Search Party

When Quality-of-Earnings Reveals Cold, Hard Truths

Bob Boniface and his ETA search partner went searching for a high quality, blue-collar business in the lower middle market, and found ⁠TransTech⁠, a commercial driver's license (CDL) training business in North Carolina. The business had predictable revenue and competed in an essential, growing market. The seller was impressed with the research that Bob and his parter had done into the niche industry.
A letter of intent was issued, followed by a quality of earnings process. That's when the uncomfortable conversations began.
Quality of earnings is an early form of due diligence, the importance and utility of which many first time Entrepreneurs-Through-Acquisition (ETA) do not fully appreciate. Sellers, too, can be apprehensive about the process, because in translating cash accounting into accrual accounting, reported revenue and earnings can drop, often followed by a drop in the proposed transaction value, as well.
In a fascinating conversation with Search Party, four expert practitioners from the lower middle market discuss the criticality of quality of earnings, dispel misperceptions and compare notes on best practices for keeping investors apprised of shifting numbers, as well as preventing the seller from experiencing disappointment and due diligence fatigue. Boniface is joined in the Search Party episode by Anthony Walker of Next Coast Legacy, and Clay Brownlee and Ryan Turbes, both of ⁠Boulay⁠.
Boniface details how quality of earnings revealed lower revenue and earnings than originally estimates. This change didn't kill the deal, but it did require the parties to change the deal structure, as well as require the seller to "cross an emotional rubicon" because the purchase price needed to drop.
The experts also discuss expectations around workload and timeline, as well as how a good quality of earnings process can inform and accelerate the post-acquisition plan for value creation. As Boniface puts it, quality of earnings is "something you should really look forward to."
 
Search Party Lead Sponsor: Next Coast Legacy ⁠https://lnkd.in/eSAuRW5p⁠
Search Party Sponsors: Avidbank ⁠https://www.avidbank.com/⁠
Boulay ⁠https://boulaygroup.com/⁠
Mayer Brown https://lnkd.in/gU7sPPSg⁠
Plexus Capital ⁠https://plexuscap.com/
⁠
Search Party video-podcast website: ⁠https://lnkd.in/efJEa6GV⁠

Deal Dynamics in the Lower-Middle-Market: Software, Commercial Services, BPO

Businesses acquired in the lower-middle-market at single-digit multiples of EBITDA can be sold for double-digit multiples, but only if the new owners improve operations and grow earnings, according to three veterans of the Entrepreneurship-Through-Acquisition (ETA) search-fund market.
Multiples arbitrage, seller dynamics, buy-and-build opportunities and market mega-trends are attractive features of three industry sub-sectors discussed in this Search Party episode: software, commercial services and business process outsourcing (BPO).
While competition for deals remains fierce in the software lower-middle-market, there are "riches in the niches," says Anthony Walker, a Managing Partner at ETA private equity firm Next Coast Legacy. Walker notes that ETA searchers need to find software businesses that are growing strongly but also profitably. What many investors, and lenders, are looking for is "the perfect mix" of "healthy EBITDA with healthy ARR," says Conor Tidgwell, Senior Vice President at Avidbank, which provides financings to ETA and other lower-middle-market transactions.
The enormous commercial services sector is benefiting from outsourcing trends among lower-middle-market businesses. But many ETA searchers find these businesses - such as HVAC maintenance, landscaping, restoration - to be uninteresting, opening up opportunities for investors who see value, if not glamor. With the right management, commercial services businesses can be vastly improved improved through the application of sales and marketing resources, as well as the use of technology, says Dustin Sellers, a Managing Partner at Next Coast.
Included in the episode is a discussion of the seller dynamics in the three sub-sectors. In the case of BPO and commercial services businesses, the CEOs often are founders who personally provided the services that serve as the companies' core offerings. These founders may not have the skillsets to take their businesses to the next level, and therefore may be open to an outreach from an ETA searcher.
 
Search Party Lead Sponsor:
Next Coast Legacy https://lnkd.in/eSAuRW5p
 
Search Party Sponsors: Avidbank https://www.avidbank.com/
Boulay https://boulaygroup.com/
Mayer Brown https://lnkd.in/gU7sPPSg
Plexus Capital https://plexuscap.com/
 
Search Party video-podcast website: https://lnkd.in/efJEa6GV
 

Women in Search are Finding Momentum

Women are making gains toward substantial representation in the Entrepreneurship-Through-Acquisition (ETA) community, and supporting each other along the way. In fact, 17% of ETA searchers in the market are now women. In a fascinating conversation, three ETA leaders compare notes about the appeal of the ETA search-fund career, the advantages women can have connecting with fellow entrepreneurs, and the challenges and misperceptions women confront in a male-dominated industry.
This episode of Search Party includes Audrey Kohout, CEO of ETA company Luggage Forward, Tatiana Gaspar, Director at ETA private equity firm Next Coast Legacy and Katie Walker, a Principal at lower-middle-market capital provider Plexus Capital.
Kohout tells the story of how her and co-searcher/co-CEO Jessica Palfrey looked all over the country for a lower-middle-market business to acquire and run before settling on a logistics company in Boston, owned by two men. A deal was struck due in part to shared values of hard work and humility that transcended gender.
The experts also discussed the often-difficult balancing act of growing a business while also maintaining a personal life and, for women and men alike, growing a family. As Kohout puts it: "We're building our lives at the same time that we're building a company."
Near the end of the conversation, the three compared stories of awkward moments that women can face when men assume they are not in positions of leadership.
 
