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Invest Like the Best with Patrick O'Shaughnessy
Asurion: The Early Days (‘95-‘01) with Kevin Taweel - [50X, S2 EP.1]
01:09:21
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- [00:00]
Unknown Host
Today we are 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 find. You will 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 Assurian 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. Make sure to subscribe in your preferred podcast player.
- [00:43]
Will Thorndike
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 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. 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 face 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 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 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.
- [03:54]
Kevin Taweil
Portfolio companies, reach out to helloystemsix.com mention.
- [04:00]
Will Thorndike
This podcast and receive a free first month of bookkeeping.
- [04:07]
Irv Grossbeck
All opinions expressed by hosts and podcast guests are solely their own opinions. Hosts and podcast guests may maintain positions 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.
- [04:23]
Kevin Taweil
So today we're going to do a deep dive on a company you may.
- [04:25]
Will Thorndike
Never have heard of.
- [04:26]
Kevin Taweil
It's called Asurion, and we're delighted to be here this morning with its co founder, currently Chairman Kevin Taweil. Asurion 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.
- [05:01]
Will Thorndike
Of road rescue in 1995 has grown.
- [05:04]
Kevin Taweil
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 in Atturian 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.
- [05:51]
Irv Grossbeck
Thank you, Will. I'm excited to be here.
- [05:53]
Kevin Taweil
Excellent. Let's dive in. So if you don't mind, let's maybe start with a little bit of your background.
- [05:58]
Irv Grossbeck
Pre assurant so I grew up in Prince Edward Island, Canada, small province on 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 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. He'd have dinner with us and go back to work till 10 o' clock at night. And we work 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. Competitive.
- [06:58]
Kevin Taweil
What position in hockey?
- [06:59]
Irv Grossbeck
I was defenseman, all five foot eight of me. I was not a large defenseman, but.
- [07:04]
Kevin Taweil
It was the Bobby Orr era.
- [07:06]
Irv Grossbeck
It was, it had to be fast. Good vision. And yeah, Bobby Orr was a 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 a small pond and I was this big fish in a small. And then I 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.
- [08:24]
Kevin Taweil
What position in soccer, by the way?
- [08:26]
Irv Grossbeck
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 for transformational for me, not just from a 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. 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 signed 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.
- [10:00]
Kevin Taweil
Not that you remember it or anything.
- [10:02]
Irv Grossbeck
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.
- [10:21]
Kevin Taweil
Rectify. Yeah, yeah.
- [10:23]
Irv Grossbeck
And then you'll probably forget a little about the Watsons. Okay, so post McGill, 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 sport. To work these young men and women as hard as they could.
- [10:42]
Kevin Taweil
This is like the Michael Lewis era at Salman Brothers, right?
- [10:45]
Irv Grossbeck
Liars Poker was published when I was an analyst 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 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 particularly challenging at Salomon Brothers in the late 80s. Not only did they have a culture where they would chew 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.
- [12:49]
Kevin Taweil
And so then you go to Stanford, to the gsb.
- [12:52]
Irv Grossbeck
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.
- [13:28]
Kevin Taweil
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.
- [13:43]
Irv Grossbeck
Yeah, there weren't a lot at that point. It was certainly Jim Southern, David Dodson, a 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.
- [13:59]
Kevin Taweil
When you went to be a case writer, did you know then you wanted to search?
- [14:02]
Irv Grossbeck
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 the store 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, 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, as they all ultimately got funded five or six years later. I took the job as a case for Rider 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.
- [15:40]
Kevin Taweil
Spoiler alert. Our story arc is about to intersect with Irv Grossbeck.
- [15:44]
Irv Grossbeck
The job was to be case writer for three professors. Irv Grossbeck, 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 in 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.
- [16:56]
Kevin Taweil
Fascinating. So what point did you make the decision to go down that path? How did those two things merge together?
- [17:03]
Irv Grossbeck
Yeah, about halfway through my year as a cage 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.
- [18:14]
Kevin Taweil
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.
