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Acquiring Minds
How to Build a Holdco (4 Acquisitions So Far)
00:44:29
With 4 acquisitions since starting in 2018, Justin Turner explains how his team is building a permanent equity holdco.
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- [00:11]
A
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. Many acquisition entrepreneurs envision buying not just one business, but multiple businesses over the span of their careers. Their vision is a holdco, or what people are calling a permanent equity firm, which is like private equity except that you buy companies and hold them indefinitely rather than selling them after a few years. It's an attractive model and Justin Turner is the co founder and managing partner of just such a firm. Traction Capital did its first acquisition in 2018 and has done three more since across a variety of industries. In this interview, Justin tells me how he's done it. I knew very little about how this works, and for those of you out there attracted to the idea of buying multiple different businesses, this episode is for you. I also want to plug a future episode with Chenmark, another well known permanent equity firm. I'll be interviewing the founders of Chenmark in a couple weeks, so watch for that in February. Okay. Here is Justin Turner, co founder of Traction Capital. Justin Turner, thank you for joining me today on Acquiring Minds.
- [01:26]
B
Well, thanks for having me. Appreciate it.
- [01:28]
A
You are the co founder and managing partner of Traction Capital, which is a permanent equity fund. You've made four acquisitions of small businesses that all seem to be doing pretty well. And so what I want to spend our time on today is how does somebody start a permanent equity fund or business on SMB Twitter? There's a lot of overlap between acquisition entrepreneurs and the idea of kind of having a hold or permanent equity, permanent equity vehicle or fund of some kind. And here you are a few years into it. So I figured you'd be a great guy to give us a playbook. So let's kick it off though, with your background, Justin, give me two or three minutes on your history, your professional history, and kind of right up to the point that you were inspired to start Traction.
- [02:20]
B
Sure. So I grew up outside of Seattle, about an hour and a half outside of Seattle. Went to a small Christian private school in the Seattle area called Northwest University for undergrad. Studied finance and accounting there and then I worked for a handful of years out of undergrad and during my senior year undergrad for a kind of boutique investment bank out here in the Northwest. I was on their mergers and acquisitions team working with businesses that were based on the west coast and, you know, learned a lot doing that. Great experience. The my boss from that time period is still a dear friend and a great mentor to Me, but I eventually got pretty burnt out on the investment banking side of things. And we mostly did sell side advisory work. So working with business owners that were looking at having an exit. And we would kind of help manage and run that process for them. But we also had some buy side clients who retained us to look at acquisitions as part of their growth strategy. And, you know, I was young at the time, and I would go home and think about like, you know, what would it, what would I do if this was my business rather than just a client's business? And I eventually got, you know, burnt out on what I felt was their lack of ability to, you know, take the risks that we thought were necessary to really have the growth that they were looking for. And so I knew that I wanted to get over to the buy side. And in my mind, that was working for a private equity group where we were going in, putting our money to work, putting investor money to work. But then we were responsible for growing it. And that seemed like a lot of fun, seemed exciting. It was what I was passionate about at the time. So I took a job with a private equity group down in Austin, Texas. Our focus down there was on acquiring majority positions in business that were headquartered in Texas that had sub 50 million in revenue at the time of our investment. I was there. I was with them for about two years. First year was largely on the deal side of things. So a little bit of sourcing, a lot of analysis, a lot of due diligence, and then kind of working the deal with our partners up through the closing of that. The second year I was there, I was largely on the operations side. I was VP of finance for a roll up that we were doing in the rotational plastic molding industry. So spent a lot of time all over Texas in our factories, in our plants, working on the finance and operations side of things. Was in Texas for a couple of years. Wanted to get back up to the Northwest. It's where I'm from. My sisters and my folks are still up here. So moved back up to the Seattle area in the end of 2016. Bought part of a small consumer products company with another family. Helped run that for a couple years. And then I had some great connections that I had known before going to Texas that we all were kind of thinking the same way of it would be awesome to invest in and have a portfolio of small businesses here in the Northwest that we were coming alongside the management teams and figuring out how to grow the business for the long term. So I sold my ownership in the consumer products company and started Traction. We got our first deal done October of 2018, but we spent probably six months to a year looking at deals before we closed on our first acquisition.
