E:33 Top M&A Entrepreneurs - Nick McLean Four Pillars and Five Acquisitions

Welcome to the uh top M&A entrepreneurs today. My guest is Nick McLean from Four Pillars Investors. Just a little bio on Nick here. He uh Of course, the founder of Pillars Investors, who previously had GXP Investments, he was corporate developer at a mineral company, corporate developer and treasury at Fike, supply chain consultant in Intel, corporate development at 3M, analyst at Deloitte, and he's got an MBA, uh, from Michigan and a BS from industrial Engineering. So, thanks for being here, Nick. Thank you. Thank you for having me. So, tell me about Four Pillars investors, you know, kind of why you called it that. I, I take it that, you know, there's, there's 4 pillars of the 4 pillars of a leg or a colosseum or something, but tell, tell us about that. What, what are those 4 pillars and what do they mean to your business? Sure, sure. So whenever, whenever We were founding the business, um, you know, we, we had a, uh, you know, there's, there's a lot of different companies with, you know, capital partners and whatnot, and you know, it's hard to tell what exactly what they do. And so, you know, I talked to a few, you know, friends, associates, colleagues, etc. about, you know, a potential name for the business and it was like, OK, what about Midwest. Manufacturing acquisition company and it was often met with, you know, silence and whatnot. So I realized that I probably needed to go back to the drawing board and and figure out what a, a better name should be. And, and the process that I use is I, you know, I, I feel like I'm very, you know, principles, uh, principle centered. And so I, you know, just jotted down a number of different You know, concepts or principles that that were really important to me and, you know, I came up with a list of, you know, let's call it 12 to 15, really distilled those down into 4 that are not only important to me, important to the team, but they, they really show up. You know, almost on a daily basis and how we think about our company, how we think about the companies that we potentially invest in, and how we help or and or work with the companies that we're, that, that we are owners of. Yeah. So you, the four pillars are, I see on your website, relationships, challenge the status quo, servant leadership and persistence. Can you just tell me like, about each one of those, why that was the most important in a pillar to you? Sure, absolutely. So I, I would say the perhaps the most dominant of the four pillars is relationships is a cornerstone for success. I mean, any, anytime we are meeting with folks, we honestly and and and legitimately try to form a strong relationship with the person. You know, we're, we're not about, we're not about transaction, like we're not, we don't take a transactional focus. We don't think about what's best for us and not care about the other person. I mean, we, we really want to form a bond with whoever we work with because we feel like if, if there is some sort of bond or relationship there, everybody is gonna be better off and You know, I'm not saying that that's gonna work for everybody, or that's the, that's the one principle that will lead to business success, cause I'm, I'm sure it's not. However, it is important to us and, you know, we don't want to be successful if we're not building solid relationships with the, with the folks that we work with. How do you determine that to, to work with somebody? I mean, do you put somebody through test or is it naturally come up during your communications, like, oh, that was kind of prickly. I would not want to be doing business with that guy or his style or maybe his demeaning behavior or maybe he was rude to a waitress or something. Yeah, I mean, all, all those things. I mean, but typically, I mean, we haven't relied on profiles as much just because, you know, it's easy to, um, you know, if you have somebody uh applying to be an employee for your, your company, it's easy to send them through a, you know, psychological profile or a, you know, you know, job assessment type profile. Uh, but when, whenever we're talking about, you know, business owners that are potentially going to sell their business to four pillars, it's a little bit more of a You know, challenge to, to get them to agree to, you know, to, to do a personality profile. So, you know, sometimes we'll do that, you know, as, as a very late stage in our diligence process, but, but early on it wouldn't really take place. And so how do we, how do we determine that? I mean, really, again, it's a lot of what you said. I mean, it's, you know, for if we're at lunch it's, you know, how they treat the wait staff, you know, are, are they opening for doors for people and whatnot. You know at the end of the day though, you know, what we talk, we, we talk a lot, you know, we typically try to listen more than we talk. However, when it comes to, you know, when it comes to helping us determine whether we'll work well with someone, sometimes we, we do a little bit of talking and, and that talking usually is around the four pillars actually. We, we tell them what those four pillars are and if after we say those four pillars, there's just kind of like, oh. Yeah, that, that sounds pretty good. We realized that that those pillars probably didn't resonate with that person too well. However, what, what is more common, uh, whenever we do, you know, strike, strike a chord with someone is, you know, one of the four pillars will really stand out and they'll say, yeah, I mean, I