- [18:20]
Irv Grossbeck
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.
- [18:38]
Kevin Taweil
He was your successor.
- [18:39]
Irv Grossbeck
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 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'd share some equity in each one. At least that was the idea.
- [19:46]
Kevin Taweil
Had he raised his fund at that point?
- [19:49]
Irv Grossbeck
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. 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 the. My investor is 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. He if he's leaving, I don't want to be stepping into his shoes. There's 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.
- [21:35]
Kevin Taweil
And when you say fundraising, do you mean for the transaction?
- [21:38]
Irv Grossbeck
For the road rescue transaction. We were looking for, I think, purchase prices around 8, $8.5 million. 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.
- [21:58]
Kevin Taweil
Talk about what that was like. It was a little different than search fund deals prior to that point.
- [22:05]
Irv Grossbeck
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, we 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.
- [23:09]
Kevin Taweil
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 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.
- [24:15]
Irv Grossbeck
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. I would have been a few million to him, several more million million to his father. But in their world, that was a grand slam home run. And we caught them at absolutely the right time.
- [25:15]
Kevin Taweil
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.
- [25:51]
Irv Grossbeck
We may have been a little aggressive.
- [25:53]
Kevin Taweil
Okay, so 17% revenue growth was the core assumption there. So you bought the company?
- [25:58]
Irv Grossbeck
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, 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 is the 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.
- [27:36]
Kevin Taweil
Very cool. 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.
- [28:04]
Irv Grossbeck
Move to Houston, Texas overnight you go.
- [28:08]
Kevin Taweil
From Stanford MBAs to CEOs. Talk a little bit about the first hundred days in the new role.
- [28:15]
Irv Grossbeck
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. 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, an 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 to. We'd have to sign them.
- [29:48]
Kevin Taweil
You guys signed all the checks? Thousands of checks. How long did you guys do that for?
- [29:53]
Irv Grossbeck
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. Look, set up objectives, and we'll have a 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. The 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.
- [31:04]
Kevin Taweil
What do you remember about the first.
- [31:06]
Irv Grossbeck
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 the 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 us 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 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, 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 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.
- [33:21]
Kevin Taweil
Put us in that room. Like, what was it like being in that first office in Houston?
- [33:27]
Irv Grossbeck
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 rock, paper, scissor 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've 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. That's challenging, right? I mean, we were 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 while 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 ARCOL 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 warehouse cares 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, 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 can sell into wireless.
- [39:16]
Kevin Taweil
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%.
- [39:36]
Irv Grossbeck
I think it might have been even lower than that will. I think by 2000 it was 30%. So we get the ride even a little bit earlier than that.
- [39:44]
Kevin Taweil
When did you and Jim decide to move back to Bay Area?
- [39:48]
Irv Grossbeck
I think we moved back a year from the day of starting. So we started in July 95. When 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, 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.
- [40:51]
Kevin Taweil
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. Right. So there's like a consistent pattern of you guys growing above budget. So subscriber and revenue count, which is what, as you said, that was what you were focused on. That was the driver of revenue that was exceeding plan and 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 on 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.
- [41:56]
Irv Grossbeck
Can I address your comment about us being a hot mess at that period of time?
- [42:00]
Kevin Taweil
First mess is a little strong.
- [42:02]
Irv Grossbeck
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 get an offer from cfc 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 of 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 pay 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 board knew. 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've 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 Jim and I. 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 some 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? Do 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 defined 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 doubled down after that.
- [45:24]
Kevin Taweil
It's worth mentioning that Irv built his career as the co CEO of one of the two best run cable companies, a 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.
- [45:46]
Irv Grossbeck
I think both of them came at it from their experiences that they had.
- [45:51]
Kevin Taweil
Okay, well, so let's maybe talk about handset insurance.
- [45:54]
Irv Grossbeck
My favorite topic.
- [45:55]
Kevin Taweil
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 Merrimack piece.
- [46:05]
Irv Grossbeck
So once we decided we were 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. Build 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 are 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.
