We interviewed Corbin Butcher about year after his acquisition with his wife in the Czech Republic, on being the first searchers in a country and the transition to operating a business. The interview occurred prior to the pandemic.

How did you get on the search fund path?

At Kellogg, there were a number of people who were doing it and we just happened to be really good friends with a guy whose name is Giovanni. He was sponsored by Peter Kelly and a couple of others. He sort of told us about the path. It really seemed like the thing we wanted to do.

I searched with my wife. We were both at Kellogg and we both aligned our careers that way. So it was really attractive to us in a number of ways. He was such a close contact that he really showed us sort of what the process was and how we wanted to go about it.

That is how we got turned on to it initially and then we went to the conferences and networked our way, met the individuals and really actually got scooped into the community which is pretty addictive actually with people in it.

What is it like to have your wife as a partner in your business endeavour? And, what would she say about having you as a partner as well?

We really love it and people are really shocked about that, but it really works well for us. We tested the waters while we were at Kellogg. Kellogg has a ton of group work. We took a class together, we worked in a group together and it was sort of like a test run for how we would work professionally together.

She has very different skills than I do. She is more quantitative, she is smarter that way. I like the interpersonal a bit more and am more outgoing. She is more detail oriented; I am more of one who looks at the larger picture. So we figured that we have very complimentary skillsets. We are sort of modest enough to know when the other person is right. We always look for the best results and who brings the best ideas. We have that relationship so it works for us. A lot of people raise their eyebrows. On the other hand, in the search fund community, there are a ton of couples who are now looking for that path; it seems to be a growing trend although you would know better than me.

My husband and I have worked together for a long time. I know when we first started, there was a little time taken to finding our equilibrium. Ever since we’ve found it, it’s been fine.

Yea, we went through that at Kellogg. Also, I came out of military, so my idea of compromise and working together was very different than hers and she came out of finance. Once we found that equilibrium then we could proceed. I think that’s a good way of putting it.

Going to Kellogg, what was your decision about location and geography for your search funds?

We thought it would be good in Czech. We liked the thesis. I’ve lived in Europe so it didn’t bother me to move abroad. We thought it would be good to be the first to go. But, when we went to pitch all the institutional investors, they all said, “Hmmm. Czech Republic, no one’s done it. The geography is too small. The economy is not developed enough. Why don’t you do it in the US?”. We thought, if we do that our competitive advantage isn’t there. We would rather just strike out and try it in Czech. So, we went without their support over there. That was really the driver of why we chose Czech Republic. The cost of living is low; we could do our self-funded search a little bit easier than it would have been in the US if we wanted to go that route. Her family is there so we had a bigger support network. It basically played to all those advantages which are super important especially when you do the self-funded search over there. So that played a major role in the decision.

Tell me about your process as far as finding companies. What is the buying infrastructure like. For instance, are there business brokers?

It is kind of like any other, you have the brokers. Most importantly you have this database with tax information. Because the transparency laws post-communists were so stringent that everyone has to file and post their tax forms. So if you are a little bit savvy, you can just go to the database and find companies and pull up their financials. Sometimes, companies have their ways of hiding their information but by and large it’s largely there. So, we said, “Okay, we have this database; it has information. How can we pull more information more effectively?

So, we hired someone to work with us to build like a Python program. So we pulled up all the data we could and we applied some filters, put into excel and we had an intern go through and basically scrub the data and pick out the ones we thought would be good potential contacts.

Through this filtering process, we came up with a target list and then we just called. I didn’t call because I don’t speak Czech. We had a family endeavour. My wife called and we had the intern. Calling yielded the best results. We’d get responses, we get really frank conversations. A lot of times, the Czech owners had never been contacted before. The market is pretty efficient but it is new for this type of process. That was the thing we did a little bit differently. Of course we went through normal brokers.

Ultimately, our deal came through a broker. So all the clever Python-ing yielded two deals that we almost closed, but really the one we came through, came through a broker.

I have a ton of questions for you. The first being, how was your wife received as far as making these cold calls from the business owners? I am presuming they are primarily male?

