Asurion: 50X Season Two - (50X, S2)

Summary

Invest Like the Best with Patrick O'Shaughnessy: Asurion – 50X Season Two

Release Date: June 6, 2025

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Introduction

In this special episode of "Invest Like the Best," Patrick O'Shaughnessy joins forces with Will Thorndike and Irv Grossbeck to delve deep into the extraordinary growth story of Asurion. Originating from humble beginnings with the acquisition of Road Rescue Inc., Asurion has transformed into a powerhouse in the insurance and roadside assistance industry, boasting remarkable multiples of invested capital (MOIC). This episode explores the strategic decisions, management philosophies, and pivotal moments that contributed to Asurion's 50X growth.

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Foundational Investments and Early Growth

Acquisition of Road Rescue Inc. (1995)

• Kevin Taweil's Early Investment:
  • [00:00] Kevin Taweil reflects on his initial foray into private equity by acquiring Road Rescue Inc. through a search fund structure.
  • "Road Rescue Inc. scored north of 10x on the power ratio, marking it in the top 1% of all search fund transactions." – Kevin Taweil, [05:45]
• Strategic Decision to Hold:
  • [08:20] Despite receiving a lucrative offer to sell Road Rescue at a 12x MOIC within three years, Taweil and his team chose to retain the investment.
  • "This pivotal decision sowed the seeds for everything that followed." – Patrick O'Shaughnessy, [09:34]

Exceptional Market Timing:

• Road Rescue was positioned to capitalize on the burgeoning cellular market, growing from 27 million to 250 million cellular customers over three decades.
• "The cell phone penetration investment made in the mid-'95 positioned us perfectly as the market exploded." – Kevin Taweil, [07:15]

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Expansion Through Strategic Acquisitions

Meramec Group Acquisition (1999)

• Diversification into Handset Insurance:
  • [60:51] Asurion recognized the alignment between roadside assistance and cellphone insurance.
  • "We saw that cell phone insurance was more closely aligned with our existing services, allowing us to leverage the same distribution channels." – Kevin Taweil, [62:00]
• Operational Synergies:
  • The acquisition allowed Asurion to control underwriting profits and enhance logistics operations.
  • "By capturing the $2.50 from each premium, we transformed our revenue model and increased profitability." – Kevin Taweil, [70:20]

Lockline Acquisition (2006)

• Overcoming Negotiation Hurdles:
  • Negotiations were challenging due to late-stage demands to maintain a Kansas City presence.
  • "We knew the value was there and were willing to endure the negotiation friction." – Kevin Taweil, [82:33]
• Value Creation Through Integration:
  • Combined operations led to significant EBITDA growth.
  • "The merger with Lockline was a seminal transaction, enhancing our service offerings and operational efficiency." – Kevin Taweil, [73:33]

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Board Dynamics and Capital Allocation

TA Associates Involvement (2001)

• Equity Partnership and Board Influence:
  • TA Associates acquired a 25% stake without imposing preferred shares or special governance rights, a rare move in private equity.
  • "Their involvement was exceptional, allowing us to maintain significant control while benefiting from their expertise." – Irv Grossbeck, [82:43]
• Strategic Capital Allocation:
  • Share repurchases were utilized to provide liquidity to early investors and align management incentives.
  • "Share repurchases allowed us to reward our management team and provide liquidity without diluting control." – Kevin Taweil, [75:11]

Notable Share Repurchases:

• 1999 Repurchase:
  • Asurion bought back 10% of its shares at four and a half times EBITDA, resulting in a 41% IRR over 20 years.
  • "This early repurchase set the precedent for our approach to capital allocation." – Irv Grossbeck, [74:26]
• 2004 Repurchase:
  • A subsequent 6% buyback achieved a 56% IRR over 17 years.
  • "Equity incentives were crucial in attracting top talent and aligning interests across the organization." – Irv Grossbeck, [107:29]

2007 Equity Recapitalization:

• Market Timing and Execution:
  • Capitalized on a frothy market pre-financial crisis to execute a $750 million dividend recap, leveraging the balance sheet to over four times EBITDA.
  • "Irv advised us to act swiftly, recognizing the optimal window for capital allocation." – Kevin Taweil, [75:55]
• Balanced Ownership Structure:
  • The recapitalization resulted in a diverse ownership structure with Madison Dearborn, Providence Equity, and Welsh Carson owning significant stakes.
  • "Maintaining a fragmented ownership prevented any single PE firm from dominating strategic decisions." – Patrick O'Shaughnessy, [133:54]

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Culture and Talent Management

Building a High-Performance Team:

• Divine Discontent Philosophy:
  • [93:37] The culture at Asurion is defined by "Divine Discontent," a concept emphasizing continuous improvement and high standards.
  • "We set high goals, achieved them, and immediately set bigger ones while constantly seeking ways to improve." – Will Thorndike, [94:00]
• Talent Discipline:
  • Rigorous hiring and proactive termination practices ensured that only top-performing individuals remained, fostering a culture of excellence.
  • "We were honest with ourselves and our team about performance, allowing us to swiftly address underperformance." – Will Thorndike, [95:36]

Leadership Partnerships:

• Synergy Between Leaders:
  • The partnership between Kevin Taweil and Brett as CEOs was pivotal in driving operational excellence and strategic growth.
  • "Our mutual respect and complementary skills made the leadership team incredibly effective." – Irv Grossbeck, [170:11]
• Equity Compensation and Incentives:
  • Asurion implemented equity incentives early on, extending them to managers to align interests and motivate performance.
  • "Equity incentives were not just for executives; they were extended to managers to ensure everyone was invested in our success." – Will Thorndike, [109:27]

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Challenges and Lessons Learned

System Failures and Operational Risks:

• Claim System Breakdown:
  • [120:26] A major claim system failure nearly derailed operations, highlighting the risks of rapid scaling without robust systems.
  • "Switching to manual processes for two weeks tested our resilience and customer goodwill." – Will Thorndike, [121:14]
• Navigating Rapid Growth:
  • The fast-paced expansion required constant adaptation and learning from operational mistakes.
  • "Asurion's ability to learn from operational setbacks enabled sustained growth even in challenging times." – Irv Grossbeck, [155:59]

Strategic Decision-Making:

• Not Selling Early Offers:
  • Choosing to forego early high-valuation sale offers in favor of long-term growth proved instrumental in achieving extraordinary returns.
  • "Our confidence in the company's runway and commitment to long-term value creation paid off immensely." – Irv Grossbeck, [160:31]
• Balancing Diversification and Focus:
  • Initial attempts to diversify into low-margin distribution channels were retracted to focus on high-margin wireless services.
  • "Refocusing on our core strengths in wireless significantly enhanced our profitability and market position." – Will Thorndike, [54:01]

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Board Influence and Governance

Irv Grossbeck’s Role:

• As a seasoned investor and educator, Irv provided invaluable guidance on strategic decisions and governance.
• "Irv was instrumental in ensuring that our capital allocation aligned with our long-term goals." – Will Thorndike, [74:23]

Private Equity Dynamics:

• The board, influenced by multiple private equity firms, occasionally presented conflicting agendas, necessitating adept navigation by management.
• "While private equity partners brought tremendous value through their networks and experience, their individual agendas sometimes conflicted with Asurion's strategic direction." – Irv Grossbeck, [187:06]

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Conclusion and Key Takeaways

Asurion's journey from a modest roadside assistance provider to a multi-billion-dollar enterprise exemplifies the power of strategic investments, disciplined capital allocation, and a relentless pursuit of excellence. Key lessons from this episode include:

1. Long-Term Vision Over Short-Term Gains:

   • Choosing to hold investments for extended periods can yield exceptional returns, as evidenced by the decision not to sell Road Rescue early.

2. Strategic Acquisitions Are Catalysts for Growth:

   • Thoughtful acquisitions, like Meramec Group and Lockline, exponentially enhance operational capabilities and market reach.

3. Robust Capital Allocation Strategies:

   • Share repurchases and leveraged recapitalizations, executed judiciously, can provide liquidity while maintaining control and incentivizing management.

4. Cultivating a High-Performance Culture:

   • Embracing philosophies like Divine Discontent and maintaining rigorous talent management practices foster a culture of continuous improvement and high achievement.

5. Navigating Board Dynamics with Expertise:

   • Effective board governance, supported by experienced advisors like Irv Grossbeck, ensures that strategic decisions align with the company's long-term objectives.

Asurion's story serves as a beacon for investors, entrepreneurs, and business leaders, illustrating how disciplined strategies and unwavering commitment can drive phenomenal growth and sustainable success.

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Notable Quotes:

• “This pivotal decision sowed the seeds for everything that followed.” – Patrick O'Shaughnessy, [09:34]
• “We hit our pipeline but we worked ourselves to death.” – Will Thorndike, [44:34]
• “Divine Discontent is about having a team that sets really high goals and never rests, always pushing for more.” – Will Thorndike, [93:37]
• “Our equity repurchases allowed us to reward our management team and provide liquidity without diluting control.” – Irv Grossbeck, [75:11]
• “By choosing not to sell early, we doubled our investment over three decades.” – Irv Grossbeck, [156:27]

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Key Figures:

• Kevin Taweil: Co-founder, Chairman, and pivotal investor in Asurion.
• Will Thorndike: Co-founder and CEO, instrumental in strategic growth and acquisitions.
• Irv Grossbeck: Lead board member and investor with a rich background in private equity and academia.

For more insights and detailed discussions, visit https://www.joincolossus.com.

Transcript

[Patrick O'Shaughnessy]

Today we're dropping a special episode in the Invest like The best feed 50x is back, a fan favorite series from Will Thorndike and the team at Compounding Labs. Will's book the Outsiders is one of the best business and investing books that you'll ever read. You'll hear him continuing his work in the hosting chair as he looks in detail at investments that have appreciated at least 50 fold. Season 2 features Asurion Colossus is excited to partner with Will as he sits down with the management and investors behind this legendary investment. We kick off this special drop with a short interview that I did with Will on everything he learned studying this business, followed by the full three part series. Make sure to subscribe to 50X in your preferred podcast player and look out for Will's upcoming interviews on Joys of Compounding, where he goes into even more behind the scenes detail. An often overlooked pattern among power law companies such as Assurian is an ethic of frugality and cost vigilance. We relish the story of former Capital City CEO Tom Murphy painting only the two sides of his Albany TV station that faced the road. While CEOs in the past needed such dramatic examples to emphasize the importance of cost control, CEOs today are blessed to have a platform like Ramp, which can provide expense visibility across the entire company in real time, using powerful software to close books faster, control excess spending and facilitate cost comparison. Ramp is the finance partner your organization needs. On top of cost cutting, Ramp is also designed for efficiency. The average finance team spends 200 hours per year on expense reports, time they could be spending on strategic activities. If you're still manually processing expenses in 2025, that is valuable time which is simply not being used efficiently. RAMP's corporate card eliminates all of this waste using automation and engineering, one chief financial officer told me they cut their month end close from five days to one thanks to Ramp's platform. Over 25,000 businesses trust Ramp, including Shopify, CBRE and Enduro. Please visit ramp.com to get started and tell them we sent you. This episode is brought to you by Oberle Risk Strategies, a specialty insurance brokerage providing insurance services to search funds, independent sponsors, family offices and private equity firms. I have a fun personal connection to Oberle. About 15 years ago, I partnered with Oberly's founder and CEO August Felker as an investor in his traditional search fund. After a successful exit, August decided to build Oberle the brokerage he wished had existed during his own search. Oberle offers a comprehensive insurance due diligence package custom designed for private equity in the search fund community. Additionally, Oberle has a thriving personal lines practice designed for entrepreneurs seeking a higher level of service and expertise when it comes to insuring one's home vehicles and valuables. Speaking from experience, August's energy and passion around high quality customer service and operational excellence is impressive. He knows firsthand the key issues, timelines and risks around acquiring a business and has built Oberly into a leading insurance firm in the M and A advisory space. If you're interested in connecting with Oberly, visit Oberly Risk this episode is brought to you by System six, a searcher owned outsourced bookkeeping and accounting services firm that has been a great partner to us Here at compounding labs, many CEOs and business owners spend too much time trying to get accurate financials or get stuck in the weeds of running payroll, paying bills, and handling other administrative work. With modern tools and A strong team, System 6 eliminates this headache and allows you to spend time where it matters most, growing your business. We currently use System 6 at several of our companies and have found them to be exceptionally hardworking, competent and attentive. So whether you're a CEO, a cfo, or an investor trying to support your portfolio companies, reach out to helloystems.com mention this podcast and receive a free first month of bookkeeping. So will I thought ahead of your release of 50x on Assurian, which is an investment that is one of the most remarkable in history, that people will love the story when they hear about it, that we should record to hear you reflect on it a little bit. You've been a big part of this investment journey too. Even though you're the virgil in the 50x context, you too have been a key investor in the business over the long period of time. Maybe you could just give us your overview of of your personal experience with this company and with this investment. Asurion was an extremely early investment for me. I made it very early in the first stage of the private equity firm. I was involved with building Houstonic Partners at a time when we were making our investments on a deal by deal basis, which is an important detail because what it meant is we were making them out of a serial LLC structure which had no fund life. So we had the structural luxury of being able to hold these investments for long periods of time. And we made eight investments that way and that investment turns 30 in July of this year. Wow. Okay, keep going very far back for me and it's sort of a remarkable story. I mean, the way I would Frame it. So this is an investment that was originally made out of a search fund in the very early days of search funds. I mean this is deal number five or six, maybe seven in the history of search, some super early days. And if you look at all of the search companies that have been bought in the ensuing years, there are hundreds of them. That number in fact is closing in quickly on a thousand if you were going to score them. We use something, a very simple metric for scoring growth equity transactions generally. But search fund transactions specifically we call the power ratio, which is very simply the trailing revenue growth rate divided by the EBITDA multiple paid. Turns out that metrics surprisingly predictive over time. And we're basically looking for a ratio there of 2-3x just to frame that core private equity would score under 1 on average sort of 0.75x. So 2 to 3x is attractive and interesting in the history of search. If you go back and look at the original Assurian transaction, it would be top 1% ever in power ratio scored north of 10x. So it was kind of a remarkable company. It was growing very fast and we bought it at a low multiple. It's growing north of 50% revenue wise. We bought it at around five times EBITDA. And in this business EBITDA and free cash flow are actually pretty close. So it was exceptional in that dimension and it was sitting in front of this amazing high probability, secularly growing TAM market. So basically the growth in cellular penetration investment was made, as we said, in the middle of 95. There were 27 million cellular customers at that point in time. In the podcast we cover the first dozen years of the history at Assurian and as you'll see that's typically for us in pretty good detail. By the end of that period in time there were 250 million. So there was 10x market growth. And then the business itself had exceptional economic characteristics. Again we sort of look at three criteria in core search as we call it, and growth buyouts. We like a consistent pattern of recurring revenue, consistent pattern of repeat revenue. We like organic revenue growth as we're talking about and we like capital efficiency. And across those three dimensions, the original company, the original business that Assurion, which was known at the time is Road Rescue Inc. By the way, totally different name, scored very highly. It's just a very good business sitting in front of a high growing market. So the point I would make at a high level is given those circumstances, I think anybody would have generated pretty exceptional returns over time. That being said, I think if you look at what the CEO there, Kevin Tawheel, achieved over the ensuing dozen years we cover in the podcast, and really the broader 30 years, that would be a top 1% outcome if you could take the best team of CEOs from anywhere. And Kevin was a graduate of the Stanford Business School and that is sort of extraordinary. So they were dealt an extraordinary hand, but they also played it pretty uniquely well. And that's the story we work to unpack. And as I say, typically deep detail in the podcast, it's impossible to be totally precise about it because it's not a publicly traded business, but rough justice, what kind of a multiple of money did the investment represent from the beginning through to today? It's not Precise. Podcast is 50x. It's in the zip code of 100x 50x 100x 50x. Got it. Yeah. And you know, transdigm with Nick, the first one is now around 50x 50x, my friend. That, yeah, yeah. Pretty incredible if you think about that kind of multiple of money. I think most people intuit that that's only available as like a seed investor in Uber or something like that. It's a very venture like power law outcome from a business that you said you bought for five times ebitda, five times free cash flow.

[Will Thorndike]

Really?

[Patrick O'Shaughnessy]

What does that teach you about that trope that like that kind of return should and does come from the world of power Law Technology Investing vs Ho Hum Search fund private equity. Yeah, I mean, I think the key variable in that obviously is duration. It's interesting if you go through the story, there's this fascinating period where about three years into the investment there was an opportunity to sell it at a seemingly gaudy multiple of invested capital like a double digit net MOIC to investors. And there was a decision made at that time to not sell it and hold it. Really. Everything subsequently stems from that pivotal decision. We unpack it in detail. Was kind of extraordinary for a group of investors. And at this point, the investors were very sophisticated, many of them professional investors, but not funds. In the early days they were individual investors investing their own capital, but they made a conscious decision not to sell at a 12x MOIC three years in. I think it'd be hard for many boards sitting around the table today to turn that down, but it ended up sowed the seeds for everything that followed. If you think about everything you've Learned across those 30 years watching the business get built and expand, aside from just the pure power of duration, which I know is one of the key things that you personally care about and focus on. I don't mean to make light of that amazing lesson and advantage. What other things did Assurian teach you that were distinct to it maybe that you didn't, wouldn't have or didn't learn from other companies that you've been involved with going back to that thing? Pat, it's a great question, right? So if you say, okay, well the stealth, this amazing circumstance, but it had this outperformance, this sort of top 1% outcome.

[Will Thorndike]

Why?

