Rob Parker
Appearances
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
But just a reminder to everybody, all financials are is the output from everything else that goes into the business. Operating the company efficiently, driving leads, converting those leads. What's your average ticket once you've made that conversion? All those things that make a business great, that's the part that really matters. The numbers are just the output of all those things.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah. It's important to have audited financial statements when you have leveraging in the business. So a bank is going to want the statements to be audited for a couple of reasons. One, because it's an assessment or a judgment that the numbers have been accurately prepared and compiled and the CPA firm, the auditor, is rendering an opinion.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So they're signing their own name that these numbers are represented accurately. So that's important for a bank and important in a leveraged environment, which is what you'll have most likely when when you sell your business. And, you know, one thing I just, a point I want to make about this, we're spending a lot of time talking about financial metrics and financial statements.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And that's important because that is the output and it's the metric that a buyer needs
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
it's like the scoreboard and it's what a buyer needs to look at to assess what they're willing to pay for a business but just a reminder to everybody all financials are is the output from everything else that goes into the business operating the company efficiently driving leads converting those leads what's your average ticket once you've made that conversion all those things that make a business great
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
That's the part that really matters. The numbers are just the output of all those things. So the numbers are important, and it is the metric that a buyer will use, but you have to tell the story behind the numbers. That's really what matters is the story behind the numbers, not just the numbers themselves.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Just different nomenclature. So the SIM is Confidential Information Memorandum. And there was a time in our world when those documents were driven out of Microsoft Word. And they were like books, literally like a book. Very wordy, very lengthy, a Word document. And we called them a memorandum. The industry made a conversion some years ago to PowerPoint. A picture is worth a thousand words.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So these presentations today are far more analytical, more graphs and charts and those kinds of things that, again, support a story, less wordy. And as it converted to PowerPoint and that kind of a style, It went from memorandum to presentation. So SIM to SIP. So Ken's not wrong. We sold Gettle for Ken, had the fortune to work with him and with Baum Capital.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
When we sold Gettle, we may have called it a SIM back in those days, and it would be a SIP today.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, I mean, there are software applications out there that can help companies in very weather-dependent sectors like lawn care or roofing look at where the weather patterns are going to be and help you decide how you're going to sequence your jobs that day based on weather. So these tools are very sophisticated in terms of running the business.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
The other thing they've done is these really great ERP systems that are dedicated to the home services industry allow companies that have traditionally been very localized, very local, advertised on the radio and in the yellow pages, support the local little league.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
It allows these kinds of businesses, when you have a good ERP system that's tracking good data and keeping good metrics, then you can scale beyond just your own local market
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And that's how, that's really been, as Eric said, it has really been revolutionary in terms of letting private equity come in and say, okay, I can take a business with great sort of local economics and I can scale it and I can manage that business now because of these great ERP systems.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, so, well, leverage can be a very powerful tool, both in a good way and in a negative way, possibly, too. And if you use a simple example, so let's say your company's bought for $100. Those $100 all go into your pocket, every one of them. Well, let's say the PE firm that bought your business for $100 provided $50 in equity, $50 in debt.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Let's say you want to take $10 of your $100, so you've got $90 in your pocket. You take $10 and put it into the deal. You don't own 10%. You own 20%. You're 10 of 50. There's only $50 of equity. So that's the power of leverage. You put $90 in your pocket and you still own 20% of the company. So leverage can be a very powerful device that these firms will use.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And if you think about the private equity business, it's a tough business in a lot of ways. There is a lot of capital. that's been allocated to the private equity world. There are a lot of those firms out there. There's family offices. There's all sorts of these private capital pools.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
A lot of those will do direct investing. That's right. And they're all competing for a lot of the same deals, which drives up valuation. So for the price that they have to pay to buy a great business, for the investing window that they have, typically four to six years, That's a short window to try and double or triple your investment. So leverage is a powerful way to do that.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Another powerful way to do that is by doing a lot of acquisitions, which you see a lot of these firms do. You mentioned delayed draw term loan, a DDTL. That's a lending facility that gets put in place by a bank at closing that you can then go tap into to do acquisitions.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So using leverage can be very powerful in the private equity world, both for the private equity firm and their investors, as well as for the entrepreneur that rolled equity into the new deal.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Good to be here. Thank you.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
yeah so a platform if you think of a platform platform is sort of as the name implies it's a a platform is a structure that can support a lot of things on top of it so in the private equity world in our world a platform is the initial investment that a private equity firm will make it is the sort of the anchor investment or the platform investment it's the original one that they will then use