- [05:54]
A
So October 2018 was the first acquisition. You spent six or 12 months before that looking for that first deal. And with that acquisition, that's really when Traction kind of started proper.
- [06:05]
B
Yeah, I mean, we had the concept, we knew what we were looking for, we knew what we wanted to do, but it just took a while to find that first deal. And I think that's probably a common story that you hear with a lot of searchers or other investors is when you're first starting out, it can take a little while to find that first one.
- [06:23]
A
So differentiate for me what Traction is as a buyer of small businesses versus, I guess, a conventional private equity fund or if there's a difference.
- [06:35]
B
Sure. I think the biggest difference between our model. Well, a couple of differences between our model and traditional private equity. Traditional private equity is often, oftentimes raising a large fund that will go out and make a lot of different investments out of that single fund. And that fund will typically have a 10 year life. And their goal is to buy companies, grow them, and sell them as quickly as possible. So their typical hold period is going to be three to five years and then they're going to exit that and work on raising their next fund and then go do the whole cycle over again.
- [07:16]
A
So there's always an expectation of exiting the businesses that they buy.
- [07:22]
B
Yeah. On the true private equity side of things, the majority, probably 99% of them, are focused on buying, building and then selling the business within a compressed timeframe.
- [07:37]
A
Yep.
- [07:39]
B
Our model, we're buying businesses without the expectation or a defined hold period. Our goal is to own them for the next 10, 20 years. And that's partly driven by our passion to help grow these businesses. I think you miss out on the power of compounding. If you are selling after three to five years and if you have a good business and you're able to execute on the strategy, you really start to get the benefits of compounding the longer you can hold that investment. Go ahead.
- [08:15]
A
I was just going to say, and so this is what now people refer to as permanent equity. Is that fair?
- [08:23]
B
Yeah, I would say that's definitely a newer term, but yeah, I think for the most part, especially the folks on Twitter would call that permanent equity or. Yeah, or very long term hold. Yeah. Yeah.
- [08:38]
A
And as we both just kind of hinted at, permanent equity maybe is kind of a new term for an old concept. Is what you're doing newfangled or is this something that people have always done? It's just called different things over time.
- [08:54]
B
I think some people have always done it. There's certainly some large examples of people that have done it. I think for like Warren Buffett, he would be the greatest example. Yeah, I think for smaller businesses, for folks that are using a leverage buyout structure or buyout structure, I think it's a newer concept. So we'll see how it proves out. I think most of the firms that are on the smaller side that are pursuing it are, you know, outside of maybe one or two are still very, very early on. I mean, we, we started in 2018, so we're hardly a long term hold vehicle at this point.
- [09:39]
A
So. So do I understand correctly that maybe what's new is that the idea of kind of a permanent equity vehicle done at kind of a smaller. For smaller sized businesses, maybe with an SBA loan as the first acquisition, that's kind of a new trend?
- [09:57]
B
I would say so. Yeah.
- [09:59]
A
Yeah, okay.
- [09:59]
B
I would say so.
- [10:01]
A
And of course, Brent be sure is kind of a leading light in this world. And I think the name of his fund is Permanent Equity. So is that right?
- [10:10]
B
Yeah. Yep. It started out as Adventures, and then they changed the name here within the last couple years to Permanent Equity.
- [10:16]
A
And was that seeing what Brent was doing, was that something that you were aware of when you started thinking about traction?
- [10:23]
B
He's certainly been super inspirational. I think very highly of him and their firm and reading the stuff that they put out, hearing him on podcasts, especially when I was coming back from Texas in 2016 and 2017, loved what they were trying to accomplish. I've gotten to spend a little bit of time with Brent and huge fan of what they're doing and just to.