That’s actually a really good question, and that was a problem in our search approach, especially when we meet with owners, because they would direct their attention to me and that wasn’t our deal.

I think when she initially called we had less of that problem because they were just so shocked. They were so shocked because they hadn’t been asked the questions that they were actually more honest than I think they otherwise would have been.

Of course, we were making a ton of these calls. So, we would get more practice on how to handle it when they say “Oh no we’d never sell.” Never is a very strong word -- at some point for the right price. So we figured out we just kind of crack through some of these automatic defences and people would relax a little bit.

You are right, once we got over the shock value then there was some stance especially in Czech which is more traditional of having to combat the thinking, “This young MBA is offering to buy my company, can I take that seriously?” Eventually when they got to know her, it was fine but we definitely had to combat that.

Tell me about the two deals that almost closed? What were the issues in not getting those over the finish line?

One was a software services company that basically did near shoring computer development. A good business. It was very well run, EBITA margin was like 20%. We had a great relationship with the owner. Ultimately, the thing that broke it was the price was too high. The deal we ultimately did was highly leveraged, but for this one even if we were to put on leverage, the IRR for the basic scenario was something like low twenties. That just wasn’t high enough. It was a good thing, the investors said frankly that is not high enough even with the amount of leverage and also because it’s just with the model. The only way to scale that type of deal was just hire more bodies. Everyone knows in this day and age that especially Czech Republic has absolutely the lowest unemployment rate in the EU. It is kind of scaled abroad in Slovakia, Romania adds complexity that we were not equipped to do. So the investors wisely said, low returns, not good probably for growth and they bagged it.

The other one was, actually they produced software solutions for utilities. Very good SaaS business model, very niche, very good profit margins, EBITA margins were mid to high twenties actually. Again, we had a problem with being constrained geographically because the product was really good in Czech, Slovakia and central Europe but there were other solutions available in other regions of the world. So the investors said well, (a) it was expensive but (b) we don’t think that you are going to be able to compete effectively. The owner was an incumbent in this region but to be able to spend outside would be very difficult so they turned that down too.

So then the company that you ultimately purchased came through a broker. How long did it take you to find that company in your process?

Well, we met the broker about six months in. He offered us a company which he actually offered to another Searcher, who started work on it out of INSEAD. We turned that company down. Basically, they provided white label, generic labelling solutions for hotels for like shampoos and stuff. We didn’t like it, the other guy thought it was okay. We turned it down. The broker came back to us about nine to ten months into our search and brought us the company we bought eventually. That was about in December of 2017, and from that point until about August 2018 was when we worked with him to close the deal.

Wow, such a long time to get to the close. Were there a lot of regulatory hurdles or hurdles in the due diligence or both?

We were introduced and then became really engaged on the deal in January – February 2018, then we really got to negotiating probably in April. Then, the diligence did take a long time and also the financing took a long time. The diligence took a while because the Czech investors wanted a super, super high threshold of diligence. So, we had to do very detailed diligence. There were also legal issues surrounding this company. The owner, he was basically involved with subsidies that were being contested. So we had to do the legal structuring and make sure we were insulated from any sort of judgements. So that made the investors nervous, of course. There was hair on the deal. It just took a longer to figure all that out. Especially being the first search fund in Czech, everyone was just very nervous about it. So that took a while, then the financing took a long time to go through the approvals by all the different agencies that need to approve it within our financing source. So, yea, it took a long time.

Tell me about your first day on the job?

Actually, the first day on the job, we came in, the key employees knew us because we had been there doing diligence, so they knew who we were. The rest of the employees didn’t know. So we walked in, we got our computers all set up, we were walking around and they called the company meeting out on the production floor. So it was us, me and my wife, actually we took over from another husband and wife, so it’s two couples there.

