HAVING FUN LEARNING MY NEW BUSINESS

SEARCHFUNDER INTERVIEW OF BRENDEN
redacted

redactedredactedBuren who co-founded Generational Transfer Entrepreneurs and acquired Pro Max

Fence Systems.

How did you get on the search fund path? 

I worked in a large family business which specialized in heavy highway construction and construction materials supply. redactedI am fifth generation with many other family members and wanted to break out and have more senior level management responsibilities.redactedI decided to leave and went to work with my dad on a company that he had acquired doing his own search (not using the search fund methodology).redactedOur goal was to acquire, manage and grow more businesses.  At about the same time, I applied to business school to learn more about small acquisitions and entrepreneurship.redacted

I found out about search funds from a classmate of mine at Carnegie Mellon, Rob Southern, who is Jim Southern’s son.redactedI then met with one of my professors at Carnegie Mellon who encouraged me to do more research about search funds. It was enlightening. redactedWhile in school, I decided that I definitely wanted to search and buy a business.redactedCMU was incredibly helpful in helping me in this path as I quickly joined the EtA Track. My dad and I adapted some of the search fund techniques to form Generational Transfer Entrepreneurs, to allow multiple people to search alongside us.  It was a no-brainer with what I wanted to do and learning about this thing called a “search fund.”

Tell me about your search.redacted

The search process starts about a year before you actually start searching.redactedI reached out to all the previous searchers to build a system that would be as successful as possible.redactedI talked to dozens of searchers to figure out what went right or wrong, what they liked about interns and didn’t.redactedDo we want to do a proprietary search, opportunistic or both?  I like the proprietary channels. redactedAs someone who has always really liked working with people, I like the idea of having a lot of interns working with me.

We then had to figure out what was the best system.redactedWe had to figure out where we should get our lists from.redactedA lot of that came from previous searchers on what worked well for them and what didn’t.redactedAt GTE, we had 20 interns at any given point in time.redacted6 of whom were on my team.redactedI was looking at the construction industry based on my background. redactedWe sent out several hundred emails each week.redactedThe company I acquired was through one of those letters.

It’s amazing how different all your owner conversations go.redactedThat was probably one of my biggest lessons learned: Take every call.redactedThere is no such thing as a bad meeting or a bad call.redactedFor this business, the first call went very well.redactedThe owner wanted to meet very quickly.redactedI just happened to be in the area.redactedWe got together on a Saturday.redactedWhat I thought would be a one-hour conversation turned into a 4-hour discussion.

The search process was to grind through as many lists and owner phone calls as possible.redactedI probably took 3 to 6 new calls per week for the year.redactedThat leads to a lot of potential companies, somewhere between 150 to 300 companies, just having first calls.

How many LOIs? 

Our IOIs looked a lot more like LOIs. redactedIn our discussions, before we got to what most people would get to on an IOI, we were talking to owners about price and making verbal offers and then sending IOIs.redactedWe did the IOI before spending money on attorneys to do a more binding LOI.redactedI had 6 or 7 IOIs and just the 1 LOI.redactedI probably made verbal offers of some sort – just trying to figure out if their price was ever going to be close to ours – on a couple dozen companies.

Were there any IOIs that you were disappointed did not go through to a deal?

There were a couple of those.redactedOne of which was more surprising than disappointing.redactedThe owner and I had talked about price several times. redactedI originally thought we would never be close to the owner on price.redactedSo, I told the owner so in an email.redactedHe responded that he thought we would be close and he was interested.redactedHe responded, “No, no, no.redactedI think we’ll be closer.”redactedI then met with him for a third time, informing him that the terms we were offering was as good as we could do.redactedHe seemed to accept it and asked that I draw something up, saying “I think that will probably be good.” redactedHe was a cabinet maker, which sounds like a boring business.redactedHe had a lot of growth opportunity.redactedHe was a craftsman. redactedSo, he hadn’t been working on the business at all.redactedI was very excited about that one.redactedIt was also close to where I was living, which has its benefit.redactedIt turned out we weren’t close on price after all.redactedAs I said, it was more of a surprise than disappointing. 

What do you think happened in hindsight?redacted

In hindsight, I think a broker contacted the owner around the same time that I did.redactedI think the broker put a number in his ear that was unrealistic as far as the business’ value. <o:p>

How long did it take you to go from IOI to closing your acquisition? 

Around 6 months.redactedThe first IOI was sent around December 14^th.redactedWe negotiated that for another month or two.redactedWe signed an LOI in late February.redactedWe closed June 22^nd.redacted

Any hiccups along the way?

A few, but they were standard things.redactedFor instance, you thought you’d discussed the point, like the seller note, and then maybe his lawyer got in his ear maybe or wanted to push it a little more.redactedNothing major.redactedThe diligence surprised us a lot.redactedThe business was in better shape than we anticipated during the diligence.

