that itch by buying a small single FedEx route. You grew that and saw it through an exit. Today you're growing a fencing business that you also acquired. Let's start, Matt, with that pivot from insurance to FedEx.
- [04:52]
Matt O'Brien
Sure. Yeah. So it, it was about a year's worth of research, data, due diligence to really just find out and understand all that I could about FedEx. It was actually introduced to me by a banker who was leaving his, his job as a commercial lender and had a client here in Louisville, Kentucky that you've seen these weekly deposits and saying, you know, this seems pretty attractive, like, what is exactly that you're doing here? And so he shared that with me on his final day of being in the, in the banking business and said, oh, wow, this is, this is interesting. I need to learn more about this. So I did, you know, a year's worth of research and homework to try and find an opportunity and, and I was hopeful to find something here and quickly realized that there just weren't that many of them and specifically in that, that, that time frame. So I found my first opportunity. Where? In Knoxville, Tennessee. One truck, one driver. But in order to have a contract with FedEx, you actually have to have what's called two lanes. And a lane is what takes, you know, from A to B back to A. And they're scheduled daily. And so this was semi trucks. You know, technically they call them tractors. And so like an 18 wheeler. Exactly, exactly. And the second and the third that I'd gotten were organic by the process of interviews. And they were in St. Louis, technically East St. Louis in the Illinois side.
- [06:22]
Will Smith
Wait, you bought those next two? You got those next two. How?
- [06:25]
Matt O'Brien
I, I got them through an interview process. So what happens within FedEx is that as they're growing, oftentimes it'll be what's considered new so no one owns it and they'll, they have an expansion of their freight lanes. And so I was able to interview and get the second and third lane for free, you know, but then I needed to go buy the equipment, hire the drivers and, and do all the onboarding and everything of that nature. And so that was in 2018. And from there I had a small business to run.
- [06:59]
Will Smith
Matt and let me, let me stop you real quick. So that year where you're doing the research about FedEx, you were never enticed by some other small business opportunity, by some other franchise system or whatever it might have been. It was laser focused on FedEx.
- [07:16]
Matt O'Brien
So I, I was it. I looked at all sorts of different verticals and never really went down the road of franchising. I looked at remediation businesses. You know, if your basement was flutter or whatever you want to call it, there was one that you just had recently on about that. And when I finally looked at this within FedEx, it, it to me what made most sense was, is that number one, the, the weekly direct deposits was very attractive. You know, there was no accounts receivables that you had to go chase down. Um, you were getting the prior week's earnings in your, you know, direct deposited the following Friday. And then you had a built in infrastructure for organization. So there were no sales if you want to call it that. So it was really just a focus on operational efficiencies and how much you could grow within their network. So but I did, I did strongly consider other, other businesses and then this one, once it was presented to me or started researching, made the most sense of what I knew at the time.
- [08:26]
Will Smith
And what is the model of FedEx? What do they call the small business people that are basically, you know, the, running the, these little FedEx routes all over the country? Because it's not a, it's not a.
- [08:38]
Matt O'Brien
Franchise model, is not, although you could argue it is. But the, there's a lot of jargon in that world and I'll do my best to limit that. But if you're in that space, they're referred to as contractors.
- [08:53]
Will Smith
Okay.
- [08:54]
Matt O'Brien
And you have annually renewable agreements. So the ones that are doing the, the line haul, which is the space that I was in, which is the semi trucks, they call those transportation service providers or TSPs. And then you have the other side that you'll see that are delivering the packages to your home, you know, ringing on the doorbell and leaving the package on the front step. And those are the jargon of that world is called final mile or independent service providers. And those guys are the ones in the box trucks.
- [09:24]
Will Smith
Do people generally do well as the contractors with FedEx or whatever the jargon is?
- [09:30]
Matt O'Brien
Yeah, I think that it's, I think it's an all an ever evolving space. You know, you have geographic expansion taking place with migration patterns that could affect things. I think the, the folks that have been in it and truly understand how to be operationally efficient are the ones that perform the best. But it, again, it's, it, it's forever changing. You know, fuel expenses are, are frequently changing or rapidly changing. You know, auto liability insurance for the tractors is forever changing. You know, there can be soft and hard markets in that. So there are variables that can go into that particular space that some things you can control and some things you can't.
- [10:16]
Will Smith
And how much acquisition opportunity is there within the FedEx system. So, and, and you'll, you'll, as I let you continue your story, you'll, you'll tell us how you, you acquired your way up. But how big can you get? Is, is FedEx friendly to, you know, huge quantities of lanes as you called them, or do they kind of cap you?
- [10:39]
Matt O'Brien
Well, if, depending on they, they break you up. In the linehaul world you had what's referred to as a hub and a hub would be, would limit you on how dense you can be in one geography. And so you may only, let's say I live in Kentucky or in Virginia, I might be able to put on 15 or 20 tractors in Kentucky, but no more in, let's say no more than that in Tennessee. So I might be a capacity for that, that, that region, if you want to call it that.
- [11:11]
Will Smith
Yeah.
- [11:12]
Matt O'Brien
But if I was to come and try and attempt to do the same thing in Virginia or Florida for that matter, then that might be feasible with the way the, the agreements are structured.
- [11:22]
Will Smith
Okay. They're, they're just trying to limit their, their concentration or their, the dependence on one provider in one geography.
- [11:30]
Matt O'Brien
Yeah, it's a, it's a way of de risking on their behalf for certain.
- [11:33]
Will Smith
Okay. Well, I've never had a FedEx contractor on, but I see them all over biz by sell. I know there are people in the entrepreneurship through acquisition community who've done them. It's very visible. But I've never been able to corner somebody and have them, you know, spill the beans.
- [11:52]
Matt O'Brien
Sure.
- [11:52]
Will Smith
So that's not even the subject of today's interview. So let's carry on, though. So you, you had the one and then the two others that you interviewed for and got and then pick us back up.
- [12:03]
Matt O'Brien
Sure. So from there I'll refer to it as I put two more on in Nashville and then two more in Evansville. And so things were operating okay, but the challenge that I was running into was, is that I had what I refer to as scatter site. So I really didn't have any contingency plans for myself in way of, let's say, a backup tractor, backup drivers, you know, those kinds of things. And, and so this is 2019 or so I believe when this is taking place, so I'm getting a better understanding of my business and there's a slow opportunity for me to, I, I buy one more lane from another business owner in St. Louis. And so now I'm at 3 there and I believe I did, I pick up one more organically, maybe. So Now I'm at 4 and realize, okay, so I have these, I, I look down the Runway, as I call it, and I say, okay, there's going to be concentration for me in St. Louis. Let's go and divest the other assets that I have in the other markets and then focus on, on density. And so I dive, I sell the one in, in Knoxville, sell the two in Nashville and sell the two in Evansville and then redeploy my, my equipment all to St. Louis and things are moving along fine. And now we're like at the, the later part of 2019, early 2020.
- [13:40]
Will Smith
And we all know what's going to happen next, Matt, before you get there.
- [13:43]
Matt O'Brien
Right.
- [13:44]
Will Smith
So, but you're doing this from Louisville, so you're, you're running this St. Louis mini FedEx empire remotely.
- [13:52]
Matt O'Brien
I wouldn't say it was an empire, but I was doing my best. Mini and. Yeah, mini, that's right. And so I have an opportunity where I, I have this kind, I call it an inflection point. But I, I know that I need to, to grow more or maybe I need to be a strategic acquisition myself for someone else that's already in the space. And I get an opportunity where there's another contractor that has been forced to sell not by their choice, but things outside of FedEx that have, have led to this. And so, so I, overnight I, I, I'm able to double the size of my business because they were essentially the, the equal size that I am. And so I Go. And now we're at eight or nine and lanes.
- [14:42]
Will Smith
Eight or nine lanes based around St. Louis.