- [10:51]
A
Not to put too fine a point on it, but this idea of holding for a longer term so that you can really enjoy the benefits of compounding, why is that not more of a model in the private equity world? I understand that private equity is based around funds that have a life cycle and you need to return capital to your investors, but it seems obvious and compounding is talked about constantly online and everywhere, and we can just look at Warren Buffett's career and understand it. It's the principle there. It just seems kind of obvious that a lot of the benefit would accrue in years 11 through 20 rather than years 3 through 5. So I guess why isn't this more done? Because it sounds like there's kind of a small handful of funds doing this Correct me if I'm wrong on that too.
- [11:39]
B
Yeah, I think it's definitely a small subset of the buyout industry that has the long term hold perspective. I think there's a number of reasons for it. I'm probably not an expert in all those reasons, but I think a big part of it, at least on the larger fund level, is driven by the need to return capital to investors, which are oftentimes, especially for the bigger funds, are oftentimes large endowments, large retirement systems that since the private equity world started has been driven on putting money in. You know it's going to be locked up. You know, there's going to be illiquidity for a period of time, but you're going to get a, in theory, a higher return on those dollars for that illiquidity that you have. And you know those, those firm or those investors need to get that capital back at some point. I think there's also, I think on the investor side of it, the private equity side of it, they have to show those returns to justify the next larger fund that they're raising, which drives their ability to make fee income and do deals, post a track record and then raise a fund again. And so that's just that that's the life cycle of what the industry has been. And I think it's hard for the LP side of it to get on board with, hey, I'm going to have my money locked up in this long term vehicle for 20 years. I don't know what's going to happen in 20 years. It's definitely a newer concept. I think more and more people are going to be trying to go that route. I think partially on Twitter. It's because it's the sexy term, the cool term right now to try and be that person. I think largely inspired by Brent B. Shore and Chen Mark and those forks. But yeah, great.
- [13:33]
A
Well, let's get into how you have started building this private equity fund. So acquisition number one, October 2018, what was that business? And if you can share any numbers behind it, that'd be great.
- [13:47]
B
Yeah, it's a business called Sea Western. It's based in Kirkland, Washington. It's a distribution business that sells PPE products to fire departments across eight of the Western states. The business has been around since the 70s. We bought the majority share of the business in 2018 from a brother and sister who were the children of the founder of that business. The primary product lines we sell are the fireproof clothing that firemen wear when they're actually going out to Fight a fire, as well as the breathing apparatuses, the SCBAs and the Air packs that they're wearing when they go out to fight fires. But we also sell all the hand tools, boots, gloves, station wear, all that side of things as well. That business when we bought it was just in Washington and Oregon primarily. They did a little bit of work in Idaho. It was about 15 million in revenue when we bought it. That business is about 24 or 25 million in sales per year now. So it's been nice little growth story for us, largely driven by our expansion into new geographies. So we're now in eight states versus the two that we were when we first bought it.
- [15:01]
A
And was your vision when you acquired it that what level of operational involvement is there on your part or the other folks in your fund? And let me step back. Who are the other people involved in Traction?
- [15:14]
B
Sure. So there's six of us at the traction level. Myself and two other partners own the majority of the business. Our vp Peter Bell owns part of the business alongside of us. And then we've got two gals that are focused on kind of financial operations for the portfolio. So Dale Payne, one of my partners, pretty much exclusively focused on the operational side of things as a resource for the various companies that we've invested in. And then Peter does some work on the operations side, some work on the deal side with me. And then we've got two gals that do finance and accounting, one that's kind of more a accountant and one that's a controller that work with the businesses to help with month end close bank reporting, all that fun stuff.
- [16:04]
A
Okay. With Sea Western? Yeah, go ahead. What was the operational involvement there?
- [16:08]
B
Yeah. So with the first business, we bought it from a brother and sister. The sister wanted to transition out pretty quickly. She largely ran the back office side of things, purchasing, inventory management, accounting. And she wanted to transition out pretty quickly. So we hired some folks and Dale from our team stepped in to kind of put together actual systems. The business used a lot of paper to run before we bought it and so we've done a full erp. Great.
- [16:39]
A
Low hanging fruit.