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
to add companies onto. So go do acquisitions inside of that platform. So maybe it's a roofing platform or an HVAC platform or garage door services platform. There's the initial core company with a management team and ERP system, processes, technology, all of those foundational things that you need.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And then you go out and do acquisitions of smaller companies, maybe a little less sophisticated, but that's okay because you don't need them to do that. You've already got that. But they've got great relationships. They're strong in their market. They've got a good name. You then add them onto your business as the platform, and you've created something that's larger and more valuable.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
right it used to be enough there was a time where you didn't need to affect a business that you acquired literally just adding those earnings onto the platform and making the platform that much bigger made the whole thing more valuable.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And that arbitrage in valuation, so you paid one price for this add-on acquisition, but when you plug those same earnings into the platform, the whole thing is worth a much higher price, a much higher valuation. And that was enough. And there was a long time where that was simply enough. They didn't really need to be very integrated.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
They didn't necessarily have to report their financials on the same system in a timely manner. We've had clients not too long ago, clients who were bringing in financials every month from different divisions on totally different systems and aggregating everything in Excel. Literally that sort of basic system. Today, it's more difficult to get away with that.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
As more and more capital has come into home services, the expectation of sophistication has gotten higher. So it would be tougher today to go do an acquisition and just not do anything to it, leave it alone, not at least improve the processes, improve the systems, get it integrated onto one ERP, one financial reporting system. It'd be difficult to do that today.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
and go sell the whole thing later for a premium valuation.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, sure. Well, first of all, thanks for having us. It's great to be here. Great to see all the success you've had building A1 and even since the sale process a year and a half ago. So congrats to you and thanks again for having us. I started my Wall Street career in New York at a firm called Donaldson, Lufkin, and Gen Red.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, we did lose groups in the A1 process because they were concerned that there was some COVID pricing in there and the lift in average ticket was driven a lot by inflation and things that might come down eventually and normalize and revert back to the mean. And Eric's exactly right. And that's a good example of if you look at the headline numbers only, you can draw one conclusion.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And that can be dangerous. When you unpacked it further and really dug in and asked questions, you saw that really there was a mixed shift going on. your people were learning how to convert service leads, maintenance leads into system replacements because it was the right thing for the customer. And they learned how to do that.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And they were able to identify that and let the customer know that's in their best interest. And they were doing more and more of that. And that really what was going on behind the numbers. And for the groups that dug in, they saw that conversion happening at A1 and it made them appreciate the business even more.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
yeah sure i mean there's each has its pros and cons i mean there's a lot of value to be had in all three but if we just take a look at each one starting with let's say new construction new construction what's good about it is those jobs can be big i mean if you have if you get the chance to let's say the contract to install new garage doors in a brand new neighborhood
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
a poultry or there can be hundreds or thousands of homes in that neighborhood that is a massive contract so that scale leads to efficiencies uh those are a lot of let's say in the case of a1 there are a lot of a1 stickers that'll be on a lot of garage doors in a lot of new homes that can have value and that can convert over time to replacement business repair business maintenance business
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Or as those homeowners move to different places, they'll remember A1. So there's value in sort of being the incumbent. The tricky part about new construction is it can be lumpy. New home building fluctuates with the economy, with interest rates, with mortgage rates, with financing, with consumer sentiment. All these things can influence new home construction, and it can be a little bit lumpy.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
I was in the mergers and acquisitions group, worked there for a number of years in New York. We had a large Los Angeles office. When the head of that office went to UBS, he brought me and a few others with him. So I went out to LA for a few years and worked with him at UBS doing mergers and acquisitions and leveraged finance. I'm originally from Detroit, Michigan, that's home.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
If you look at the commercial side, commercial can be very valuable and there's a lot to like about it. Commercial work tends to be a little bit more, like let's take roofing, for example. Commercial roofing can be a little more complex. The items in that commercial structure, let's say it's a data center. Really, the roof cannot fail.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
If there's a massive water leak, that's a very expensive equipment that gets damaged. So the cost of failure is very high. That work requires very steady maintenance, inspections, make sure everything is right. It's not going to fail. That part of it's really valuable. The downside to commercial can sometimes be
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So the numbers are important and it is the metric that a buyer will use. But you have to tell the story behind the numbers. That's really what matters, is the story behind the numbers, not just the numbers themselves.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
concentration, longer payment terms, and it's a maybe slightly more sophisticated buyer that isn't using emotion in their decision and is typically making their decision off more of a pricing spreadsheet type analysis. Then there's the residential side. The residential side, the best part about it, it's so fragmented, so big. many, many, many individual homeowners.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