The owner, the male who had been sort of, the most stoic throughout the process, he starts to introduce it and he just breaks down in tears. He couldn’t get it out. All the employees are wondering what is going on? So his wife is comforting him. Finally she picked it up and said, “We’ve made the decision to sell and to put this in the hands of this group of new owners, some of them you know.” The employees that didn’t know are shocked, first of all. Finally he pulls himself together and basically gives it like this, “I have my confidence in them. We will still be involved. We are still financially involved and really we think this is a great direction for the company.”

Of course this is all in Czech, then my wife gives another intro in Czech. I then give a very simplified version in the Czech that I know and then speak in English a little bit for everyone else. The people then went away and then we had a little barbeque afterwards and everyone started to get familiar with the idea that these two were going to be gone. It wasn’t real for them either. The first day was pretty emotional, at least for them. It was a good start, because they put full confidence behind us at least for the employees.

Did they stay on or are they still staying on in an employee or consultative role?

The guy, his name is Patrick, he left actually after 5 months because my wife took over his role which was more operational, HR-related and little bit easier to turnover. Helen, who was basically who I took over from, she actually just left after this last engagement. She was more involved in client turnover to do it in a systematic way. She was there a little bit longer.

The bank financing mandated that we have them, quote unquote, available for a year, but the reality is that they stopped coming to office after about six months which was a good thing because you want to go in different directions and it’s hard for people to let go. At the same time, we just had a fantastic relationship and we still do. She is still involved as far as very important clients are concerned to make sure we have an absolutely airtight transition program. They are heavily incentivised, they provided a quarter of the financing via a seller note. So, it is in their interest to make sure we don’t drop any big clients.

So what was the first big issue you had to tackle?

There are two really. One, there was no real standardised reporting system for financials and for operations, so we had no idea what we have in terms of inventory. We really had no idea about profitability on a project basis. They sort of knew and they winged it and at the end of the month they made a bunch of money. When they consolidated it, it turned out that they were actually doing pretty well. But you can’t run a business like that that’s leveraged.

So we had to start talking to vendors immediately and start talking about processes so that we can understand every time we put out a project: what is the profitability? What is the margin? What are the terms? What do we have in inventory? What’s our cost basis? All these things because, this is family business, they made money, they made quite a bit but there was just no science behind it. That was the first thing.

The second thing was CRM. They had no systematic CRM. There were literally shoe boxes of cards with rubber bands around them. So I was literally taking shoe boxes of cards and hiring people to put it into the CRM system, Insightly. It’s valuable data and turning that into a commodity that we can actually use to drive engagement, increase touch points with our important clients. Otherwise, it is was one sales guy going out to shows, hitting the streets, talking to people, that’s it! You can’t grow like that. Those were the two issues.

(photo: first stand as new owners)

How are you finding managing people when Czech is not your native language?

In my part of the business, everyone speaks English. It is a very small part of the business. We have about 50 people and I have about 8 in my sphere of influence, that’s really client facing and project management facing. So from that perspective it is absolutely fine.

It does get tricky when I start to go to shows and am dealing with our builders. It is just a matter of being there for people as we communicate on projects. It is a matter of showing that you are engaged, you want to know what they are doing and why they are doing it? If there is a problem communicating, how to do it? They get a sense of your demeanour and even though you are not talking about deep topics, you can communicate that you are there, you are interested and you are engaged. So far it had worked pretty well. You can always find something to connect with them like ice hockey or soccer, things that Czech’s really like. It works. I do need to improve Czech though.

Looking at the whole process, what advice would you give to somebody who is looking to do a search fund in a country where it has never been done before?

The first piece of advice is, everyone says that you want local investors. That can be really obvious. That assumes that your local investors have a mind set and are at a point in the economy’s growth where they get the search fund model. And, Czech Republic is just not there. To be honest, we didn’t have a single local investor. We are doing perfectly well without them. I am so glad we don’t have one, because they just don’t understand the distributive model, taking in different perspectives, of empowering management, and really believing in people and their abilities. They want so much control, they want so much reporting, which is really driven from this mind set caused from their history.