- [16:40]
B
Exactly. Yep, yep. So we've implemented NetSuite there. We try and implement NetSuite across the portfolio. It makes kind of the reporting and analysis side of things easier at the traction level if we have everything in the same ERP and accounting system. So people from Traction have certainly been fairly involved in operations. I would say a little bit less so now as we've added to the team there and the systems are Working to drive the day to day side of things there. But there was certainly folks from traction very involved to help with that transition process.
- [17:16]
A
With that transition and kind of those low hanging fruit opportunities of process improvement, putting in some tech that was, you were driving that. And then, and then the brother stayed on. Is he, is he the effectively the president of the company?
- [17:33]
B
He is he. You know, I think, I think all owners go through this, but they, you know, they make the decision to sell and then, you know, once they've decided on the party that they're going to sell to there, there's a period of time where you have to, like in any relationship, you have to get to know the other person, you have to build trust with that person. And you know, the owner in this case is going from somebody who could make all the decisions on everything in the business to hey, now I own a small part of it and I've got this new investment firm that is in charge. Like I don't know if I want to sign up for the rest of my life working with these guys. So he signed an employment agreement to continue to run the sales side of the business for us. He stepped into the CEO role about a year and a half ago. So he's the CEO of that business today. Kind of really running and driving the growth and the expansion side of things for us. So it's been a great. Yeah, it's been great. It's been great having him be a part of it.
- [18:32]
A
So that's October 2018. That's your first acquisition. When was your second acquisition?
- [18:37]
B
Second acquisition. It's a company called Swag Off Road. It's based down in Bend, Oregon and we closed on that business in October of 2019.
- [18:46]
A
So a year later, Swag off road. And so what does Swag Off Road do?
- [18:51]
B
Swag off road. So it started out, the guy that founded it, Troy, was passionate about kind of the off road side of things. He built Jeeps and Land Cruisers and originally wanted to build kind of bolt on products for the off road market, hence the name Swag Off Road. He pretty quickly realized it's a very competitive market for bolt on aftermarket automotive parts. And he transitioned to designing and selling light duty metal fabrication tools. And oftentimes these tools are used by folks that are in the off road world, but it's the folks that want to build their vehicle rather than use a credit card and bolt something onto their vehicle. So we design and sell light duty metal fabrication tools.
- [19:41]
A
Okay.
- [19:42]
B
And it's something I 90, 97% E commerce about 80% through our website, 16 or 17% through our Amazon store. And then we've got a couple of wholesale customers that we sell to.
- [19:59]
A
And go ahead and tell us, well, first of all, if you could tell me the numbers on that one and then, and then also follow up with your other two acquisitions. So we just, we get a span of your entire portfolio.
- [20:09]
B
Sure. So that business we bought, it was about 3 1/2 million in revenue. That business is about 6 million in revenue for 2021. Had a great 2020. Again, e commerce people are mostly stuck at home working on projects in their garage and we sell tools to those people. So 2020 was a great year for us. The third business, we didn't get any deals done in 2020. We got really close on one, but due to Covid, that one ended up falling apart, unfortunately. The third business we bought is an asphalt paving business. It's based here in the Seattle area, largely serves the Seattle Tacoma market. And that business kind of fluctuates between 7 and 8 million a year in revenue. And then our fourth acquisition that we completed this year as well is a business down in Portland, Oregon that is part retail, kind of bedding, home goods store, part E Commerce mattress business.
- [21:15]
A
Okay, E Commerce mattress. That's a competitive world.
- [21:21]
B
It definitely is. It definitely is. Yeah.
- [21:25]
A
On the paving company, I have seen a couple of stories in acquisition entrepreneurship around acquiring paving companies. It's one of those businesses that never occurs to you until, you know, you start talking to people in this world. What is appealing about those businesses? Why do they come up? It seems like such a niche business.