- [14:45]
Matt O'Brien
That's right. And then as we know, covet hits. And so as the world is collapsing and everyone's staying at home, as, as we all know, right, logistics and those goods and services to bring things to your front door starts to explode. And so that happens in the course of 2020 and as we, we round the, you know, as we turn the calendar going into 2021, I start to have this realization that for me I either need to go and add a lot more equipment, the technical jargon in that world is a power unit or are we at the, are we at the apex here and is it time to sell? And so I approached a really good friend of mine who's a business broker and said hey, here are my two options, you know, what do you think he's and his feedback was that of if you're going to sell, now's the time. And so that's the decision I made. And we did. So I think we went to market in March of 2021 and by this time too I had not only nine lanes but I believe I had 14 of the, of the semi trucks, the tractors. And so we did, we had four full price offers in the first day and we, we did a little bit of a reverse auction if you want to call it that, but pre qualified them on three different pillars I call it, you know, one was price, one was deal structure and one was the ability to get approved with FedEx and, and, and that's not always the fastest process. And so we, we did and then we were closed by August of 21.
- [16:29]
Will Smith
If you ask owners in the ETA and search community which insurance broker provides highest quality work, great outcomes and has a practice dedicated to searchers and acquisition entrepreneurs, one name comes up again and again. Oberly. Oberly Risk Strategies has worked with hundreds of searchers over nearly a decade and is in fact led by a two time successful searcher, August Felker, which makes Oberle a specialty insurance brokerage for searchers by a former searcher. And if you've got a business under Loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. An easy no risk way to get to know August and the team at Oberle. To take Advantage check out oberle-risk.com that's O B E R L E- risk.com link in the notes and reflecting back on it, when was the peak of, I mean it was correlated to sort of E commerce I guess. When, when was the peak after all?
- [17:41]
Matt O'Brien
I think it was Q4 of 20 and Q1 potentially of 21. But I definitely think it was Q4 of 20, you know, 6, 6 ish months after, you know, Covid and the lockdowns and all that took place. I think that's when we started to feel the true like peak of it. And then from there I believe it was starting to not slowly erode, but it was going to be one that was going to probably plateau for, for at least another year to year and a half before we felt some of that freight volume is what that's measured by start to erode and come back down to, to normalization.
- [18:18]
Will Smith
So you really did, I mean your timing was just excellent and, and I assume you benefited from that. You got a premium, you did well. Can you share anything about that?
- [18:28]
Matt O'Brien
Sure, yeah. We, we went to market on a, a multiple of EBITDA and we were at three and a half times. You know, you have a good amount of equipment that's included in the, in the sale and so I think there was about a push in a million dollars worth of value of equipment that was, that was a part of that. And some of those are lease assumptions which would reduce the purchase price. But, but yeah, so we were three times, three and a half times multiple.
- [19:00]
Will Smith
Of EBITDA and the running a nine lane enterprise, FedEx Enterprise in a major American city, St. Louis. What does revenue look like for that?
- [19:13]
Matt O'Brien
We're about $3 million on an adjusted basis if you were looking at it because we had an abbreviated portion of the year that for 21. But if for forecasting purposes we were, we were about $3 million and, and.
- [19:27]
Will Smith
Margins in FedEx land are the typical 20ish percent, probably a little less.
- [19:35]
Matt O'Brien
Yes, I would say that's a pretty fair assumption. I think that now or even at that point in time you're starting to see human capital starting to increase. And so you are seeing a net income, you know, your profit drop or being pushed or compressed a little bit at that time. Not an overwhelming amount, but certainly enough to where. Yeah, the 20 is probably a pretty fair representation of, of where margins would be okay.
- [20:10]
Will Smith
And so the labor, you're saying because the labor shortage was, was, was you were feeling it in your margins, you're paying people more.
- [20:20]
Matt O'Brien
Yeah, I think that's what it, it was more of just the, the ability to try and retain them. You a lot of demand for that particular trade which is universally short to start with.
- [20:34]
Will Smith
And that's really being truck drivers, essentially.
- [20:36]
Matt O'Brien
Yeah, exactly. CDL drivers with the. What they call a CDL A But yes, I mean that's well documented that there's a significant shortage of those. And so the, the attractiveness to, to keep who you have as well as recruit others. You know, there was a lot of demand in that space.
- [20:55]
Will Smith
Yeah, but you, so your exit was fair to say, life changing, maybe not retirement money, but.
- [21:04]
Matt O'Brien
Yeah, absolutely. Yes, absolutely agree. Yeah, it was, it was, it definitely gave me a different perspective on, on money and it was allowing me to. It certainly wasn't enough to retire, but it was enough to allow for me to look at what was the next opportunity. And then, you know, the idea was how do we go redeploy this?
- [21:27]
Will Smith
You know, it's interesting to reflect on it because you really, I mean your timing couldn't have been better. You got into a market that was growing normally and then surged and you sold it right when it was peaking. So it's, it's like it's one of those where as good as your outcome was, that was really the best that you probably could have ever gotten. Any, any other outcome in that system or in that world of FedEx probably was never going to be as good as, as that. So you, you reflect on your years from 2018 to 2021 doing this. Those three years, probably as good an outcome as anybody could have asked for in that system.
- [22:08]
Matt O'Brien
Yes, we, and if we forecast it out, I don't know if there was going to be. I don't know. I didn't know if we were going to be able to extrapolate the growth that we had experienced again without of course you have to have trucks to operate the business. So that means you have more capital expenditures, potentially more debt that comes with that. But I don't know if we stayed in St. Louis, how much more that was going to look, if that makes sense. So I think that we, either way, we believe that we were at a place where we could continue just operating and plateauing, if you want to call it that, where there might not be any more top line or bottom line. You know, if they're linear or we said, hey, let's, let's consider, you know, the, the sale because we hit the apex and there's of course like personal elements to that as well that were weighing in on the, the decision to, to list such as like, you know, young kids at home and the distance, you know, was a solid four hour drive one way to go see employees. And they. We ran 24 hours so it was essentially you'd be hanging at the terminal, terminal all day just to see all of your employees because they came in waves.
- [23:23]
Will Smith
And how often were you back and forth from St. Louis to Louisville?
- [23:27]
Matt O'Brien
I, I did the best I could to be there every other month. And there were times where it was, you know, I do a one day trip and you know, be out the door here for, you know, 4am trying to get the drivers coming back in from the overnight run and then catching the ones that were coming or excuse me, going out during the day, those were the ones that would stay around locally and then try and be back here, you know, at a decent hour to catch my kids the next morning. So there are plenty of those days. And, and, and so that weighed in the decision as well for the timing of, of the exit.
- [24:02]
Will Smith
Yeah. Before we move off this chapter of your story, is there anything that. To say that you know, to, to leave people with who might be listening to this and wondering if they should get into the FedEx game, buy an existing FedEx route or 10, anything about that opportunity that you would impress upon people?
- [24:24]
Matt O'Brien
I think that FedEx presents a lot of good qualities and that if you're looking for the, the intangibles that I thought were attractive, that of the direct deposit and not having any kind of sales element to your business or sales arm to your business, then that was attractive. But the likelihood of finding one if you are concentrated to a geography that is near where you live, the likelihood of finding one is going to be very low. Or you might or your weight may be years to, to. To be able to do that. And that's what I discovered. So in order to be into that game, I'm a believer that you just have to open up your, your search where and, and allow for it to take you wherever you want to go. And one of the pieces of advice that I would issue is take into account weather. You know, like northern, the northern United States is going to be more challenging to operations for obvious reasons such as snow and cold and things of that nature, but also much more damaging and shorter lifespans on your equipment. You know, just snow. All those things are just, you know, they don't, they don't allow for that stuff to, to last as long as it would in the South.
- [25:46]
Will Smith
Yeah. And your point about trying to find an existing FedEx business or series of routes or lanes in your own market being difficult? I started by saying I feel like I see FedEx routes all over biz. Buy, Sell. Now if you press me, I might Say, well, it's basically the same one or two that have been sitting there for a long time. So who knows if the broker is just fishing with those and they're not even really for sale, but let's assume they are. Why. What might be broken about a package of lanes that nobody's buying it or package of routes? I guess obviously purchase price, sale price could just be too high.