[Patrick O'Shaughnessy]

And I think it's really a story of resource allocation the way I would think about that. And I think there's sort of three types of resource where a company under Kevin's leadership had a differentiated approach. I'm not going to start with the one that you would expect me to start with, which is capital allocation. I think actually I would start with human resource talent. And the company from very early on had a distinctive approach to talent. Kevin as a CEO allocated more of his time to talent than almost any early career CEO I've spent time with. So he was on that from early on finding, proactively looking for, engaged in the truffle hunt of finding top talent for the company. And this is from the first 24 to 36 months. In addition to which the company was kindly relentless in continually upgrading its talent. So this is something we get into in some detail in the podcast, but that's also code for replacing people who are no longer capable of growing in their roles given the very rapid growth in the company. So that was part of it. Very conscious approach to managing talent over time. Second piece is time allocation. I would drive down to CEO time allocation. And I would say still to this day, if you go to Kevin's desk, he's got one of the little yellow stickies on it. His top three priorities. He's just a laser beam as it relates to his own personal time allocation. And specifically using that Eisenhower matrix framework, the important non urgent bucket is where he spends most of his time and has from very early days in the company. So I think on those two dimensions there's different and then capital allocation wise, if you look at it, there's an amazing organic engine underneath this company over time. But there were critical junctures where the actual long term MOIC was driven by different capital allocation decisions. So the two best examples of that are they made two acquisitions subsequent to the original acquisition that effectively got the business into the handset insurance business and bulletproofed its position there in an interesting way. And those were exceptional acquisitions that were proactively sourced after years of proactive work and many teams would not have gotten to those acquisitions, let alone able to do them in the way that they were processed here. And then secondly, pretty early days, the company was an active acquirer of its own shares, something that's pretty rare in private companies. Actually not that easy to do, but the company bought in pretty meaningful amounts of its stock over time. This was something it had learned from a key board member here and podcast participant Irv Grossbeck, whose own company, Continental Cable Division, had repurchased shares privately. But at about year four and again about three years later, it bought in almost 20% of its shares privately. And it continued to do so in the years post 07 to the point where it's a very meaningful long term contributor to the net moic. All of those decisions and actions were unusual. What did it teach you about business moats and sustainable competitive advantage and the cultivation of those things? Any company that earns that kind of return, the world's a smart place. It knows where there's money being made. That doesn't seem to have affected assurance ability to compound free cash flow per share. What is it about its moat that has been so powerful? Yeah, I think the company evolved this really unique B2B 2C model. It did an exceptional job delivering service for its clients, the ultimate clients, and for its key cellular carrier partners. In both cases it built really deep relationships through excellent execution, very metric driven, constantly driving NPS excellence, and then consistent extraordinary quality of its people over time. There were private equity investors who got involved after the transaction, the 2007 transaction that we sort of closed the podcast with, and a number of them have commented that in interacting with the team post investment people three and four levels down could have run other portfolio companies of theirs. Again, going back to Kevin's focus on that from early days, can you say two words each about Irv and Kevin and both what kind of people they are and what they've taught you? So Irv is the crispest individual I've ever interacted with in a life or business context. And I mean that in the best sense. Meaning he has a genius for distilling to its essence core business ideas and broader life advice. He's like a distillation machine and Kevin is a unique combination of kindness. He's from Canada and he's a delightful person but with laser beam intensity underneath it. So well disguised but there but deeply present. So I think there would be some overlap in the strengths of those two and the reason that they had such a wonderful and long partnership. And Irv was effectively the lead director until 24 months ago at Assurant from the earliest days. And Kevin actually started as a case writer for Irv at the Stanford Business School after he graduated. So there's a relationship that predates actually the Assurian company acquisition. Final question before we get to the episode which everyone's going to love. What is your personal favorite part about the entire Assurian story? I honestly think, Patrick, it's the decision that we touched on earlier not to sell the company at 12x net mic to investors 3ish years in. We do unpack that in much more detail in the podcast, but that was a pivotal moment. Highly countercultural well, I've listened to this twice now. I think it's one of the most interesting business case studies anyone will ever encounter and has the added benefit of being one that's not widely known because the sort of access and depth that you and your team have created are what make that possible. So thank you for doing this for all of us. So many lessons to learn. I hope everyone Enjoys welcome to 50X. I'm your host Will Thorndike, author of the Outsiders and a co founder at compounding labs. 50x aims to dissect the anatomy of investments that have appreciated at least 50 fold. We dive into each investment's origins, evolution and eventual outcome, exploring key themes around long term value creation ranging from operations, capital allocation and culture to pivotal purchase and sale decisions. We track the often circuitous route to exceptional long term returns and study how that rarest of investment command commodities conviction gets created, maintained, threatened and sometimes lost. To access proprietary research and exclusive materials, please visit 50xpodcast.com 50X is produced by Compounding Labs in collaboration with Colossus. Compounding Labs is an investment partnership focused on building long duration serial acquisition holding companies distinct from a traditional private equity firm. We intend to hold assets for decades and operate with a lean and slightly feisty culture. We are actively looking for exceptionally talented individuals to join our team if our countercultural ethos resonates with you. Please visit compoundinglabs.com to learn more.

[Will Thorndike]

All opinions expressed by hosts and podcast guests are solely their own opinions.

[Patrick O'Shaughnessy]

Hosts and podcast guests may maintain positions.

[Will Thorndike]

In the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

[Patrick O'Shaughnessy]

So today we're going to do a deep dive on a company you may never have heard of. It's called Assurian and we're delighted to be here this morning with its co founder, currently Chairman Kevin Taweil Assurian actually has several claims to fame measured by MOIC multiple of invested capital, a metric we obviously care deeply about on this podcast. I believe it is both the best search fund investment ever and the best institutional private equity deal, period. The company, which was originally called Road Rescue Inc. Turned 28 years old in July, and for investors who held their investment for the entire holding period, their MOIC is well into the thousands. To put a finer point on that, a dollar invested in the original purchase of road rescue in 1995 has grown at a compound annual rate of over 61% through the most recent transaction in 2021, translating into an MOIC north of 5275x. Interestingly, and very unusually for us at 50x, it is a story where the predominant source of value creation came from organic growth, although that's a little bit deceptive as we'll see. Importantly, there have been two constant presences throughout that entire period, Kevin and a deeply talented lead director named Irv Grossbeck. We are incredibly fortunate and grateful to have them as our guests on this episode of 50X. Okay, now full disclosure. I am both an original investor and Assurian and a close, longtime friend of both Kevin's and Irv's. Which doesn't mean, of course, I won't be actively grilling the Merrick Garland style on this podcast. Anyway, Kevin, we're delighted to have you here. Thank you for coming.

[Will Thorndike]

Thank you, Will. I'm excited to be here.

[Patrick O'Shaughnessy]

Excellent. Let's dive in. So if you don't mind, let's maybe start with a little bit of your background.

[Will Thorndike]

Pre assurance so I grew up in Prince Edward Island, Canada, small province in the east coast, maybe 120,000 people. And I grew up working in my dad's grocery store. We had the maybe the predominant grocery store where everybody in the community came and shopped every week and I'd be packing bags and filling shelves. And that was probably where I first got to understand this idea of entrepreneurship, of working for oneself. Not that I saw it in a great light, because I saw my father coming home from work at five o' clock, tired even. He'd have dinner with us and go back to work till 10 o' clock at night. And we worked six days a week, so it was sort of all I knew. I knew other friends had jobs working in the government or different businesses, and they didn't necessarily appeal to me anymore or certainly not more than what my dad did at the time. Athletics was a big part of my life, of Course hockey, I'm Canadian. It's in the blood, it's in the water. I also played soccer competitively.

[Patrick O'Shaughnessy]

What position in hockey?

[Will Thorndike]

I was defenseman, all five foot eight of me. I was not a large defenseman, but.

[Patrick O'Shaughnessy]

It was the Bobby Orr era.

[Will Thorndike]

It was, it had to be fast, good vision and yeah, Bobby Orr was the superstar then, but soccer was really my passion. Started playing when I was 12 and immediately took to it. It was a growing sport then in Canada and certainly in North America generally. And I feel like I learned a lot of lessons through my experiences. Soccer, both as a player and being coached by amazing coaches along the way. So a lot of lessons learned. Ended up playing for my high school team, local club teams, our provincial Canada games team. And it was also an important thread through university because it was one of the key reasons I ended up going to McGill University. McGill had just won two back to back national championships. So that was exciting for me. I was a walk on player in 1983 and I made the team and that was just a huge, I don't know if I'd say a huge accomplishment, but I had grown up in this small pond and I was this big fish in a small pond. Then I had come to Montreal and McGill and nobody knew me, nobody knew who I was. So to sort of make it on my own without reputation behind me was super exciting and exhilarating. I spent five years there at McGill taking a mechanical engineering degree.

[Patrick O'Shaughnessy]

What position in soccer, by the way?

[Will Thorndike]

I was center midfield. Not sure I played defense or offense particularly well, but I was able to distribute the ball quite effectively. Actually, my first year at McGill was spectacular and truly formational for me. Not just from an athletic perspective, but from a mindset and business perspective. I still remember these moments regularly. So McGill had just come off two national championship titles and we were clearly the number one favorite coming into the 1983 season. I didn't start the first game, but when I got my shot, I think I was in the second game. I became a starter immediately and it was exciting. But what was truly different, there was a sense on the team that we couldn't lose. It was sort of in the air and I'd never felt like that before. And you would see it. There was one time we were playing one of our rivals in our home stadium. We were down by two goals and there may have been eight minutes left in the game, but nobody was stressed. And sure enough, our center back, I think he was from the Dominican Republic, he was not a particularly talented scorer, but he came up, got the first goal, we tied it and won it in overtime. And it was really remarkable to be part of that group of people who had that sense of invincibility, that sense of we can overcome any obstacle. Unfortunately, in the national final, we lost in penalty kicks at the very end. It was during a snowstorm in Sudbury, Ontario.

[Patrick O'Shaughnessy]

Not that you remember it or anything.

[Will Thorndike]

Every single moment of it. It's one of those things that you never forget. Interestingly, my son plays lacrosse for Duke University and he made it to the national final this past year. I haven't told him yet that he'll remember that for a long time, but he's got two more years to make that up with a national championship.

[Patrick O'Shaughnessy]

Rectify. Yeah, yeah.

[Will Thorndike]

And then you'll probably forget about the Watson.

[Patrick O'Shaughnessy]

Okay, so post McGill.

[Will Thorndike]

Post McGill, I went on to work at Salomon Brothers as a financial analyst in the two year program. That was fun. Fun may not be the right word. It was sport. To work these young men and women as hard as they could.

[Patrick O'Shaughnessy]

This is like the Michael Lewis era at Salman Brothers, right?

[Will Thorndike]

Liars Poker was published when I was an atlas there. It was truly emblematic of the culture at Salomon Brothers. I was not on the trading force. I was in the building next to it. But the culture permeated the entire organization. It was very fast, loose, very, very macho. Not a lot of guardrails or controls in place there at the time. It was an education for me. And what I really didn't want is the first time I actually worked for somebody else. And the cultures at investment banks can be challenging, period. But it was predictably challenging. The Salomon Brothers in the late 80s, not only did they have a culture where they would queue up employees as much as they could or use them as much as they could, and they weren't really into developing or nurturing or building a real culture. It was really all about driving near term results. It was also a time when Wall street was declining precipitously. You were coming into a recession, Drexel blew up in the middle of it, and you've got people being laid off. And during my second year, their mergers and acquisitions group probably contracted to about half its original size in less than a year. And you got to see all that happening to the point where when I was being interviewed upon my exit en route to Stanford Business School, I remember the MD asking if I'd consider coming back after business school. And I just wasn't expecting that question. And I just answered honestly and naively and I said, well, I suppose if I don't have any other offers, I'd come back. It was just intuitive. It was just like, no, it was a reaction. I would never want to work in that culture if I didn't have to. But I learned a lot, that's for sure. The thing I take away most from that era was the importance of getting it right, of doing work at a high level and checking your work, making sure it's perfect. And I took that with me out of that experience.

[Patrick O'Shaughnessy]

And so then you go to Stanford. The gsb.

[Will Thorndike]

Went to the gsb. Lovely. I mean, like a lot of Stanford business school graduates, at the time of my life, it was certainly not overly taxing. I met a lot of people who become my lifelong friends. And these are people who you work with, invest with, sit on boards with, are friends with, raise kids with. Of the things you get out of an education, probably the most important was a core group of people that you end up spending the next 30 years with. And that was fantastic. I also got the opportunity to work as a case writer. I call it my third year of business school.

[Patrick O'Shaughnessy]

So, yeah, talk about how you ended up doing the case writing thing, what that job entailed, and maybe. When did you first hear about what the heck a search fund was? Because, Kevin, when you and I were in Business School, 1992, I think there had been five of them raised to that point.

[Will Thorndike]

Yeah, there weren't a lot at that point. It was certainly Jim Southern, David Dodson, couple of others. While the search fund was sort of in the background a little bit during our two years of business school, I hadn't really focused on it a lot.

[Patrick O'Shaughnessy]

When you went to be a case writer, did you know then you wanted a search?

[Will Thorndike]

Absolutely not. I was more in the camp of I wanted to start a company, so wrote about this in my business school application. The desire to be an entrepreneur certainly saw my father working in this tour during summers while I was at University at McGill. Basically, I was my own boss. I was teaching soccer schools or soccer clinics throughout Prince Edward island, the opportunity to be my own boss. And I even started McGill classmates, a small consulting firm, during one of the summers. So this idea of starting a company, being an entrepreneur, it goes back to the beginning. And so when I was in my second year of business school, along with a handful of other classmates, we'd get together maybe Monday, Tuesday, every week, and we'd bat ideas back and forth, maybe brainstorming, trying to come up with some company that individually or as a group could start And I struggled at finding the right idea, what would make sense. Interestingly, this is a 91, 92. Had we been coming out of business school maybe five or six years later at the dawn of the Internet, where eyeballs were everything, I'm glad we didn't, because I think any one of our dumb ideas then could have gotten funded, because they all ultimately got funded five or six years later. I took the job as a case writer, Will, because I had no other offers. I may have interviewed for one consulting firm, maybe one or two other types of jobs, but I didn't get the offers. And then it was getting late in the year, and my then girlfriend suggested I apply for this case writing job.

[Patrick O'Shaughnessy]

Spoiler alert, our story arc is about to intersect with Irv Grossbeck.

[Will Thorndike]

The job was to be case writer for three professors. Irv Grosbeck, Jim Collins, the author of Built the Last and Good Degree, and Bill Azir, another wonderful professor and friend who's passed away and was a great influence on my life. And they had interviewed a number of candidates. They had offers out to two of those candidates for one position, and those two candidates were holding out for better offers elsewhere. I come in on a Friday afternoon. I interviewed with all three of them. They made me an offer, I think, that night, and I accepted before the other two could accept. So at least I had my job. I had my stable $40,000 a year job. I didn't really know what I was getting into, Will. It was more of a stop gap. While I was doing my work, I could think of ideas to start a business. And it was about that time, because I knew Irv had really been the godfather of the search fund or the mastermind behind it, that I started thinking about the search fund as a plan B if I couldn't find a company to buy.

[Patrick O'Shaughnessy]

Fascinating. So what point did you make the decision to go down that path? How did those two things merge together?

[Will Thorndike]

Yeah, about halfway through my year as a case writer, I used to say it was the best job I ever had running Assurance. Actually a little bit better, but it was fantastic. I got to work with on average an hour a day with Irv or Jim or Bill, and learning about businesses and management and leadership. And it was like an intensive course or almost an intensive third year of mba, which was better than the other two combined. Obviously gave me some time to think about starting a business and gave me some time to reflect on that. I still wasn't making much progress on that front. And about halfway through, I decided it was time to pivot to plan B, which was doing a search fund. And I thought, oh, gosh, it's not going to be as good because I want it to be my company. I wanted this to have my fingerprints all over it from the start. What I know now, but didn't realize then was when you buy a company through a search fund, yeah, your fingerprints are going to be all over it from the start, if not from day one, certainly within a couple of months. You are the person that the culture is going to be built around. So the fear I had about not being able to get that out of a search fund was not founded.

[Patrick O'Shaughnessy]

You decide to do it, you go down the path, you raise the capital. Right. Non trivial in that era, still sort of a novelty.

[Will Thorndike]

I think I raised a little over 200,000 in 8 or 9 or 10 increments. Sort of looking in the healthcare industry. Jim Ellis took over as case writer about the time I raised the fund. And so he was officing at Stanford.

[Patrick O'Shaughnessy]

He was your successor.

[Will Thorndike]

Who was my successor as a case writer and then my eventual partner here at Road Rescue. While Jim moved into my office, I didn't move very far. I just found an empty office and started my search out of that empty office. I didn't really tell anybody. I felt like it was, you know, just keep my head down and nobody will figure it out. Eventually somebody figured it out and they kicked me out after about six months. But it was important because I got a chance to spend time with Jim every day. I was helping him with getting up to speed on case writing. Jim saw what I was doing. It eventually led to a partnership between Jim and I. Near the end of his year of writing cases was about the time that I had surfaced two potential transactions and Jim and I talked about them. We decided we're going to do this together in that I would pursue one transaction, he would pursue the other, and if one fell apart, that person would come back to the other transaction. Or if we both ended up buying these companies, then we share some equity in each one. At least that was the idea.

[Patrick O'Shaughnessy]

And he raised his fund at that point?

[Will Thorndike]

No, he actually didn't raise the search fund. We leveraged my search fund. We started doing diligence on each of the companies. Mine was a small HMO based in Miami that focused on the Cuban community there. And Jim had Road Rescue, a small motor club or roadside assistance company based in Houston. And we did diligence on each. Just as Jim was about to start raising money for the acquisition of Road Rescue, my target fell through. It wasn't that the seller had misgivings. The reason it fell through was I went to Miami with one of my investors, Bill Egan. We spent a half a day with the seller, and then we went out to Joe's Stone Crabs in Miami. And Bill was very impressed with the seller. So much so that later that evening when he and I conferred together about the transaction, Bill's opinion immediately was, now, let's run away from this deal. This guy is super talented. He knows this space really well. He knows the community. He has been part of it for a long time. If he's leaving, I don't want to be stepping into his shoes. They're not necessarily something amiss, but you'll never live up to that. It's going to be too difficult. So we walked away from that. And I think the next day, Jim and I met up. Just right before he was about to start fundraising. We met up at a Chinese restaurant in Menlo park. And before appetizers hit the table, we came together, resolved who got what equity, which is 50, 50, and that we were going to be leaving the next day to start fundraising together. It was instantaneous.

[Patrick O'Shaughnessy]

And when you say fundraising, do you mean for the transaction?

[Will Thorndike]

For the road rescue transaction? We were looking for, I think, purchase prices around eight, eight and a half million dollars. And we generated that with 2 million in equity, 2 million in subordinated debt, all from investors, and then some senior debt on top of that. That was an interesting experience, going out to raise money for road rescue.