- [21:48]
B
The appeal for us, you know, that we, we think the kind of greater, you know, western Washington area is going to continue to experience a lot of growth. And the infrastructure part of it is a key part of being able to sustain that growth and support that growth. And so we think there's going to be a continual need for the road maintenance, road paving side of things. It's a business that generates pretty healthy margins. You do have capex issues to manage through, but properly ran and focused on the right types of projects, you can generate pretty good cash flow from those businesses.
- [22:28]
A
But there's no recurring. Is there any recurring piece to it?
- [22:33]
B
We have several contracts with kind of cable and fiber related businesses. So as they are going into neighborhoods and you've probably all seen it where there's a strip down one of the lanes of a road in your city that's been repatched. We do a lot of that work kind of coming in behind the cable and fiber businesses, as they're making upgrades to their network, were contracted to come in and fix the roads behind them.
- [23:02]
A
Okay.
- [23:03]
B
But outside of that, a lot of it is non reoccurring. It's very relationship driven on the kind of private side. And then the public side is largely bid work.
- [23:19]
A
So, Justin, you now have four businesses in the portfolio. I want to really understand how this is structured. If I were aspiring to do this, I didn't want to just acquire a single company and be the operator of that company. Instead, I wanted to go more your path and have a portfolio of companies. Sounds like the chronology was you found your first deal and you bought your first company. So is that kind of, kind of walk me through that. Is that right? And then, and then how, once you acquired that first company, then how did you. What was the structure? What did it look like to acquire the second? Because really, when you go from your first acquisition to your second acquisition, that's the moment where you go to become a proper portfolio when you have more than one.
- [24:07]
B
Yeah.
- [24:08]
A
So walk me through those four first two acquisitions from the point of view of somebody who's got the vision to build something where they're holding a portfolio.
- [24:16]
B
Sure. I think as we've talked about a little bit in the past, I think you really have to have the deal side of it lined up first. You certainly should be having conversations with folks that you think will be potential investors unless you have the ability to write the equity check yourself. But having those conversations about potentialities is one thing. I think having the deal either under IOI or LOI so that you can take an investor, hey, here's the deal. Here's how I'm thinking of structuring it. Here's what I'm willing to offer you on the equity side to help support the acquisition. That makes it real. But before that, it's all hypotheticals. But I think having that deal in place, it can be very stressful. Signing the LOI and getting close to closing without having all your equity dollars allocated. On our first business, I think we finalized the equity raise two weeks before all the funds were supposed to be wired out to the sellers. So it can definitely be stressful. Yeah, it can definitely be stressful, but we felt pretty confident that we'd be able to, to pull it off. But having that live deal, to be able to show them and say, hey, here's the business, here's the price we're buying it for. Here's what we've talked to the bank about supporting on the Financing side of things. Here's what we're looking to raise on the equity side. Here's the terms we're offering for that equity piece.
- [25:48]
A
So you had cultivated relationships and you said, I'm searching, I'm out looking for a deal. And you cultivated these relationships and said to them, when I find a deal, you know, I'd like you to be in it, or I'd like you to take a look at it. You know, I'll reach out when I have a deal. You had a deal and you, and you did the rounds going back to all these individuals who you now had relationships with and, and officially raised. Got them to actually stroke the checks or not.
- [26:14]
B
Yep.
- [26:15]
A
Okay.
- [26:15]
B
Yeah, yeah, the relationship part of it is, is key. Unless you're able to, you know, fund it by yourself, which I think on the SBA side of things is maybe a little more realistic. Depending on how you structure the deal, you get the benefit of some of the seller note being treated as equity in the SBA case, which can help kind of solve for that equity air ball. But yeah, I think having those relationships, we were very fortunate. My partner, Brian Haynes, largely leads our investor relations side of things. And most of our investors are folks who are generated their wealth running and owning businesses that at one point looked a lot like the businesses that we're going after. So our investor group understands the risks, they understand the challenges. They also know that properly executed, these can be really great investments to be a part of.
- [27:13]
A
So you did not use any SBA debt for this?
- [27:17]
B
Yeah, we have not gone the SBA route. We've worked with the same bank on all four of our transactions. It's a regional bank out here in the Northwest. We've got non recourse financing for all four of our deals. So no personal guarantees, which I'm a fan of. And they're typically willing to lend somewhere between, I would say, up to two to two and a half times senior debt to EBITDA for the acquisitions that we've looked at.
