Acquiring Minds: How to Buy a $13m Business with No PG, No Investors Hosted by Will Smith | Release Date: January 13, 2025
Introduction
In this compelling episode of Acquiring Minds, host Will Smith engages in an in-depth conversation with Carlo Santelli, the owner of Trium Industries and Stillwater Fasteners. Carlo shares his extraordinary journey of acquiring a $13 million revenue business with $3.5 million in EBITDA without personal guarantees (PG) or outside investors. This episode delves into the strategies, challenges, and philosophies that underpin Carlo's successful acquisition entrepreneurship.
Background of Carlo Santelli
[00:00 - 10:07]
Carlo Santelli's resume might initially appear traditional, boasting an Ivy League education from Columbia University, experience on Wall Street in investment banking, and roles in private equity. However, his unconventional path reveals a resilient hustler who defied the conventional mold.
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Early Years and Education: Carlo took three years off between high school and college, dedicating time to nonprofit work and living in Alaska. His persistence paid off when, after two rejection letters, he was accepted into Columbia University on his third attempt.
"I wasn't taking no for an answer. I applied again for a third time to Columbia University, finally got accepted and attended there."
— Carlo Santelli [10:35] -
Corporate Career: Post-college, Carlo ventured into investment banking at Bank of America Merrill Lynch but found himself misaligned with the corporate environment. His entrepreneurial spirit led him to explore acquisition entrepreneurship, culminating in his transition from corporate roles to becoming an independent business owner.
"I was thinking outside the box. I kind of challenged the status quo on many fronts."
— Carlo Santelli [13:19]
Discovery of Acquisition Entrepreneurship
[12:23 - 16:50]
Carlo's aha moment in December 2015 transformed his career trajectory. While working at Stonehenge Capital, he encountered a small French back pain device business listed online for an astonishingly low multiple of three times EBITDA—significantly below the typical 20-30 times multiples seen in his investment banking experience.
"I did my LBO several times over. I'm like, wow, if I could buy this business and come up with this money, this would be pretty lucrative."
— Carlo Santelli [15:33]
This revelation underscored the potential of lower-middle-market acquisitions, where strategic deal structuring could yield substantial returns.
Key Strategies Discussed
[22:13 - 32:55]
Carlo outlines his distinct approach to acquisition entrepreneurship, emphasizing proprietary deals and innovative financing structures.
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Proprietary Deals over Brokered Deals:
- Carlo exclusively pursues proprietary deals, avoiding businesses listed by brokers or banks to secure below-market multiples.
- He believes that brokered deals often come at higher multiples, reducing the potential upside.
"I only do proprietary deals. I've only ever done personally proprietary deals and have no interest in doing brokered or banked deals."
— Carlo Santelli [22:13] -
Sale-Leaseback Strategy:
- A pivotal component of his deal structuring, Carlo utilizes sale-leaseback arrangements to unlock capital tied in real estate.
- By selling the business's real estate and leasing it back, he reduces the upfront cash required for acquisition.
"Once you own the business to own do the real estate most likely. Right. I can't have another business that I don't own sign up for a 20-year triple net lease."
— Carlo Santelli [48:44] -
Financing Without Personal Guarantees or Equity:
- Leveraging asset-based loans backed by inventory and equipment, Carlo structures deals that require minimal personal financial exposure.
- This approach allows him to maintain 100% ownership without relying on external investors.
"In effect, I bought this three and a half million dollar business, three and a half million dollar EBITDA business for $3.25 million cash at close 100%."
— Carlo Santelli [39:41]
The Trium Industries Deal
[20:45 - 44:56]
Carlo delves into his landmark acquisition of Trium Industries and Stillwater Fasteners, two manufacturing firms specializing in custom metal components.
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Deal Breakdown:
- Purchase Price: $16 million for business and real estate.
- Sale-Leaseback: Sold the real estate for $10.75 million, effectively reducing the cash needed for acquisition to $3.25 million.
- Seller Note: $2 million incorporated as part of the deal.
- Financing: Obtained an asset-based loan backed by inventory and equipment, covering the remaining $3.25 million.
"I bought a three and a half million dollar business, three and a half million dollar EBITDA business for $3.25 million cash at close 100%."
