We spoke to Carlos Meza shortly after Legado Capital’s acquisition of Kivuto Solutions, Inc.

(photo: Acquisition Announcement)

How long did it take you to go from LOI to owning the company?

4 months. We put our LOI in front of the seller around September 28th. It was signed October 16th. We moved into the office February 23rd. Our first “official” day was on March 1st, when the deal finally closed.

Tell me about your first day?

We did an announcement for the whole company on February 23rd, which was terrifying because we hadn’t closed the deal and were still dealing with problems. The last two weeks were hell because one of our biggest investors is owned by a bank. Someone from compliance asked for a lot of extra things at the end. That almost killed the deal in the last two weeks, putting in a lot of pain. By February 23rd, we hadn’t finished dealing with that, but we decided with the owner to make an announcement because everything was set up to make an announcement. And, everyone was talking about it.

We just couldn’t delay anymore. That was my birthday, by the way. We gathered the 100 employees in the cafeteria. The owner stood up and gave the history and why he was doing it, why he chose us to be his successors, etc. Then, Jeff and I talked about who we are, our plans for the future, why we liked the company so much -- trying to get people to understand that it is going to be a very positive thing for everybody going forward. We began having 1:1s with employees that day. At the end of the day, we popped a bottle of champagne and celebrated. Still, there was a terror in the back of my mind that we still haven’t closed. There was a slight chance everything could still fall apart. It wasn’t easy. Our first days, we spent a lot of time walking around the office, learning names and getting to know people, asking what they do, talked to people in sales and managers, etc.

By the close of the transaction, I already had an office and had things in motion. It felt pretty natural as we had already had so many conversations and developed relationships through the transaction.

What is your average day like?

That’s interesting. (chuckles). In the last 45 days, I’ve probably only spent 10 in the office. I’ve been to Mexico, California, Toronto and Seattle seeing clients. As you can imagine, I’ve spent most of my time on planes and on the road. There’s not a normal day per se.

Well, today is sort of normal day. Jeff and I come in very early before everyone shows up, about 7:30 am. The employees start coming in after 8. We walk around and touch base with people very socially or on more in-depth work-related things. Then, we’re spending the first one or two hours checking emails or addressing issues. Then, it’s having meetings with managers and doing calls with clients. I have sales and finance under me. So, every day there is something related to finance I have to deal with.

To be honest, we still haven’t gotten into a set pace yet. It’s been so hectic, so much travel and so many things we are trying to do. Also, we had our first board meeting yesterday. So, the last two weeks, I spent a lot of time preparing for that.

We are still dealing with some closing housekeeping matters, for example, paying a few bills associated with the deal, adjusting the financials, etc.

People need to know that after closing you are still closing for a couple more months. There are many things that need to happen, such as the accounting, so that everything is cleaned up and now this is totally yours and all that transaction is behind you.

The first 3 months are very hard because you also have to wind up your fund. You have to deal with that accounting and all those bills. You’re moving with your family which also makes things very difficult. Jeff and I have our wife and 3 kids each.

Tell me about your family dynamics.

We were lucky. Jeff and I were in very similar spots in our lives when we decided to do this. Both of our wives stay at home with the kids. We both have a little bit larger of family for a searcher. We are a little later in our life than the average searcher. We were lucky to be in similar situations. For our wives it was a little easier as they weren’t leaving careers. I have a teenage kid but Jeff’s and my other kids are smaller. Moving smaller kids is a little easier. Still, moving 3000 miles away is stressful. When we got into this, our wives knew that the chances of finding a place outside of Calgary were very, very high. So, they were prepared mentally for that fact. At the same time, moving a household, moving schools and getting into a new house along with Jeff and I being on the road so much does bring stress. We are fortunate our wives are able to take care of a lot things because they stay at home. That has been very helpful, but the downside of having a big family is that it makes moving more difficult.

Is running your own company what you expected it to be at this stage?

It is hard to say -- because we are still in the heat of the transaction. It is still very recent. As I mentioned, I’ve spent so much time on the road talking to clients and vendors. It’s hard to feel like: Now we are doing this.

Looking back, it’s been a lot of fun. The days are interesting. There’s definitely not a dull day, for sure. You experience all the human emotions – terror, excitement, fear and satisfaction in many ways. The day we closed the transaction was very satisfying. It was a very steep road to climb, we were able to do it and we were able pull it off. A lot of emotions.