It is really important to know the culture of the country you are going into and then adapt the strategy accordingly because this whole like you need a local investor to make you be successful, it’s just not true. At least it was not in our case. We told that to our investors because that was the first thing they said to us, “Oh, we want to see a local on board.” But once they saw that we could drive deal flow, we had a way to do it, we were connecting with the local brokers, and we were bringing good information and we are continuing to follow the path, we had a strategy, we did reporting. Then, we got them more and more comfortable that we could do this without a local partner. Ultimately that helped. So that’s the first thing I would say.

The second thing I would say is that you really have to prepare yourself for despair. There are times when it gets really, really dark. We have a slack channel where we talk to all the international searchers. I would say that is not a unique experience. I think everyone goes through that. So it is one thing to sit in a business school classroom and say, “Okay I can deal with that” and it is another thing to put your career on the line and be faced with the fact that you may have put two years behind you where you are not going to close a deal and you may have to look at another path. You really have to have fortitude to do that. So those were the two.

Any other lessons learned during the process that you’d like to share?

Everyone says this at the conferences, and it was so true. You will never get a deal done unless you really know that the seller is really motivated. There were so many times during this transaction when we had to ask for concessions, we had to explain various things and they worked with us to do it. I just don’t see how a deal gets done if you don’t have that trust with the seller because there are going to be so many things you will have to negotiate through. Everyone says that, it is not really something new but it was just very important in our case.

Operating, I think it’s amazing that when you start with a company, ours is a small, I mean we have about 5 million Euro turnover. So it’s a small company. About well over a million of EBITA, but still very small. Of a company that size, you have to be prepared to fulfill at a very deep level of competencies, business functions you may not have any experience in. You really have to be prepared for that. For instance, now I’m building out sales. I have never done sales. I have done marketing but right now that’s the most critical part of this business is increasing project flow. So you really have to be able to orient on these different business functions real quickly and have access to people and resources to learn, because it is just going to be really difficult otherwise. I guess that’s what I want to say on the transaction and the operating front.

Anything else you want to add?

The other thing I would add is the board members and investors. They are fantastic. Things have been going well, so obviously am going to be happy with the board. It is easy for everyone to be happy when things are going well. But more importantly I really have the trust in them and they are really hands off but they will engage when you asked them to.

I have heard stories about how that hasn’t been the case. I really think that the relationship that you build with the investors, which you can do through like reporting, getting their feedback, showing you are dedicated to your cause and building that relationship with them is so important. It really makes the experience so much better. When you have people that are not asking you for a number of things that are not material to making the business succeed and are willing to help.

(photo: first marquee show as owners)

What do you see ahead as far as your priorities in the next 6 months?

I will be really focussed on sales because we have a really long sales cycle. What we are going to be focussed on is basically upgrading how the company thinks about engaging clients and delivering client value. Considering me and one sales guy, it will be a confined space but then we will try to hire another sales guy like a sales team, implement CRM and CRM processes, deliver content that clients find engaging. So really trying to communicate our value add and our differentiated position into the market better. The company hadn’t in the past because they didn’t need to, but in order to grow we have to. That’s really where I would focus my time. Ivona on the other side will be focussed more on better management of our reporting in terms of our financials, working capital, inventories and things like that so that we always have a picture of how the business is performing.

I have a feeling that those who are not on the slack channel will want access to it.

That’s okay. It is really an international focus. So, we have one or two representatives from each country. If people want to join they can. Now that we start operating we will give advice where we can, but it is really for guys who are searching. It was really helpful. When you are feeling down you might get some sympathy. Yes it is a good resource.

Great! Thank you for your time Corbin. I will be so excited to see the progress of your company over the next years. I am really excited about it.

Thanks for everything you do at Searchfunder. It is such a great resource. It is a great way to pull together the community. I really appreciate you guys sticking with it and really providing that great service. It’s really a bed rock for the community. Thank you for doing that. I don’t know how much work it is. It seems like a lot of work.

Yes, it is. (chuckles) Hopefully one day it will be a lot less work.

I really appreciate it. I really do.

Thank you. Have a good night. I really appreciate you doing this. Bye bye.

Good day. Bye Karen.