- [26:29]
Matt O'Brien
That's one lever. Right. And it could be the, it could be where it's located, it could be the length of the, the runs themselves might not be. They may, they may look okay on, on paper, but execution may not be there where you may not be able to attract a drivers to, to be able to fulfill them because there's not enough income there for them to have a, you know, a quality life. But you don't, you may not have enough profit margin to make it work. So there are, there are lanes that exist like that that, you know, they can pencil all you want. If you're not in the space, you wouldn't know. And you know, there's a, there's the, you know, the intangible of people that comes into it. So you have that human capital piece. So, you know, sometimes you might have to, and you may have to buy one lane that's not attractive in order to get the seven that you want. So. And there's an element of that too. It all depends on what your model is.
- [27:29]
Will Smith
Fascinating. Matt. Okay, so you have this, this exit. You know, your, your first few years as a small business owner entrepreneur have been quite successful. Where do you turn, where do you turn your attention next?
- [27:43]
Matt O'Brien
I, I didn't really turn my attention anywhere. I was going to be Mr. Mom for a minute. And so I, I believe we closed on a Friday in August and then received a phone call on the following Monday from the, the broker, the good friend of mine, the broker that said, hey, I'd really like your help if you can, if you can, can do. So I'm trying to get a listing for a local business and he's asking for testimonials. And I said of course I'll help you any way I can. And so the next day I was on a phone call with this, the seller and just, you know, highly advocating for the friend of mine to say, hey, I think, you know, number one, he made it incredibly easy. And so he pivot on me. The, the seller did and, and I would no way had the mindset to like even be considering underwriting a new deal or going into a new opportunity of Any kind. And he said, the seller said, you know, I know you dissected on your business, and this is, we're in the same, you know, area, like, why don't you buy me? And I said, you know, I'm flattered, but I, I, you know, I'm not ready. And, and so that, that took place, like I said, in August, and I think it maybe have been a month later where I called the broker friend of mine, Phil Ellison, back up and I said, hey, is that business? Did you ever get that listing? Because. Seemed kind of, that seemed like an attractive business. Like, let me learn more about that. And, and that's, that's kind of what led to the initial stages of buying professional fence.
- [29:21]
Will Smith
So your broker friend said, provide a testimonial, would you, to the seller, to this seller that I'm trying to list his, his fencing business. So you get on phone, on phone with seller and seller says, why don't you buy me? And you say, not right now. I'm, I'm, I'm Mr. Momming It. I just closed 72 hours ago. Give me a break.
- [29:43]
Matt O'Brien
That's right. Yeah. You change your mind, celebrate. I did. I did. So I think if it's, I think that whole, like, entrepreneurial itch, if it's in you, you know, the, the break was great and, and loved, you know, the, the time to, to focus on the family and myself and those things. But as you articulated in your question earlier, like, it wasn't, it was, it changed my life, the money, but it wasn't enough to retire on. So I knew I was going to have to deploy into something.
- [30:10]
Will Smith
Yeah.
- [30:10]
Matt O'Brien
And when this opportunity presented itself again, dove into the homework and understanding what commercial fencing is, because I never thought I was going to own a trucking company, and I never thought I was going to own a fencing company. And so the more that I, I looked at it, the more that it became attractive. And part of that too was, is I had owned a business that was, you know, the closest one was what, four hours away at all points when I was, or I guess one and a half hours. But this one was 20 minutes away in the county I live in and, you know, incredibly high reputation and those kinds of things. So perhaps that was a little bit more of an emotional side of it. But being able to drive to the business in, in 20 minutes was a lot more attractive than being up for 22 hours in the same day.
- [30:59]
Will Smith
For sure that, that would be attractive. I mean, you, you would have had, you would have really felt the, the Discomfort acutely of having a four hour drive between you and your business being, having to be, you know, not around your kids, as you said. Um, what else did you like about it? Tell us about the business. What did you find? What, what did the world of commercial fencing look like to you? What were the opportunities?
- [31:23]
Matt O'Brien
Sure. So there were several elements to it that we, that we really liked and one was that it was 100% commercial. So having been only and always in business to business was something that we, that I wanted to stay in. And so that was a big positive. Is that it? We. There was no residential element to this business. The, the other was that there was a strong acumen, almost a niche, if you want to call it that, into being able to create a little bit of a moat where baseball, softball and football fields are things that are the strength and the, one of the foundations of the business. And so if you think about it, it seems simplistic, but able to do a 40 foot backstop in a high school baseball field requires a certain level of acumen to be able to do that. And, and so that was highly attractive as well. And then there was a part of the business that has reoccurring revenue in the. We have what's called temporary fencing, which are what you would see around a job construction site that is a, you know, a perimeter and there's a rental component to the business. So we looked at it as if there was, you know, it's very project based as you know, but there was a rental reoccurring element to the business on an annual basis that we could forecast for. And some of that was some pretty large festivals and, and state fair and things of that nature here in Kentucky that were visible. So we felt like there was at least some brand recognition there that goes along with that. So those were like the, the high, the highlights of it. One of the, the concerns that we had going into the business is that the seller's son, it was, is the key employee. And so, but that became the, the selling point for us as well. And I say that because, you know, as we dove into the due diligence, you know, that was something that was one of the first questions and concerns that we had was sure, what's to prevent you guys from you know, opening up literally next door and then taking all this intellectual property and our, our people for that matter, and, and replicating the same thing. But Chris, our president now is nothing short of just fantastic and completely bought into new ownership and you know, highly educated and incredibly bright and, and he's he's the, the reason that the business is successful. So what we thought was a concern truly ended up being like the greatest gift is for him to be very much on board with moving, you know, post acquisition and that of his, of his own dad, his family I should say.
- [34:19]
Will Smith
And but how Matt, did you get comfortable? How, how did you de. Risk this risk? So reflecting back, it's worked out great. But how did you finally get comfortable? Because of course, you know, one of the things that you know, there's always the binding, the non compete that you, you know, you keep the seller out of the industry. Of course they can violate that and is it even worth litigating suing them if they do so? There's always that question, but at least you can put it in the agreement much harder merely not done to put employees or like in this case the sun under a non compete. So in fact a pattern that you'll often see is not that you buy a business and it's not that the seller turns around and competes with you, but the seller's kin within the business who's not bound by any non compete, not violating anything, starts the business, goes off and starts your the business or the four, not necessarily their kin, maybe their foreman, whatever, but somebody well placed within the business. So sure. So anyway, you had identified that risk. How did you finally get comfortable that it was a risk worth taking?
- [35:29]
Matt O'Brien
So we of course we met with him during the course of due diligence on several different occasions. 1 so one was the introduction between buyer and seller and, and then bringing the key employee and, and making sure that we got comfortable with him in that way. And that was conversational of course, but came to find common ground that you know, we were part of the same church and you know, just found a lot of commonalities and comfort immediately with each other and, and, and, and trust and, and truth be told, Will, that there was a, there was a big leap of faith there. Right. Like we, you know, we had to say, you know, at some point in time, like we're accepting the risk that comes with that and there was nothing guaranteed. But we are taking, we are taking a risk here with, with, with this acquisition and this key employee because if he departs like this thing's going to implode.
- [36:25]
Will Smith
And, and he, he obviously communicated to you that no, I'm not going to do that, I don't want to do that. He must have also convinced you that that just wasn't something he wanted or to take over the business himself because he yeah, he would be first in line, obviously.
- [36:39]
Matt O'Brien
That's right. Yeah, you're exactly right. He, he just, he came to this, this place of peace with himself that he just didn't want to be the, the buyer which could come with some, some debt and that wasn't what he was comfortable in doing. And said, you know, we've reflected and prayed on this and, and this is the route we, we want to go.
- [36:59]
Will Smith
Yeah.
- [36:59]
Matt O'Brien
And so I think there's just, you know, varying strengths within business. And that was one of the things that he just made the decision and said this is, this isn't what I want to do. So we did and we did, we did engage into a, an employment agreement, which helps as well. Right. So yeah, there was a two year employment agreement there that had guarantees for him and I think that allowed for. And that was at the, it was essentially a non negotiable with the seller, which we didn't fight back on that at all. That was security for us too. And so that, that allowed for that, that certainly allowed for two years of, of trust building and, and yeah, and it's worked great.
