Acquiring Minds Podcast: “How to Build a Holdco (4 Acquisitions So Far)”

Host: Will Smith
Guest: Justin Turner, Co-founder and Managing Partner of Traction Capital
Date: January 24, 2022

Episode Overview

In this episode, host Will Smith speaks with Justin Turner, co-founder and managing partner of Traction Capital, a “permanent equity” investor in small businesses. The conversation centers on how Justin built up a multi-company holding structure—or "holdco"—with four acquisitions across various industries since 2018. They break down the details of structuring, financing, operating, and scaling a small business holdco meant to hold and grow operating companies over the very long term, instead of the traditional private equity model of “buy, build, and sell.”

Key Discussion Points & Insights

1. Justin Turner’s Background (02:19–05:53)

• Investment Banking Experience: Grew up near Seattle, studied finance/accounting, worked in boutique M&A, gained both buy-side and sell-side experience.
• Shift to Private Equity: Moved to Austin, Texas to work for a private equity group focusing on middle-market acquisitions and operational roles.
• Entrepreneurial Pivot: Returned to Seattle, bought into a consumer products company, then co-founded Traction Capital to acquire and support small businesses for the long run.

2. The Permanent Equity Model vs. Traditional Private Equity (06:23–09:38)

• PE Model: Traditional private equity (PE) raises closed-end funds, aims to sell companies in 3–5 years, motivated by LPs’ (investors’) needs for liquidity.
• Permanent Equity: Traction Capital and similar firms acquire companies to hold indefinitely, aiming to compound value over decades.
• Notable Example: Warren Buffett (Berkshire Hathaway) cited as the best-known practitioner.
  • “You really start to get the benefits of compounding the longer you can hold that investment.” —Justin, (07:37)
• New Trend for Smaller Businesses: The idea of holding small businesses long-term is newer, especially using tools like SBA loans.

3. Influences and Inspiration (10:00–10:50)

• Brent Beshore/Permanent Equity: Noted as an inspiration; Brent’s firm even changed its name to "Permanent Equity."
  • “He’s certainly been super inspirational. I think very highly of him and their firm...” —Justin, (10:23)

4. Why Long-Term Hold Isn't More Common (10:50–13:32)

• Investor Pressure: Larger institutional investors (pensions, endowments) want liquidity and clearly defined time horizons.
• Fundraising Dynamics: PE firms need to demonstrate returns to raise subsequent funds (“life cycle of the industry”).
• Long-Duration Capital Still Emerging: More interest building, but structural constraints remain.

Case Study: Building Traction Capital’s Holdco

Traction Capital’s Acquisitions (13:32–21:20)

1. Sea Western (First Acquisition, Oct 2018) — [13:46–17:16]

• Description: Distributor of PPE/firefighting gear in the Northwest.
• Growth: From ~$15M to ~$25M revenue; expanded from two to eight states.
• Operational Upgrades: Major “low-hanging fruit”—digitized an all-paper business, implemented NetSuite ERP.
• Ownership Transition: Bought from founder’s children; one transitioned out, the other stayed and became CEO.

2. Swag Off Road (Second Acquisition, Oct 2019) — [18:37–20:08]

• Description: E-commerce seller of metal fabrication tools, primarily to off-road enthusiasts and DIYers.
• Growth: $3.5M to $6M in revenue; e-commerce boomed during COVID.
• Operational Opportunity: Founded by an engineer ready to let others scale the business.

3. Asphalt Paving Company (Acquired 2021) — [20:08–21:15]

• Market: Seattle-Tacoma; $7–8M in revenue.
• Why Attractive: Infrastructure support for regional growth; healthy margins, recurring work with cable/fiber providers.

4. Mattress & Home Goods Company (Acquired 2021) — [21:15–21:20]

• Market: Portland, hybrid retail and e-commerce.