- [27:51]
A
And so you needed to not use SBA because the deals were too big for SBA or because other constraints imposed by the SBA loan were not going to give you enough flexibility to do what you wanted to do?
- [28:05]
B
Yeah, One, that SBA processes can be fairly onerous. Two, we wanted to try and avoid the personal guarantees. And I don't know the specifics on this, but I think it's a little more challenging if you want to try and do multiple acquisitions on the SBA side of things, versus being able to go Kind of traditional commercial lending with it. We were fortunate to find a banker that the bank had an appetite for acquisition financing. They were comfortable with doing cash flow based loans. And you know, they, they certainly, they ask great questions on the, the diligence side of things. They've helped steered us away from a couple investments that we were looking at that we didn't do. So they've been a great, a great partner for us.
- [28:54]
A
So you have them for a sizable piece of the acquisition and then you've also raised equity from investors. And then presumably you, you partners, the ones actually active in Traction, running Traction, small handful of people also have some skin in the game. So those are kind of the three tranches.
- [29:16]
B
Yeah. So in our deals you'll have, we typically ask for some seller rollover. So that's one piece of the capital structure. We want the prior owner to continue even if they don't want to be involved in operations. We want them to be at least engaged at the board level to help kind of shepherd the growth side of it. They're the experts in the business and we view them as a tremendous resource to help make sure we don't step in potholes along the way. And so they can help us avoid a lot of issues by having them engaged and incentivized to help grow it. So the rollover equity piece is part of it. A seller note is something we push for in all of our transactions, which basically is we're going to pay them out a certain amount every month or every quarter for a couple of years as part of the purchase price. You have the bank debt and then you've got the new equity that ourselves and our investors are putting into the deals as well of the new equity side of it. Traction is typically around 30% of the equity dollars going into a deal. And then the balance is from our outside investors that we've worked with. The goal is to eventually get to a point where we, we're able to fund all of the financing internally at Traction and then kind of pick and choose which investors we want to bring into a deal based on their skill sets or where we think they can add value with a potential company.
- [30:48]
A
Great. Okay, so then for your second, second deal, how did, how did it look? How did that capital structure look and how did it play with your existing, your existing business and portfolio?
- [31:01]
B
Yeah, so the second business we bought, I would say the equity raise was a lot quicker on that one. I think once you get your first one done, if you do well with that business after you buy it, it Makes the next ones a lot easier.
- [31:16]
A
Sure.
- [31:18]
B
So totally different industry than our first one, but a business that we thought had a lot of potential. The gentleman running it had started out as an engineer and wanted to start a business to get to the point where he was making more than his salary as an engineer. And the business very quickly surpassed that and got to a point where he felt like he was over his head. He did not want to be in charge of payroll, he didn't want to be in charge of HR issues. He didn't want to do sales and marketing to grow the business. The business was growing in spite of all that. It's an E commerce business. That's when we bought it. Spent no money on online advertising.
- [32:04]
A
Wow, what a great acquisition. Everything about that sounds perfect for somebody who wants to take it to the next level.
- [32:11]
B
Yeah. So it's been a great business for us. We've really benefited from the culture that he had in place of high quality Made in America products. Great customer service and he's got a passionate customer base that believes in the brand and believes in the product. So our challenge now is how do we continue to develop high quality products that we can provide to our customers that are doing something in the metal fabrication industry. So now it's more about, okay, what is the next evolution on the product side look like to continue to drive growth there? And we're looking at some acquisitions for that one to help grow it as well.
- [32:57]
A
So when you did this second acquisition, so are they like completely discreet, the two acquisitions? There's really no kind of umbrella fund or financing. They're just basically two different companies and the investors and buyers of those companies happen to be the same people in Traction.