- [37:42]
Will Smith
And what was his title or role before becoming president? Your president?
- [37:47]
Matt O'Brien
Great question. So he, he was actually spent the, the majority of his time in the field and he was that a vice, I believe it was vice president of operations was his technical title. And so you know, the plan all along was to, to put him in the seat of the president. And, and that was obvious from when we, when he, when I met him. And so I think that not in, in a negative way, but allowing for, for dad to, to step aside and retire. And you know, he's, he's built this, this, this solid business allowed for, for his son to you know, step into those shoes that were, were previously occupied really. And so, so now. Yeah, right. So he was vice president of operations and then elevated into that of president beginning January of 24.
- [38:43]
Will Smith
I'll return to the vision here, but we're getting too far away from some follow up questions I had.
- [38:48]
Matt O'Brien
Okay.
- [38:49]
Will Smith
The ba, the baseball softball field thing. Okay, that can't be that big a market. I mean how many baseball fields are there really in, in Kentucky or even surrounding states? I mean, you're probably going to tell me there's thousands and I'm completely underestimating it.
- [39:04]
Matt O'Brien
I would say with the, the projects that we have right now, I think our teams would feel very different with the deadlines that they're, they're up against. But there are just as you had articulated, you would think there's not that many, but it's mostly the schools. It's mostly the municipalities and the schools. You know, it's not simply just little Leagues and the Babe Ruth. So the world. It's, it's the high schools and we're seeing a lot of the high schools that are committing serious capital dollars to the improvements of their facilities. And, and I don't. And it, and it's, and it's not just one at a time. You know, usually the one that right now we're finishing up, it's a, it's. The entire county is doing three baseball fields, three softball fields here adjacent to where we are. So that's almost like there's this earmarked money that they're ready to deploy. And when, when it's funded, you know, it's, it's time to do it. But it doesn't seem like it's slowing down from what we're observing. There's just these, you know, 30, 40 year old baseball fields and football fields that are getting renovated and updated and, and when they have to go put in the, the Astrograss, you know, they got to redo the entire thing. And so we're seeing a lot of updates from regular turf, you know, grass to that of the synthetic. And that's yielding opportunities for us to, to perform our scope well.
- [40:25]
Will Smith
And going back to the emotional resonance that you had with this business, there was. There's also an element there to the baseball, right?
- [40:32]
Matt O'Brien
Yeah, yeah, yeah. I've had, I played college baseball. So, you know, perhaps that was a little bit of an attraction as well. I won't lie.
- [40:41]
Will Smith
I gotta say, Matt, you look like a baseball player or like a one time baseball player.
- [40:46]
Matt O'Brien
Yeah, yeah, yeah, yeah. No longer a player. But maybe that's why I like being an entrepreneur. Just kind of the, the competition of it all, you know.
- [40:54]
Will Smith
Well, you're actually not my former. You're not my first former baseball player.
- [40:58]
Matt O'Brien
Is that right?
- [40:59]
Will Smith
Who. Yeah, yeah. Brett Kennedy in Atlanta with a moving business. So another former. Yeah, a former baseball player. Okay. The reoccurring revenue, these, these annual events where you'll provide the temporary fencing. How. What percentage of the overall revenue was that? Do you remember?
- [41:15]
Matt O'Brien
So in our dd, it, we couldn't, you know, the financials didn't have a breakout of that. And so for 23 it was 12% and in 24 it was 8%.
- [41:31]
Will Smith
Okay.
- [41:31]
Matt O'Brien
And so what we discovered is, is that not every festival is going to be annual. Some of them are every other year. And then we have a finite amount of the actual fence itself. So we, we had goals to, to increase that but then we realized as the businesses top line revenue increased and we only had so much of the temporary fence to rent that they couldn't, they couldn't pace each other. But that is an element of the business that we're like strongly reviewing as to whether we make capital investments and expanding the amount of inventory that we have. Yeah. So, but certainly very visible for, for marketing purposes as well because those, they call them panels but those fence panels have our license plates on them and those license plates are the logos of, of the business.
- [42:19]
Will Smith
And how about numbers overall of the business? I haven't asked you for those.
- [42:23]
Matt O'Brien
Sure. So do you want to talk about when we were buying it or when.
- [42:29]
Will Smith
You still still seeing it through the lens of you as buyer?
- [42:32]
Matt O'Brien
As the buyer. Sure. So as we looked at the, the business, the, the historical revenue was very consistent somewhere between 24 and 27 every year it was underwritten on SDE and EBIDA and the, the EIDA was again very consistent anywhere from 550 to 700. So they were, they were certainly. They were. Yeah. As I just said they were, they were just very consistent. There wasn't any undulation or ups and downs. It was just like almost kind of rinse and repeat year after year.
- [43:14]
Will Smith
Great.
- [43:16]
Matt O'Brien
Yeah. And so and I think as we looked at it, I think acquisition was 2.4 multiple on SDE and 2.8 multiple on EBITDA.
- [43:25]
Will Smith
So great. Great purchase price.
- [43:27]
Matt O'Brien
Yeah, we felt so great.
- [43:32]
Will Smith
And so those margins look like they're you know, again kind of the 20% number or maybe a little even more depending on. But 20.
- [43:41]
Matt O'Brien
25% for. Yeah, that's exactly right. 24% for. Again, it's just like every year was almost like you could have just penciled in the numbers. It was 24% year over year.
- [43:52]
Will Smith
The team at Aspen HR recently published a short white paper targeted at searchers Entitled A New CEO's Guide to Human Resources. It lays out the key items you should be thinking about as you transition into CEO and owner of the business you bought. The link to download it is in the show notes. Aspen is a professional employer organization or PEO run by a searcher for searchers. Search fund veteran Mark Sinatra runs the company which provides HR compliance, flawless payroll, Fortune 500 caliber benefits and HR due diligence support for your acquisition, all for a fraction of the cost. Go to aspenhr.com or contact Mark directly at mark aspenhr.com and how many employees.
- [44:44]
Matt O'Brien
At the time of Purchase. We were at. You had the, the now president. We have a sale. We had a salesman, or I guess he's our estimator, project manager. And we had I think five in the field. Five to no more than six. Something to that effect. So in total, like not. Yeah, I think there were eight. Eight or so.
- [45:09]
Will Smith
So a lot of revenue per. Per employee.
- [45:11]
Matt O'Brien
Agreed.
- [45:11]
Will Smith
For kind of a blue collar, kind of a trades. Tradesy business.
- [45:14]
Matt O'Brien
Sure.
- [45:17]
Will Smith
Okay, great. Matt, the durability of this business, the kind of solidness of this business was appealing. Looking backwards. Now looking forwards, your vision was what, what were the levers you could pull? What was the growth that you foresaw? And also what was your role going to be? So you had the president, now son of seller. As president, what was your, what was your activity going to be? Maybe answer that one first and then we'll go to growth.
- [45:44]
Matt O'Brien
Sure, no problem. As we, as I articulated the, the plan was always to make the son of the seller the, the president. And so the. Just in any business acquisition, like the first thing you have to do is, is gain the trust of the employees, not disrupt anything too early. Right. Because if they. My little saying on that is if, if you make dynamic change, you're gonna have dynamic heartburn. And so the, the idea was is to, to just gain trust, maintain or even just have preservation as many employees as we can. We knew there was going to be attrition of some kind. And there was. And that was some by the choice of the employees themselves or the, that was the handful of times the decision that, that I made.
- [46:35]
Will Smith
Why did you know there would be attrition? Just because there, there always is or because there was something specific to this business.
- [46:41]
Matt O'Brien
Yeah. Anytime you bought a business I bought, there's going to be attrition for sure.
- [46:45]
Will Smith
Yeah.