One of our former clients who we recently were with made a comment. He said, you know, I would way rather have 5,000 individual homeowner purchasing guys to deal with than one tough purchasing guy from Walmart. that fragmentation has a lot of value. It can sometimes be a slightly more emotional buy.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
If you come in and you've got a very tight quoting process, it's done on an iPad, it's very clean, it's clear, it's organized, the homeowner understands it, the technician came in, they were polite, they were respectful, they took their shoes off, all these kinds of things. A homeowner can say, you know, they're more expensive. I trust this person. I think they're going to do right by me.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And you can get better pricing if you do some of those kinds of things. So the pricing can often be, and your margin profile, therefore, can often be a little bit better in the residential side.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And as I was thinking about starting a family, raising a family where I wanted to build roots and build a family, I wanted to move back home. So I did move back home and joined Comerica Bank, had a small mergers and acquisitions group, joined those guys. It was a great experience. We had a lot of fun. Those were great years. In 2009, when they took TARP money, like all the big banks did,
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Your example with Dan Miller is a good one. I mean, I remember in my own business at Corton, when my partner and I started, we did everything. I was the one managing QuickBooks. There was one time I forgot to pay our health insurance bill, and my wife called me. She's like, the health insurance didn't work. So I went into QuickBooks and paid it. We were doing everything.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And over time, as we brought people in, and we had talented people in roles that they were well-suited to do, That's when our business really grew. And that's a small example. I think in a business like A1 or a lot of the clients that Eric and I deal with, having experts in a seat, in a role that they're well-suited to perform, and in many cases are way better to do that work than the CEO is.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
The CEO's job is to inspire, motivate, be the visionary, grow the business, make the hard final decisions. The CEO shouldn't be involved in getting the numbers organized. You should be interpreting those numbers and doing those kinds of things, but someone has to do it.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And so the more you've got talent in place in these critical roles, HR, finance, IT, if you're a platform, you have someone who runs mergers and acquisitions. You have someone who runs integration. You have some of those key roles filled. The CEO can go do what they need to do and really grow a business and create something scaled and valuable.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
They told our little M&A group they're going to shut us down. So at the end of 2009 was maybe my darkest day in my career. Comerica said, we're going to shut down this group. You guys are small and profitable and don't necessarily cost a lot for us. But we're really turned upside down as a result of the great financial crisis. And we're just going to focus on our core lending business.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Good data that's easy to interpret and organized well leads to the best decisions. There's no doubt about it.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
gross profit gross margin yes let's talk about that yeah i mean in a lot of ways it's a proxy for how valuable your customer perceives your service because really it's at the end of the day it's it's the margin you get on the product you sell without a lot of the without the sgna without the sales cost without the administrative costs of the company all those kinds of things it's kind of your product margin in many ways so it's a great way it's one of the first things that a lot of people will look at
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
is so how valuable do your customers view your product or service and gross margin is an indication of that.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, sure. I mean, it's, so if you think about a private equity firm, They take in money from investors, and those investors are institutions. They're endowments, insurance companies, ultra high net worth families, all these sorts of large institutional pools of capital, and they invest that money on their behalf.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So they have a fiduciary duty to those investors that they're going to really do a very thorough due diligence process. And part of that process is in a business, and A1 is maybe a little unique. Literally your picture is on every single vehicle out there on the road.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So they shut us down. So in the beginning of 2010, my partner and I started our own firm. We were entrepreneurs. We started at my partner's kitchen table. We were at my kitchen table and literally built it from nothing and into a firm. It was called Corton Partners. We built it brick by brick and eventually had five offices in Europe, three in the U.S.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
You know, it's important to understand to do a background check on you and to call people that maybe you've worked with in the past to get an unfiltered view. If you called somebody that works with you today, they would be more inclined to say favorable things because you're their boss.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
If you call somebody that doesn't work for you anymore, but used to, that might be a good way to get an unvarnished view of what you're like in the workplace. Are you a motivator? Do you inspire people? Or are you negative and are you, you dress people down in a public way and do you detract from the business and by the way you operate? It's important for them to understand as much as they can.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
You know, I'll tell you that the single most important factor I've observed in doing this for nearly 25 years in a successful investment is the leader, the leader and that leader's team. You can have a great idea, great concept, great industry, bad industry.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
What matters the most is who is the evangelist at the top that's leading the organization and who is the team that that person has surrounded themselves with. And it makes diligence on that individual just really important. And it's not just background check, things that you can find on Google, or you can hire a firm like Kroll and others to do kind of a background review.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
It's also calling people who used to work with you and saying, what is he like in the workplace?
