The Home Service Expert Podcast
Driving Growth Through Private Equity Partnerships to Scale Home Service Brands
Fri, 01 Nov 2024
Rob Parker and Eric Van Dam are Managing Directors and Co-Heads of Residential Services at Piper Sandler. Rob was one of the founders of Quarton Partners. He has advised public and private clients on numerous mergers, acquisitions, LBO, cross border, and capital raising transactions across a variety of industries. Eric, on the other hand, brings over 15 years of experience from over 100 transactions. Eric expertise lies in middle market mergers and acquisitions engagements. In this episode, we talked about mergers and acquisitions strategy, private equity, financial metrics...
Chapter 1: What is the main focus of the podcast episode?
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.
Chapter 2: How important are financial metrics in mergers and acquisitions?
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.
Welcome to the Home Service Expert, where each week, Tommy chats with world-class entrepreneurs and experts in various fields, like marketing, sales, hiring, and leadership, to find out what's really behind their success in business. Now, your host, the home service millionaire, Tommy Mello.
Before we get started, I wanted to share two important things with you. First, I want you to implement what you learned today. To do that, you'll have to take a lot of notes, but I also want you to fully concentrate on the interview. So I asked the team to take notes for you. Just text NOTES to 888-526-1299. That's 888-526-1299.
And you'll receive a link to download the notes from today's episode. Also, if you haven't got your copy of my newest book, Elevate, please go check it out. I'll share with you how I attracted and developed a winning team that helped me build a $200 million company in 22 states. Just go to elevateandwin.com forward slash podcast to get your copy. Now let's go back into the interview.
All right, guys, welcome back to the Home Service Expert Podcast. Today's gonna be awesome. I got two of my good buddies here, Rob Parker and Eric Van Dam. They are experts in financial modeling, private equity, capital markets, and mergers and acquisitions. Rob is based in Birmingham, Michigan. He's a managing director at Piper Sandler. He's got a huge history.
I'm going to let him kind of explain his history. And Eric's also a managing director at Piper Sandler, also based right near where Rob's at. And they'll go into that. And, you know, they've got a vast history of the M&A side. Rob was one of the founders of – he was the founder, I believe, at Corton Partners. He has advised public and private clients on numerous mergers, acquisitions, LBOs.
Cross-border and capital-raising transaction across a variety of industries. Eric Van Dam is a managing director and head of residential and commercial services at Piper, bringing over 15 years of experiences with over 100 transactions. Eric has experience with middle market mergers and acquisitions.
He's previously worked for multiple New York-based private equity firms and has held positions at Barclays Capital and Lehman Brothers. Glad to have you both. This is the first time in a long time I've actually had two guys on the podcast.
Good to be here. Thank you.
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Chapter 3: What are the key steps in preparing a business for sale?
Chapter 4: How does private equity view the home services sector?
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.
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.
And that's important because that is the output and it's the metric that a buyer needs
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
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.
let's talk about that so when we told our story we called it a sip and i you know can't go just like it's a sim i think they're the same things can we just i'm just trying to get this definitions because this is confusing stuff to a lot of people that never they've thought about selling their business even as they grow larger they need to understand these definitions
Yeah, absolutely. So a SIP stands for confidential information presentation. So if we were selling somebody's business, we put this document together that will ultimately go to buyers once that they've executed a confidentiality agreement. And this document really serves as the baseline for why somebody should pay a great valuation for their business.
And it goes into detail around the investment highlights, being a market leader, having sophisticated digital marketing strategies, being an employer of choice, being an acquirer of choice, kind of dominating your market. It goes into the growth strategy of the business.
So as important as your historical financials are, it's even more important, what are you going to do the next five years and how are you going to get to your goals? And then going through the business overview, the history, service offering, customers and markets, employees, management team, as well as the financial side of the business.
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Chapter 5: What is the significance of EBITDA in business valuation?
Okay. I got three more questions before I flip the page. Okay. So Service Titan versus Jobber versus Housecall Pro. You guys said it was definitely really good that we were on Service Titan. Yeah. What does that make a difference if someone's going to grow to north of 10 million of EBITDA? Obviously, it's more enterprise solution, but there's a lot of companies.
I mean, you guys also did four seasons that had their own CRM. So talk a little bit about if I'm thinking about a CRM in the future and I want to get the highest value, what should I be thinking about?
You know, it's interesting. Back in 2015, when we did our first residential HVAC deal, you know, there was a number of private equity firms that, you know, kind of had a knock on residential HVAC. It's not scalable. It's too unsophisticated. It's too blue collar. Really, that was the opportunity. But I think in a lot of respects, Service Titan kind of revolutionized the industry.
by giving companies data to make more data-driven decisions throughout the organization, really looking at your KPIs to really drive the business. So whatever ERP or CRM system that you are on, being able to have the data to make data-driven decisions on how are you going to optimize the performance of the business.
So if you're not getting the amount of leads and kind of filling the capacity that you need for the day, Do you give your sales reps a little bit more flexibility to offer more discounts to make sure that they can fill the board? Or if you're not getting the leads, do you need to put your foot on the accelerator and spend more marketing dollars to drive some of those leads?
But being able to make real-time data-driven decisions is absolutely critical throughout your organization.
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 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.
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
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Chapter 6: What does it mean to be a platform in private equity?
is so how valuable do your customers view your product or service and gross margin is an indication of that.
Why did I have everybody that knew me that have ever worked for me in an executive position, even Facebook or LinkedIn buddies, call me up and say, there's a company doing a survey and research. They want to know about you and they want to know about the industry. And I know this answer, but can one of you take this one?
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.
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.
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.
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.
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.
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.
It's also calling people who used to work with you and saying, what is he like in the workplace?
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Chapter 7: How can effective integration impact M&A success?
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.
You want to add on anything to that?
Yeah, I think the only thing that I would just build on to Rob, which I think is exactly spot on, is we love what we do. And we have a ton of enthusiasm for our clients. And we've been fortunate to work with some of the best of the best. But one of the reasons why I love my job is because I get to work with so many successful business owners and really understand how do they compete?
How do they differentiate themselves? And one... One area that I think we've had a lot of success helping our clients achieve some of the highest valuations in their industry is really understanding what is their secret sauce. And for every company, it's a little bit different. Is it your sales process? Is it being more sophisticated with your digital marketing strategy?
Is it being an employer of choice and really owning the labor in your market and having a better relationship training center than anybody else so that you can grow your capacity? Is it being an acquirer of choice and having a better value creation playbook on how you're going to grow the business?
It can be anything you want it to be, but really understanding and diving deeper into those companies and really understanding what sets them apart and what has made them successful. And we're fortunate. We've got to work with some of the best of the best, but that's what gets me up every day and just gets me super excited about our job is just understanding how are those companies winning?
And how are they succeeding? And we really try to unpack that in a lot of detail.
If you're in a big deal and you've got a really good platform and it's coming down to the last month, how many hours do you think you guys are? Because you guys sometimes have a couple of things you're juggling, but you guys both work together as a team. I mean, what's like a busy work week look like?
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.
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