[Patrick O'Shaughnessy]

Talk about what that was like. It was a little different than search fund deals prior to that point.

[Will Thorndike]

I think we were sold out in 24 hours. It was almost instantaneous. Jim and I, we knew it was a potentially good transaction and good company, but we didn't have a lot of experience looking at companies. I don't think we realized how good it was. This, while small, yes. Was showing meteoric growth, had recurring revenue, was profitable, low capital intensity, and simple operations. It's like you hit the jackpot. And our investors got that right away. They took as much as they could. Like I said, I think we sold out in less than 24 hours. And we had to end up carving people back. And importantly, BE and other investors wanted Irv to be part of that transaction. He was not in the search. So we went to all our investors who had the right and all were very much willing to pare back their ownership stake to allow Irv to come in. Because Irv was not only going to come in as an investor, he was going to sit on our Board. And here we are 28 years later and IRV is still our stalwart on the Assurian board.

[Patrick O'Shaughnessy]

Some quick data on road rescue in that transaction. So an important point is you guys bought all of that. The multiple that you paid was it was four and a half times trailing EBITDA for a business that had grown 90% in the prior year. Revenue. Pausing on that, that's extraordinary. And if you took the year before that, it didn't grow as fast. It grew at 33%. So you average those two, that's like 65% growth, right? Pretty conservatively. And you paid less than five times EBITDA for it. We use this metric now in the world of search power ratio as a way of evaluating transactions. The organic revenue growth rate divided by the EBITDA multiple. And a typical private equity deal would have a metric of like less than 1 times like 0.75. And a good search fund deal would be a lot better than that. It would be like two to three times, which is a lot. You and Jim were sort of 15x, literally the highest power ratio in history. So it is not surprising that it got that sort of response from investors.

[Will Thorndike]

We did a lot of things right over time, but clearly we were really lucky, I mean, to find this company that was leveraging growth in the wireless industry because they sold their product through wireless carriers. And it was, I think there may have been at the time, in 1995, maybe 10 million wireless subscribers in the U.S. which was going to go to 300 million. That was really lucky. The dynamics of play were important and difficult to, I think, replicate. The CEO of the company had a small stake in it and his father owned the majority of it. So he was basically living under the thumb of his father. And he had been running it for a few years, not too, too long, but was ready to stop working for his dad. And so this was a big payday for him personally. It would have been a few million to him, several more million to his father. But in their world, that was a grand slam home run. And we caught them at absolutely the time.

[Patrick O'Shaughnessy]

Clearly no auction involved, no deep process. I mean, just to give some math on that. So the trailing revenue was $5.9 million. Trailing EBITDA was $1.5 million. You guys put out a deck where you sort of projected what the next five years would be like. The deck called for 15 million of revenue by the year 2000, five years out. So that's 17% growth and 3.7 million of EBITDA. You assumed a Little bit of multiple expansion. Kind of a crazy assumption. You said you'd get to 5.8 times EBITDA. All that got a 37% IRR.

[Will Thorndike]

We may have been a little aggressive.

[Patrick O'Shaughnessy]

Okay, so 17% revenue growth was the core assumption there. So you bought the company?

[Will Thorndike]

We bought it, yeah. The actual process had its twists and turns. Will probably the most interesting part of getting the transaction done was for two months, Jim and I sat in the office next to the seller, working with him, waiting to get the largest contract, GTE Wireless, renewed. Because we weren't going to sign the contract unless that contract got renewed. So we were very earnest and very cheap. We shared a hotel room at the Embassy Suites. It was super entertaining. How I say, Jim, just give me 10 minutes to fall asleep first because you snore like heck. But we would get up the night every day. It was like Groundhog Day. We try to help the seller prepare for his negotiations. And I do believe proper preparation for important events, whether it's a contract renewal, whether it's a difficult conversation, is so critical. And Jim and I may have gone overkill in this one. We actually wrote a tome. It was, here's the main contract terms, here's your position, Ray, seller's name, and then here's what we expect GTE will say. This should be your response. It was sort of a back and forth and it was probably 60 pages. And we handed that to Ray, asked him to review it in preparation for his contract. We would actually rev it with him. And it was probably overkill, but it was important to us. We needed to get that contract signed to get the deal closed. And it happened. And sure enough, two months later, July of 1995, we got the deal closed. Very cool.

[Patrick O'Shaughnessy]

One last thing to mention is I've been back through the materials, obviously preparing to talk with you on all this stuff. And the PPM you guys wrote for the deal, I think it goes straight to the IRV training as case writers. It's just excellent. Like, I would still recommend that as a model for people going down this path to look at. It applies also to the early board decks, which were also very crisp. Maybe talk about you buy the company, you relocate, you and Jim do we.

[Will Thorndike]

Move to Houston, Texas overnight, you go.

[Patrick O'Shaughnessy]

From Stanford MBAs to CEOs. Talk a little bit about the first hundred days in the new role.

[Will Thorndike]

It was eye opening, to say the least. Spending those two months sitting next to Ray, we got a chance to feel the sense of the organization, got to know the people. So it wasn't quite as hard cut, but now we're in charge. There was some element of like, what do you do? What do you do now? And we were really lucky, Will. We had this amazing board of directors that, honestly, I still marvel at how talented a board we were able to pull together for such a small company. And for Gemini, you had Irv and you had Joel Peterson and Bob Oster, Bill Egan and David Dodson. Four of them were operators, Bill Manley and Investor, but all with tremendous experience and were there willing to support us and give us advice at every turn. More of an advisory board versus a governance board. And so we had them to Colin, which was helpful. And yeah, I recall the first few months were a lot of asking questions, a lot of just observing, what do you do? Trying to understand the business that was number one. And really getting to know the managers. We importantly, I thought we wanted to follow the money. How does this really work? Are people really paying us? Are we really sending up checks? So we would literally sign every check. And because our business was roadside assistance, where we would send a tow truck in some town out to support or help one of our customers, they would send us an invoice and we would pay thousands of $50 checks. Jim. Now we'd have to sign them.

[Patrick O'Shaughnessy]

You guys signed all the checks? Thousands of checks. How long did you guys do that for?

[Will Thorndike]

We probably did that for six months. And then we handed that off to our new cfo, who we hired a little bit later. Jim and I were both happy to do it. Just so we understood the business. As we got to know the managers, we learned in business school it's good to delegate. We attempted to do so. We quickly found that that didn't work very well. So we were trying to manage my objectives, set up objectives and scorecard, and we'll measure against it over time. Yeah, that didn't work. What the team that the seller built was used to was executing orders. Seller would tell the specific leaders what to do and they would go do it. But once they were done, that was it. They didn't know what to do then. So the idea of setting goals, empowering them to achieve those goals, and having scorecards and manage them along the way, that quickly led us to realizing that the team that was there was not going to be the team that was going to be with us. Certainly not the medium term and not the near term as well. I think within a year, most of the team, if not all the team, was entirely replaced.

[Patrick O'Shaughnessy]

What do you remember about the first.

[Will Thorndike]

Year Jim and I, we Saw this engine that was growing rapidly, and we had this sense that, okay, land grab may be not exactly the right term, but it was a sense of once we got in and realized, oh, this is big and growing, we knew that we wanted to spend most of our time on the revenue side. So Jim and I, to the extent we have 200% of our time, 100 each, we probably allocated about 150% of the 200 to revenue growth. And Jim was entirely on either landing new accounts or managing our existing clients to drive more subscribers through their customer base. And I was about 50% on that, working with existing clients, and 50% on operations, which meant that we knew by commission, which is the right way to do it, that we were taking risk on the operations side. So was a call center open? Were calls being taken? Were customers happy? Were they being supported and aided on the side of the road, appropriately or not? And we were counting on the people we had in place to manage those, to ensure that that happened. Now, one of the things we did do to make sure that the operations were up and running, Jim and I would actually set our alarm clocks in the middle of the night. So I would set it for 1 and 5. Jim would set it for 3 and 7am and we would wake up and literally, just while still in bed, call the 800 number, make sure somebody picked it up. Because at that time, we. While we were 24 7. Well, 247 meant three people in a couple of cubicles in a small room in Houston, Texas. It wasn't much of a fail safer or plan B there. And occasionally stuff would happen. Like one time somebody threw a brick through the window at our call center, and police got called and said the call center was down. So Jim and I rushed down in the middle of the night, and sure enough, I mean, police presence in Houston in the mid-90s was incredible. So we were there in probably five minutes. The police had that place surrounded in probably two or three minutes, and everything was cleared out. It was fine. But our call center was down for an hour or two.

[Patrick O'Shaughnessy]

Put us in that room. Like, what was it like being in that first office in Houston?

[Will Thorndike]

Yeah, Jim and I, we'd have our offices adjacent next to one another. Our assistant Tanya was out in the other room. We had to make sure that she didn't bring her weapon, her Glock 9, into the office. We asked her to keep that outside. Which, by the way, when we ultimately had to terminate Tanya, Jim and I rocked paper, scissors in terms of who was going to fire her. And fortunately, I won and Jim had to do it. It was exhilarating. It was really fun working with a partner. We interacted continuously. We probably didn't even need the wall between us. I think we effectively separated our responsibilities. I think that's important. But we were always looking to the other for advice. Hey, I'm thinking about doing this. What do you think? Can I get your input on this? There's a lot of energy in that and excitement and well, I got to make the decision in the areas of my responsibility. And the same for Jim. We wanted the other to be involved and engage with it, strategic matters. Jim and I would come together, make the decision together. And there may have been three instances in our whole time together where we disagreed. And then we're like, okay, we got two CO CEOs. How do we handle that? Well, we would pick a board member. It was usually Irv, and Jim and I would either eat face to face or on the phone with Irv. And we're actually pretty good about this. I would defend Jim's position and Jim would defend my position. And we didn't want Irv to know who felt what. And inevitably, in every case, instead of picking A or B, Irv had a third alternative that was so much better. It was fun. Changing out the team was as challenging, right? I mean, we are early on in our first conversations with people of how to terminate them, performance, manage them, and a lot of the conversations that Irv teaches at Stanford and managing growing enterprises or conversations and management, like we were living it real time. I remember Jim and I had made the decision to terminate one of our regional managers. And Jim called him up and said, hey, we're coming to San Antonio tomorrow and like to have a conversation. And it had been like three or four months and we'd never been there. And so he's like, okay, I will see you tomorrow. And we hung up the phone and he called back maybe an hour later. He said, so my wife and I were planning on looking at boats later today and thinking about buying one. Should I maybe delay that until after our conversation? Tim had to respond, yeah, why don't you hold off on that, we'll talk about it tomorrow. We were learning our way through it of how to have these conversations. He clearly knew there's so much we did wrong there. Obviously he was sitting in place for months, probably realizing he wasn't doing a good job and we were letting that drag out. And instead of just showing up and having the conversation, we had this pre conversation which led to an effective termination Without a termination. So he had to wait for 24 hours to hear it. We were making our mistakes, and yet the company was still growing. So one of the geniuses of the search fund is if you buy a company that is growing early, stable and profitable, it can withstand the mistakes the young new entrepreneurs will inevitably make. And probably the biggest one, the biggest mistake we made will, was, well, we saw that wireless was growing. We thought we were in the roadside assistance business. So we defined ourselves as a roadside assistance company. And this had meaningful impact to what we did and how we resourced and where we allocated our time. And so probably in it, I don't know, six months a year. And we decide, look, we've got this great channel distribution, wireless. Well, there are probably other channels of distribution. Why not sell roadside assistance to automotive manufacturers, to insurance companies, credit card companies? We know you can access roadside assistance directly through those channels as well. And so Jim and I built a salesforce and we started going after maybe half a dozen people with a leader and started going after those channels of distribution. So it took us about a year or so to realize that this was a mistake because we were effective at actually getting in to talk to the companies. And even we were able to bid on some RFPs and General Motors article vividly. But the big difference between these other channels of distribution and the wireless channel was it was a cost center. Roadside assistance was a cost center. It was something that these channels gave away for free and they would try to squeeze on the providers so that they would minimize the cost of that loyalty benefit that they were offering. Whereas for roadside assistance, the wireless carriers marked it up and made a healthy profit. And so they were comfortable growing that and we could make money at that. Whereas with the other new channels of distribution, it was very low margin business. We finally figured it out, took us a while, and then we backtracked. And to our credit, we made some hard decisions and we let go of that entire team. This is year two, this is probably, yeah, year two, year three, maybe 97, 98. And we decide, hold on, while we were undertaking all this folly over here with new distribution channels, that the core was still growing, roadside assistance to the wireless industry. And we thought, let's continue to lean into that. So this is sort of our first lesson on the concept of focusing on the core, getting more juice out of the core business. And we did refocus on the core and started looking at other products and services we could sell into wireless.

[Patrick O'Shaughnessy]

You guys put out a paper around that time. If you look at the Growth characteristics of that core market, they're just extraordinary, right? I mean, you can increase your penetration of existing customers, you can sell new accounts, and then meanwhile, the overall market is growing. People are signing up for more phones. When you started, cellular Penetration in the US was 32%.

[Will Thorndike]

I think it might have been even lower than that will. I think by 2000 that was 30%. So we got the ride even a little bit earlier than that.

[Patrick O'Shaughnessy]

When did you and Jim decide to move back to Bay Area?

[Will Thorndike]

I think we moved back a year from the day of starting. So we started in July 95 and we moved back in July 96. And Jim and I hadn't really contemplated it. The topic was brought up by Irv. So Irv was close to the company. Still is. But he saw that we were traveling a lot. Jim in particular was traveling for client meetings and new business development. I was on the road as well for client meetings and for going out to our different offices. And he felt like we would be happier and it would be more long term sustainable for us as leaders to relocate back into the Bay Area where we wanted to be and where both our spouses had jobs. Because while we were traveling, so are our spouses. I mean, they were traveling. They're both consultants and traveling four days a week. So he saw the stress it was putting on the system and thought that even though it would be potentially better for us to be located in Houston, that it was going to be long term, more sustainable for us to leave. And we were. It didn't take him mentioning it twice for us to get out of there. We were happy to leave in sort.

[Patrick O'Shaughnessy]

Of the first two, three, four years. I would describe it, having read through those board decks recently, I would describe it as what my daughter would call a hot mess.

[Will Thorndike]

Right.

[Patrick O'Shaughnessy]

So there's like a consistent pattern of you guys growing, you know, above budget, so subscriber and revenue count, which is what's. As you said, that was a. That was what you were focused on. That was the driver of revenue that was exceeding plan. SG&A would be a little bit over and EBITDA would be a little bit short. There's a lot of moving parts going on. The key point in that is never once across that period of time did the company grow subscribers less than 50% a year. And that is pure organic, all roadside assistance. Right? So in the middle of all of that comes a bid, right? So it's an interesting moment before all this where cuc, I think it was, comes in and they bid. This is 1997 two years in, they bid 60 million bucks, which is 15 times MOIC. How did you and Jim, the board process that? That would still, by the way, be a top 5% outcome.

[Will Thorndike]

Can I address your comment about us being a hot mess at that period of time? First Mass is a little strong. Oh, no, no, no. You're right. You're right. This was quintessential. Herb doesn't need to say a lot to make a point. One of his great strengths. So in that time period, the first two years, and he sees what's going on, he reads the decks, he sees this overperforming on revenue and underperforming on margin. And he pauses during the board meeting and says something to the effect of. So, Jim and Kevin, do I have this right? Feels like you're overperforming on all the uncontrollable items and underperforming on all the controllable items. I don't think there's any response needed for that. Got it. Message received. That will never be forgotten and will be retold again and again. Going back to cuc, we had an offer from CUC who were high fires at that time. I don't think they had merged with HFS at that point in time. But this was before the principals at CUC all went to jail. It was sort of incredible was that 15 times it would have been in two years. And we were proud is the way to describe it. Wow, this is real. Somebody will actually pay a lot of money for this. It was more of a LOI offering. They hadn't gone into diligence, and so we don't know if they really would have paid that. But the conversation at the board meeting was absolutely enlightening. Like, Jim and I were just spectators. We were listening. We presented the offer to people. They were new. And to hear the various opinions expressed on how to look at this and evaluate it was felt like I was in a classroom and learning and absorbing all this great experience. One of our board members has a long history and was very, very successful at transactions. I mean, he was proponent of selling. He was like, look, you just can't beat it. This is 15 times your money in two years. You put a big win, not just a small one, a big win on your resume. You go out and you and Jim, you go at it again and you go find another company and you set the bar and your reputation is established and it'll be win for the investors and everyone. And that made a lot of sense to Gemini and then one of our other board Members, Irv did a different view. He started with how do you feel? And he asked Jim and I asked him questions, how do you feel about the company? How do you feel like the prospects are for road rescue over the next five years? Do you think it's going to grow? You enjoy what you're doing? And he made the case for if you have confidence in the Runway ahead of you, and at this time we did. While there were pockets of competition from AAA sprouting up, we did have confidence in the growth and it was tough not to given how fast we were growing and how fast the wireless industry was growing. Irv said, look, if you're confident you enjoy what you're doing, then do you really want to sell now pay half of what you get in taxes to Uncle Sam and then you guys gotta go out and find another. And it's not easy to find the road rescues of the world, they're few and far between. That point of view ended up carrying the day. I mean Jim and I of course made the decision, but it gave us a chance to actually really evaluate how committed we were to this company and the industry. And in a sense we emotionally double down after that.

[Patrick O'Shaughnessy]

It's worth mentioning that Irv built his career as the co CEO of one of the two best run cable companies, company called Continental Cablevision that he and his partner ran for 30 years. So Irv had some direct experience with similar situations that informed his views as a board member and investor and partner and friend.

[Will Thorndike]

I think both of them came at it from their experiences that they had.

[Patrick O'Shaughnessy]

Okay, well, so let's maybe talk about handset insurance.

[Will Thorndike]

My favorite topic.

[Patrick O'Shaughnessy]

Yeah, good topic. How that evolved as a business for you guys and how you got the M and a hat back on there and just maybe talk a little bit about that, the Merrimac piece.