really, I really like that approach. That, that was really, uh, important and, and, you know, vital to what we do here at Company XYZ, etc. etc. Yeah, interesting. Well, that's a good foundation to start with. So let's talk about your investments right now. I saw that you're investing in Southwest Steel, uh, fabricators, dark casting, eagle precision sheet metal, and Turk manufacturing. So you have 4 in your portfolio right now? That's correct. I mean, well, actually I would call it 3, Turk is more of a a bolt on to eagle, and so it's really, uh, Southwest steel, DART, and Eagle, which has two locations. Yeah. Now you had uh you bought now Hills of furniture but you exited that because I don't know what that means except that it's a furniture company versus a, uh, you know, steel kind of manufacturing, didn't fit. Well, no, I mean, yeah, yes, it was definitely more of an opportunistic transaction. So Nell Hills is an iconic retail store here in Kansas City, um, grow growing up, uh, my, my Mom went there as well as the, the other folks that we, we did the deal with. And so, like we, we had a very, you know, we had a very strong appreciation for the brand, for the company. And what happened is there was a husband and wife team that wanted to buy the business for the wife to run. However, they wanted some expertise, you know, a little bit more M&A expertise on, on the team to try and get the deal closed and, and manage it post close and So the, the, the husband who I knew before, just asked us if we, if Four Pillars wanted to partner on him with it, said absolutely, uh, you know, expected that to be a long term hold and just a, you know, steady income stream over the years. However, the, the, the business is doing pretty well and the husband and wife decided that they were in a position to to buy us out and so we uh we, we took them up on that and, and are no longer participating in it, but it was, you know. Very good transaction. Husband and wife are doing a great, great job. You know, we're, we're, we're still friends, we still get along very well. So it was, it was just a good, good transaction all the way around. Even, you know, even despite of all the, the, the stress and challenges we faced during, during the COVID pandemic. Yeah, that's cool. You know, Warren Buffett bought that, uh. Uh, that's a furniture company and still owns it. Yeah, Nebraska furniture Mart, yeah, yeah, there you go. So why, why this type of sector steel fabrication, dark casting, precision sheet metal? Why, why is that? I mean, is your family from that type of, or do you? Sure, no, I mean, very, very good question. So my, you know, my background, my, you know, my uh undergraduate degrees in industrial engineering and, and a lot of what industrial engineering is about making processes more efficient. Typically or historically, that's been almost exclusively in a manufacturing environment. You know, as of late, it's it's started to take place in more more sectors, you know, the manufacturing type principles in more sectors, but again, historically, industrial engineers have worked for manufacturers. After, after my undergrad went to work for Deloitte Consulting and was working with manufacturers there. Yeah, I like the manufacturing space. And when I was at Deloitte, all the, all the folks I worked with, we, we'd always joke about how, you know, we'll be working on, on a project for 6 months and there's nothing tangible that you actually create, whereas that's, that's totally different with manufacturing. Additionally, I, I just think manufacturing is, is very important for an economy, you know, especially in the, you know, starting in the 80s and 90s, you know, the US was, you know, going hard, you know, steering very, very, uh, you know, in a straight line towards more being more of a service economy and we're still there. However, you know, with the pandemic with other, uh, you know, the global macroeconomic changes that are taking place, and we really feel like manufacturing is a great place to be at in the US as more companies seek to augment their supply chains with a domestic source of manufacturing, which is, you know, a positive trend for the country, positive trend for manufacturers in particular. Yeah, let's talk about which one was the first one that you purchased? Southwest Steel, Southwest Steel, and how was that process? I mean, what did you, how did you start? You said like, hey, this is, we're gonna buy companies between 3 million and 15 million I gotta do this, and what did that whole outreach start like? Sure, so this is, this is, I mean, a very good question. I mean this is a question that's pretty much asked of anybody that works in private equity. And what I would say is you, you try a little bit of everything and you never know what is going to work for, for that particular deal. Um, so I mean we would, we would talk to business brokers and investment bankers, we, we did some, uh, you know, we, we sent out letters, made phone calls to, to business owners, uh, we, you know, the general networking, etc. etc. Uh, this, this deal actually was, uh, represented by an investment bank here in Kansas City, which is where Four Pillars is based and, uh, you know, our earlier deals were a little bit smaller. This one was very small, uh, as, as well, but it was, it was local, we liked the opportunity, we liked the, the, the story, and so that's why we decided to pursue it. Yeah, sounds like you use one of your four pillars as a persistence. Uh, oh, I mean, no, no question. You don't, you don't