- [46:45]
Matt O'Brien
And it's, and it's. Sometimes it's out of your control. Sometimes it's that of, you know, an employee's been waiting for some sort of triggering event to make their departure because they've been disgruntled for whatever reason or, you know, you've moved their cheese so much that, you know they're going to look for employment elsewhere because, you know, they're, they just cannot foresee themselves being in a business that doesn't have your seller in. In it or part of it. So it's almost like this loyalty element of it, which is good. But at the same time, like the change does happen. And you know, in this particular situation, for you know, professional offense, you know, our sellers, in his early 70s it wasn't, it shouldn't have been a shock, but somehow it was.
- [47:33]
Will Smith
Okay.
- [47:34]
Matt O'Brien
Yeah. So, so the plan was, and, and we call it the, the lift. The. What we really liked about it was is that there were, there was no technology and you know, standard operating procedures did not exist both in sales and operations. You know, there wasn't a lot of like documented. There wasn't a lot of data that was being tracked, if you will. So there weren't KPIs or a scorecard or anything of that nature, allowing for, you know, educated business decisions of how we were going to move forward. So a lot of those things that would be potentially looked at as like negatives because you didn't have those. That information in front of you I looked at as an absolute positive.
- [48:24]
Will Smith
Yeah.
- [48:25]
Matt O'Brien
Because we knew we could fix it. Right. And it's not that it was broken, it was working clearly. But could it be more efficient? Undoubtedly.
- [48:32]
Will Smith
Yeah.
- [48:32]
Matt O'Brien
And so the, the goal was that of, to elevate our now president and, and we wanted to communicate to our employees that there's going to be a future for you beyond the role that you're in. So if you look through their lens, they're thinking, hey, if the son of the seller is not moving up, there's certainly not going to be a spot for me anywhere else. So they would have just natural attrition as a result of that. So our goal was, is to create, you know, further layers of, of opportunity by organically growing so that they could elevate into, you know, being able to maximize what we saw were a lot of skills that were untapped. You know, so the, the long term goal was that of, or is that of having me in this CEO, chairman seat and not only pushing for additional sales with strategic relationships, but looking at what's next for us, is it that we look for, do we look at another market to, you know, lay down roots and have another physical location? Is that through acquisition likely? With the way that we look at things, is it potentially going into crews that could travel? Because we are getting requests and demand of, you know, our general contractors that are saying, hey, we have a project here. Would you be willing to go? Which hasn't historically been our, our model and we haven't adopted that yet, but we know that there's demand there. So a lot of that is the, the forward thinking. Right. Like the where do we go from here to continue to improve both the top and the bottom line of the business.
- [50:12]
Will Smith
Yeah. And so your role as CEO is going to be a full Time role.
- [50:16]
Matt O'Brien
It is, yes.
- [50:17]
Will Smith
Okay.
- [50:18]
Matt O'Brien
Yeah, it still, it still continues to be.
- [50:20]
Will Smith
Okay. So president son of seller was handling the day to day the operation. So this is really one of those great situations where you can work on the business from day one. This is not you. This is not passive. This is not you semi involved. This is you very involved. But basically all or most of your time is, is, is spent on strategic initiatives, moving the business forward.
- [50:47]
Matt O'Brien
Undoubtedly. And I think that it allows me to do so in somewhat of an unbiased way because it allows it it. And when I say that I don't, I didn't understand 100 how the flow of a bid would work or a quote or certainly not the installation. And I still don't. You know, my strengths are certainly that of looking at it from 30,000ft, but we have like these incredibly talented people in our, on our organization that are so gifted with the craft that we and the scope that we perform. But yes, it's that of trying to work on it. How are we going to improve, you know, what are the, what are the initiatives that we're going to take to allow for us to, to continue to grow? And what, what got us here is not going to get us where we want to go.
- [51:38]
Will Smith
Yeah, yeah. And curious if you. Oh, did you buy the business with an SBA loan?
- [51:44]
Matt O'Brien
I did, yes. Yes.
- [51:46]
Will Smith
Okay. Yeah. We did kind of a 7A in kind of a 10, 10, 80 structure. 10 down 10 seller, 80.
- [51:54]
Matt O'Brien
No, no.
- [51:55]
Will Smith
What can you, what can you tell us?
- [51:57]
Matt O'Brien
Yeah, I'll tell you. So we, we went in with a, a 10 equity injection of, of cash. And so we actually, we bought the business and the goodwill and all the equipment, but we did buy the real estate as well. And we did so with a 10 equity injection. And then we did a working capital line of credit for the, for the operating capital. And so that's all it was. It was nothing more than the 10%. I will say that we wish we put in more. And so that required maybe three, three to six months later, I had to put 150 in our operating account of my own money. And, and that was simply just because of AR lag. It was nothing beyond that. And so, you know, now we are in March of 25 and I was able to pay all that back relatively quickly. But we do wish that we would have gone in with a capital stack that wasn't as levered as we were.
- [52:59]
Will Smith
Wait, so it sounds like, okay, first of all, so you put in 10% and so you. So it was 90% was the SBA loan.
- [53:07]
Matt O'Brien
Yes.
- [53:08]
Will Smith
Okay. And so no seller.
- [53:09]
Matt O'Brien
No, no. No carryback at all.
- [53:12]
Will Smith
And then three or six months later you had to put another 150 in.
- [53:16]
Matt O'Brien
Yes.
- [53:16]
Will Smith
Of your own. Out of your pocket. But I, but that sounds like more of a working capital issue than, than it is leverage. I guess you could argue the same thing. The point is the business is burdened for, for cash. Yeah.
- [53:29]
Matt O'Brien
Yeah.
- [53:29]
Will Smith
So it's. So either you prefer less debt or more working capital.
- [53:34]
Matt O'Brien
Same. And either way the. Let's just say that there needed to be more money. Exactly. That had to go in and, and, and probably maybe not the levered part of it, but more so just the, the working capital number needed to be greater than I think we took out 10%. So it was 300,000. And if I was to go back with the same thesis, I'd go in with 20%.
- [53:56]
Will Smith
And let's spend a minute on this. Matt. First of all, let me call out the fact that this is, this is so, so many people when they buy a business, a small kind of blue collar tradesy project business like this, working capital is a trap. It's really hard to understand. Try as people might they, they just tend to get it wrong. And even once or even if they do it right in their purchase agreement, once they're in there, they just find it hard to. To learn. So people have. Listeners have heard that time and time again. The end. It can lead to some sleepless nights, some fetal position moments. But here's the, the good news for somebody who's already has some cash from a previous exit. You didn't need to hyperventilate because you had your own resources so you could just subsidize the business or that's maybe not the right word. And inject capital into the business when, when it needed it. So you, you probably didn't lose sleep over this. It was more of an annoyance. This is the, this is the.
- [54:59]
Matt O'Brien
It was more of hey we just. If, if we're to have another acquisition we just learned a lot and you know, and it was that of you know that operating capital is incredibly important and it's, it's amazing as to how fast and the construction project based businesses especially since we're commercial. Right. So we, you know we might have a receivable that might come in in 90 days and you know you can burn through your operating capital pretty quick with. When you're not getting any income coming in.
- [55:30]
Will Smith
And Matt, did you during diligence and during the transaction did you over. Did you not realize that did you underestimate how long it took to collect? For example, where was your error? And I heard you say that if you had to do it over again, you would have doubled the amount of working capital in the business. So just trying to glean what we can from your mistake for the audience. Certainly in a, in a construction business, whatever you calculate for what you think the working capital should be, just double it to be safe. Maybe, maybe it's as crude as that.
- [56:01]
Matt O'Brien
I think that it's, it's never going to be a bad thing to put in more capital than you need in the working capital, especially if, you know, you can just bring it and put it right back in your pocket if you ever got to the cash position to do so. Yeah, the. So in the course. That's a great question. In the course of the dd, there wasn't really a way for us to get detailed information on how, what the average AR on hand was. Oh, and so, you know, now that's a, certainly a KPI of ours where we track it for a measurable. And that makes a massive difference in what we see in our operating capital, which is at the goal of 65 days or less. And if it exceeds that, we can see the number going down. And if it, if we overachieve, then, you know, we look like we're in a great place. So. But yes, I would have, I certainly would have put in, in double and, and you know, brought more, more capital to the table. But as you articulated, I was fortunate enough to be in a place where I was able to, to do that on a, you know, a shareholder loan and then, and then pay myself back over the course of, I think it was like six to nine months.