- [33:17]
B
Yeah. Is that what it is? So we always set up a Holdco OPCO structure for the deals. And then Traction Capital, our parent LLC owns a majority of the Holdco in each of our investments. So at close we own the majority of the business. We have control of the investment. But each business, we've done one add on acquisition for one of our companies, but each business functions as its own individual business. All the bank debt is at the individual business level. It's not consolidated or cross collateralized at all. Each business really has to stand on its own. That being said, we certainly are interested in doing add ons within the portfolio, within the industries that we've got businesses in right now. Then at the end everything does roll up to Traction. Traction owns on a, you know, fully diluted basis. Anywhere on a fully diluted basis. Probably 60% or so of, of the businesses.
- [34:24]
A
So if I want to do this, it sounds like, I mean we're, you know, I'm sure you could give me a multi hour tutorial on how to do this at a very granular level. But at a high level you, you found your first deal, you'd cultivated relationships with investors in advance in the bank and you know, basically all, all, all that goes into doing a deal. So you, you'd put, put a deal together and you acquire this business and you, and you grow it and you know, you are involved in it operationally to do some of the early improvements and then you kind of have an additional bandwidth now to go do your second business and you have a track record. You've successfully acquired and grown your first acquisition. So now you have, you know, you have a track record and you have bandwidth. Then I'll go and do your second business and you kind of, not to, to belittle it but rinse and repeat. I mean you, you, you look for another business and, and, and then you can just kind of, kind of keep doing that really indefinitely as long as you have the bandwidth. At some point, obviously you can't, you can't, you, Justin, can't be involved in a hundred different companies. I mean there's only so many, you know, so much bandwidth you have. But to, to the, to the point where you can, to the extent that you can scale it, to the extent that you have the free bandwidth, you and your partners, you can just keep doing deal after deal, is that right?
- [35:46]
B
You know, that would be the goal. I think if you're somebody, that's the goal for us is to continue to do acquisitions. We want to add to the portfolio businesses, but we also are actively adding to the team attraction because we do want to be not just an investor, we want to be really alongside the teams helping to grow the businesses. So we feel like at the traction level we have to have the team to be able to support the portfolio operations side of things. But our goal is to buy one to two businesses a year. Whether that's an add on within a specific portfolio company or a totally new investment, we're open to either. I think if you're an individual that's looking to buy a business, I question whether or not it's realistic to go into that thinking, hey, I'm going to build this hold co from day one, like as, as one person, I wouldn't have been able to do four deals and have a portfolio of four companies that I'm managing. We, we had, I had Other partners when we started because our goal was to get to having a portfolio. It wasn't for Justin to buy a business and be the CEO and then after a couple years transition to saying no, actually now I'm going to start building a portfolio. Our goal from the beginning was to have multiple businesses that were under the traction umbrella. So I think doing it by yourself, it's going to be really challenging to have more than one business unless you're buying businesses that have complete management teams where you don't have to be there. Nothing day to day relies on you as the owner, I think is the only way you can do that as an individual. And it's challenging. You got to find the deal, you got to be able to know where to find deals. You have to know how to read financial statements and understand, you know, you have to be able to quickly get up to speed on industries. You have to know the questions to ask so that you don't miss something in due diligence. So it's definitely challenging, but it's, it's definitely doable and it can be very rewarding, you know, if you're able to make it happen.
- [37:53]
A
Well, I was. That's one of the things I wanted to ask you is your, you know, you've got such a, such a strong background in first in investment banking and then in private equity. And in fact, actually between private equity and traction, you worked with a family office to kind of do your own acquisition. So you'd also, I mean you just had a lot of experience. And so as somebody out there listening to this, you know, I ask myself, well, Justin has all this, you know, all this relevant M and A experience and basically all the skills that you just, that you just listed that to be successful at this, one would need to develop. You had those going in and I assume also your network. One thing I wanted to ask you about was your network. A lot of those people, you'd built that in your previous career, I assume. So talk to me about that. Could somebody without the really deep expertise, that financial expertise that you came to this with, I imagine it's going to be more challenging for them or what are your thoughts?