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
I feel like it's happening more and more. Maybe not at 4 million in EBITDA. Maybe not that thorough. They'll definitely do a background check. I mean, that's not that hard to do. I mean, heck, you can find out a lot just by going to Google. They'll definitely do that. They may not do the call around of people they find in your LinkedIn or people who used to work with you.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
They may not go quite that far, but diligence is getting, it's more every year. I feel like it's a little bit more thorough.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And part of that, part of why it takes six months is we spend a lot of time bringing a knife to a gunfight comment. We spend a lot of time up front preparing. And that's really important because when you launch the process and we're having live conversations with real potential buyers, that momentum at that point makes a big difference. You do not want to slow down.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And in January of 2019, we were acquired by Cowen. Cowen's a publicly traded Wall Street investment bank. So my life kind of came full circle. I was back part of a big public Wall Street investment bank again. I ran the sell side M&A group for them and then ultimately ran the business services sector group. I was with those guys for a while.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
You want to have answers to their questions. You want to be prepared and everything organized and assembled. It makes it as easy as possible for them to really assess A1 in that case so that they stay longer.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And the more you have groups in the process all the way till the end, the longer you've maintained that competitive dynamic, which means you keep prices up and can possibly even raise them further, further along in the process.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, that's a really good question. I've seen great CEOs come from a financial background. I've seen great CEOs come from an engineering background, sales background. I've had great CEOs that had MBAs from top business schools. We've had great CEOs who never even finished high school and everything in between. So there is no particular background.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
There is no one path that we could recommend somebody follow. People are kind of born leaders or they're not. And I think to me, what I would say, a great leader is one who is able to get the best out of the team that he or she has. You're a motivator. Your passion for what you do inspires and motivates others to be better than they ever thought they could be.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And then earlier this year, left Cowen to go join one of our competitors, Piper Sandler, where I am now and thrilled to be there and be part of such a great, great organization.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So that the whole is greater than the sum of the individual parts. I think inspiration, motivation, concern, passion, those are the things I think make great leaders. There are some nuts and bolts things. I mean, you definitely have to understand what the numbers are telling you. And you need to have a vision for the business. I mean, you need to be someone that is thinking six months in advance.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Where is my industry going? Where is my business going? You have to be a visionary and you have to set a strategic plan based on your vision of the future for your company. Then you've got to be able to motivate people to execute that plan.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, I've been doing this since the late 90s. And there was a time in our world where you saw more of that. You saw more of the private equity world being a financial engineering game, using leverage, selling off assets, cutting costs to generate a return. Very difficult to do that today.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, good question. I mean, they're similar in a lot of ways. They're of the publicly traded Wall Street investment banks. You know, there's the very largest players, B of A, Goldman, JP Morgan. And then there's firms that are on the smaller side of the large public companies. Cowen's one of those. Cowen's now part of Toronto Dominion Bank. And to me, that's the biggest difference.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
it's way too competitive that dynamic everyone kind of gets the same leverage deal people are going to value the business much higher where you can't cut your way to success really and maybe there are a handful of exceptions but really the way you're going to generate returns in the private equity world today is by making the business more valuable and growing it so i
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
I haven't seen that in a while where a private equity firm comes in with the motivation to cut their way to a return. You really don't see that as much anymore. It's way more today about growth, which then goes back to Eric's point is, does the CEO align with the private equity firm on what's the best way to grow the business?
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And there might be different PE firms might have different views on how they want to grow it. And that's why it's really important in the process to make sure you're getting to know these groups. You're doing reference calls with other CEOs that are with them now, were with them before, and maybe have been sold. So how do these guys do it? Do they only grow through acquisition?