That’s always a happy surprise. 

Yes. redactedIt’s construction which generally has many single job contracts.redactedBut, there’s more recurring aspects to this business than we anticipated.redactedThe software he was using in this field made it very easy to go through his books, talk to him about his financials and confirm his financials.redactedWe did an asset sale.redactedWe did a fair amount of diligence on the legal side to ensure there weren’t big liabilities lurking out there.redactedHe was getting paid quickly and he paid his vendors well.redactedAll those things were better than we were anticipated going into the process. 

Did he have a business advisor or broker? 

No.redactedHe talked to his accountant and his lawyer.redactedIn the early stages, his accountant was advising him.  Once we got to the LOI stage, he was working with his lawyer.

Any lessons learned during the diligence process?

I would have clarified a couple of points earlier, relating to the seller note, how long the payback period would be and if there were interest only periods and how long those would be.redactedI would have clarified a little more in the IOI or LOI.redactedIt added more stress on me having to re-negotiate points that I thought were already done. 

Tell me about your first day.

It flew by.redactedI met with everyone the first day.redactedAt GTE, we have a CPA on staff. redactedThe CPA and I came down together.redactedI worked on more of the operations side.redactedHe was talking to the office staff to ensure that we were going to be able to work and pay every one the first week.redactedGetting payroll squared away within 1 week is a lot of work.redactedWe must have certified payroll for government projects.  There was a lot to go into that that had to be condensed into 7 days.

The first day was meeting all the crews and then shadowing the owner.redactedThe way it works with the previous owner is that he’s been doing his day-to-day tasks and I shadow him.redactedNext month, we will switch.redactedI will do the day-to-day and he will shadow to let me know things that he would do differently.redactedThat way, I get his processes all down.redacted

The first day we started on working on how to schedule all the crews.redactedAnd, on the other side, making sure the accounting system was ready to accept payroll come Friday.

Did the employees have an idea beforehand that the sale was taking place? 

No.redactedThe owner and I discussed making an announcement.redactedHe made the announcement to the office staff on Wednesday evening and the crews on Thursday.redactedWe closed on Friday.redactedI arrived at the office on the Monday.redacted

The Vice President, who ended up buying a little back into the company with us, knew a little earlier.redacted

So, I’m interviewing you 1 month into operating.

It’s been a very busy, crazy month.redactedMy background in construction has helped in the transition, but there’s a lot of knowledge in the owner’s head, trying to get as much of it out as possible is a lot of work.redacted

How long will the owner stay on? 

We negotiated a 90-day full time consulting with an option to extend another 3 months if we wanted.  After that, there is 9 months of part-time consulting.redactedThe goal is from months 3 to 12 to drop down to 10 hours per week.redacted

What do you think so far?

I am having so much fun learning about this business and then working with this staff.redactedThe owner did put together a great team.redactedI’ve had a great time working with all of them.  How well will you mesh with the team is always a question going in.redactedIt harkens back to the first conversation I had with the previous owner, which lasted 4 hours, and a lot of the following conversations.redactedWe just had a lot in common.redactedRuss built a team that had other things in common with him. redactedSo, just by default, I have a lot in common with the people here. redactedThat’s been very helpful. 

Any other priorities for this first period (beyond getting to know the people and addressing the accounting/payroll)?

The number one priority relating to operations and business is learning how to schedule all the crews as efficiently as possible so that's probably where I spend the vast majority of my time.redactedEach day is just learning from the previous owner what he does and the processes he follows to do that.redactedThere's also making sure billings are out.redactedWe're going to do our first month end accrual next week. redactedThen, there's the typical owner tasks.redactedThe priority is really making sure the scheduling is done as efficiently and effectively as possible.

You’re just a month in and may not have had a chance to digest things.redactedBut, is there anything that you know now that you wish you had done differently? 

It's probably a little too early to say.redactedThey're small things. redactedFollowing the example in the ^Greg Ambrosia case study, I have been taking daily notes after everyone leaves and just writing everything that I can remember from that day down.redactedIn some of those, there are clearly some little things like: “I wish I would have had the handbook ready on Day 1 to introduce to everyone.”redactedNothing huge, probably maybe just a little bit better introduction on Day 1.redactedOn the other hand, I was trying to keep it short and simple which I think helped. redactedI probably could have a little bit more preparation from an HR side

What do you mean as far as a better introduction? 

I think more about HR policies.redactedThe goal (which we told them) was “We're going to try to keep everything close to or similar to what you've been doing as possible.”redactedBut, there's going to probably be some minor adjustments and having a couple those suggestions that I probably knew at that point just ready would have been helpful

redactedIn the construction industry, there's always call offs.redactedI think we probably could have introduced ourselves a little bit better to try to prevent the call offs.redacted

What is a call off?