— Carlo Santelli [39:41] -
Financials:
- Revenue: $13 million
- EBITDA: $3.5 million
- Employees: 65 across two facilities in Connecticut and Massachusetts.
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Multiple Expansion:
- Acquired the business at 1.5 times EBITDA, a stark contrast to typical market multiples.
- The sale-leaseback strategy contributed significantly to securing this favorable multiple.
"I paid one and a half times EBITDA for that business. Again, definitely below market in terms of multiples."
— Carlo Santelli [44:56]
Challenges and Solutions
[25:33 - 36:32]
Carlo navigates the complexities of acquiring a business not initially prepared for sale, emphasizing relationship-building and hands-on involvement.
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Overcoming Seller Resistance:
- The business owner was hesitant to prioritize selling due to operational challenges.
- Carlo proactively engaged by visiting the owner's premises, assisting with due diligence, and demonstrating his commitment.
"I was pretty clear with him on that. The other thing I said is, hey, if you have any shadow of a doubt... Carlo is the real deal."
— Carlo Santelli [28:24] -
Due Diligence and Environmental Concerns:
- Addressed environmental issues such as petroleum releases and underground storage tanks, incurring additional costs but ensuring deal integrity.
"First of all, the transaction becomes much more complicated. We need to do environmental work."
— Carlo Santelli [46:02] -
Building Trust:
- Carlo underscored his ability to close deals swiftly, leveraging his track record to build credibility with the seller and service providers.
"They had full faith the whole time the deal was going to close."
— Carlo Santelli [75:14]
Growth and Optionality
[56:00 - 70:26]
Carlo discusses his strategic focus on inorganic growth through roll-ups rather than relying solely on organic expansion.
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Roll-Up Strategy:
- Plans to acquire additional businesses within the same industry to enhance EBITDA through multiple acquisitions.
- Envisions leveraging similar deal structures to maintain manageable ownership responsibilities while scaling operations.
"My goal is after three months to be once or twice a week hour long check-ins and then move on and do other transactions."
— Carlo Santelli [57:55] -
Dividend Recapitalization:
- As a method to extract liquidity without selling the business, Carlo considers leveraging additional debt to issue special dividends.
"If I can buy a business for three and a half... I can put three turns of leverage, 10 million bucks and do a one-time special dividend to the ownership."
— Carlo Santelli [62:38] -
Optional Working Capital:
- Maintains a revolving facility for potential operational needs, ensuring financial flexibility.
"They provide me a facility, so a revolver which is like a credit card... that's just nice to have in some sense that capacity."
— Carlo Santelli [40:00]
Philosophy and Approach
[54:34 - 75:25]
Carlo emphasizes resilience, adaptability, and the importance of projecting competence despite uncertainties.
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Embracing the Unknown:
- Carlo encourages aspiring acquisition entrepreneurs to navigate unfamiliar territories with confidence and resourcefulness.
"You may not know 100% of this game... you just lean forward and hopefully it all works out."
— Carlo Santelli [55:26] -
Rapid Responsiveness:
- Highlights the significance of prompt communication to maintain deal momentum and prevent seller fatigue.
"I love responding to emails rapidly. Sending out Lois rapidly... we're waiting on you, not me."
— Carlo Santelli [78:56] -
Balancing Expertise and Humility:
- While Carlo possesses a robust background in finance, he acknowledges the importance of collaborative support and the willingness to learn.
"Being comfortable with the unknown and admitting when you don't know what's going on."
— Carlo Santelli [55:10]
Advice for Listeners
[70:26 - 86:00]
Carlo offers actionable insights for aspiring acquisition entrepreneurs, emphasizing the importance of proprietary deal sourcing and strategic financing.
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Sourcing Proprietary Deals:
- Utilize cold outreach combined with leveraging existing industry relationships.
- Incentivize referrals from service providers and industry peers to build a robust deal pipeline.
"Once you're in the industry, it's easy to buy the next one. I incentivize them to go find other businesses."
— Carlo Santelli [83:32] -
Structuring Deals with Sale-Leasebacks:
- Identify opportunities where the sale-leaseback can significantly reduce acquisition costs.