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Do they bring anything to table on digital marketing or some other area to grow a business? And find the one that best aligns with you. And that part of the process really becomes critical.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, communication too. I mean, I think like many things in life, good communication between the CEO and the private equity team that he or she is working with. As long as the communication is really good, really that gets in front of any issues.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
I mean, if the CEO doesn't want to be the CEO at the time they exit the business, so the new buyer is really backing somebody else, that's okay as long as there's enough time to prepare for it.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
and that's that's true really when it comes to succession planning how long ceo wants to be there as long as you're communicating well with the private equity firm there's no surprises time to prepare anything anything can be accepted and that's what i said to cortec and i just told the team i said look
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Toronto Dominion Bank is a very large commercial bank And they're heavily regulated, like all those banks are. And it's just a different environment from what Cowan was and what Piper is today. And for me, being part of a nimble organization that lets people like Eric and I and our team be more entrepreneurial, that's just a better fit for someone like me. And I'm glad to be there.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, I mean, it's I think for a lot of people, there are a lot of different criteria for that decision. I think ultimately, even with an institution, even with, you know, in earlier in my career, I did a lot of work for big public companies, you know, Masco and and companies like that, IT, TRW and big, big companies like that.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And folks like that, private equity firms or entrepreneurs like you, I do think there's an emotional part of it. I do think there is a big part of the decision. And there's sort of the check the box stuff. You know, they will do references on former clients of ours. They'll look at what kind of valuations we've gotten. They will want to know how well do we know this sector?
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Are we going to articulate it well? Are we going to get the story quickly? Do we have experience in the sector? All those things matter, but you probably don't even get invited to sit down and present your qualifications if all those boxes haven't already been checked.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
I think at the end of the day, there's a view of who has the most conviction about why this business is valuable and who is going to go out and get me the best possible deal. And that oftentimes leads with price. But it's not just price. It's price. It's fit. It's legal terms. It's all the things that go into a deal. Who's going to go get me the best deal? And who do I trust to tell me straight?
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
If they don't think this is a good deal, they'll tell me. They won't tell me to just take it because it's in their interest. They'll give me the right advice. So I think a lot of it is an establishment of trust. a relationship that's been built over time, and then just who do they believe is going to do everything they can to go deliver the best possible deal.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And it's sometimes hard to define other than just you kind of know it when you see it. I think there's a big part of that still in our business today.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, that's cool.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
but no two weeks look the same. I mean, they're all different. And I mean, and we are, as one of the things I think has been an advantage for us is that there are two of us. We're two senior people in our organization and we're both all in on the deals we work on together. And that makes a big difference. No two weeks are the same. That last month is intense.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
You're juggling multiple groups through due diligence. You're juggling multiple groups in a purchase agreement legal negotiation, multiple groups in an economic price negotiation, and you've got to manage it all in a way that makes... each one feel like there's competition. They could win, but they could lose too. So they got to feel like, okay, I've got a chance. I feel good.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
They're treating me fairly. I think they're giving me good information, but they're not letting me think it's mine. I still have to go compete and win. And at the end of the day, I think in that final month,
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
When Eric and I can say it was a successful outcome is when our client's happy and we got them the best price that was available in the market with the partner they wanted to be with and everyone in the process, all the buyers, the one that won and all the ones that didn't win,
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
felt like they were treated fairly and that we were honest with them and we were fair with them, that's when he and I have done our job. And that second part is, it's as important as the first part.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Our business is very much a reputation business and treating people the right way and being fair with people and giving people a fair chance and being honest with them, it's an important part of the process. And I think it's an important part of why people will stay in processes that he and I are leading.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, Tommy, there's so much money in the world that wants to invest in the middle market. Private companies in the middle market in the United States have been such a great place to invest and will continue to be. There's a lot of money that wants to do deals here. And Yeah, 2023 was lighter in terms of volume. You know, 21 and 22 were very hot years. Interest rates had cycled up so much.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
We were probably due for a little bit of a breather. 2024 is ramping back up. I think that there's going to be a need to begin returning some capital to all these institutions that invested in these private equity funds. So they can go raise the next fund and keep investing in this space. So it's the long-term dynamics in our sector are so good.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And there may be a year or two or a quarter or two here and there that are a little bit lighter, but there's always activity. There's always money for a good deal. And so what Eric and I focus our time on is finding good deals because there's always a market for those.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, I mean, there is no hard and fast rule. I mean, we like to work with great companies and work with great people. And there isn't a hard and fast, a sort of a bright line where we won't go below or go above it. For us, it's about finding winners in their space and being their advisor. And if we do our job right, we can be their advisor multiple times over and over.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