- [57:13]
Will Smith
Yeah. So this was a case where the seller simply wasn't tracking that stuff very closely. You said there wasn't much tracking going on. This was an example of that. So there was really, it wasn't, it wasn't an oversight.
- [57:23]
Matt O'Brien
There was nothing, there was nothing for us to see. Right.
- [57:26]
Will Smith
Yeah.
- [57:26]
Matt O'Brien
I mean, and again, where there was little information or little systems, I still believe there's great opportunity. But it's right, the opportunity came with $150,000 loan to myself.
- [57:39]
Will Smith
Okay. Okay. So it was, call it, you know, two and a half million dollar revenue business. When you bought it, that was in 20, 21. Toward the end of 21, I think you said fall 21. Here we are three and a half years later. Where is the business today?
- [57:55]
Matt O'Brien
Oh, so yeah, we bought it in 22. We, we engaged in 21 and I think it, it took us about nine months to get to the closing table. But anyway so we, we. To give us you like a maturation of our, of our business. Yeah. 23 we, we concluded at three nine five. So we were up from you know, two seven to three nine five and 23 and 24. We ended up 495.
- [58:22]
Will Smith
Wow. What is that? That's 60ish percent growth the first year and then another, you know, 40%. I don't know if my math is right there. But anyway that's, that's a nice clip. And so since you bought it, you're up 80% I guess something like that. Revenue. The. And so how have you done that? Has it been your focus on sales? Is that the strategic, the aforementioned strategic time you spend or you hire a salesperson or. No, we have efficiencies in the business for more throughput or what.
- [58:57]
Matt O'Brien
So we, we don't have a salesperson. Well if there's been a salesperson it's been myself, you know, knocking on the door of general contractors or even if we were to be direct to a, a large, let's say industrial type of client. But I think that the reason for it has been really getting granular in our numbers and truly understanding what our fixed costs are in the construction world. They'll call those burdens. So we really understand what those are. And so we updated our, our pricing, how we go about actually putting price to our projects and our quotes and our proposals and things of that nature. And I think that's been one lever that we've pulled. Another lever has been operational efficiency. And what I say mean by that is we have a, we didn't really have any kind of organization of what's called a job pack. And so when our vendors bring our materials in because we, we order our materials just in time for the most part we do have some inventory, but usually it's specific to the job that we have a contract for. They would just be in our yard or in our, in our shop or whatever you want to call it. And it may be where you know it's time to go work on this particular project. And now they're out in the yard for quite some time looking for the material.
- [60:14]
Will Smith
The.
- [60:15]
Matt O'Brien
Because it wasn't never like labeled or identified or any of those things. So we use skits years for most of our mobilizations and you know, you might have to pull four job packs out to get to the one that you need and then put those other four back. And so that was a Big part of it. So we have a, a throughput system as to where it comes in. It's highly organized, and that's helped dramatically, as well as some of our smaller materials truly having a system as to where those get put away inside the, inside the garage as well. And then SOPs, as you touched on, you know, we, we're, we're tracking the amount of time that it takes for our guys to get out the door in the morning. So now we have goals and sometimes they might not be achievable, and then we have to adjust as to what those look like. But I don't think that there was any formal process like that. And that, again, was where the opportunity came.
- [61:13]
Will Smith
Well, all of what you just described, all those increased efficiencies generally show up in better margins and better bottom line, but they don't necessarily contribute to the top line. So. But you had just said you're, you're out there doing sales, but you know that, that sales increase is, is really impressive. And 80%, 80% more top line over last couple of years or so. Anyway, between that and all these new efficiencies, I assume your net margins are also higher.
- [61:44]
Matt O'Brien
They. Yes, they absolutely are. Yes.
- [61:47]
Will Smith
So now you're a $5 million business with probably better than 25% margins.
- [61:53]
Matt O'Brien
We are not quite better than where we were, but if we go back and, you know, we can do back the napkin math on our EBITDA and add backs and things of that nature. Yes, we, we are. Our EBITDA is, is pretty, it's almost doubled.
- [62:11]
Will Smith
Fantastic.
- [62:12]
Matt O'Brien
Yep.
- [62:13]
Will Smith
There's still a couple of themes we want to get to. First of all, it hasn't all been green lights for you, Matt. You have had a bad business acquisition or a business acquisition gone wrong. We want to hear that story in brief. So maybe let's do that now. Unless there. Is there anything else you want to leave us with? Leave us about the fencing business, maybe commercial fencing in general. What, what, what would you tell buyers looking at a business like that? Is it. What would you tell them about the business? Same question I asked you on FedEx.
- [62:41]
Matt O'Brien
Sure, I would. If it was me looking at another, another commercial fence company. You know, the, the things that, the intangibles or the variables that I'd be looking at is, number one, the people. I mean, our, our kind of thesis is that if you have good people, you have a good business. So what that, what is the makeup of those, what does that makeup look like? You know, do you have key employees that are the driver and then is there customer concentration? You know, like that for us was something that we took into strong consideration knowing that we, we did go into where we had a little bit of customer concentration. But that's been partially attributed to this growth is not necessarily to try and shrink that, but to grow the relationships and the revenue and leave them where they were because they've been so great to us, but then grow outside of that too. So that to me would be the two, for me would be the people like how is the business constructed or structured? And then that of the customer concentration, you know, we have looked at other strategics for us to acquire and the challenge that we've run into is, is that it's kind of feels like professional fence 2.0. And when I say that it means that you have a seller that's everything to everybody. And you know, they might be doing sales, operations, scheduling, receivables, payables. And if there was even just one more person that was attributing to that businesses organization then that would be a lot more attractive for us. And then also leave it with this, is that what is the, what is the integrity of their equipment? What we found is, is when a seller's getting ready to sell, you know, they're at this inflection point, do I reinvest in my capital equipment and or do I say hey, that's going to cost me X and I'm unwilling to make that, that commitment of whatever that looks like or is it time for me to sell and, and really take that into account. And, and two things that actually comes to me now too Will, is if you're going to go down the road of SBA 7A debt, whether it would be with FedEx or if it would be in commercial fencing, take into consideration what the lifespan of that equipment is going to look like. So if it's going to be what's collateralized in your debt and you need to cycle out of it, well, if you sell it or you, you know, you trade it in or whatever it may be, you're still going to be saddled with that on your note. It's not going to reduce that payment. So you might have to go debt on debt, which now you are going to be, you know, in a long term hold. So take that into strong consideration. If you're in a capital intensive business is, you know, what does the lifespan of that equipment look like and how are you going to cycle it? And, and I learned that the hard way, right. Multiple times. And so that's one thing so to.
- [65:39]
Will Smith
Be clear, you bought a bit, you bought business. Business had capital assets that you paid for and were with your 7A loan and were therefore financing them and then they didn't have a very long life, certainly not as long as the loan. So when you got rid of them, well, this wasn't like a personal experience.
- [65:58]
Matt O'Brien
But I'm, you know, I'm looking through the lens of if you're like, let's say you were going to go into a FedEx for example and you're going to buy a semi truck or a series of them. Right. And you have 10 year debt on your 7A. Well the, the tractor lifespan is not 10 years. You know, you're just simply putting too many miles on it. So when you go to sell it and then you have to go get the new one and you know, let's like state the obvious, they're expensive, you know, 125,000 for a new one at maybe, maybe more. Probably more. And so you're going to have debt that you're going to, you're going to pay down your debt but your note doesn't change. Right. Your monthly carrying cost doesn't change, maybe your term does, but you're going to have to go into the, the new one, the new power unit, whether that's at fencing or if it's in trucking or whatever. But now you're going dead on debt. And so you know, how attractive does that look? So I would be very wary, very conscious of your equipment, you know, not to the point where it scares anyone from buying but take into strong consideration that what does the lifespan of that equipment look like?
- [67:00]
Will Smith
Okay.
- [67:01]
Matt O'Brien
You know, if it's a, just. Yeah, yeah. Going to be, it might put you in a, you know, you might be digging your own grave at closing.