A call off is whenever an employee calls you in the morning of, saying “I won't be there today. redactedI'm sick.” redactedSometimes health is the issue, many times they just might not feel like coming in to work; unfortunately, it can also be personal issues or something at home. In construction with a blue collared worker, it's not uncommon.redactedWe’ve seen it in our family businesses for years.redactedWe've come up with solutions that really help with that.redactedThe goal is to implement them.redactedI'm waiting for a roll out of a new handbook and some other HR policies with our 401K, which will be ready next month.redactedWhile all the guys were together in one room, it would have been helpful to have some of that stuff prepped before showing up.redactedThere's just so much to do leading into the closing that having an HR policy ready to go would have been tough. 

<o:p> </o:p>

Wouldn’t you worry that you might send too strong of a signal of there being “a new sheriff in town."

It's one of the things I go back and forth in my head.redactedThe way we would have worked the policy is to give more incentives versus disincentives -- which is what we will do.redactedMore of “Here are rewards you can expect if you do these things” versus “These are your punishments if you don't show up.”

Here's goals that I would have for you as we progress.  Just having some of those in place earlier would have been very helpful. redactedI haven't even done it yet.redactedWe're in the middle of the summer and construction is very busy this time of year.redactedSo, bringing the guys together is a big-time loss.  Thus, it would have been helpful while everyone was together that one day at once to roll out couple things earlier.

That’s a very interesting point based on the industry you are in.redactedAnything else about your experience so far that you’d like to share with other searchers?

The busy season is different for every company.  If we had closed a few weeks earlier, I think it wouldn’t have been as big of a deal.redactedWe just hit right as a lot of jobs were coming in for them. redactedSo, timing is everything there.redacted

As far as other lessons learned, it's early on.  Building a good relationship with the owner and the staff is just so important.redactedI think we've done that well so far.redactedA lot of that relationship was built during the acquisition process.redactedStressing how important that is for the transition.  You always hear the negative stories of: “I showed up and the owner was gone and barely doing anything within a week.” redactedThat hasn't been the case here at all. redactedDoes that mean this is the right way to do it? redactedI have no idea.redactedBut, building the relationship has been very helpful for me

redactedSo, it was ambitious doing your own search but then doing a search while starting your own search enterprise… do you have limitless energy?

My wife will tell you that I never stop working even at home.redactedredactedredactedShe was born about a week before we signed the LOI.redacted

It’s been a very busy six months.redacted

I think it just comes down to building the correct processes. redactedIf you're building the one process for yourself, how much of a difference does it make if you build five people at once.redactedA little bit of it was economies of scale.redactedI had good partners along the way.redactedFor example, Gabe Chick, who is working at GTE now.redactedHe was brought on very early in the school year of our second year.redactedHe and I basically had been trying to prep the whole system before we even showed up. redactedredactedredactedWhile you're making the tweak, it's improving everyone else’s search.redactedYou probably would have made the tweak anyway.redactedThen, we hired a person to handle our search management which I was doing originally.redactedSo, a lot of stuff just slowly went off my plate.redactedI just had to teach other people to do the stuff I was doing early on.redactedMaybe there's a little bit of more energy but for a lot of it, you must build the process anyway and you really want to analyze what you're doing.redactedHaving a team around you to do that probably builds enough efficiencies that the loss of efficiency from trying to build both at the same time might not be a break-even but it comes pretty close.

I must ask you about the conversation with your wife when you said: I want to start a search fund plus I want to form an incubator, GT entrepreneurs.  What was that like?

She always knew that I just like to go.redactedGoing into business school, the goal was that my dad and I wanted to buy more businesses and grow them by finding inefficiencies in them or where they're missing their sales opportunities.redactedShe knew the goal and was pretty accepting of my wanting to search and start the enterprise.redactedIt was a clearly stressful for her as far as the question of where are going to live. 

But, having me work a little bit extra probably wasn't that much different than what we've always had, because I always had some sort of side project that I was working on while at work.redactedThis was just the side project. redactedI know a lot of business schools have a lot of work -- but with all the analytical stuff that we end up doing at Carnegie Mellon on top of the regular MBA curriculum, I probably worked less after grad school than I did during grad school.redactedSo, she was probably happy as far as that goes.redactedIt was more of the uncertainty of where we were going to be. redactedShe was in grad school while I was in grad school.redacted

Congratulations on having a baby and buying a company at the same.  Those are some huge life changes all at once.

Whenever you search right out of school, everyone is in a similar boat, maybe you are just married or just about to get married, and then maybe you have a kid or maybe you have one while you're searching. redactedAt the age of 28 to 35, there's a lot of life events going on.redactedSo, they just all end up getting compounded on top of each other. redactedThey're all rewarding experiences you sometimes have to slow down and look at everything that's going on.redactedredactedredactedI think I did help convince my wife a little bit when we went on a two-week vacation right before we closed, being pretty certain that everything was going to be finalized.redactedI think it helped alleviate a little bit of her stress.

redactedTell me about where Generational Transfer Entrepreneurs is now and where you think it's headed in the future.