We'll sell it the first time. Then we'll sell it the second time and maybe take them public the third time. So we don't really draw hard and fast rules on size. We want to meet winning companies. And if someone wants to reach out to you? rob.perker at psc.com. Okay, perfect.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, that's a good question. I'm an avid reader. There's a lot of great books out there. When I went to business school, I was inspired to go and then pursue a Wall Street career because of a book I'd read called Barbarians at the Gate. A little dated now, it's the story of the very famous story of the leveraged buyout of RJR Nabisco, which took place in the late 80s.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
They actually made a movie about it, too, with the same name, Barbarians at the Gate. That book, it's interesting. It's a page-turner, very well written, and it really talks about Wall Street and that process. Now, it's in the 80s, which in some ways was the heyday of Wall Street. But so much of what happened there still applies today.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Strategic, tactical, thinking through holding firm on a price because you have conviction that that's the right price. Or other people trying to find creative tax structures to pay a little bit more. All these kinds of things still happen today. I thought that book inspired me to go to Wall Street. It inspired me to have the career I've had today. So I would recommend that one.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
The other book I would say... Probably the best business biography I've read is Shoe Dog by Phil Knight. I thought it was a really good book, a really good story. His memory of the details of building it from way back in the late 60s and 70s and his business lessons that are sprinkled throughout that book, I thought were outstanding. I'd recommend that one as well.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah, I guess I would just say, if there's a final message, well, first I want to say thank you again for letting us be here. What an honor to be here with you. So thank you. I think just the final message I would say is the private equity industry, it's still misunderstood.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Even going back to when Mitt Romney ran for president and how he was portrayed and vilified a little bit, the sector is still not very well understood by people. And I guess the message I would leave with you and your listeners is that isn't true. I mean, it's a group of very smart people. talented.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And Eric and I were just with a former client of ours and he said, you know, one thing about your industry, people work really hard. He said, I really haven't. They're basically good people too. These are genuinely good people who want to build businesses, make companies better. And I think that's true. No industry is without its jerks.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
There are a few, but there are most people want to create value in these companies and doing it by investing in people, investing in technology and making the business more valuable. And it can be a very fun journey and it can be a very lucrative journey. And I would, any of your listeners that are thinking about it, I would encourage them not to discount it.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
It can be a really fun and lucrative journey.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah. Well, there's a lot about the home services sector that appeals to private equity, that appeals to investors and appeals to the capital class. The addressable market sizes are massive. These are huge markets. They're very fragmented. Every town has four or five companies that can fix your garage door, for example. Or 500. Or 500, yeah, in some cases. Yeah, exactly.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So they're super fragmented, which creates an opportunity for organic growth. So if you're a best-in-class operator, you can take share from the less sophisticated competitors you have, or you can grow inorganically through acquisition. So that appeals to the private equity class. In the residential world, there is typically very little, if any, customer concentration.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So if you lose your top five customers, you barely even notice. So there's a lot about the sector that people like. The nature of the demand is non-discretionary. If your garage door is broken, you have to have it fixed. It's a security issue, if nothing else. So the nature of the demand is very strong. So it really appeals to private equity. And I think that appeal is durable.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So the private equity interest in the sector is going to remain for a long, long time. So I feel very, very good about that. And it's not really a surprise that there's been this kind of interest. And
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
I just think more and more, I feel like Eric and I have a conversation every week with a new private equity firm or a new family office or even more and more sovereign wealth funds, large pension funds that have interest in the sector. There's new interest every week, and I don't think it's going to stop for a while.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
And Tommy, I'll tell you, I mean, they, There is a lot of interest in the space, and I'm sure a lot of your viewers and your listeners are getting calls all the time from private equity. One thing I would say is it's really important to not just look for the money. That's important. But the last dollar is less important than getting the right fit. Well, if you're going to roll a spot.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Well, especially if you're going to roll. You want to have the right fit, the right partner, the partner that shares your vision, that sees the world the way you see the world, that wants to grow the business the way you want to grow the business, that will treat your people, your customers, your suppliers with the kind of respect that you have.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So taking time in the process to get to know these groups, see what their vision for growth looks like, and make sure that fits with yours is very important if you're going to have a good partnership. I agree.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Yeah. So a quality of earnings is an accounting analysis or review of a company's financial statements. So it's not an audit. It's not that detailed. It's not necessarily the same as an audit, but it's a review of the numbers and an assembly of the numbers in a format that a buyer would actually be underwriting.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So number one, it's a scrub to make sure the numbers are accurate and they're being reported the right way. Number two, it's making sure they're compiled in a way that the buyer can actually underwrite. So for example, a lot of private business owners might have some personal expenses that they put through their business.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Well, those personal expenses will go away when they're no longer the majority owner. So something like that can be added back. There may have been a one-time item that occurred a year before, two years before, that's not going to recur again. That's an expense that can be added back.
The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
So they look for those sorts of adjustments to get the most accurate representation of the actual earnings that they're looking to buy.