- [67:08]
Will Smith
But, but Matt, just so I make sure I understand, if the equipment, let's say is really old, won't that be reflected in your purchase price? Meaning it won't have a lot of value, value ascribed to it anyway because it is old.
- [67:22]
Matt O'Brien
Yeah. I mean it could. Right. And, but it's all relative. I just make the point of that just to be careful. Right. You know, because it, a lot of times the, the seller is at this place where they just don't want to invest in more equipment, new equipment. So yes, you're right and the due diligence, you should discover it. But, and also, you know, if you are in a place to be able to get an appraisal of what that equipment looks like, I would highly advocate for that because not everyone's going to be an expert as to like, you know, what, what a 10 year old skid steer is going to be worth. I'm certainly not.
- [67:55]
Will Smith
Yeah, yeah, yeah. Okay. So, so the danger there is that the value ascribed to some of this capital equipment when you buy the business is too, too high.
- [68:04]
Matt O'Brien
Yes.
- [68:05]
Will Smith
Doesn't. And then you've overpaid for it. You might get. Need to get rid of it. You're still paying debt on it. Meanwhile you had to buy a replacement. No. Now that you finance that. And so now you're paying for two.
- [68:15]
Matt O'Brien
That's exactly right. Yeah. You got it.
- [68:17]
Will Smith
Well, okay, thank you. Okay, great. That was on. Oh, and then just to close us out on commercial fencing. But essentially this is project based construction work. Yes, yes. Okay. Yeah. But often selling to institutions. I mean big Sam Rosati that we both know and in, in Tampa, I think they had pr. A lot of prisons for example. So these are often pretty big jobs.
- [68:45]
Matt O'Brien
We've. Yeah, we've, yeah, we've done some prisons. Okay. Yeah. So the. Yes. Yeah, the. Yeah, we, you know, the bigger. Yeah, they, they can be big projects just like he described as. Well. Yeah, those are, those are attractive.
- [69:01]
Will Smith
Great, Matt. Now let's hear about your third business acquisition.
- [69:07]
Matt O'Brien
So, you know, kind of in the spirit of permanent equity and the chin marks of the world, which I, you know, highly admire, I thought to myself, you know, after selling, selling my, my company in 2021, I thought I, I think I want to do that. I think that sounds amazing, you know. Yeah. And, and so we tried and it didn't work. And so we caught headwinds in an acquisition that we were relatively removed from. It was, it was here in, in Kentucky as well and had the operator in place. And it came from, and this was another trucking company and came from, you know, a logistics background of running operations, if you will. And you know, I don't know if it was. We just caught a combination of things that didn't, didn't work out. But we bought a business in March of 23 and we ended up divesting it in April of 24 and caught significant headwinds in way of increased or. Excuse me, there was a lot of attrition into the value of freight, which is how you get paid. So each load was worth less. So you're working the same but making less. The, the cogs, the human capital price as I alluded to earlier, was beginning to increase. And then, you know, the variable that we couldn't control was insurance and so the combination of those three led to this burn on money and ultimately made the, the decision to divest the equipment and sold it and then the real estate as well. And yeah, so it was, it was painful but maybe, maybe one of the, the greatest learning experiences and hopefully the greatest learning experience I've ever had was the, the, you know, the defeat if you will.
- [71:07]
Will Smith
And how big a business was it when you bought it?
- [71:11]
Matt O'Brien
Bought it for a million. And you know, we had capital calls because we needed working capital. Same same argument where we didn't put enough working capital in. So that was, that was absolutely my mistake to begin with. You know, the idea was is that you know, our shippers were were paying much faster than anything in construction and which was true. It still played true but it wasn't as much of the, the AR lag was as it, as it was just the, the working capital. And yeah, I mean just the combination of of increasing costs and reduced top line due to the shrinking value of the runs led to us just making this executive decision that we, we had to push eject and and divest the equipment, pay off the debt and then we exit on the, the real estate and came out even on that. But it was, it was, it was certainly a loss undoubtedly.
- [72:09]
Will Smith
How much did you lose? Do you do.
- [72:11]
Matt O'Brien
You know, I'm gonna wait for my taxes to come out until I decide but I almost kind of couldn't face the face it, but between the operating capital and the equity injection, it was, it was at least 500,000. Yeah, it might have been more than that and that was more than anything. It was the working capital burn that we were experiencing that we had to put in three different times. Yeah.
- [72:38]
Will Smith
And Matt. So was this basically you guys getting caught in the trucking recession that we all heard about or.
- [72:49]
Matt O'Brien
Probably probably a little bit of it. I think that again, like if you look at the, the rising cost of the insurance was maybe the biggest lever and variable that we couldn't control. What really drew us to it was that it was very niche and we liked you know, staying in that. This is the thesis in, in the acquisition thesis that we have that we talked about on our, our Pre screen but B2B service related businesses in tertiary markets and this fit that and having already been in the logistics space and having the operator already, you know, chambered and ready to go, we thought this is, this is a no brainer. We had very favorable debt from a, a bank that we have a great relationship with and, and I think that you know, I take responsibility for it in that maybe got overly excited in terms of trying to create this boutique, you know, PE firm type of Chen Mark buy and hold business structuring. And so maybe there might have been the, you know, the square pay ground, hole kind of thing where we were forcing it to happen. And. And there. There likely were flags all along. Right, I see.
- [74:03]
Will Smith
So you mean in your zealousness to become the next Chen Mark, you weren't. You didn't scrutinize the. The opportunity as much as you should have? Is that what you mean? So we had.
- [74:14]
Matt O'Brien
I had walked down the aisle with him three times, and there was always some sort of, you know, flag at the end that prevented us from getting across the finish line. And that should have been maybe the. The warning shot that I should have listened to instead of saying, hey, because, I mean, let's be honest, when you're buying a business, it could be interpreted that you're a little arrogant. And I say that not in a negative way. I'm saying that in an endearing way that you feel like you can do it better than whomever you're buying it from. And. And I felt like we could operate it better with the. The history and the information that we had. And. And that wasn't correct. We. We. We could not. And so I think that sometimes you have these maybe, like, little mama pop businesses and they're successful because they operate them in such a lean way that you can't replicate that, you know, and that's certainly not the sellers of this particular business, not accusing them of anything. But, you know, there could be situations where, you know, there'd be, let's say, a repair to a truck that they perform on a Sunday afternoon for a couple hours because it needs it, because it's going back out Monday morning. But is that getting recorded to the income statement? Probably not. You know, like, is there time being committed to that or is there a repair ticket? Probably not. And then, you know, for them, that was okay. There was nothing wrong with that for us. We couldn't have discovered that in dd. There's no way.
- [75:42]
Will Smith
Yeah.
- [75:43]
Matt O'Brien
So. And that's just. That's just an example. Right. Like, I'm. There was a slew of things that just kind of converged all at one time. And fortunately, we were in a place where we could make up the. The. The difference between our debt service and the sale of the equipment to. To make the bank whole and then, you know, walk away. Yeah, you're exactly right.
- [76:06]
Will Smith
Yeah. Well, one thing I thought you might be about to Say Matt was the split focus. So then at some point you had these businesses overlapped. You had the new carrier trucking business and fence. And that of course is one of the the the criticisms of the grand Holdco vision or the sexy Holdco vision is is that that you know most people can't run multiple businesses and even if you can is 50% of your attention or you know some percentage your of your attention on business A versus business B. The best use of kind of attention like kind of attention allocation. Maybe the better opportunity is fence and therefore it should get 100 of your attention. That's the better kind of capital attention allocation decision respond to how you think about the hold code dream now as dispassionately as you can given that your first attempt at it you got burned objective if you can be.