Women's Search Network: https://www.womenssearchnetwork.com/
 
Search Party Lead Sponsor:
Next Coast Legacy https://lnkd.in/eSAuRW5p
Search Party Sponsors:
Avidbank https://www.avidbank.com/
Boulay https://boulaygroup.com/
Mayer Brown https://lnkd.in/gU7sPPSg
Plexus Capital https://plexuscap.com/
 
Search Party website: https://lnkd.in/efJEa6GV

ETA Searchers, Grit and Self-Actualization

A career move to the Entrepreneurship-Through-Acquisition (ETA) search-fund market may result in any combination of bewilderment, disappointment, wealth creation and self-actualization, according to A. J. Wasserstein, a Senior Lecturer at the Yale School of Management.
Wasserstein, himself the builder of two successful businesses, has made entrepreneurship and the search fund community the subject of his teaching and academic work. As Search Party learned in a fascinating conversation, Wasserstein has developed frameworks not only about the potential of an ETA career to pave a way to self-determination and wealth, but to personal fulfillment, what psychologist Abraham Maslow calls self-actualization.
Wasserstein, together with Next Coast Legacy Managing Partners Dustin Sellers and Anthony Walker, discusses the growing awareness of the ETA career path among MBA students, the attributes necessary to embark on a high-risk professional journey. Making sure the entrepreneurial path dovetails with personal values and goals is important, says Wasserstein, because he doesn't want his students to end up "the richest divorced people, or the richest people estranged from their kids."
At the center of the self-actualization possible for CEOs of lower-middle-market businesses is the ability to directly and positively impact the lives of employees and other stakeholders, to create an entity bigger than the personal ambitions of the ETA searcher.
 
Select works from A. J. Wasserstein:
Exploring Search Fund Entrepreneur Economics https://yale.app.box.com/s/0mo483h9lmfd04bl1om9dkc7oz4xm2s6
Exploring Search Fund Entrepreneurship Using Maslow's Hierarchy of Needs as a Framework
https://yale.app.box.com/s/gz48z3i3t55oxdzqbxk1ny32v6oq775o
Including Employees in a Search Fund Waterfall https://yale.app.box.com/s/6ouw7vhe9eq6a24y63dy29mjz166o8ht
 
Search Party Lead Sponsor:
Next Coast Legacy https://www.nextcoastlegacy.com/
 
Search Party Sponsors: Avidbank https://www.avidbank.com/
Boulay https://boulaygroup.com/
Mayer Brown https://www.mayerbrown.com/en
Plexus Capital https://plexuscap.com/

Make Way for ETA: Dustin Sellers and Anthony Walker of Next Coast

Dustin Sellers and Anthony Walker, Managing Partners at leading Entrepreneurship-Through-Acquisition (ETA) investment firm, Next Coast Legacy, share their personal career journeys through the finance industry to become leading practitioners of the ETA strategy, and comment on the exciting growth of the asset class, the attributes necessary for successful searchers, and the rigors of acquiring and running small- and medium-sized businesses.
Dustin, who specializes in mentoring searchers and first-time CEOs, shares the attributes necessary for ETA success, including a willingness to "chew off your own arm" to avoid losing money. He describes the challenge of identifying the right acquisition target as akin to climbing Everest without oxygen, and the challenge of being a first-time CEO as akin to managing while underwater in a scuba suit.
Anthony, a due diligence expert who became "disillusioned" making short-term investments at large hedge funds, talks about his light-bulb moment when he learned about the ETA opportunity for hands-on value creation at small- to medium-sized businesses.
 
About Search Party
Search Party is a video-podcast created to elevate knowledge about the Entrepreneurship-Through-Acquisition (ETA) strategy. On a regular basis, the podcast will convene expert conversations about the best practices and opportunities in ETA, a model for business growth, career development and wealth creation that is becoming increasingly popular.
Search Party is hosted by David Snow and produced by Elatromme.
 
Search Party Lead Sponsor
Next Coast Legacy https://www.nextcoastlegacy.com/
Search Party Sponsors
Avidbank https://www.avidbank.com/
Boulay https://boulaygroup.com/
Mayer Brown https://www.mayerbrown.com/en
Plexus Capital https://plexuscap.com/
 
Search Party podcast homepage: https://searchpartypodcast.com/
 

Search Party: A New Video-Podcast About Entrepreneurship-Through-Acquisition

Financial journalist David Snow explains the impetus for the launch of Search Party, a new video-podcast featuring Next Coast Legacy Managing Partners Dustin Sellers, Anthony Walker and a rotating roster of expert guests.
On a regular basis, Search Party will delve into topics designed to elevate knowledge of the entrepreneurship-through-acquisition (ETA) strategy, a form of investing, value- and wealth-creation that is increasingly popular, especially across business-school networks.
Search Party topics will include models for the alignment of economic interests, deal-sourcing techniques, due diligence, methods for operational value-creation and financing strategies, among many others.
 
About Search Party
Search Party is a video-podcast created to elevate knowledge about the Entrepreneurship-Through-Acquisition (ETA) strategy. On a regular basis, the podcast will convene expert conversations about the best practices and opportunities in ETA, a model for business growth, career development and wealth creation that is becoming increasingly popular.
Search Party is hosted by David Snow and produced by Elatromme.
 
Search Party Lead Sponsor
Next Coast Legacy https://www.nextcoastlegacy.com/
Search Party Sponsors
Avidbank https://www.avidbank.com/
Boulay https://boulaygroup.com/
Mayer Brown https://www.mayerbrown.com/en
Plexus Capital https://plexuscap.com/
Search Party podcast homepage: https://searchpartypodcast.com/