- [38:54]
B
I think it's definitely doable. One, like if you're passionate about buying a business, there's Google's going to be your friend. And also, you know, if you're, if you're somebody that's looking to buy a business and you're involved on Twitter, there's tons of people that are willing to lean in and help answer questions. You know, bounce ideas back and forth, get really technical on issues that you're struggling with. So I think it's definitely doable and you can find people to help with the areas that you, you may be, you may be a great operator right now, but maybe financial statement analysis is not your skill set. You can find people to help one teach you that, but also help you as you're looking at your deals and trying to evaluate, you know, how to do evaluation work, how to structure, how to put together presentations for investors and lenders. There's folks that are willing to help with those things for sure. So I think it's definitely doable. Going the SBA route can be really helpful for folks that are maybe not coming from a finance background and be able to get the acquisition financing that they need.
- [40:08]
A
Because you've seen so many deals and industries and size deals too, I would imagine. Could you weigh in on this question of buying small versus like what? Like if as an acquisition entrepreneur, who is going to be the, an owner operator is going to work in the business? So now I'm digressing a little bit. This person is not trying to be Justin Turner. This person is just going to be the owner operator of a business. You know, there's, there's often the temptation to buy kind of a, maybe a smaller business, a $1 million enterprise value business that throws off $300,000. And you know, I'll, I'll, you know, that size of business I'm more comfortable with since this is my first time doing that. But then you have people who say, don't do that. You know, a $4 million business or even a $5 million business is still a very small business and you can do it. I'm, I'm invoking the guys at, at Sig, at Search Investment Group who really pushed people to think a little bit bigger than buying just the one million dollar business. You, you can, you can do it. You can. If you can run a one million dollar business, you can run a four or five million dollars business. And it's a much more efficient use of your capital and time to do that and leverage to do that. Any thoughts on this? On this, for lack of a better word, debate?
- [41:23]
B
I think it's probably a little bit, I mean, dependent who you are. Yeah, it depends on who you are. All businesses are a little bit different. I think it's probably a little bit easier with the $4 to $5 million business because there might be some semblance of a system and a process and not just the solo Entrepreneur that makes everything happen. A business that is selling for a million dollars, that makes $300,000 a year. If you're buying that business to come in and run it, you are going to run it. You're going to do everything. You're like, everything that happens in that business, you're going to be responsible for. At 4 to 5, you've probably, at 4 to 5 million, you've probably got a few other people on the team that are making sure some things happen every day. So it's probably a little bit easier to run that four to five million dollars business. I think the folks that are out there that are passionate about this, they're for the most part going to be quick learners. They're going to be probably really good with other people if this is what they're driving towards. And even if you don't have all the experience in the world, I think you could definitely jump in and run a four to five million dollars business. You're going to have to learn. It's going to be a steep learning curve, but as long as you don't screw it up. Yeah, I think most people underestimate themselves and to your point, don't think big enough on what they can accomplish.
- [42:53]
A
So speaking of all of the expertise available on Twitter, you're one of the people out there on Twitter. Can I have your Twitter handle for the audience? And then also if people want to reach out to you, is that the best way or is email or LinkedIn a better way? What's your Twitter handle?
- [43:08]
B
First of all, please, it is Justin Nicholas T. And I would say I am an avid consumer of Twitter. I'm not an avid poster on Twitter, but I enjoy reading people's perspectives and all that.
- [43:25]
A
Well, you post enough that I found you.
- [43:30]
B
So, yeah, people can reach out to me there. People can always shoot me an email. Jturnerractioncp.com yeah, happy to help. Happy to help. I, I had a ton of people and still have a ton of people that are willing to give me advice. And I think, you know, passing it on to the next person is kind of your job. As somebody who's started to have a little bit of success, you owe it to the people that are trying to figure it out. So always, always happy to help and try and be helpful where I can, for sure.
- [44:01]
A
I love that. I love the spirit of that. Let's leave it on that. Justin, thank you very much. This has been a really great tutorial on, on building a, a permanent equity fund. So really appreciate your time.
- [44:12]
B
Well, appreciate you having me on? This is a lot of fun.