- [77:08]
Matt O'Brien
Yeah yeah yeah. I I think you asked me a very good question question on the pre screen that of would you be discouraged to continue to try and do it again? The answer is no. The I do believe that it was one where if I was able to commit more time to this trucking endeavor would it have had a higher chance of success? The answer is yes. But with long term is there going to be a better return on investment with fencing? Undoubtedly. And so the thesis was that of we could have just a really good we thought was like a very consistent very solid asset that we could improve over the course of time with cycling of new equipment and we had strong relationships with the shippers and we thought you know this is going to just be a solid business that's going to be able to yield some pretty solid distributions and and we could have you know an upgrade in equipment and maybe in our our thought was is that in 2829 we'd be able to sell to a regional strategic. You know before this you know the theory of this 2030 economic collapse that we have. And so that was kind of, that was kind of our idea. But I, I, I don't know if it was one where maybe the timing was something that could very much be impacted in that if it was you know we're we're close to being three years removed from the acquisition of of professional fence or into this to this business. Would it make more sense if we were going into that today? Probably. But you know that business was there and available at the time and so we made the the decision with the information we had.
- [79:01]
Will Smith
Yep yep.
- [79:02]
Matt O'Brien
So you know know I is there a regret would I love to have the money in my pocket? Undoubtedly. But is there maybe Learning that I can take away from that that is going to make us stronger or even just the lessons learned long term. I I don't think there's any question. My hope is, is that the loss those lost funds are going to be at you know, a 10x as to what value we can bring in in all things.
- [79:35]
Will Smith
Sure sure. Well and so so you would that fantasy or, or that potential vision still exists of, of owning multiple different diversified businesses.
- [79:50]
Matt O'Brien
It does there. I mean there is absolutely there. It's still there, you know, lingering in the background. But you know, 100% of my attention is is, is on Professional Fence. And to your point you did have another guest on I think the, the gentleman in Steamboat Springs and talking about the same conceptual idea the, the flooring company. Yeah Edwards. Yeah, I think that there is depending on where we go next, I think that we can have really like strategic, sizable growth with Professional Fence. For sure.
- [80:23]
Will Smith
We're starting to wrap up here, Matt, but you touched on the thesis that you had told me more about in our pre. Call the B2B service businesses in tertiary markets around cities. Expand that please.
- [80:37]
Matt O'Brien
So what I found is, is that being in the city center, if you want to call it that is is fine if that's what works for you. But we found like that the integrity of the, the employee and the service based businesses is much much higher in tertiary markets. And so to give you an idea of where we are, we're in lagrange, Kentucky which is a, a suburb of of Louisville. And so our, our downtown is maybe 30 to 35 minutes away something to that effect. But the real value for us is is the neighboring counties and the the workforce that comes with that. And so you know from, from their perspective it's attractive that their commutes 15 to 20 minutes versus an hour going into the city. And so we found that with this is what we felt like was going to be true with the trucking company that didn't work out. But and, and so it's really more so of the workforce. That's what we found is, is, is the true, the real value. Again it goes back to the, the people. If we can have good people then we're gonna have a good business. And so that's and, and we during due diligence for profence we were, I personally was very concerned. I thought hey, we're not going to be able to find any employees because we're nowhere near the the city. And it was the exact opposite. I mean the, the amount of applicants was, has been and Continues to be overwhelming.
- [82:04]
Will Smith
Interesting. And so these are all people who. So you and lagrange are what you'd consider the secondary market. So downtown Louisville is the primary market. You're in the secondary market of the suburbs. And all these employees are coming from even further afield, the exurbs, maybe even semi rural. Rural.
- [82:20]
Matt O'Brien
Oh, yeah, for sure. Absolutely.
- [82:22]
Will Smith
Yeah.
- [82:22]
Matt O'Brien
Yes.
- [82:22]
Will Smith
And so, and so instead of them having to drive all the way, all the way to Louisville, they can drive to La Grange, which is closer to them. And, and so it's, it's an appealing outlet for them. But do you think they're higher quality people than you get in Louisville? Okay, so there's also something qualitative about, about the type of employee that doesn't live downtown sort of thing. Make a generalization.
- [82:47]
Matt O'Brien
And I think it.
- [82:50]
Will Smith
Rural people work harder than city people. Is that.
- [82:53]
Matt O'Brien
Yeah, maybe. I think that. And it's like an, you know, it's kind of like endearing. They, the, the guys that are like from the farm and the rural areas are consistent. They just, they show up to work and, you know, they have families that they must feed. And. Yeah, I mean, I think they're, I think they can. I think how consistent they are in outweighs the having, you know, let's say an increased population. And that's, that's at least what our finding has been.
- [83:22]
Will Smith
Yeah. And so you have kind of a thesis around that now where you buy another business. That would be a key feature which you'd look for. Yeah.
- [83:31]
Matt O'Brien
Mm.
- [83:32]
Will Smith
Great. Fascinating. Last question for you, Matt. Despite, you know, talking about the, the Holdco possibility, there's also the possibility of selling professional fence. I, I imagine Sam, the Sam Rosati who we mentioned a few minutes ago out of Tampa, built up a. He and his partners built up a commercial fencing business in the, in the kind of the Sunbelt states from Florida all the way across and partnered with a very large private equity fund recently. So took some chips off the table in a material way. So I don't know if that is. You can extrapolate to say that, oh, private equity is interested in commercial fence broadly if there, if there are multiple funds looking at this space. But, you know, it's a, it's a data point. So what are your thoughts about if you could selling the business and how do you decide, aside from price tag, when it's time to sell, if you had the offer?
- [84:34]
Matt O'Brien
I, I definitely think that they're. We know that private equity is coming into, into the fence space.
- [84:40]
Will Smith
Okay.
- [84:41]
Matt O'Brien
As we know they're. They're they're having to find opportunities outside of, let's say, you know, the, the H Vacs and the, the things that have been super sexy for the last, you know, five to 10 years that have been getting acquired and rolled up. You know, you know, Sam obviously did a brilliant job in becoming platform for, for the firm that they partnered with. And I think that allows for greater expansion and you know, comes with capital allowing you to do that. Yeah, I think, I believe that, you know, we certainly are, are not. We've gotten interest, we've. We've gotten, you know, phone calls or people poking around and you know, firms that have said, you know, we'd like to, to explore walking down the aisle with you, but I certainly believe and we'll go back to like kind of like these baseball routes that we're in, we're in the early innings and I think there's a long way for us to go versus you know, looking at, at an exit now. We, and the multiple things that come with that, you know, maybe this is more of a business that is just very so consistent that you know, you have a strong lifestyle that way with great people that you could enjoy around that and just continue to, to maybe have these small little bolt ons that we hope for, you know, with or you know, our size at the moment with the, the evadel EBITDA level that I shared earlier. We know that if we get bigger, there's, you know, there's expansion of that. And so you know, we'd be kind of early and quick to go to that because we are in that SMB space. So there, there's absolutely funds out there looking to acquire fencing. Undoubtedly.
- [86:38]
Will Smith
Yeah, yeah. If the business was two and a half million when you bought it, you've almost doubled it. But for easy math, let's say you doubled it to five. Double it again. It's a tall order, but let's say you double it again. That's to. Then you're at 10 million in a business that has better than 20% margins. That feels like a business you don't want to sell maybe, but either way you're in a great position either way, hold on to it forever or choose to sell. And you know, you, you are like, I mean I don't think you'd be at the size that Sam was at when he partnered with private equity, but at a $10 million business that could be a private equity funds platform and, and there not a lot of them around. So you be, you can charge a premium for that. They're not. I don't. I would suspect there aren't a ton of $10 million commercial fencing businesses to be had out there.
- [87:28]
Matt O'Brien
I'm in total agreement with you. I mean, I think that the way the the PE firms are looking at it is, is that they might have to to take two and put them together in order to get a platform. And I think that might be the only way they can make it work as of right now. But to your point, I $10 million is absolutely within reach.
- [87:45]
Will Smith
Yeah.
- [87:47]
Matt O'Brien
And you know, they. I don't. I think you have the choice between two very good options, whether you keep it or you choose to exit. But you know, I feel very fortunate that I had the opportunity to buy it.
- [87:58]
Will Smith
Okay, Matt O'Brien of Professional Fence, thanks very much for coming on. Great interview.
- [88:03]
Matt O'Brien
Thanks Will. Real pleasure.
- [88:05]
Will Smith
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