Portfolio Structure & Financing (23:18–34:23)

How to Structure a Holdco Path (24:07–34:23)

• Deal-Driven: Get a deal under LOI, then finalize equity and financing.
  • “Having that live deal…makes it real. Before that, it’s all hypotheticals.” —Justin, (24:15)
• Capital Structure: Combination of seller rollover, seller note, senior bank debt (not SBA), and investor/partner equity.
  • “We typically ask for some seller rollover…even if they don’t want to be involved in operations, we want them at least engaged at the board level.” —Justin, (29:15)
• Banking Partner: Uses a regional NW bank—non-recourse loans, 2–2.5x EBITDA leverage.
• No SBA Loans: Larger deals, more flexibility, and avoidance of personal guarantees.
• Ownership Structure: Each company is held in its own holdco under the Traction Capital umbrella.
  • “Each business really has to stand on its own…bank debt is not consolidated or cross-collateralized.” —Justin, (33:16)

Scaling the Holdco Model & Limitations (34:23–37:53)

• Rinse & Repeat: After a successful first deal, subsequent deals are easier and faster to finance.
• Role of the Team: Essential to have a team from the outset if your goal is to build a portfolio (not just be an owner-operator).
  • “As one person, I wouldn’t have been able to do four deals and have a portfolio…we had…other partners when we started because our goal was to get to having a portfolio.” —Justin, (35:45)
• Individual Operator Advice: Difficult to manage multiple businesses solo unless each has a strong, autonomous leadership team.
  • “If you’re buying businesses that have complete management teams where you don’t have to be there…that’s the only way you can do that as an individual.” —Justin, (36:42)
• Acquisition Frequency Target: 1–2 businesses per year; focus on team capacity.

Who Can Succeed as a Holdco Builder? (37:53–40:07)

• Skills Required: Experience in deal sourcing, diligence, reading financials, and operational scaling is useful but not strictly required.
  • “There’s tons of people…willing to lean in and help answer questions.” —Justin, (38:54)
• Accessible Community: Resources and help are accessible via Twitter and networks.
• SBA Route: Recommended for first-time entrepreneurs or those lacking finance background.

Buying Bigger vs. Smaller Businesses (40:07–42:53)

• Debate: Should first-time buyers err smaller, or stretch for a larger business?
  • Larger: Better systems, team, more scalable (recommended).
  • Smaller: Usually, owner-driven—all operations fall on buyer’s shoulders.
  • “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…” —Justin, (41:23)

Notable Quotes & Memorable Moments

• “You really start to get the benefits of compounding the longer you can hold that investment.” —Justin (07:37)
• “Our goal is to own them for the next 10, 20 years.” —Justin (07:38)
• “Having that live deal…makes it real. Before that, it’s all hypotheticals.” —Justin (24:15)
• “We try and implement NetSuite across the portfolio. It makes kind of the reporting and analysis side of things easier.” —Justin (16:40)
• *“If you’re buying that [small] business to come in and run it, you are going to run it. You’re going to do everything.”—*Justin (41:23)
• “I had a ton of people and still have a ton of people that are willing to give me advice. Passing it on is your job…You owe it to people that are trying to figure it out.” —Justin (43:30)

Contact & Community

• Twitter: @JustinNicholasT
  • “I am an avid consumer of Twitter. I’m not an avid poster…but I enjoy reading people’s perspectives.” (43:08)
• Email: jturner@tractioncp.com

Timestamps for Important Segments

• [02:19–05:53] – Justin’s professional background and formation of Traction Capital
• [06:23–09:38] – Permanent equity vs. private equity explained
• [13:46–17:16] – First acquisition (Sea Western): deal dynamics and operational improvements
• [18:37–20:08] – Second acquisition (Swag Off Road): characteristics and seller story
• [21:15–21:20] – Other acquisitions overview
• [24:07–25:47] – How to structure your first deal and real journey from one to multiple acquisitions
• [29:15–30:48] – Capital stack for an acquisition (seller rollover, seller note, bank debt, investor equity)
• [33:16–34:23] – How companies are structured legally and financially at Traction
• [35:45–36:42] – Scaling limits and necessity of a team
• [38:54–40:07] – Advice to non-finance professionals interested in acquisition entrepreneurship
• [41:23–42:53] – “Small vs. big” buyer debate

Closing

Justin Turner outlines a clear, replicable model for aspiring permanent equity/holdco builders, emphasizing team, process, relationships, and the discipline to hold and grow businesses for the long term. He’s approachable for further inquiries via Twitter and email, and encourages the spirit of paying it forward among acquisition entrepreneurs.