Right now, we've closed on two companies.redactedWe just hired someone to replace me.redactedWe'd already hired someone to replace Tom which was the first acquisition.redactedWith anything you have the chicken-and-egg problem.redactedYou must show successes before everyone starts coming to you but we have been having success getting interest at least from Carnegie Mellon and the school has been helping us out a lot in terms of both work area and space and then also finding good recruits and advisors.redactedWhere I see us is with 3 to 5 searchers every year, continuing to go forward and gaining more investor recognition as well as we close a few of these deals.redactedMost of the money was started with our family money and some close personal family friends as well.redactedWe've been getting a lot more traction since we closed on two deals with people being interested in what we're doing.redactedredactedredactedWe will need more office help as we get bigger.redactedRight now, for the non-searchers, we've got our search manager, our accountant and then my dad, as the managing director. We currently have 3 searchers after replacing Tom and I.

What do you think differentiates Generational Transfer? 

The biggest thing is just the types of companies that we will look at.redactedThe search fund model has very specific parameters some of which are followed very strictly by some other groups or by the investors themselves.redactedOur investors backgrounds are in slightly different industries.redactedAs a result, we are pretty industry agnostic. That being said, we're looking for searchers that have some experience in the Industry.redactedIf I wanted to go buy a tech company, I don't know if I would have gotten support for it.redactedTom buying a tech company made a lot of sense, even though he ended up with a medical company.redacted

Our ability to look at a different box then some other groups is our main differentiator.redactedWe've been flexible in what types of deals we allow the searchers to do as far as what types of deals they can look at and then also how the deal ends up getting structured. We also allow the searchers to add their own money or friends and family money on their deals. I’d classify us almost like an accelerator on the Harvard model or something like that.

A lot of searchers are concerned about the mentorship aspect of it.redactedCan you talk a little bit about that?

This goes back a little bit to the chicken and egg thing.redactedWe have built a group of people that have experience in business.redactedOur family’s network is large in terms of Industry.redactedTom, who I mentioned was our first searcher, bought a medical company that had a practice and a device. redactedWe quickly found within my dad's personal network, a person who had built out an orthopedic practice in the past who had run that from two offices to 8 offices.redactedWe knew what type of mentor would be good for that business and brought that person along as a paid Advisory Board position.  The goal is to have mentors for the searchers

As companies are acquired, we end up being able to help each other out a lot.redactedFor example, yesterday I was on the phone with one of our other Searchers about a deal that he was looking at just based on looking at similar deals to them.redactedThen my dad being fully involved on the day-to-day, he ends up talking to each of us all the time about where we are.redactedOur family business was fairly large; we did just shy of a billion in sales.redactedHe helps mentor a lot and was the chief operating officer of our business of our family business before we went out and start doing things on our own.

There’s mentorship there and the goal is to use our personal networks to for mentors as we grow. 

You discussed searchers with industry experience.redactedIs there anything else that you're looking for in GTE’s searchers? 

redactedI think it’s the ability to be in some industry.redactedGabe was in the military before getting his MBA.redactedHe’s looking at businesses that would have similar workforces to that.redactedThe real key that we look for is the ability to manage people because you can get some really smart MBA's who can solve problems really well but we're buying companies with people that already are there.redactedBeing able to manage them on Day One is incredibly important. redactedThat's the number one thing that we probably look for. 

Anything else you'd like to add?

We received some great advice got from some very smart people as we were starting up our search.redactedThere are a lot of different options out there now.redactedThey should all be explored before deciding.redactedDo you want to do a search fund? Do you want to get into the group? Do you want to self-sponsor?redactedOr, do you want some hybrid of all them? redactedGo and see what the pros and cons are.redactedEach choice is different.redactedEach one is better for different people for different reasons.redactedThat's the best advice I got because we were trying to decide do we start up GTE, do I just go do a search fund, or another option?redactedI spent the whole summer researching everything. redactedI skipped an internship offer that I had that was pretty nice to go and make sure that I made the right decision for myself in terms of searching.

Talk to everyone and learn the pros and cons from the people that are doing it.

That's all the questions I have.redactedThank you for your time.

Great talking with you.

Summary of Insights

Here are our a few of the key takeaways from our discussion with Brenden:

• ·      Take every call.  There’s no such thing as a bad meeting or call.
• ·      Clarify the seller note early on.
• ·      In preparing your Day 1 introduction, there’s a trade-off between assuring the employee base of continuity and a desire to make changes. The seasonality of your business may impact your timing of changes.
• ·      Building a good relationship with the owner pre-acquisition is paramount. 
• redactedFully investigate the different search models to choose the one that best fits you.