[Will Thorndike]

So once we decided we're going to focus on wireless, we looked at doubling down in that space. So building out our client services team and sales team to sell into more wireless carriers. But we also looked at other products that we could potentially sell through that same channel of distribution because it was such an amazing channel of distribution. And at the time if you went into any wireless handset store, you would see a couple brochures on the desk when you're waiting to buy your handset or set up your wireless plan. One was roadside assistance for $3 a month and right next to it everywhere was cell phone insurance for $3 a month. And so of course we'd be mystery shopping and training in these stores all the time. So you literally look at the pamphlet and read it. I'm like, hold on. Cell phone insurance, that seems to be more closely aligned with wireless than roadside assistance. Hmm, I might want to be in that business. And so we would have never found cell phone insurance were we not in the business. But because we were, we got to see it. And outside in it may seem like a big move. It's an entirely different product. Why would you consider this as an acquisition? But once you're in the industry, you realize that in fact both the person you pitch to at the wireless carrier is the same marketing manager. It's a value added services marketing manager within the wireless company. The person you're selling to is the exact same person. The financial orientation of the products were identical. They're both insurance esque. So a customer would pay $3 a month billed on your cell phone bill. And the risk of how many times somebody would break a phone or use the service was borne by us. And operationally they were very similar. Somebody had a problem, they would call a call center. We would either send a phone or send a tow truck. They were almost identical businesses. We actually got conviction pretty quickly. We wanted to be in this business, so we pursued both a buy and build strategy. We knew that our biggest client, gte, was looking for a provider of cell phone insurance. So we started bidding on it because we had a seat at the table because of our relationship. At the same time, we started talking to the three players in the industry that provided cell phone insurance. So there were three small players at the time. The company we bought, the meramec Group, Lachline and Signal. And before that, RFP concluded, we were able to actually move down the path with the Meramec Group and close that transaction. And that's what really launched us into the cell phone insurance industry.

[Patrick O'Shaughnessy]

Talk a little bit, if you don't mind, about that deal. How'd that come together?

[Will Thorndike]

It's based in Nashville. Two partners who are former insurance agents with one of the big firms. I think Marshall McLean started it and they were in the insurance industry and saw others doing it. This niche in cell phone insurance. Their growth profile looked not dissimilar to what Road Rescue did four or five years earlier. So you've got this business that may have been doing 4 or 5 million in revenue, a little over a million of EBITDA. But we're adding wireless subscribers hand over fist, much like Roadside was. So it's sort of like going back in time a little bit. But they were insurance agents. They had never Run a business, scaled a business. So they were running at the limit of their capacity and ability. We hit them at the right time. They were ready to cash out, if you will. I mean, had a nice run. They were agents for a while now. This will give them plenty of money for retirement.

[Patrick O'Shaughnessy]

You approached them, right? So given that this is proprietary direct approach.

[Will Thorndike]

Proprietary direct. We actually approached all three and we tried to hold simultaneous conversations with all three. This one progressed more quickly and so we focused on it. I recall the transaction negotiations. We were at the Union Station Hotel in downtown Nashville. I remember we had two hotel rooms. The four of us were negotiating in one. And they came to us with their final offer, like, the price is 8 million, I think it was, or something around there, and not a penny less. And Jim and I looked at each other saying, like, we're going to have to think about this. And so we were tired to our room and we had this little squishy basketball that we're playing with and we're throwing it back and forth. And our first question is, how long do you think we have to hang out in here before it's okay to go back in and say yes? We had experience with roadside assistance, so we had some idea. We knew that the acquisition of the American Bike Group could be a really good transaction. A lady roadside assistance. Turns out it was 10x that we didn't know that, but we knew it was going to be good. But once we got inside and under the covers, you had to spend a few months in the organization. You're like, oh, hold on, there's a lot more here than we thought.

[Patrick O'Shaughnessy]

How many minutes did you give them?

[Will Thorndike]

20 minutes.

[Patrick O'Shaughnessy]

20 minutes.

[Will Thorndike]

Okay, that's the lesson. 20 minutes. No less than that. We ended up buying, I think it was six times ebitda. It was growing so fast. I think the multiple on a run rate basis is a lot lower than that.

[Patrick O'Shaughnessy]

So the numbers just that we've got for that were just exactly what you said, Kevin. So a little over 4 million of revenue, 1.2 of EBITDA sub growth of 60%. Right. So very similar to the growth rate at Road Rescue. Initially, you guys paid on a run rate basis, 4 and a half times EBITDA for that. That doesn't even include the fact that some of it was paid over time. And you could probably discount that if you wanted to, but ended up sort of at that time, about 18% of enterprise value.

[Will Thorndike]

That's an important point. The 18%. While Jim and I had confidence our board didn't have the Same level of confidence. So there's this element of when you're. Particularly when you're doing acquisitions, you never want to bet the firm. Like, you don't want this to be. The acquisition doesn't go the way you think, then it takes the whole thing down. My rule of thumb there is max 20, 25% of enterprise value. I will deviate from that by commission.

[Patrick O'Shaughnessy]

We're going to get to that, by the way.

[Irv Grossbeck]

But yes, go ahead.

[Will Thorndike]

I remember one of our board members thought this was the stupidest idea in the world. Like, who would buy insurance for your cell phones? At the time, you may recall, cell phones were sort of free. They were given away as part of your wireless plan if you signed up for a contract. And he was like, why would you do this? This is stupid. We had confidence. We didn't know for sure, but we also knew because the roadside assistance business at that point was so much bigger that it wouldn't have killed us if things didn't go as we expected.

[Patrick O'Shaughnessy]

You financed it all with debt and cash off the balance sheet. No equity required, correct?

[Will Thorndike]

Yeah, nothing required.

[Patrick O'Shaughnessy]

That's actually an important point that we haven't really touched on, which is the business, in addition to rapid growth, had kind of exceptional economic characteristics. So crazy high returns on tangible capital. Well over 100% on that metric. And simple way to think about that is for a dollar of ebitda, typically at least half of it and often more turned into free cash flow for you guys. All of that growth you could finance internally.

[Will Thorndike]

Yeah. With cash flow or debt. Yeah. We didn't have a ton of networking capital that was required to grow the business. Not a lot of PP and A. We inherited that structure. Certainly wind in our sails, if you will.

[Patrick O'Shaughnessy]

Acquisition closes a little bit. Maybe about the integration, how quickly you guys brought that on stream. And then we'll talk a little bit about capital allocation topic.

[Will Thorndike]

That was an exciting time. We're no longer traveling to Houston. We're traveling to Nashville to get this up and running. And there was a big aha within a month or two, because essentially round numbers. The customer paid $3 a month for this insurance, and you give 50 cents to the carrier as a billing, collection fee. And then $2.50 of that would go to basically the underwriter who managed everything. And that 2:50. The Merrimack group only got 50 cents of it. The other $2 went to the underwriter to pay for claims, to pay for the logistics of getting those phones to the customers, and to pay for profits that they would get Even though the 250 was managed by the Merrimack Group. Whoa, hold on. We're managing it. We know everything. We know the economics of this. We know the risk. We understand the risk better than anybody else, better than the underwriters themselves, because we are actually, we see it real time. And so the first move we make, which changed everything was, no, no, we captured the 250 and that becomes our revenue, not the 50 cents. We didn't know that before. We brought in an insurance expert who basically quickly told us, no, no, no, you don't need the insurance company. You can rent their licenses. And so immediately, instead of them taking the risk and controlling all that, we took that on and we rented their insurance license for a few percentage points, maybe five at that point, and now is a lot less. But that gave us control of everything. And now we're like, okay, yeah, sort of game on. Now we get the underwriting profits immediately because we'll take that out. But then it opens up the world for us to better manage the claims distribution process and ultimately the repair of those funds. So step one is to get control of the entire premium and take over the underwriting profits. Step two was become the logistics provider. So instead of having a third party, FedEx or UPS, and not just delivery, but manage the warehouses and all that, we created our own, we started our own warehouse. And this way we would ensure that the customer got served, if not next day and the day after, which was an important customer service metric. But we also were able to do that a lot less expensively than those third party logistics providers. And then finally, the final step of vertical integration will was the repair of cell phones. So every time, probably a majority of the time, a phone had a problem, it was damaged and not lost or stolen. So there's still value in those phones. And we started the process of getting those old devices back, refurbishing them, making them like new. We would always replace the plastics on the outside, so you're never touching old stuff. But we'd reuse the internal parts and we can in turn save a lot of money in that process while getting the customer into the same handset that they had damaged originally. So those three steps led us to control the customer experience, keep the price down for consumers, and increase the profitability of the program for our carrier partners.

[Patrick O'Shaughnessy]

So how long do you think it took, Kevin, to get to the point where you guys were sort of fully in vertical integration mode?

[Will Thorndike]

That took about three or four years. Step one took about a year getting into the distribution Business started about a year after we're in it and that just scaled. We were in it right away, but it was a room the size of a closet. We gradually over the next year, took more and more from the third party and created our own logistics center. So that took a little over a year. And then once we had the logistics center, we carved off a space space and started repairing phones there. It evolved over time, but really it took about three or four years to get fully into it. And then we just perfected it. We scaled it and perfected it and ultimately we had operations in Hong Kong, we had operations in China. Now we've consolidated them all in the Philippines. A lot of our logistics and repair operations.

[Patrick O'Shaughnessy]

And again, the sort of linchpin for all this is the Meramec acquisition. $7.3 million purchase price.

[Will Thorndike]

Road rescue got us in the game and the Merrimack Group was really the main engine. While we stayed in the roadside assistance business, it was clear that Hansa protection was the engine. After a couple years, we intentionally diverted resources from it, time and attention. But that became competitive quickly as well. Probably around the 20078 timeframe, the roadside assistance went away. But it's all been about cell phone insurance since 2001.

[Patrick O'Shaughnessy]

The headline for Asurion is Phenomenal Organic growth over Time. But the selected M and A activities have added just enormous value across the whole hold period. Meramec being front and center in that and one other we'll get to. But a very unique feature of the company's history over time. There was one capital allocation event in those early years where in 1999, you guys have the cash generation that you were talking about, Kevin, and you decide to do a share repurchase, something that's pretty unusual in private companies. Can you talk a little bit about that early repurchase, sort of how it came about? If you know anything you remember about that.

[Will Thorndike]

There's always this debate on whether you do a dividend or a share repurchase. And IR was instrumental in our learning on this dimension.

[Patrick O'Shaughnessy]

It was a big part of the continental playbook over time.

[Will Thorndike]

It's almost always the right tool to use. As long as you can value it fairly. It allows individual investors to make a decision, do you want liquidity or not at this price? Are you buyer, are you a seller, Are you a holder versus a dividend, which is you're force feeding somebody money that they may or may not want? Sure. Intuitively you think, oh yes, give me a dividend. That sounds great. But as the recipient of that what do I do with that? Can I redeploy that in the same place? Do I want to redeploy that? That was our first introduction to balance sheet management, if you will, from irv. It was a good lesson. The importance and the impact, although I'm not sure we fully appreciate it at the time, of a share repurchase over a dividend.

[Patrick O'Shaughnessy]

Yeah, that's extremely well laid out. Basically, this is the first step down the path for the company. Right. 98, 99 is very early days, and you guys invest $12.5 million, all financed by debt, and buy in 10% of the company. The IRR math on that transaction is rather good. 41% IRR over 22 years and an MOIC of 275x. So just the power of doing that early. And it's very rare in private equity. It almost basically never happens in private equity. It's very rare even in Search. Kevin, we touched on this a little bit as we were talking about the share repurchase, but businesses generating all this cash. Can you talk a little bit about use of leverage in the very early days and how you guys thought about that?

[Will Thorndike]

I think it was an important consideration and driver of returns, obviously. And when we did the original road rescue deal, I'd say we used leveraged to the maximum extent possible. So we went out and got a sufficient amount of as much senior debt as we could. And in fact, the investor capital that we raised, we structured that partially as debt and partially as equity in order to drive the highest returns to shareholders. You just look over the next couple of years, as we came to the Merrimack deal, of course, using leverage, the lowest cost of capital out there, we were going to use that at every turn, whether it was cash on the balance sheet or cash that we could generate from raising debt. We always had that mindset from the start of responsibly using the lowest cost of capital that's available to us. And debt was at times, it was more available than less, but we had that as part of our ethos. I think that, interestingly, you saw our leverage ratios decline from the initial transaction and up until the Merrimack transaction. And we just didn't have a use for that. So you think of what's the highest and best use of that, and you'll reinvest that in the operations to the extent that you really believe in the return on investment that you're going to get from that. And we were. We were investing as much as we could. Number two would be acquisitions and so there was nothing available to us. And then number three would be returning capital shareholders, ideally in a share repurchase, secondarily in the form of a dividend. And in those early years, we didn't really think about the latter too much. Obviously we did that small transaction, returning 10% of capital through a share repurchase. But we would really come back to leverage mainly, at least in those first few years, at either an acquisition or in conjunction with an equity recap that happened to undertake. And the first one of that was really 2001, when TA came onto the cap table.

[Patrick O'Shaughnessy]

Okay, TA is a good segue. So let's talk in a minute about that transaction, sort of the first material transaction for the company. But before we do that, I just want to stop and give a snapshot of the business in the year 2000. So just after the Meramec deal closed in 99, you'll remember that the original PPM document, the base case, was $15 million of revenue and $3.7 million of EBITDA, the year 2000. Actual numbers for the company, which of course include Meramec at this point in time, early days was $135 million in revenue. So it was a 63% compound annual growth rate since closing and $27 million in EBITDA. Right, at a 20% margin. So that's pretty substantial value creation by any metric. Along any measure, the subscriber count grew about 8x over that period of time.

[Will Thorndike]

Right.

[Patrick O'Shaughnessy]

So that's now come to fruition in the business and you guys make a decision to explore a transaction, offer some liquidity to shareholders. Can you talk a little bit about that?

[Will Thorndike]

We have seen Mercurial growth and we were excited by it, but at the same time, we took it all in stride. Maybe we were a little overconfident because with the meramec transaction, things were a little more challenging. We had now had two companies. Jim and I were stretched. The management team wasn't as strong as we would have liked it. And so there was some element of, I think Jim and I just seen the risk here as I. Hold on, this is great. But neither Jim or I had taken anything out at this point. And we were both interested in some financial security. We decided, conferred with the board, we had conversations about whether we could buy in as many shares as we wanted to or as were desired with just debt. And we thought we couldn't do that. So we, we opened it up to an equity process and that generated some interest. But in particular, the highest bidder was ta. Associates. And while investors were interested in liquidity, I think it was really Gemini driving it, sort of the need for financial security. And the board, they thought that was a good idea. I mean, having management sort of hold on too tights, never a good idea. And they understood that from the early days. So just allowing us to sort of let some air out of the balloon and give us some financial security, they thought, and we agreed, would help us be better managers. The TA transaction was once again a situation where Jim and I were back in the classroom. He and I were nominally negotiating it. We were the front men, but really there were people behind each of us pulling the strings on our side. It was really Bill Egan and Irv Grossbeck who are negotiating through us with ta. So Irv. TA had been an investor in Irv's company. Bill had been a partner with the folks at ta. So they all knew each other very well. And there was, I'm sure there were baggage from each of their past that were being handled through surrogates that were Gemini. And on the other side, Jim and I were dealing with Jeff Chambers and Richard Tadler, who were wonderful, but they weren't really in the control suite either. It was Kevin Landry and Andrew's claim behind them. So it was sort of an interesting negotiation. But at the end of the day, we had the, what I call like the Irv factor in the sense of when we said no to something, they knew it wasn't us and they weren't really negotiating with us. They knew it was coming from Irv, and we understand what that means. And no meant no. No meant no. And they came in with a term sheet that had a high price, but it had a number of conditions to include. They wanted control over major operating decisions, to include the budget and key hires. They want to take the company public registration rights, and they wanted a preference, and they wanted a couple of other items. And without getting into too much detail, basically we came back at the advice of Irvin Bill and just said no to all of them. The insight for them, which again, Jim and I in the classroom being students, was TA is in the business of investing in great companies. If we have confidence in the company and we don't need the capital because it's all secondary, then we've got all the power. And while we ultimately acceded to some minor rights to ta, at the end of the day, they basically come in with the same security. Is all common, and I think happily so in the end, and honestly, I.

[Patrick O'Shaughnessy]

Think if you looked at the history of ta Associates. That transaction not being preferred is a wild outlier, thanks to the quality of the business.

[Will Thorndike]

It was absolutely common to both be preferred and to have a coupon, and they got neither of those. Jeff Chambers ended up joining the board and was a wonderful fit. I think board dynamics are always incredibly important. And he got a chance to shine early on because soon after TA investing, we missed our numbers. And I think the next two quarters, it was really the first time we'd missed our numbers. And Jeff was as cool as a cucumber. He may have been sweating behind the scenes, but he was consistent and supportive and we made our way through it. Everything turned out fine for ta, but he was tested early on, that's for sure.

[Patrick O'Shaughnessy]

And Jeff is great. Quick math on that transaction was they paid a valuation of $225 million. They bought $60 million worth of stock at that. So they ended up owning a little bit over 25% of the company, all of it secondary, as you said, Kevin, significantly, none of it preferred. And the IRR for selling shareholders from the original search group over five and a half years was a multiple of invested capital of 41 times and an IRR of 102%. So that's a reasonable start. And we'll return to get into what followed from that start. But I think that's a good place to cut things. So thanks for your time, Kevin.

[Will Thorndike]

Perfect.

[Patrick O'Shaughnessy]

Kevin, in our last conversation, we talked about the first five years of Assurian's history, from the acquisition of road rescue in 1995 to TDA coming in as a director in very early 2001. Put some numbers around that. You started with $8.5 million of revenue and $1,200,000 in EBITDA, coming entirely from the roadside assistance business. In 2000, you had $78 million in revenue and $25 million in EBITDA, with around 35% of that coming from handset insurance. Okay, so we're now officially in the TA era, early 2001. And it just seems as though that early 0102 era represents a step function change for the company. A lot of transformation then. And maybe a place to start, Kevin, if you don't mind, is with the actual renaming of the company. How did all that come about?