I worked 13 years for big banks. It was a very different environment. There was a set pace. You knew what to expect. Every day we walk into the office we don’t know what the day is going to look like. Each day never goes as planned, at least for now.

It is very very fulfilling. What you feel in terms of responsibility changes. You know whatever decision you make will impact at least 100 people who depend on us along with their families. That’s a burden I have not felt before.

This is what I wanted to do and, so far, it has not disappointed. Getting to this point was much harder than I ever thought. I thought the searching was hard. Now, I think that search is not as hard as closing the deal and operating. I would say that operating is far more fun than searching.

(chuckles) I would guess all searchers feel that way.

We enjoyed searching. I wasn’t nearly as stressed searching as I was in closing the deal or coming up to the board meeting. You face different challenges. It’s very fulfilling personally to knowing we can impact a lot of people in a positive way with the work that we do. That’s a lot of fun.

How long is the seller going to stay on?

We agreed to a year and half. He has an advisory role and is on the Board as he rolled over a good chunk of money. He will stay on the Board. Likely it will be 1 year in the office and, then the other half, he will be remote and coming in now and then.

Searchfunder member

Searchfunder member

What are your priorities going forward?

Our focus is on growth. The company has been very sleepy and very fortunate to get all the business pretty much falling out of the sky. It’s pretty much been pure inbound sales. And, they have been very good at that. There hasn’t been an outbound focus. So, we are going to focus on outbound sales. We are going to focus on 2 or 3 particular products where we think there is potential. We will focus on pure growth and how to scale that.

Anything else you’d like to add about your experience so far?

One of the things we liked from our deal is that we really sold the seller on the search fund model. The only reason that he picked us was because he wasn’t interested in selling to a private equity shop. He knew their modus operandi. He would have been a good candidate for that. Our deal was much larger than a usual searcher deal. He would have attracted a lot of attention from bigger private equity. He really cared about his legacy and his people. We were a great fit for that. He also liked that we could bring all this brain power from our investors and network for the company, which he hadn’t had in the past. I think there is a gap in the market and a space for search funds. You just have to find the right company. There is a lot of luck that goes into it. We are definitely convinced if you get out there, luck will find you. That is what happened to us.

In 10 months of searching, we reached out to 12,000 companies. It was a decent outreach. I know searchers who have done more than that. You do your numbers and get out there. At some point luck found us and we were prepared.

The other thing we did was that we saw a deal that we liked and we never let it go. We grabbed it by the horns. We liked the deal. They sent us some numbers. We signed an NDA and then met the seller for the first time. The next day we gave him an LOI in person. We didn’t give him a chance to think about it too much. We were super aggressive and relentless in trying to close the deal. He thought we wouldn’t be able to pull this off. When we closed the LOI, he said, “I’ll give you guys a 30% chance that you will be able to pull this off.” Looking back, I think our chances were closer to 10% due to all our difficulties. We never, never let it die. We always tried to find a way to make it work. We were always open minded. Our being aggressive is what got us to the close.

We could have met him, took time to think about it and then talk to investors. Instead, we liked it and said, “Let’s go for it.” We knew we didn’t have all the money but we knew we wanted it and would find it if we liked the deal. It had all the characteristics of the deal we wanted. After 10 months, you know a good deal. It checked all those boxes. We said, “This is our deal. Let’s go for it with everything we have.” We got back to the hotel, drafted the LOI, and talked to some investors, next day we were in the office and we hand delivered the LOI. To other searchers, I would say once you find your deal, hold onto it.

If you know in your heart of hearts it’s your deal, grab onto it and don’t let it go.

Thanks for your time.

Thank you.

Summary of Insights

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

  • • Searching in Canada has different pros and cons from a USA search. There may be lower competition in the lower middle market for a proprietary search, but business awareness is low and the flow be lower.
  • • Choosing a more complex business outside the classic mold for search funds requires increased communication and education of investors.
  • • The closing process is a process that takes a lot longer than you expect.
  • • Having your family members on board and understanding the probabilities is helpful in making a successful transition.
  • • If you find a good deal, do your best to hold onto it.