- [48:49]
Kevin Taweil
Talk a little bit, if you don't mind, about that deal. How'd that come together?
- [48:53]
Irv Grossbeck
It's based in Nashville. Two partners who are former insurance agents with one of the big firms, I think Marshall McLennan started it, and they were in the insurance industry and saw others doing it this niche. And 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 of 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 would give them plenty of money for retirement.
- [49:49]
Kevin Taweil
You approached them, right? So given that this is proprietary, direct approach.
- [49:54]
Irv Grossbeck
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, said, look, 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 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 get to spend a few months in the organization. You're like, oh, hold on, there's a lot more here than we thought.
- [51:11]
Kevin Taweil
How many minutes did you give them?
- [51:13]
Irv Grossbeck
20 minutes.
- [51:14]
Kevin Taweil
20 minutes.
- [51:15]
Irv Grossbeck
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.
- [51:26]
Kevin Taweil
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 it ended up sort of at that time, about 18% of enterprise value.
- [51:54]
Irv Grossbeck
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.
- [52:21]
Kevin Taweil
We're going to get to that, by the way. But yes, go ahead.
- [52:23]
Irv Grossbeck
I remember one of our board members thought this was the stupidest idea in the world. 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.
- [52:54]
Kevin Taweil
You financed it all with debt and cash off the balance sheet. No equity required, correct?
- [53:01]
Irv Grossbeck
Yeah, nothing required.
- [53:02]
Kevin Taweil
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.
- [53:27]
Irv Grossbeck
Yeah. With cash flow or debt. Yeah. We didn't have a ton of net working capital that was required to grow the business. Not a lot of PP and A. We inherited that structure. Was certainly wind in our sails, if you will.
- [53:40]
Kevin Taweil
Acquisition closes. Talk 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.
- [53:48]
Irv Grossbeck
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, 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.
- [57:10]
Kevin Taweil
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?
- [57:18]
Irv Grossbeck
That took about three, four years. Step one took about a year. Getting into the distribution business started about a year after we were 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 years, 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 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.
- [58:07]
Kevin Taweil
And again, the sort of linchpin for all this is the Meramec acquisition. $7.3 million first price.
- [58:15]
Irv Grossbeck
Road Rescue got us in the game. And the Meramec 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 2007 eight time frame, the roadside assistance went away. But it's all been about cell phone insurance since 2001.
- [58:47]
Kevin Taweil
The headline for Assurion 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 and 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 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.
- [59:27]
Irv Grossbeck
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.
- [59:38]
Kevin Taweil
It was a big part of the continental playbook.
- [59:39]
Irv Grossbeck
Over time, 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, you sell or you're a holder versus a dividend, which is you're force feeding somebody money that they may or may not want? Sure. Intuitively it's like, 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 at imminent.
- [60:25]
Kevin Taweil
Yeah, that's extremely well laid out. Basically this is the first step down the path for the company. Right. 98, 99. It's 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?
- [61:09]
Irv Grossbeck
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 meramec deal, of course, using leverage, the lowest cost of capital out there, we were going to use that at every term, 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 to 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.
- [63:09]
Kevin Taweil
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 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. 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?
- [64:14]
Irv Grossbeck
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. It's 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. I was like, 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 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 to types, 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 were 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 Jim and I. And on the other side, Jim and I were dealing with Jeff Chambers and Richard Tadler, who are wonderful, but they weren't really in the control suite either. It was Kevin landry and Anders McClain 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.
- [66:46]
Kevin Taweil
And no meant no.
- [66:47]
Irv Grossbeck
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 Irvinville and just said no to all of them. The insight for them, which, again, Jim and I in the classroom being the 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 as all common, and I think happily so in the.
- [67:47]
Kevin Taweil
End, and honestly, I 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.
- [67:58]
Irv Grossbeck
It was absolutely common to both be preferred and to have a coupon, and I 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. 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.
- [68:37]
Kevin Taweil
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.
- [69:12]
Irv Grossbeck
Perfect.