[Will Thorndike]

The story of our names is an amusing one, if anything. When we bought the company In 1995, we bought road Rescue Inc. We were known as in the marketplace, Mr. Rescue, but it was Road Rescue Inc. When we bought the Merrimack Group, we merged the two companies together. It was one holding company and we come up with the very creative name Road Rescue meramec. It clearly didn't roll off the tongue. It was a pretty straightforward process. Well, we realized that that was not a long term name. It's entirely unrelated to TA investment. But we did need to come up with a name that represented who we are and who we wanted to be. And we hired a marketing firm and they helped us lead us through a process. Asurion was the winner of that process. There were a handful of others that were similar sounding, but the idea of Assure assurance to protect resonated with us. And that was also a time when URLs were difficult to find. So we were pretty happy to land on Assurian and it stuck. And we've been excited to continue with that name ever since.

[Patrick O'Shaughnessy]

Let's maybe talk a little bit about the senior management team and the overhaul there. Maybe go back touch on Gerald and we can go forward from there.

[Will Thorndike]

The hiring of Gerald Risk was a seminal moment for me personally. It was where I truly found or saw the power of hiring a 10x person. Our previous CFO was a talented CFO who filled the role at the time. But when we transitioned him out and Gerald into that spot, Gerald didn't come from a CFO background, but you could tell he had the same hunger that Jim and I had. I want to say it's rare, this sense of I just want to win today. I call them drivers and stewards. I mean you want drivers to just accelerate the business, take it further. You don't have to push them. These people are excited to winning, to grow and succeed. And others are content to manage and report and be custodians and trustees if you will. When you interview somebody and you see it in their past, these examples of overachievement, of attaining high levels in whatever they do, the sense of wanting to win. And we saw that in Gerald and the impact to the organization was immediate and surprising because he was our first big hire. He not only took on finance and handled that almost instantaneously, he took on parts of operations, he took on information technology at the time and he took us to places from a strategic perspective that we probably wouldn't have gone otherwise because Jim and I really saw him as a true partner. As we moved on from roadside assistance into hands up protection, that was a big wow moment for us. Along the same lines of importance of 10x type managers was the hiring of bread. Jim wanted to wind down his day to day activity within Assurian and he was moving on to teaching at Stanford and. And Jim and I went out to look for a chief operating officer. Someone essentially would report to me who'd help get the trains running on time. I think before that, Jim and I, we were good doers. We knew what to do. We were actually pretty competent. We were good salespeople. We could get the basics done, but we weren't necessarily skilled at managing, driving, inspiring a team. And we went out looking for someone who had done that before because we were growing and scaling quite rapidly. Finding Brett was. It was lucky that we found him. We were introduced to a mutual friend. He and I and Jim hit it off right away. And we realized, given his experience at West Point, running a couple of other companies in the past, that he had the skills we wanted, needed to grow our business.

[Patrick O'Shaughnessy]

Where did he come from, who was the referral and what were a couple of the things he did before you ran across him?

[Will Thorndike]

He was introduced to us by Bill Lazier. Bill was a professor at Stanford. He's one of the three people I worked for as a case writer when I finished my MBA there. And a dear friend. Turns out he and Brett were close. They had a relationship. I think it was through his son in law. Brett had graduated from Stanford a few years before me. And we reached out to our investor base, our network, looking for people who filled this profile. And Bill connected us and we hit it off right away. Brett's background was West Point. He did five years after West Point in the Army. He did not finish top of his class. He finished number two at West Point, a point which I continually give him a hard time about. He had a couple of really senior leadership positions. I think he was the chief operating officer at Risk Management Solutions and then he was the CEO of another small software startup that had just recently been acquired by Excited Home, if you remember that company from the Wayback Machine. We just caught each other at the right time and he came on board. We were looking, as I said, for a coo. We were never going to get him with that title. So Jim and I were super flexible on titles and he took the CEO title. I had already had the chairman title. And that was really the beginning of another amazing partnership of mine.

[Patrick O'Shaughnessy]

Was he a board member from the outset?

[Will Thorndike]

Yes, we brought him on to the board right away. What he brought right away were leadership skills in terms of managing a team that Jim and I, but particularly I got a chance to learn from. Over the next several years, he and I were partners and we would talk every day, multiple times a day, much like Jim and I. Had and we were giving each other advice. It was really a great opportunity for me to watch him, to learn from him, and eventually to improve myself along the way. But think about where he was really strong. It was inspiring leading a team. It was focus on the customer, really understood what the customer experience was and drove that through the entire organization. And then one of his superpowers is relationship management. Beyond being just a great leader, he is one of the best client relationship management people on the planet. And there's some great stories about how he built some relationships over time, which are amusing.

[Patrick O'Shaughnessy]

I mean, first of all, it's kind of amazing if you think about it. You going from one super close, productive partnership with Jim almost seamlessly overnight to one with Brett. Talk a little bit about some of the mechanics of that. What time did you guys get started?

[Will Thorndike]

It is true. I mean, I lucked. I feel very lucky to have had a handful of great partnerships over the years. It's so much more fun to do it with somebody. And I think about the relationship that Jim and I had. The relationship, Brett and I have two things that stand out the most about each of those that were common. We talked all the time. We reached out to one another all the time. The second thing was we pulled the others in. So with Jim or myself or Brett myself, we were always looking to the other for advice, for help, as opposed to pushing the other person away and saying, hey, this is my sandbox, you stay up type thing. But Brett took his military training and applied it to assurance. So I thought I was an early riser and getting going, seven in the morning. And sure enough, nope. I think Brett started as early and probably get up at 4, 4:30 every morning, was in the office by 5. And that, I mean, it sets a tone. People see that, they see somebody getting in early, working hard, dedicating their time to this adventure we were on. And it's infectious. He did it. And so I was there too. That sort of permeated through the management team.

[Patrick O'Shaughnessy]

And can you talk a little bit about culture as you guys are building it and hiring and talent management as you and Brett and team began to build off of that together as a partnership?

[Will Thorndike]

It certainly started with Jim and I and Gerald, and then continued with Brett and I and Gerald. The term we use to define the culture at the Shurian is divine discontent. And it's a term that was coined by David Kirk, a former McKinsey consultant. But before that, he was the captain of the New Zealand All Blacks world champion rugby team. He wrote this paper on High performing teams. And he described his experience with the All Blacks. And Gerald actually read it, this article, and he brought it into my office. I'll never forget. He said, this may not be who we are today, but it's who we certainly aspire to be. What that means, Divine Discontent, is this idea that you've got a team of people who are incredibly talented, you're really excited to be around and be interacting with one another. And together you set really high goals, high bar, high objective for yourself. And you work like heck and you go achieve those goals. And then once you're done, you don't rest, you do a post mortem, you look at what you did, can you do better? What were the mistakes? Because there was always mistakes and how do you improve upon those? And there may be competition along the way, but you're really not so much focused on the competition. You want to use those as opportunities to get better, to actually improve yourself. And then when you reach those goals, you actually put up bigger goals and you just keep going. And that sort of drive excitement really permeated the culture of the organization. And the people saw that, we talked about it, the management all knew it. Even today, you can ask managers all the way down the organization. I think people certainly, they understand Divine Discontent. I think they hopefully practice it, who are a bigger organization. I know that isn't as broad or widespread as it once was, but that core of Divine is connected is certainly still there.

[Patrick O'Shaughnessy]

It reminds me a little bit of that story about in the early days, arriving at core values and the definition of fun and you and Brett working through that. Can you go through that story a bit?

[Will Thorndike]

We hired a third party and brought together a broad cross section of our senior team with the objective of defining Assurion's core values. It was a process that we were broken up into groups and those groups would work together for a period of time and we'd have their ideas and we'd come back and it was sort of interesting how this sort of merged. People were voting on it. So there's some sense of, oh, we're going to vote on our core values, which with the benefit of hindsight, was not probably the way to go, because they are what they are. It's not like what you think they are necessarily. And we went through the process of one core value that emerged on many people's lists was the idea of fun or the core value of fun. We want to have fun. And what we do, we want to enjoy, we want to be excited about it. And while a Number of routes, put it there. It just didn't feel right. I was like, I'm not sure that fun is what we are trying to do. And then one of our longstanding employees, a gentleman named Rodney Schwasser, had been with us for a long time. He raised his hand and we were talking about fun. He's like, look, this is not fun. That's not the right word. It's winning. Winning is fun. Like we want to win. Let's not sugarcoat this or try to put a different face on what it really is. We're here to win. And there was sort of a aha moment there of like, yes. And it connects with divine discontent. It's interesting how the true core value actually does emerge. It's about who you are, not the name you might put on it. It was interesting how that just emerged from that process.

[Patrick O'Shaughnessy]

And then there was also kind of an honesty in your culture and specifically, maybe as it related to people finding their long term roles and how you thought about giving feedback to people.

[Will Thorndike]

One of the things we did well over time was we had a strong discipline around talent management. We recognized we were on a rocket ship. We had a team that was driving, in some cases holding on because it was growing so quickly. And we knew intuitively that people who were in those seats were not necessarily going to be people who could take us to the next level. And one of the things we did really well is we were honest with ourselves and with our team about the roles they were playing now and would they be in those seats in the next couple of years. And it turns out we ended up switching over the entire management team about three times over the course of seven years. And it was mostly proactive in the sense that we knew that the people in the role couldn't take us to the next level. I mean, sometimes we obviously made personnel mistakes where we had the wrong person in the wrong seat and we had to address that, but we were pretty rigorous about that. I give us pretty high marks because when you hire into a role, chances are you got maybe a 50, 50 chance of actually making a great hire. And I think it's as important, if not more important, to correct that mistake as quickly as possible. That really did allow us to take full advantage of the opportunity. Because the industry was growing so fast. We had opportunities both domestically and internationally, and we were integrating vertically in the value chain. So so much had to be done that it was critical for us to get the right people in the right seats during that period of time, or we would have Nearly taken as much advantage of the opportunity that we had.

[Patrick O'Shaughnessy]

I mean, those are not easy conversations. Any lessons learned on handling this?

[Will Thorndike]

The best advice I'd have and what I try to do. But as is always the case, we're never doing as good a job as we want to. And that's being consistent and constant in your feedback and having an open dialogue with your team members so that there's not a lot of ambiguity between how you think he or she's performing and how he or she thinks he is performing. So having those constant conversations makes the ultimate conversation around it's time to leave a lot easier because you almost arrive to it at the same place at the same time and just being honest with yourself and being honest with those people and having the courage to actually have that. Because those are difficult conversations. We know we avoid them, we don't like having them, but it's the right thing to do at your job. It also helps the employee because if they're not performing, they need to know. Otherwise they have no chance of redirecting or addressing that. And I think as long as you're having those conversations on a regular basis, it helps you hold your feet to the fire, taking these actions that should be taken on a timely basis. The other thing that was helpful and is helpful, having a partner, is holding each other accountable. If it's just you, then it's easy to push off or allow somebody to stay in a spot, thinking here she may improve over time a little bit faster. And it's always great just to have. In this case, we were partners, effectively operated as partners. So being able to hold each other accountable for our team was really helpful. If you don't have that person, then having a board member, an executive coach, or a mentor really is helpful in prompting you to see clearly what's happening.

[Patrick O'Shaughnessy]

Did you and Brett, as you're sorting through that, ever disagree?

[Will Thorndike]

We rarely disagreed. One of the things I liked about our relationship was we didn't get stuck in a specific point of view or position. I think both of us were pretty good about allowing the data or the information or new information to change our minds. We may have had differences in small areas. Now and then we would allow the person who really had key authority over that domain to make the decision. I think only once will. There was a time it was about a specific individual where we disagreed on whether to keep this person or not. That went on for six months. It was a situation where I thought this person needed to exit the company and Brett wasn't quite there yet. How we managed that was really more us continuing to converse about it. It took, I think, six months longer than it should have. And eventually that person did exit the company. And the way we ran the company, if one of us really believed that somebody needed to exit, it had to happen. Because once a person has lost the confidence of one of us, then it's ultimately not going to work out. We worked our way through that. I say slowly and carefully because you want to be careful, because you're protecting an important relationship. You want to do us right for the company. But the relationship that he and I had together, our working relationships, it was pretty instrumental to how we operated as a company. And doing that well could take the company in positive direction or a negative direction.

[Patrick O'Shaughnessy]

A related thing is this idea of lack of hierarchy. I think it was one of these TA years, 2005, something like that. Company added 50% more employees in a single year. Right. How did you keep from hierarchy creeping in?

[Will Thorndike]

You do the best you can. Of course it's going to seep into any organization. You try to model it as best you can. Having a low ego or being humble was an important part of the ethos of Assurian, in that you're setting high goals together, you're working together to reach those goals. But you're also open to constructive criticism. And when you do those postmortems to get better, it does take people letting their guard down, being comfortable having constructive criticism directed their way. So that does help from a hierarchy perspective. In growing companies, managers, leaders, set of responsibilities get divided all the time. And so people seeing that a senior leader, as the company grows, might have a section of his or her responsibilities cleaved out and given to somebody else, not under them, but beside them. Those are always challenging conversations. People feel like you're taking responsibility away from them. But it's necessary in a growing enterprise to have great people focused in key areas, and particularly as the scale underneath it is increasing at the same time. That was how we thought about the example we tried to make. I think one of the mechanisms we used to help promote that was a mechanism we call power of 10. It's an exercise in focus and prioritization. But it helps people to see that this is not about hierarchy. Because what we would do is we take every so often for a really important event. It could be a contract renewal, it could be going after a new client, it could be some other negotiation. It could be a supply chain problem or an operational glitch. And we would pull together a handful, maybe a half dozen People who had knowledge and something to contribute to that problem or issue. And it didn't have to be the CEO or the head of that client. It could be somebody who is lower down in the organization who actually had the details and understood it at a deeper level. And we will bring that group together in focus time, call it two to three hour increments, maybe do it two or three times and have prep material in advance to allow people to think about these issues. And I know it sounds simple, but it's wildly effective at just getting a handful of people, the right people at whatever level in the organization focused on a problem, not worried about the meeting that came from the meeting going to. And. And we found you always in every instance would come up with alternatives that individually you never would have got to. It was a powerful mechanism. We still use it today.

[Patrick O'Shaughnessy]

Can you talk a little bit about organizational mobility is kind of a principle for top talent.

[Will Thorndike]

We believed in terms of the best way to develop your people is to give them a wide range of responsibilities across the organization. And in particular for your high potential leaders, those that you want to continue to rise up in the organization. I will tell you it's really easy for them to rise up in their functional area, but to give them cross functional experiences to meet other people and network within the company longer term, that has a much greater impact on the business. In fact, when you look at our executive committee, well, I think the average tenure may be approaching 10 years and some 15 to 20. It's a long tenure group of people.

[Patrick O'Shaughnessy]

Across a breadth of roles.

[Will Thorndike]

Across a breadth of roles, yes.

[Patrick O'Shaughnessy]

Compensation. Can you talk a little bit, Kevin, about specifically equity compensation and how you've evolved your approach? I mean you started out as a search fund, right? A rigid mode to that. How did the company's approach to equity compensation evolve over time as you're bringing in these A players?

[Will Thorndike]

This is where we benefited early on from having a tremendous board of advisors, directors who could help us think about these types of issues. And while it is certainly important from a shareholder return perspective to shepherd equity very carefully, part of the ethos early on was you need to reward management team and have them aligned with the shareholder base. And that meant distributing options as a key part of the management incentive plan. And that was built in early on as part of our comp structure, certainly was for Gemini. And in order to attract the very best people like the Gerald risks of the world, to pull him out of his current role at a much lower salary, we needed to use equity and the promise of that As a key factor in bringing him in and other important leaders of the organization, it connected to being able to get great people, really, because when you're a small company, you're getting these really talented people to come work for a small roadside assistance company in Houston, Texas, or a cell phone insurance company in Nashville. Why would they do that? Well, you've actually got a great story because you get to be part of this leadership team as opposed to being a cog in the wheel. In a large company, you get to be part of a leaders team, you get to be in on the decision making. And we've got this great vision that we've laid out. To the extent we work hard and reach those goals, you can not only be part of that, be rewarded by it as well. And we tried to push this as far down in the organization as we could, and it had fits and starts over time, but we ended up pushing it all the way down to the manager level. So those people who come in right after business school in particular get slugs of equity right away.

[Patrick O'Shaughnessy]

When did that happen? When did that pushing down deeper into the organization occur? Was that a TA era thing?

[Will Thorndike]

It was really a TA and BRETT era thing. We believed in it and certainly needed equity to hire the key senior managers. But once Brett came on board, around 2001, 2002 time frame, I think we were much more rigorous in our thinking about how to drive that down further in the organization and get people at the vp, director, manager level aligned toward these goals. Another interesting aspect of our compensation will was this idea of full potential. So consistent with divine discontent like reaching for those goals. We have a bonus plan that was a fair bonus plan that people would strive for, obviously, but we'd always have this souped up or supercharged bonus plan for hitting full potential because we didn't want to be that company that put out low targets and beat it. By the way, in any organization, that's sort of the natural state or people will tend toward that as you get more and more people because it's easier. Everybody wants to hit their goal, so you set a lower one. And if you beat it, nobody asks questions. And that's the road to mediocrity. Honestly, then you're just maintaining you're not really pushing yourself. So we'd always have this full potential bonus. That was something that was stretch in orientation. We would never really hit it all. But I can tell you it helped get us well beyond the reasonable plan we put in place and well toward the full potential of what we could be you saw it in the results. I mean the growth and the 2001-2007 timeframe was incredible.

[Patrick O'Shaughnessy]

And super roughly where did that kick in?

[Will Thorndike]

If budget was a hundred, then the full potential it was really unbounded. But think about 150. The bonus would accelerate after the 100. And as a rule of thumb, for every dollar above hitting that plan, management will get a third of all the dollars that we made in that year. So an outsized portion of that pool over budget came to the management team. So it was a incredible motivator to really achieve full potential.

[Patrick O'Shaughnessy]

How'd you guys think about providing liquidity to shareholders, to management owners?

[Will Thorndike]

It's an important consideration, particularly as a private company. And we never really had a desire to be a public company and still don't. That said, if you're a private company and you're inciting people with equity, you do need to find ways to get not only your employees equity, which is important, but your shareholders as well over time. And we'd endeavor to have some sort of liquidity event every couple of years. What we found particularly with our management team was that equity incentives really worked. But if they don't see liquidity within a three year period, then the value of that incentive actually tends to start declining. Because they're wondering is this really a value? Is this really here? And having some level of consistency and track record of liquidity events is actually important to maintain the value of that incentive. So we would have either a debt recap or debt and equity recap or sometimes dividends along the way. A lot of shareholders did well by Assurian. But I will tell you well, the thing that feels really good is you have that conversation with the director level person who may have made a few hundred thousand dollars on a recapitalization where they sold some of their equity and they're set up for retirement, they put the kids through college. To be able to have that kind of impact on your employees lives is really gratifying.