- Engage with specialized brokers to accurately assess the real estate arbitrage potential.
"If you can buy the real estate for 5 million and sell it for 11 million... that's a $6 million arbitrage."
— Carlo Santelli [53:48] -
Mitigating Deal Risks:
- Incorporate clauses in Letters of Intent (LOI) to cover non-legal expenses in the event of a deal fallout.
- Build strong relationships with service providers who believe in your deal-closing capabilities.
"In my letter of intents I put a clause saying that if this deal dies... they need a purchase from me."
— Carlo Santelli [73:26] -
Managing Financial Exposure:
- Prepare for substantial upfront costs, including legal and due diligence fees.
- Ensure access to capital reserves or alternative financing to cover potential deal failures.
"You're taking a risk... maybe you're just a little crazy going that levered personally, but that's what I knew I needed to do to get it done."
— Carlo Santelli [74:07]
Conclusion
[86:00 - End]
Carlo Santelli encapsulates his enthusiasm for the acquisition entrepreneurship space, highlighting its potential for creating substantial intergenerational wealth. He underscores the evolving landscape of private equity, noting an increasing trend towards lower-middle-market deals facilitated by innovative strategies like sale-leasebacks.
"This is the single best space... to make, you know, risk-adjusted intergenerational wealth."
— Carlo Santelli [78:56]
Carlo's journey serves as an inspiring blueprint for acquisition entrepreneurs seeking to navigate the complexities of buying profitable businesses without traditional financing constraints. His blend of financial acumen, strategic deal structuring, and unwavering persistence offers valuable lessons for aspiring buyers in the acquisition landscape.
Notable Quotes
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Carlo Santelli [10:35]:
"I wasn't taking no for an answer. I applied again for a third time to Columbia University, finally got accepted and attended there." -
Carlo Santelli [15:33]:
"I did my LBO several times over. I'm like, wow, if I could buy this business and come up with this money, this would be pretty lucrative." -
Carlo Santelli [22:13]:
"I only do proprietary deals. I've only ever done personally proprietary deals and have no interest in doing brokered or banked deals." -
Carlo Santelli [39:41]:
"I bought a three and a half million dollar business, three and a half million dollar EBITDA business for $3.25 million cash at close 100%." -
Carlo Santelli [55:26]:
"You may not know 100% of this game... you just lean forward and hopefully it all works out." -
Carlo Santelli [73:26]:
"In my letter of intents I put a clause saying that if this deal dies... they need a purchase from me." -
Carlo Santelli [78:56]:
"This is the single best space... to make, you know, risk-adjusted intergenerational wealth."
Key Takeaways
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Proprietary Deal Sourcing: Avoid brokered listings to secure businesses at below-market multiples, enhancing acquisition economics.
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Innovative Financing: Utilize sale-leaseback structures and asset-based loans to minimize upfront capital requirements and maintain full ownership.
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Relationship Building: Foster strong partnerships with sellers and service providers to facilitate deal closure and secure reliable deal pipelines.
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Strategic Risk Management: Incorporate protective clauses in LOIs and prepare for potential financial exposures to safeguard against deal failures.
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Growth through Roll-Ups: Focus on inorganic growth by acquiring and integrating multiple businesses within the same industry to maximize EBITDA and value creation.
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Persistence and Adaptability: Embrace challenges with resilience, continuously learning and adapting strategies to navigate the complexities of acquisition entrepreneurship.
Final Thoughts
Carlo Santelli’s approach to acquisition entrepreneurship is a testament to the power of innovative deal structuring and relentless persistence. His ability to acquire a substantial business without conventional financing streams offers a unique path for aspiring entrepreneurs seeking to enter the lower-middle market. By blending financial expertise with strategic creativity, Carlo exemplifies how acquisition entrepreneurship can be a lucrative and fulfilling endeavor.
For more insights and to follow Carlo’s journey, visit Acquiring Minds on YouTube or sign up for episode summaries at acquiringminds.co.
This summary is structured to provide a comprehensive overview of the episode, highlighting the key discussions and insights shared by Carlo Santelli, and is intended to serve as a valuable resource for listeners and those interested in acquisition entrepreneurship.