Rick Ruback

So it's a huge premium you get from being in this market. We think those numbers are slowly trending down a bit, but they're still way above the closest asset class, which is private equity. In self-funded search, where you have these students raising money to buy $1 million-ish EBITDA companies, $1.5 million, and buy them at four times, and finance them at 80%, the math is just extraordinary.

So it's a huge premium you get from being in this market. We think those numbers are slowly trending down a bit, but they're still way above the closest asset class, which is private equity. In self-funded search, where you have these students raising money to buy $1 million-ish EBITDA companies, $1.5 million, and buy them at four times, and finance them at 80%, the math is just extraordinary.

If you buy something for four times, you're generating a 25% return on assets before any growth. You lever that at 80% with, say, debt that costs eight or 10%, and the return is astronomical. you pay your investors a portion of the common equity that gets them to a targeted return of 35%. That's the market clearing price in self-funded search.

If you buy something for four times, you're generating a 25% return on assets before any growth. You lever that at 80% with, say, debt that costs eight or 10%, and the return is astronomical. you pay your investors a portion of the common equity that gets them to a targeted return of 35%. That's the market clearing price in self-funded search.

And the searcher is able to keep 60% or 70% of the common stock for themselves. So deals are smaller, but the rewards are high. So that's the kind of math The one other point I'd make is on risk, particularly on the self-funded side.

And the searcher is able to keep 60% or 70% of the common stock for themselves. So deals are smaller, but the rewards are high. So that's the kind of math The one other point I'd make is on risk, particularly on the self-funded side.

You're buying at multiples that are so low that generally, even when things don't go right, the cash flow yield pays down the debt very quickly and mitigates a lot of the downside. So it's a pretty good trade. You can see why people get interested.

You're buying at multiples that are so low that generally, even when things don't go right, the cash flow yield pays down the debt very quickly and mitigates a lot of the downside. So it's a pretty good trade. You can see why people get interested.

It is hard to get a zero.

It is hard to get a zero.

It is flowing. Yeah, your surmise is exactly right, Patrick, and Rick's comment is exactly right. What we see today, it's funny, we started this podcast by saying maybe there hasn't been much change, but indeed there hasn't, like all your other interviews, Patrick. So Rick is right, it's flowing. When we look at the market today,

It is flowing. Yeah, your surmise is exactly right, Patrick, and Rick's comment is exactly right. What we see today, it's funny, we started this podcast by saying maybe there hasn't been much change, but indeed there hasn't, like all your other interviews, Patrick. So Rick is right, it's flowing. When we look at the market today,

There are more investors who want to get behind talented, well-prepared searchers than there are well-prepared searchers. So the choke point is this number of searchers, even though that's grown quite a bit. But there has just been a huge flow of capital.

There are more investors who want to get behind talented, well-prepared searchers than there are well-prepared searchers. So the choke point is this number of searchers, even though that's grown quite a bit. But there has just been a huge flow of capital.

not on our list is growth. Not because we're against growth. We welcome growth, but you don't need growth in this market because good companies sell at attractive prices. And Rick came up with this expression that we've both embraced, which is the magic is in the multiples in this market. So if I were to knock off the list that Rick and I iterate, the first one is recurring revenue.

not on our list is growth. Not because we're against growth. We welcome growth, but you don't need growth in this market because good companies sell at attractive prices. And Rick came up with this expression that we've both embraced, which is the magic is in the multiples in this market. So if I were to knock off the list that Rick and I iterate, the first one is recurring revenue.

We really want high quality revenue. And there are all types of different recurring revenue from the contracted revenue that's impossible to pull out to sort of actuarially repeating, but very high quality predictable revenue so that when you show up in your office every January 2nd, 80 or 90% of the revenues from last year, you know, are going to repeat this year. It gives you great stability.

We really want high quality revenue. And there are all types of different recurring revenue from the contracted revenue that's impossible to pull out to sort of actuarially repeating, but very high quality predictable revenue so that when you show up in your office every January 2nd, 80 or 90% of the revenues from last year, you know, are going to repeat this year. It gives you great stability.

It pairs nicely with financial leverage. And it allows you to be on the offense in marketing, meaning that all of your marketing time is basically spent growing, not replacing. So that'd be one. Low customer and vendor concentration.

It pairs nicely with financial leverage. And it allows you to be on the offense in marketing, meaning that all of your marketing time is basically spent growing, not replacing. So that'd be one. Low customer and vendor concentration.