[Patrick O'Shaughnessy]

Can you touch Kevin on the Compassion Forward program that you guys started?

[Will Thorndike]

Compassion Forward Project is a philanthropic organization that we created internally at Assurian and it was giving by Assurian employees in support of Assurian employees. We want to, like most organizations, want to be part of the ethos to be giving back and helping the community. We happened upon it, it was one of our mid level managers who came up with this concept of Compassion Forward and we realized we have tens, well we have 23,000. But we have so many employees who are hourly employees and if they have a traumatic or problematic or big issue in their lives, then they might not have the money to pay for it. It could be additional healthcare costs for that person or somebody in their family. Could be a death in the family and just being able to bury them. I mean, there are events in people's lives where they just need financial help. So we created this fund and the company seeded it, and eventually employees can deduct from the paycheck and put into it. And then it's managed by a group of managers who get applications from people who have issues. And we gift and donate money to these individuals on a regular basis. It's really helpful. We've got thousands of employees in the Philippines, and whenever there's a hurricane there, a lot of people are displaced and put out of their homes and have to rebuild their lives. And we use the Compassion Forward fund for that as well. So it really helps build community and connection within the Asurion network. It's something we think is pretty innovative and helps tie that team feeling together. We try to promulgate this to companies. We've got an evangelist who will go out to other companies and describe Compassion Forward and how it works with the hopes that other companies do this as well. That's very cool.

[Patrick O'Shaughnessy]

All right, so shifting gears for a minute, going back to that TA01 period, one of the trends during that period was industry consolidation, right? So could you touch on that a little bit? And basically that's taking the customer concentration issue, which is central to the business, and if anything, extending it, emphasizing it. Could you just talk a little bit about that trend?

[Will Thorndike]

We benefited greatly from being attached to the wireless industry. Obviously, that where the number of customers with wireless handsets grew from 10 million when we started, I think in 95, to ultimately over 300 million. And when we started out, there were scores and scores of wireless companies that were set above us by msa. But like a lot of industries like that, it just consolidated really, really quickly. So I think certainly by 2000, the top three to five carriers would own 70 to 85% of the market. So it was clear back in the early 2000s we were going to be in a consolidating industry. That's just really the way it had to be for the economies of scale to work for them, which meant customer relationship management was going to be critical. It was always important, by the way, to be working with the acquiring company, because if company A acquired company B, then the vendors and partners of company A would tend to win out as well. And that worked largely in our favor in the early 2000s. But we knew then that it was a concentrated industry. And we really did two key things. One was focus on client relationship management, keep them close and keep them happy, and two, diversify. So we're always in this search to look for growth outside of the wireless industry or in different areas of the wireless industry in order to lower the risk that comes with concentration. As it turns out, working within a concentrated industry can be a good thing. It allows you to focus and if you've got a great product and you've done a good job of managing client relationship so that they view you, your company, your product as strategically important to them, which was one of again, back to Brett's superpowers. One of the things he was able to do for us. Then you embed yourself in that organization and are able to continue to grow along with it. We've been successful at doing that over a long period of time in a consolidated industry.

[Patrick O'Shaughnessy]

As it relates to Brett's time in managing that increasing, growing, already high customer concentration piece, how'd that affect the way he spent his time as CEO?

[Will Thorndike]

At least a third of his time, if not more, was spent in client relationship management. I can say the same for myself. It was important for us to get to know the most senior levels of our clients. If you're successful at doing that, then you have a seat at the table to pitch them new ideas to help continue to grow with them and evolve your product suite with them in a way that's more difficult to do when you're down at the mid levels. And we were effective at doing that over time. There's a great story of Brett wanting to meet the then CEO of our largest carrier partner. And he was very strategic about it. He found out through that CEO's assistant that he liked to work out at 5 o' clock in the morning whenever he was traveling for these conferences. So Brett, who really didn't work out as much before this, started working out at shockingly five in the morning. And he would meet the CEO. They'd be the only two people in the gym. He'd be there successive days in a row. They get to talking and know each other, and that's the start. It's very creative, it's thoughtful, it's the time you spent to figure that out was critically important, as important, if not more important. Will is okay. Now that you've got the audience, what do you say? What do you have to contribute? And Brett was always prepared. So he knew how to position our product to make it strategically important to the wireless carriers. And it was really all about providing an amazing customer service, driving loyalty and reducing churn for them as well as revenue generation. And given our place in the industry, we were able just to do that in spades for these carriers and become a real important strategic partner with them.

[Patrick O'Shaughnessy]

When you look back at that period, it seems like there was at least one period very early on where there was some risk, some scariness which related to that sort of early claims process system implementation.04ish. Can you talk a little bit about what that was like? Company's growing super fast, but within that you gotta kerfuffle.

[Will Thorndike]

We've had a few of those. I certainly remember the claim system failing. That almost brought us down. I think we were down for two weeks. And doing things manually in the early days, particularly in a concentrated industry, a few bad moves can derail the entire system. As a manager, you want to be taking risk out of the system wherever you can. The claim system problem, that was just self inflicted. That was we made the classic mistake of moving from an old system to a new system without the ability to fall back if things didn't go well. It was as basic as that. And the new system didn't work. Everything went to manual for about two weeks. It was all hands on deck. Every manager, every person in the organization.

[Patrick O'Shaughnessy]

How did you guys personally deal with that?

[Will Thorndike]

In the call center, helping people literally on the phones, taking claims. Everybody knew what to do. Certainly there was making sure that the IT system was getting worked on in the background. But now we were there, sleeves rolled up, we had to be there. And it was a tense time because we were getting calls from our clients at the same time, hey, what's going on? And we needed to be taking care of these customers who are used to very short hold times, very short cycle times in terms of getting their claims processed. And now they go from minutes into days and you get some angry customers. But we worked our way through it. We had built up a reservoir of goodwill with the clients such that we're able to manage our way through that. I can tell you we've not made that mistake. Again.

[Patrick O'Shaughnessy]

Can you talk a little bit about the approach over the years you guys have had to testing and learning new products.

[Will Thorndike]

As I look back over the course of time with Asurion, you can see this nice curve where things have gone up and to the right. We made some good strategic moves along the way. It's funny, people ask, did you envision all this? Did you have this strategy from the outset? And the answer is absolutely not. I call what we've done strategy by experimentation. We were in the flow. We attach ourselves to a great industry. And while we knew directionally where we wanted to go, for the most part we didn't know exactly what was going to win or not. So you're always placing bets, you're always placing not an infinite number, but a handful of bets. And you want to execute those bets well. And importantly, you double down on the ones that work and you kill the ones that don't. And we've had a number over the years that have not worked. Fortunately, we've had enough of the bets do work along the way. And I think of that not just in products, but in acquisitions. Then we bought the meramec Group. Well, that was making a small bet in a new product through the same channel distribution. It wasn't betting the firm. And then through the course of the early 2000s, we were betting in another way to diversify as other products sold through the wireless channel. We developed a product called PayAssure, which was to help carriers attract credit challenge customers, which they weren't bringing on at that time. It was really a little before the prepay era. We had another business called Asuria Managed Wireless where we would take over the management of all of the handsets for enterprise. And so there'd be lifecycle management as well as tracking of those devices. And we got them up and running, we stood them up and both of those turned out for different reasons not to work out. So we shut them down. But others along the way were successful. In addition to handset protection, we made little bets in integrating into the value chain, whether it was getting into the reverse logistics or repair business. And once we found that those worked, we were able to grow. We have a long history of just testing and learning.

[Patrick O'Shaughnessy]

That's an almost perfect segue. I think we're going to return to the M and a topic which we've touched on before and this is an 800 pound large bet. Let's shift and talk a little bit about Lockline and how that unfolded over time, maybe from earliest days when you guys came across the company.

[Will Thorndike]

Yeah. So Lockline was in our sights right from 1999 when we started looking at asset protection. There were three players. We ended up buying the Meramec Group, but we talked to Lachline, we saw it there and there was signal out there as well. Once we completed the acquisition of the Meramec Group in 99 and we never lost focus on one of these others and we reinitiated conversations with Lockline. More substantively, in 2002, they were owned by an insurance agency in Kansas City. We put in a bid. They took themselves out to auction. And we thought we had a generous offer in there. They were telling us that there were other bidders. We didn't believe them. We were wrong. And another Kansas City based company ended up buying them for maybe 10% more than we were offering. It was such a disappointment to have that slip through our fingers and we could have easily paid that and more. I think we were obstinate and overly confident in our position that we were the logical buyer of this and who else would buy this? Well, turns out we were wrong on that. So that went away. We reengaged them two years later.

[Patrick O'Shaughnessy]

The buyer who prevailed in that process, before strategic or financial buyer, somewhere in between.

[Will Thorndike]

It was a company called DST Systems. They're also based in Kansas City. They had a history of investing in companies outside of their core business. They weren't a private equity financial buyer. Typically. That is essentially what they were doing in this case, because there were no obvious synergies between what locline did and what DST did. And for that reason, we thought we could pull it out again at a much higher price than what they paid for. The conversation started. It was clear that I was not going to make headway with the CEO of dst.

[Patrick O'Shaughnessy]

How would you summarize why?

[Will Thorndike]

Different generation. The CEO was older. He's certainly well established in the Kansas City community and known somewhat nationally. And in some ways I was beneath his station. So we brought in the big guns. We brought in Irv on the board and our general counsel consigliere, amazing attorney Dick Flor from Goodman Proctor. He and Irvine and the DST System CEO were all of similar age and stature. And that helped us get in the door. I think it played to their ego, which was a factor. It got us to the table where we started the discussions and there were some long negotiations. But it came to a head in 2006 when we were able to bring it all together in a transaction where we bought Lockline largely for stock and DST ended up owning almost a third of the company.

[Patrick O'Shaughnessy]

Explain the location wrinkle.

[Will Thorndike]

One of the great things about Lachline is we were in the industry together. We probably knew as much about them as they knew about themselves. And there was such a great value to be created by putting the two companies together because we could take their business model, apply ours to it and create tremendous value because we had this vertically integrated approach and we could increase their EBITDA exfold almost on day one. We wanted this to happen because we knew value was going to get created. That said, it was a stock deal. We're marrying these people, and DST would have two board seats and a third of the company. And negotiations during that time, they're always challenging, but they were fraught a little bit by the fact that negotiating with one another, but you're also seeing how the other person is treating you along the way because you're going to be partners. And right at the last minute, at the 11th hour, we're about to sign a deal, and lo and behold, a wrinkle emerges. The seller wants to ensure that we maintain a presence in Kansas City, a physical presence, for a long period of time, because it was important to him that jobs stay in the community. And this was going to have an impact on the synergies because we had imagined contracting materially. So we went back into our own room and thought about it. It became clear the loss of that synergy wasn't going to be enough to derail the deal in any way. But how we were being treated along the way didn't feel good. So I reached out to Irv and got advice from him. He wisely said, look, now you know at least who you're dealing with. And this is somebody you're gonna have to deal with for the next years. Are you sure you want to go through with it? I didn't even hesitate. I can endure a lot of pain if the value is there. And we just knew the value was going to be there. That's why we're willing to stretch in terms of the size of this deal as a percent of our enterprise value. And we were marrying this organization. I knew there were going to be challenges with it, but I felt like, we'll figure that out in the future, but let's create value in the near term. And lo and behold, we went ahead and closed the deal. And fortunately, both things came true. We created a lot of value, and the marriage was fraught. It didn't work out very well.

[Patrick O'Shaughnessy]

Quick math on that is enterprise value is just over $400 million, $408 million. DST takes that all in stock a little over a third of the company. So big chunky bet, valuing their business at about 50% of enterprise value beforehand for the company. Right. So that's a big bet as a multiple of cash flow. That's around 10 times trailing EBITDA and about 7 and a half times the projected EBITDA for Next year. But that's before Synergies, which even after Kansas City are gigantic here. If you sort of factor those in, multiple paid is sort of six, six and a half times ebitda. And just to sort of frame all that, can you talk a little bit about the integration process, how that went?

[Will Thorndike]

That went shockingly smoothly. We had a couple months before close to line that up and this is a big deal. We hired some advisors and experts in Bain and they helped us with the merger integration process and how to manage that because we hadn't really done anything this big before. And probably the most important element of that integration being successful was getting aligned with their CEO, Chuck Lau. So Chuck came with the company, he had led the company and he was going to come in and partner with Brett and I as really a troika in terms of managing the business. And he was all in. And once his management team saw that he was in, we were aligned. Everything else fell into place. It made all the other decisions easier and we knew how we were going to integrate these two companies. It was going to happen day one. So the day the deal closed, we had the org chart set out. We brought in every manager one on one. Brett and Chuck and I spoke to each of the individually, you're in this lot, you're in this slot, you're in this lot. A few people didn't have slots and those were tougher conversations, but we made them. And so we got the org structure done day one and it took a couple weeks, but we got alignment on the approach we were going to take. Part of it was operational, which wasn't as important, but it was really a client management getting aligned on that. And basically the big win was taking their client base and converting it to our business model and doing that sequentially. And that served to generate increasing amounts of EBITDA over the next few years.

[Patrick O'Shaughnessy]

Just a super roughly. I mean, this is inexact, but if you looked at the value creation from that, again, enterprise value paid was $400 million roughly. EBITDA created from that probably two times that amount at minimum. So really glad that deal happened. That'd be fair to say, Kevin.

[Will Thorndike]

It was pretty seminal transaction for us. Now, we would have loved to have been able to purchase the company for 200 million a few years earlier and gotten these synergies sooner. But it was a huge win for certainly the shareholders company and I think for customers and the carriers because we became a stronger partner to the carriers and we're able to offer more services over time.

[Patrick O'Shaughnessy]

All right, so let's skip the capital allocation in TA period. Here you look at the data for the first four or five years after Jeff and TA make the investment. Leverage is pretty negligible, pretty low across that period of time. Is that fair to say?

[Will Thorndike]

It is fair to say, yeah.

[Patrick O'Shaughnessy]

And business is just generating so much cash it's able to fund its growth that you guys were just focused elsewhere. So the first thing that happens after a long period of time is there's a dividend recap transaction in kind of the middle of 06, almost exactly five years into TA's ownership. It's big $750 million dividend recap financed entirely with debt. It takes leverage overnight to just over 4 times EBITDA, 4.1 times. Do you remember all that?

[Will Thorndike]

It was our first large transaction since taa. And in the preceding three or four years, our focus was so much on just holding, on, scaling, managing this business that not a lot of time and attention had been put on optimizing the balance sheet. Because along the way, with the benefit of hindsight, we should have been doing some share repurchases that would have gotten people liquidity. And those transactions are highly accretive to remaining shareholders. I think two reasons. One, we're really focused on the core business and it was growing really fast. But two, nobody wanted to sell. It's not like there was a desire of shareholders in this timeframe to sell because everybody saw what was going on so they were excited to be part of it. And then even more so when we closed the Lockline transaction earlier that year in 2006. And then so, all right, we fast forward, we get through that. Still nobody wants to sell shares, but they recognize that. Look, we've got plenty of capacity on the balance sheet here to lever up, get some returns back to shareholders. And that's when we did a pretty big dividend. I think it was a little over a third of our enterprise value at the time and basically ended up dividending $750 million out to our shareholders.

[Patrick O'Shaughnessy]

On the share repurchase front, there's one other event was kind of Midway through October 04, you guys bought in about $25 million worth of stock, which was about 6% of shares outstanding. Right. So that first one in 99 that we talked about was about 10%, but this was another 6%. Returns on that piece have been also pretty extraordinary. A 70 times multiple of invested capital and a 56% IRR over 17 years. That was definitely worth doing. That's the thumbnail summary on capital allocation in the TA period. And the next event is 07, the equity recap. Can you talk a little bit about the timing for that, how you guys thought about that point in time?

[Will Thorndike]

There were two things happening. There were two reasons we ended up doing the transaction. The market was incredibly frothy. I mean, this is leading up to the financial crisis. Our timing couldn't have been better, honestly. But not that people want. I mean, TA was six years in to their transaction. So it was from their perspective. All right, we've been in. This has been a nice ride for us. Let us take our chips off the table. So there's some, like, interest level there. And then you combine that with the market being incredibly strong at the time, it was a topic of discussion. What really drove it, from my perspective, it gave us an opportunity to get DST liquidity, and that's a euphemism for get them off the cap table. Like the marriage didn't work. As I said, we created a lot of value with the merger of Assurian and Lachlan. But the board dynamics were challenging. I didn't get along with their two board members. There was constant friction there. Other board members didn't get along with them. And I just knew this is going to be better longer term if we got them liquidity and got them the chance to move them off the board. It was really those factors coming together where we decided, we're going to run a process here. And we ran a process. I remember going through it. This is how frothy times were. We were interviewing private equity firms, so we would go out and see if we'd even let them into the process. It was certainly a heady time. We were walking into conference rooms and the first thing that some of these partners would say to us, just name your price, I'll pay whatever. And certainly that felt great, felt validating. The process ended with us picking one party to negotiate with. One winner, if you will. Highest price. We wanted to negotiate some of the terms. Then once we finished negotiating the terms with that private equity firm, we told them, look, you've got lead and we're going to give you this much allocation, but I'm going to take the same deal and give it to the other two finalists and give them the option to join the party. And here's why. We don't want one private equity firm controlling our direction. It was important to us that we had a group of people around the table who were ultimately looking out for the best interest of the company long term and not necessarily one particular fund. So we ended up negotiating originally with Madison Dearborn, but we brought Welsh Carson and Providence Equity into the deal all the time. Interestingly, Irv was in the background saying, this is a really frothy market. I would encourage you to work as fast as you can get through this process. And his words couldn't have been more prescient because our debt deal that went along with the Equity was the second to last deal in early July 2007 that closed. And then I think one deal the next day closed debt deal, and then the window shut for quarters and quarters. I don't even know. It was certainly over a year while the window was shut. And we managed to get that transaction done. And that turned out to be a pretty seminal transaction for us for a number of reasons.

[Patrick O'Shaughnessy]

It's really impossible to overstate how rare that cap table is. If you sort of look at the final ownership post transaction, the original investors and management team continued on 40% of the company. Madison Dearborn owns 22%, Providence Equity owns 22%, Welch Carson owns 11%. So the private equity group collectively club, so to speak, is 55% controlled, but just barely. And DST continued on 6%. So those sorts of transactions, those club transactions are very common in venture capital. They're very uncommon in private equity. So definitely a mark of the times. A few other points around that, just bringing the information together. So the total enterprise value for that 07 transaction was $4.1 billion, 3.4 billion equity value. And TA exited their position entirely. So for TA, that gave them an even 12x return on their original $60 million investment, or just over 49% IRR. A lot of the original search fund investors ended up exiting in 07, not all of them, but a healthy chunk of them did. And if you look at their IRR math from the 1995 original transaction through 07, that's a 468x outcome and a 72% actually slightly better IRR. So reasonably good outcome. And if you look at the TA period and you just look at the operating math, it's kind of interesting where revenues go from just over $110 million when they join to just over $1.2 billion. So it's a 10x growth in revenue and the EBITDA goes from 30 to just over 300. So again, 10x growth in EBITDA, 10x growth in revenue. So that's pretty good six year period of time.

[Will Thorndike]

We certainly had a good run during that period.

[Patrick O'Shaughnessy]

That was a pretty good run. Thank you, Kevin, for your time and what an incredible story. Thanks so much for sharing.

[Irv Grossbeck]

Foreign.

[Patrick O'Shaughnessy]

As I mentioned before, There have been two constants at Assurian over the last 28 years, co founder, CEO, chairman Kevin Taweel, whom we met last time, and Irv Grossbeck, a lead board member and investor. Since the original acquisition, Irv had two distinct careers. First he was the co founder with his partner Amos Hostetter of Continental Cablevision, a pioneering cable television company where it was the president of Continental from 1964 to 1980 and remained a director, serving as chairman for a time after that. And so just to take a minute, on Continental, basically everyone in the cable television business in the 1960s, 70s and 80s did well. However, there are two records that stand out, one public and one private. The public one belonged to John Malone at a company called tci. The other one was Laster known and belonged to Irv and his partner Amos at Continental. The company had a reputation as the best run in the industry and it also had phenomenal returns. Company, as I mentioned, was founded in 1964 and its IRR over the ensuing 35 years was over 30% with total multiples of invested capital to shareholders who held their stock of over 5000x. So again, not too bad. By the way, when Irv and I first spoke about this podcast, I told him about 50x and he jokingly mentioned that the title was kind of wimpy. After all, he had been involved with two companies that are around a hundred times 50x. So again, that's pretty reasonable background for this podcast. Anyway, following Continental, Irv became a professor, first at the Harvard Business school and since 1986 at the Stanford Business School, where he has been one of the most acclaimed teachers for over 30 years. He is the co founder of the center for Entrepreneurial Studies, which now accounts for almost half of the courses in the second year curriculum at Stanford. On a personal note, Irv has been a key advisor to me for the last 30 plus years. I would describe him as my personal board of directors, which is a very elite group as Irv is the only member and it meets once a year at his house, typically in New Hampshire. And I can say that on several occasions that advice has been pivotal for me in my career decisions. It's also worth noting in an early echo of this podcast that Kevin Tuile and I audited Irv's classes at Stanford in 1992 due to low lottery numbers which prevented us from gaining normal entry. All right, so Irv, thanks very much for joining us and let's dive in.

[Irv Grossbeck]

Well, thank you for those kind words, some of which are deserved and almost all of which are accurate. And I just want to point out that the Continental returns don't hold a candle to the Assurian returns.

[Patrick O'Shaughnessy]

It's a pretty rarefied zip code. If you don't mind, Irv, let's start with a little bit of your background from the early days before you became a professor, maybe starting with how you and Amos found your way into cable television after your initial search.

[Irv Grossbeck]

So we were friends and fraternity brothers from Amherst College, and I graduated from HBS in 1960, and he graduated in 1961. He's two and a half years younger than I. We were conducting separate searches for a company to start or buy and just comparing notes with each other. He was working then for an individual investor in Boston, and I was a case writer at Harvard Business School. This is during the period 1962 to 1964. And the investor for whom he worked had made a modest investment in the cable television system in Keene, New Hampshire. It's through that connection that we first or I first heard about cable. But just prior to that, we decided to start working together as partners rather than just comparing notes as friends. It was the most ridiculous, actually, in retrospect search with no framework at all, despite our education and alleged intelligence. We looked at plastic inflatable toys, we looked at indoor tennis centers, we looked at residential fuel oil. It was just what could we find that might be interesting? Then when he heard about cable television, it turned out that there was a company called Spencer Kennedy Laboratories, which was about a mile from Harvard Business School, and they made electronics for the then nascent cable industry. It was hardly an industry. There were just pockets of activity where the terrain was mountainous in places like Pennsylvania and Oregon. And a fellow named Bob Brooks, who was a vice president of Spencer Kennedy Labs, kind of took us under his wing partly because he was a nice person and partly, I susp because he thought if our crazy idea of starting a company ever materialized, maybe he could sell us some electronics equipment, amplifiers specifically. So he helped us understand the industry. He told us a few states to look at, which included north and South Carolina and Ohio, where we eventually ended up, and some other states. And we took to doing an analysis of the propagation of television stations and population pockets. So we'd get a map and take a protractor and we'd apply a circle on that map as to what the A coverage and the B coverage of the television broadcast stations was, and we would look for places where there were opportunities and we eliminated north and South Carolina. So finally, Namus and I decided that I would go to Ohio and we would split the cost, which was important to me, since I had no money. And I would make a little foray out to Ohio. And there were some cities we had targeted out there to take a look at and really see what the lay of the land was.

[Patrick O'Shaughnessy]

While we're on that, Irv, do you mind just telling the story of Tifton and those first systems and how they arose from that, I went to some.

[Irv Grossbeck]

Promising cities that we had uncovered. One of them was Mansfield, Ohio. And in my infinite wisdom, or lack thereof, I decided, no, there's an awful lot of what we called free signal, meaning available broadcast signal off air. No, I don't think so. Well, of course, since then, someone else came in and built a wildly successful system in Mansfield, Ohio. So that's boat number one we missed. Then I drove to Lima, Ohio, where there was a cable system under construction. And then I went to Finley, Ohio. Lima, Findley, Tiffin, and Fostoria, where we ended up, were all in northwestern Ohio, south of Toledo, near the Indiana border. So Finley had a franchise process that had already been started. A franchise means just a local ordinance that gives you the right to cross the general easement over the right of way to hang your cables and electronics. They hadn't granted anybody one there yet, but there was one in process. So then I went up the road to Tiffin and Fostoria, Ohio, which were in the range of 12 miles apart, maybe 14, and together they aggregated a population of 40,000. So we started the franchise process in Tiffin and Fostoria by hiring local lawyers and making our case that we had half an idea what we would do, which was not true either, but we had an idea, but we were a little lacking in the execution department.

[Patrick O'Shaughnessy]

We'll, I think, come back to Continental at different points along the way here. But maybe. Let's talk a little bit about Kevin and Jim Ellis and how you came across them as case writers and how they came together as partners.

[Irv Grossbeck]

So I was interviewing in. I think it was the spring or maybe the winter of 1992, the year that you graduated as well. Well, I was interviewing people who had applied for case writer, and some of them had been in my class. But as you mentioned earlier, Kevin had not been in my class. But he showed up and said, I want this job. And my recollection, which could be retrofitting history, but he said, I want this job because I need this job, and I don't have another job, and I think I'd be good at it, and I think I might want to be an entrepreneur, something along that line. So fortuitously I hired him and he became a case writer from 1992 to 1993. Then Jim Ellis, as you mentioned, took that role. He graduated in 1993 and took that role from 1993 to 1994. And of course, I don't know when they first met each other or how they became acquainted, but by the time Jim had taken over and was partway through his one year term, he and Kevin were well acquainted.

[Patrick O'Shaughnessy]

And do you remember the story of how they found Road Rescue?

[Irv Grossbeck]

I do. I'm not the one to tell it, but I'll tell you, my recollections are that like Amos and me, they were coordinating their efforts, but separately looking for something to buy. And they had studied the towing industry. So Kevin wasn't as enthusiastic about towing business and towing related businesses as Jim was. Jim persevered and Kevin showed up one day and said, I found a business I think I might want to buy. It's a physician practice in Miami, Florida, and it serves the Hispanic community. And the doctor who's willing to sell it to me for a reasonable price is Hispanic himself. So everything's conducted in Spanish. Then sometime later, Kevin came back and said, well, wait, I don't know that I want to do that. He said, I talked to one of my prospective investors, Bill Egan, and his first question was, do you speak Spanish? What? I had to confess that I didn't speak Spanish. Bill said, you might have a pretty uphill fight figuring out how to buy and operate that company. And he said, that turned the tide with me and maybe there were other steps that intervened. But then he and Jim reunited, and Mr. Rescue, as I understand it, was an offshoot of learning about the towing industry. That opportunity came up in connection with their examination of towing at that time.

[Patrick O'Shaughnessy]

It was an offshoot that was growing very rapidly. Typical search deals, as I recall it, at those very early days, were generally targeting more stable businesses. Right, Businesses that could, quote, unquote, go once more around the track. Exactly, yeah. And roadescu, obviously was a completely different kettle of fish.

[Irv Grossbeck]

I remember my question to Kevin was, wait, most people belong to aaa. And then when you buy a new car, if you do, you get free roadside assistance. Why are they going to pay you for that? And he and Jim had a list of reasons why that was going to happen, which included better service, broader service offerings, so forth. In any event, I was not part of their Search fund, either of their search funds, which they then combined. I was not an investor. They just were talking to me from time to time about what was going on.

[Patrick O'Shaughnessy]

Can you talk a little bit, Irv, about how you came to invest?

[Irv Grossbeck]

My recollection is they pursued the acquisition of capital to buy Mr. Rescue. And they came back and said, We're $300,000 short. Would you want to put in $300,000? I said, really? That's not good for me. It doesn't really work. And they said, well, what would work and their capital structure, as you well know, was half debt and half equity. And I said, well, if that $300,000 would be divided 150 and 150. I said, I'd really like to get 500 of equity, but that doesn't sound like that works. So I'll help you find the other $300,000. They came back a while later and they said, we've decided there's room for you to put in the amount that you specified and will you join the board? And I said, sure, I'd be glad to. And that sounds fine to me. Even though I was extremely skeptical of the whole business. I thought these two people were AAA people and that's really what I was investing in. But I thought their idea was close to crazy, that they were going to provide services to wireless industry customers that nobody knew much about at that time, and they were going to provide the same service for a fee that was being offered for nothing. I thought, boy, these guys are going to have to wave a magic wand to do anything. But I'll put my ante into the middle of the table and see what happens.

[Patrick O'Shaughnessy]

As Kevin and Jim describe it, the minute that they knew you were on the board, all the other search investors were very comfortable carving their investment back to accommodate you at that level. And one of those investors was a guy named Paul Ferry, who's the founder of a very well known and respected venture capital partnership, Matrix Partners, who was, I believe, a longtime friend of yours. Or do you mind telling the story of his investment in that company in Road Rescue?

[Irv Grossbeck]

Yes, Paul and I were longtime friends. We were neighbors, lived about a mile apart in Weston. We had gotten to know each other. I was not an investor with him, but we were good friends and we talked a lot and I had a lot of high regard for him. And so this sounds a little self promotional, but my understanding of the story is that Kevin and Jim sent him a FedEx package full of their PPM and arranged a meeting with him and went to Boston to meet with him. I don't know if this is true or not, but they got there and there was the package unopened on his desk. They thought, oh no, this is terrible. This is just going to be a courtesy meeting. And Paul said, well, okay, give me your story. And they gave him the story. And then he said, who do you have for investors? They gave him the list of investors, which at that point included me. And then he said, well, is Grossbeck going to be on the board? And they said yes. And he said I'm in. That's what I heard. I don't know if that's apocryphal or true.

[Patrick O'Shaughnessy]

That is verbatim Kevin and Jim's version too. And Paul once told me that Assurian was maybe the best return, the best investment he'd ever made, partly because of the returns and partly because you had been involved and he'd never had to go to a board meeting, which of course he liked very much.

[Irv Grossbeck]

I mean anybody involved with Assurian has never touched their returns in any other thing they did. I'm fully confident. So we're all in the same fortunate boat.

[Patrick O'Shaughnessy]

Exactly. So chemengine by the company. And Irv, can you talk a little bit about that board coming together? So you were front and center in that obviously in the search doesn't use this term, but effectively the chairman, at least in Kevin and Jim's mind and I think other investors, but Bill Egan, Bob Oster, Joel Peterson and David Dodson were the other. So can you talk a little bit about that group and what made it an effective board?

[Irv Grossbeck]

Well, first of all, the size. I love smaller boards for small growing companies. Why populate it with eight or 10 people when you can have five or so plus the principals? And it just is so much easier to manage and schedule and have discussions and have impromptu conversations as needed and get things done. And then secondly, when you look at those four individuals, they were all experienced in some respect. David Dodson was the youngest, but he had bought a company and operated successfully. It produced good returns and he had learned a lot about on the ground operation of a company that was in the alarm business in Texas. So he had operating skills. Obviously Joel Peterson is a highly accomplished person, as is Bill Egan. Bob Oster had a lot of experience as well operating companies. I think he was just beginning his record of investing in smaller enterprises. But he had a very practical turn of mind and was a no nonsense person and said what he thought and often it made a lot of sense. But they were people who really cared about trying to help Kevin and Jim build a good company. They weren't all about themselves and their backgrounds. And oh, I've seen this before and there was no conversation like that. It was all people just trying to pitch in and help.

[Patrick O'Shaughnessy]

Pretty early on, the company had an opportunity to sell itself at what would then have been a big multiple of capital, sort of a double digit multiple of the equity invested to a company that no longer exists called cuc. What was the discussion like at the board level in sort of sorting through the decision whether or not to pursue that?

[Irv Grossbeck]

I have a general recollection that there were different points of view based on the backgrounds of the individuals. We all tend to speak from where we've been to some degree. I mean, I think part of the art of advice is trying to get outside that frame of reference and listen and think about things and be helpful to people, irrespective of where you've been. I don't mean to pontificate, but I do think that's helpful to people. But I didn't do that. I spoke from where I'd been. And Joel Peterson was an advocate for where he'd been. He's a world class person with a unbelievably successful track record in a transactional business, which was real estate. His position, as I remember it, was, wow, somebody's offering you, was it 75 or $100 million? You're really just kind of getting started and somebody thinks you've got something here. Sell, take your profits, you'll have investors for life. The world will be your oyster, you'll be investable as entrepreneurs, you'll have plenty of other opportunities. And my point of view was different, which was I wasn't saying you shouldn't sell. I was saying that the way I would make the decision is to think about what the Runway was for you and the business ahead and what the risks were of that path and make a conscious decision as to whether you want to stay on that Runway and path for the foreseeable future or not. And if you see the opportunity, there's tremendous advantage in accrual of value. And if you see your way clear, it's not going to be that easy to find another venture and you'll pay tax and have less to invest and so forth. So I guess I was subtly in favor of, but not strongly in favor. I was just in favor of analyzing the situation and not just taking a price. That would have been an amazing return, although over a very short period of.

[Patrick O'Shaughnessy]

Time, as Kevin And Jim describe it. That was a very healthy conversation. And ultimately, of course, that perspective prevailed. And shortly thereafter, there came an opportunity to buy Merrimack, which really had the potential to transform the business beyond just roadside assistance. But again, that was, as I understand it, something that was not unanimously supported at the board level. Do you remember that transaction and how that all unfolded?

[Irv Grossbeck]

My recollection is that they had already built insurance into their offering to customers. They simply contracted for that insurance with an existing company and they felt that the premiums being paid were higher than necessary for the risk that was being taken. So then they had a chance to acquire what would become a captive insurance company. And I remember some board members saying, that's a bad idea because you'll be valued like an insurance company if you own an insurance company. And that's a totally different valuation metric than you're hoping for. But I think the perception of Kevin and Jim, certainly that some of us supported, was that we're not turning ourselves into an insurance company. We need an insurer, and it would be better not to have to pay the stepped up value to an outside insurer if we have an opportunity to attractively acquire a small size company.

[Patrick O'Shaughnessy]

And the company, of course, did that. That was a launch pad moment. If you go back and look at the old board decks, which for this podcast I've done, you see in those early days before TA got involved sort of in the pure search period, you see this very consistent pattern of the company hitting revenue and sub count targets which are very aggressive, but generally falling short some years, actually quite a bit short of EBITDA targets. Ebitda, of course, growing very nicely, but not necessarily on budget. And talking to Kevin and Jim seems like that was a reflection of how they were allocating their time. Even with some of this operational messiness, Kevin and Jim were miles ahead of the original forecast they had used to raise the capital in their original base case. Kevin and Jim expected revenue to grow from $8.5 million when they bought the company in 1995 to $15 million in 2000, a compound annual growth rate of 12%. In reality, revenue grew from $8.5 million to $52 million, a compound growth rate of 43%. And EBITDA grew from $1.2 million to over $25 million, a compound growth rate of over 84%. At this point, Kevin and Jim want to take some chips off the table and end up selling 28.5% of the business to TA Associates. What do you remember from that transaction and how it evolved.

[Irv Grossbeck]

Jeff Chambers, I had known before that he was the lead person for ta. I don't believe there was any kind of major price negotiation. I think that there had been a price established and maybe agreed to, but some additional conditions were requested on the part of ta and I think over time, as they were resisted by management, TA came around and decided to invest on the same terms as the rest of the equity instead of having some preferential terms. Jeff joined the board, of course, and was invaluable over the next few years.

[Patrick O'Shaughnessy]

That's exactly right. And I believe the terms piece in which they sort of had. They had no preferred security, no special governance rights, it was highly unusual for TA at the time. Quite clearly IRV attributed to your involvement, I will say, by both Kevin and Jen, but a very good outcome for the existing shareholders for sure.

[Irv Grossbeck]

At Continental, we had had an original involvement with TA many years prior to that, but obviously not with Jeff Chambers. So maybe some of that was in the deep background, but I don't remember specific conversations in which I was involved at all. So I can't imagine that I was anything other than a validator for the company.

[Patrick O'Shaughnessy]

Maybe this is a good time to talk a little bit about the building of the team at Assurian right around the time of the TA transaction. Do you mind talking a little bit about that?

[Irv Grossbeck]

It had become clear that with Jim Ellis's departure a couple years earlier in the late 90s, I think it became clear that the rate that they're growing at, they were really thin at the top level. Despite Kevin's enormous talents and his energy level and his good judgment, they needed more help at the top. And part of that was operational, but part of that was also recruiting. So it seemed to me there were two significant shortfalls, both arising from a lack of top management breadth.

[Patrick O'Shaughnessy]

You know, it's sort of a unique thing as you look back on it, you know, for Kevin, being able to transition between partnerships at the highest level relatively seamlessly and effectively. So obviously starting with Jim, the original partner co founder, and then evolving pretty quickly to a similar relationship with Brett. Is that a fair assessment?

[Irv Grossbeck]

Yeah, and it's continued on in current years as well. Kevin's amazingly skillful along many dimensions, but certainly one of them is he's the best kind of conflict avoider. He knows where he wants the company to go, but it's. This is my view from outside, is that he's very graceful in his assertions and very respectful of other people he's working with. And there's no top down Sense, Although it's clear that Kevin's in charge and has the tiller firmly in his hand and is directing the direction of the company. It's all done in a very elegant fashion and that's really stood him in wonderful stead. And it's a quality that a lot of people don't have.

[Patrick O'Shaughnessy]

Irv, as you sort of look at Assurian and you compare it to other companies you've been involved with from a culture, management, talent, attraction, talent building perspective, how would you compare Assurian to but other companies more generally, what dimensions does it stand out on in your mind?

[Irv Grossbeck]

Well, they say one of the hardest jobs of great managers is to terminate ahead of the curve. It's hard enough to hire ahead of the curve, but it's really hard to terminate ahead of the curve. In terms of the managers they hired, they were unafraid to say they had made a mistake. That's a very subtle point and it's not talked about in management literature to any degree that I've seen. Not that I'm a comprehensive reader of management literature, because I'm not. People just don't talk about it. And the reason is obvious, which is it's unpleasant. Who wants to talk about letting somebody else go? But it's so essential. The biggest thing that stands out at me is the absence of dead wood at Assurian versus other companies where managers are inclined to be kinder to people in the sense and reposition them elsewhere. And I mean, that's how fat builds up in companies. And walking the line between being careful about this and being ruthless is not that easy. But they found a way to not be ruthless but to really make performance oriented decisions, coach where they could but then not spend time working on what they consider to be lost causes. And that's probably the single biggest difference I see in their management style.

[Patrick O'Shaughnessy]

Do you mind talking a little bit about Brett as a member of the team and CEO and his sort of role in building the company?

[Irv Grossbeck]

Yeah, I don't have a real inside look as to how he and Kevin divided things up and how they work together. I know that the chemistry and mutual respect between them is very deep. It remains to the present day, despite changing roles. They're both really smart, they work hard, they're honest, they have low egos and they have different skills to some degree. I think Kevin is a little bit broader brush and Brad is perhaps just a little bit more detail oriented, which doesn't suggest at all that he doesn't have an enormous intellect because Brett does have an enormous intellect. It has nothing to do with intellectual capability. It has to do with orientation and how you think about things and how much of your time you spend on broad gauge issues, strategic issues, financing issues, as opposed to how do you make the trains run on time. And Brett had a special talent for attracting people who could get the trains to run on time.

[Patrick O'Shaughnessy]

I might skip for a minute to capital allocation. I was going to talk about the company's share repurchases and I think your fingerprints may be on this. But one of the interesting things about the early days of the company is that it's made two share repurchases early on. The first in 1999, so before TA got involved when it bought in 10% of total shares outstanding, leveraged financed buyback. And then secondly, once TA was on board, they did a second buyback in 2004 of a little over 6%. The returns from those two buybacks, by the way, are just extraordinary. I mean, that first one is 41% over 20 plus years. The second one is over 50% over almost 20 years. But can you talk a little bit about repurchasing shares in private companies, which is something that you guys did at Continental over the years and it's pretty unusual, but something that has been part of Assurian's playbook from early on.

[Irv Grossbeck]

Yeah, we did it at Continental because both Amos and I thought it was a good place to invest. We had some free capital that was generated from time to time. And we thought, well, we want to for sure invested in the land grab, to use your phrase earlier in a different context, because the cable business was indeed a land grab for a long period of time. But we also want to invest it in our own company. And it served two purposes. One to allow us to put capital to work and the other to offer liquidity to people who wanted it. And it was of course, optional. People could take us up on the opportunity or not, and we tried to price it as fairly as we possibly could at Continental. Well, that point of view I'm sure bled over into my conversations with Kevin because I think it's attractive. And by the way, back at Continental for one second, one of our major institutional investors was unalterably opposed to having us repurchase shares. And we had a terrible time convincing that person that it was a good use of capital. No, you should be expanding, look at all the opportunity and so forth. So one of those investors wasn't thrilled with what we did. But Even then, being 2001 and thereafter seemed to be a very attractive use of any free capital you could scrape up. Because who wouldn't want to invest in Assurian at that time? At least that was my point of view. With all of the opportunity that lay ahead for them and the quality of their management and it just seemed like they were in a real sweet spot.

[Patrick O'Shaughnessy]

Would you mind, Irv, talking a little bit about the locline deal and how that came about and that one you were very specifically involved in as Kevin tells the story with Dick Fluor. Would you mind talking a little bit about that?

[Irv Grossbeck]

Kevin and Brett were talking about Lifeline and then nothing happened. And then it would come up a year or so later and nothing happened. And it seemed to me it was a few years that they had wanted to acquire locline and had been unable to. And then what I remember is that they came to a board meeting and whenever it was and they said, we just can't connect with this guy. He's impossible. We haven't been able to do any good at all. So I think I remember going to Kevin after the board meeting and saying, do you want me to take a crack at this guy whom I didn't know he lived in Kansas City, was running a small to medium sized public company of which Lachline was a part. Kevin said, well, sure, go ahead. And I said, well, if I'm going to do that, I'm going to drag my friend Dick Floor, who's just an unbelievable individual. I want to go out there with him because one of my great talents is getting out of the way of smart people. And I knew that if I were out there with Dick Fluor that I wouldn't have to talk too much.

[Patrick O'Shaughnessy]

Would you mind doing just a quick summary on Dick Fluor?

[Irv Grossbeck]

Dick Fluor and Bill Egan are both alums of the same college. Dick Fluor went to Harvard Law School. He was was a partner of Sullivan and Worcester in Boston. And he had one of the best minds of anybody I've ever come across. He was absolutely brilliant, yet he was the most pleasant, self effacing, practical, easygoing person in the world. So Dick and I went out to Kansas City and we made an appointment with the fellow who was head of the parent company of Lachlan. And Dick proceeded to charm this person, absolutely charm him. It turns out the person who was the CEO was a Horton graduate. Dick knew a bunch of people from Wharton. Dick found ways to establish connections with him and he started out grumpy and ended up smiling. And I think that might have been the first time he'd smiled in quite some Time. And that began a process which resulted a few months later in this person agreeing to a deal in principle, not fully signed but to a term sheet as I recall, which was attractive for Assuran. And I had sort of picked up the ball from that first meeting and started working with the guy along with Dick. And we were trying to work on general terms and I would check with Kevin and then I would talk to this guy. I remember in my infinite wisdom saying to Kevin before they closed, are you sure you want to be in business with this guy? He was a dangerous cocktail of smart and nasty. To my eye, not overtly nasty, but just sharp. Smart as a whip though, and just not the kind of director they had. And he and his CFO were going to join Assurian as board members. And he said, Kevin, you should obviously do what you want to do. I'm just wondering. These people are really tough apples. Kevin said, I know, we'll just have to live with them. And of course that was a great decision. I'm not sure what decision I would have made, but I did have reservations having dealt with the guy over a period of a few months as I remember.

[Patrick O'Shaughnessy]

It's funny as you mentioned that Irv Kevin tells a story about how late in the negotiations there that CEO came back and said we need our team to be able to stay in Kansas City. I mean at the very 11th hour, which of course directly affected some of the economies and so forth that we were going to get by combining the act. Do you remember that piece of it?

[Irv Grossbeck]

I remember last minute demands. I didn't remember what they were. I do remember one funny story about them which is the first board meeting that they came to at Assurian. I try to be early to meetings but it seems to me this meeting I was maybe barely on time or a minute or two late or something. And here were all the legacy Assurian board members sitting on one side and both ends of a table, big oval table. And here were these two guys over on the side by themselves kind of getting settled in their chairs. And I walked in and I thought, oh, this is really awkward. So I asked them if I could sit between them. I did and I just felt that there was a chill to begin with in the very first board meeting which we really didn't want. And I don't mean that in a self laudatory way, but I have a distinct recollection that I sat between them at the first board meeting.

[Patrick O'Shaughnessy]

Broke the ice a little bit.

[Will Thorndike]

Yeah, interesting.

[Patrick O'Shaughnessy]

That transaction was large. The total consideration was about 50% of the company's enterprise value beforehand. Fortunately, it was wildly accretive being able to combine those two operations and really grow that business. A $408 million valuation paid is less than half the EBITDA that Asurion now enjoys from that book of business. So definitely worth doing and not too much after that. There was the 2007 transaction, which I think TA was driving. They wanted some liquidity. They'd been in it six years or so, mid-2007, and it's the dawn of the private equity group sort of getting involved. The timing was extraordinarily good. That was a bull time in the market. Kevin credits you for being absolutely right about that timing and optimizing around it. Do you remember that transaction and how it unfolded? Maybe specifically the piece that allowed the company to end up without a dominant single private equity owner, which of course is unusual in a transaction like that.

[Irv Grossbeck]

I don't, and I appreciate Kevin's compliment, but I have no recollection of being market prescient.

[Patrick O'Shaughnessy]

He's very clear on that. By the way.

[Irv Grossbeck]

How can anybody be market prescient? Well, what I remember about that is maybe not all. How many was it four or five who came in?

[Patrick O'Shaughnessy]

Three major ones and maybe a fourth.

[Irv Grossbeck]

I remember them separately wanting to talk with me and Kevin saying, will you meet with xyz? Well, sure, of course, I'd be glad to. And they said, well, what's going on in this company anyway? It's been private for a long time. When's it going to be public? How are we going to get out? The valuations are pretty rich. We're buying from an informed seller. I said, I don't know. I think they have Runway ahead. They've got great management. They said, are you selling? And I said, no, I'm not selling. And that was at the center of it. If I wasn't going to be there, it wasn't because of me. It was because of the signal that unloading a bunch of my stock would have sent.

[Patrick O'Shaughnessy]

Or maybe this is a good time to revisit the board topic. Right. Because obviously after that transaction, board changes pretty significantly. The private equity owners are front and center in that. Can you talk a little bit about board effectiveness since that time and maybe how you'd compare the very different board groups?

[Irv Grossbeck]

Well, you referred a couple of minutes ago to the fact that there was no one dominant investor. However, my impression is that they do act as a group on occasion and they're loosely referred to at Assurian as the sponsors and the players in the sponsor group do change over time, but I wouldn't say it's just people with a series of minority investments. There is a coordination among them. They do confer fairly regularly. I would say it kind of straddles the line between having sold control and not having sold control. I think there are times when to my eye, they seem to exercise their collective power and other times when they didn't. They're all high quality entities over the years and have all done well. You know, I remember having a conversation with Kevin at the time just prior to the closing and said, wow, you know, you're selling 55% to this group of people and there have to be some changes and their agendas and yours won't always match. He said, yeah, I know, I understand. I think this is the right thing to do. Now back to your original question. How have the board dynamics changed? My perception since that time in the last 16 years or so is that there's kind of a leader of that group of people, that loose confederation of people. It happens to be CPP now because they're the largest shareholder, but there's a presence there from people who all came in at the same time and all were acquainted with each other and bought the same security at the same price. So it used to be people sitting around the table with no control, just the control that management had by dint of its execution and all of the value it had created since then. I think there's a little bit more evidence of the respective agendas of the sponsors that is present in board conversations.

[Patrick O'Shaughnessy]

And if you looked just at value creation help to management on the part of the boards and you were going to compare those two groups, sort of the initial group, which I would say would include Jeff chambers and the post 07 group, again with the lens of who can be most helpful to management in building the company. How would you compare those two?

[Irv Grossbeck]

So I'll try to do that. But I would say at the outset that in a way it's an unfair comparison because management needed more help before 2007 than they did after. The main way in which the sponsors have been helpful is the contacts that they have as a group and the collective experience they bring as a result of having invested in so many companies. The contacts are unalloyed benefits. No question that they know somebody somewhere, almost whenever you need or wherever you need them. The part about the advisory, I do see differing agendas at play from time to time. There's an inherent conflict of interest between serving one's own shareholders and serving the shareholders of the company on whose board you sit. And I do see those conflicting agendas at play fairly often. And I see sometimes that decisions are made in favor of one's own agenda. An example of that is I heard a comment actually during a board meeting some years ago from one of those sponsors or institutional investors to the effect of, gosh, we really don't want you to branch over into that area. We have enough investment in that area. We think of you as an XYZ company and we want you to stay there and keep doing what you're doing. You're doing a great job. I found that difficult. I think that just is the cost of doing business with them. There's nothing improper about it. There's nothing hidden or nefarious in any way. They're quality people and smart and they're all successful. But sometimes the best interests of Assurian are not always served in those conversations.

[Patrick O'Shaughnessy]

Very interesting. Okay, I'm going to shift topics if that's okay. Would you mind talking a little bit about how you thought about managing your own investment in the company over time across the series of transactions?

[Irv Grossbeck]

It's the same advice I gave them when they were thinking of selling for $75 million or whatever the number was in the beginning. If you see a Runway ahead and you feel okay about the risks, why not stay and play? And it was a concentration for me, but it was a tolerable concentration. And since I'm opportunistic by nature, I thought there was a lot more bread to bake and I was disinclined to be a seller despite the various opportunities. I admire Kevin tremendously and the job he's done has been off the charts, as you have said. And I was thrilled to be an investor and along for the ride and grateful that I was lucky enough to be there, actually, despite my own fecklessness in the beginning, I got lucky and they decided to allow me in under the tent and lucky me. So shut up and be a good person and try to contribute. And by the way, who wants to sell? What am I going to do with the capital? Pay a big tax on it and then figure out what to do with it next. And it probably won't be as good as Asurian.

[Patrick O'Shaughnessy]

Two more questions, Irv. They're both a little bit wider ranging at a high level. Are there any lessons you'd pull out of Kevin's experience running Asurion? The Asurian team more Generally, for future CEOs, aspiring CEOs, nothing compares to winning.

[Irv Grossbeck]

From the high road. And that's what they've done. They've stuck with very high ethical standards. They hire smart people, they make changes where necessary. They treat their people generously, they treat their customers with respect. And everybody that I've ever seen Kevin interact with, he's treated with respect. Another is you can't overpay for good management. There's no such thing. You also can't overpay for a great acquisition, which they worry a little bit about with Locline, but it had such a growth trajectory and was so accretive that who even remembers the price unless you're looking back at the records? And I think that's true as well. You can't overpay for good management. You can't overpay for a great company. I think a mistake that a lot of us make is, oh boy, that price, price for that, whatever it is, that's just too much. I can't bring myself to spend that much money. Of course, the way to look at it is not today, but it's tomorrow. And tomorrow do I really know whether I spent 15% more or not to buy something great? So that's certainly one of the takeaways.

[Patrick O'Shaughnessy]

Okay, my last question. I'm going to return to a topic we hit earlier.

[Will Thorndike]

So.

[Patrick O'Shaughnessy]

Or if you've been involved in two companies that were participating in exceptionally fast moving streams in Continental and Asurian and how would you at a high level compare those two companies?

[Irv Grossbeck]

Well, the similarities are both companies had borrowers personalities and weren't afraid to use aggressive leverage techniques against a predictable background. By leveraging up, you're not taking nearly so much risk as you are with a more volatile underlying P and L. That's certainly one. Another similarity is trying to attract and retain top talent. It took us a while to wake up to that. We hired bottom talent for a while and paid dearly for it because the mistakes we made in getting that company started are too numerous to mention. I mean, the first key engineering person we hired was not satisfactory. We turned on our first systems and we had to turn them off for three weeks. Customers were supposedly paying and we said, whoops, we have some more work to do on our system. And we thought it was going to be a few days. It was three weeks. And that was all because the person we hired was a very bad choice. We were both in our late 20s or I was 30 by then and it was just bad judgment. Should have known better, but didn't. And one of the things that both companies did do in its later years is try to attract and retain top talent and be willing to pay them in terms of both equity and current comp in ways that made it hard for them to leave. Ways in which the companies are different is that Assurian is far larger. 21,000 employees. Now, we had, I don't know, very few thousand employees when the company was sold after 30 years, 32 years. It was sold in 1996. So in a sense we were much more capital intensive. That also is something to watch out for. If you're an MBA student, you're told. But there are times it's a good thing because it's served to the structure of the industry. Being capital intensive made it a unregulated monopoly, in effect. And if you could raise the capital, which we were able to do, you enjoyed some of the benefits of no competition, I guess. Other things were. We guarded our ability to make decisions very carefully. That's why I was concerned about the 55% ownership. I don't think that's affected Assurian in a major way, but at the fringes, it has had an impact. And Amos and I together for the first 16 years and then Amos alone for the last 16 years running that company, we're able to run it the way we wanted to run it. Making the judgments that we wanted to make within reason. I mean, we didn't have people with other agendas. We had people questioning the decision making and the strategy which they should as board members, but not with other agendas. The iron filings were all closely aligned. That's not currently true with Assurian, but I mean, Assurian has so far exceeded Continental's performance that they must be doing an awful lot of things right.

[Patrick O'Shaughnessy]

All right. Well, Irv, thank you so much for taking the time to do this. It's wonderful to see you and very fun conversation. Thanks very much.

[Irv Grossbeck]

Well, thank you very much for including me. I'm very flattered and I'm thrilled that you're doing this. I know a lot of people will benefit.