understand how many times I've heard no in my life. Yeah, and it, uh, so this investment banker, was it in their portfolio or they just knew about it and they said I'll make the introduction. I mean, this, this investment bank almost exclusively focuses on sell side engagements, so their, their clients will hire them to help them sell their business. Gotcha. So it was, would you say it was that the right multiple as what the investment banker did? how was that uh negotiation? Yeah, I mean, very. Yeah, I mean valuation is is always, is always very difficult, um, and you know, one thing that I think that a lot of people, perhaps some people that, you know, don't live in the M&A world every day is that there's, there's definitely a difference between, you know, the valuation and the structure, those are two different discussions. Um, you know, typically, if, if, if a, if a seller wants a specific number, then we, we will try to give them that number. However, we'll have to create a structure that is, is, is still agreeable to us and And as it relates to Southwest Steel, uh, we were because that was our first deal and because it was smaller, we actually pursue, we actually got an SBA loan to help with the, the majority of the funding for that deal. What would you, what was that 70% or 90% of the purchase price or uh something around 70%, yeah, 70%. OK. How long did that process take? I, I have been through the SBA process and it just took a long time to get approved. Uh, and then to go through my deal ultimately fell out, but the whole SBA process took a lot longer than, you know, let's say speed, was the opposite. Yeah, absolutely. I mean, even, even, I mean now I can only imagine what the process would be like just because anything, anything having to do with the government is is extremely logjammed and and slow. I mean, I mean, yes, it did take, yes, it did take a long time, and that was, you know, if we could have sped that up, the the close could have happened more quickly. However, you know, in any deal, there are a lot of different, you know, work streams, if you will, that uh lead to either a a it being a quick deal or a slow deal. I'm trying to think back on on this particular deal, one of the larger sticking points was determining how much working capital should remain in the business. Um, you know, just, just as a quick, uh, you know, what did they, so what, what was average for the company and what did the SBA want or need. And it was less, it was less what the SBA wanted, um, because they're, they're not too concerned about that. It was more what the sellers were comfortable with, um, you know, at the, at the smaller And uh like a more Main Street type transactions, you know, with, you know, I, you know, let's call it 500 to 1.5 million. Typically, the starting position is that the sellers want to keep all their AR and they want to sell you their inventory at at cost or at face value or market value. However, you know, on, on, you know, more traditional middle market deals, working capital is just a, you know, part of, of the purchase price. And so the, the challenge was trying to figure out what was the appropriate um method on this deal and you know based off the, based off the history, based off the track record, based off the investment that would be required, you know, we, we were only going to be interested in the deal if working capital was was included in that purchase price and so uh we ultimately we got there. It's just, you, you know how it goes. It was, it was a it was a a negotiation point that we, we had to uh had to come to terms on and thankfully we were able to do that. Yeah, I mean, I wouldn't go anywhere with a manufacturing company, current assets minus current liabilities, that's what your working capital is, I mean. Absolutely. Why would you deplete that or not conclude that because you're gonna need a lot of equipment. Yeah, absolutely, yeah, I mean, that's, that's our point exactly. You know, it's like buying a car with no gas, you know, it's not gonna take you anywhere. Why, why would you do that? So how is it going for Southwest Steel? I mean, you're, the website says you increase efficiencies or operating capabilities. Has that happened? come to realization? I mean, absolutely. I mean, we, we, we've, you know, we you know we haven't, you know, we, we tried to grow, like what we've tried to do is we tried to grow the pro the the staff of production personnel while making sure that the, the front office staff wasn't wasn't uh overloaded or anything, and I feel like we're in a good position there. Uh, just like probably every other company in the United States, it's, it's a challenge to find labor, uh, but we've, you know, bitten the bullet and, and just across the board have have raised wages and that's, you know, that's helped us find additional, uh, additional, uh, welders and and fitters and and other types of production personnel. In terms of, you know, how the company is doing, I mean, we would, we would certainly be in a better position if steel prices were not going through the roof. I mean, right now, some of the steel steel. Uh, is priced at, you know, 4 times what it was, you know, a year or so ago, and as you can imagine, you know, for projects that are, have a lot of steel on them, if, if your major raw material goes up 4 times, it's gonna put the the project in jeopardy. And so a lot of our projects, some of the projects but uh in particular that have been sponsored by the US Army Corps of Engineers have been delayed because of these overruns on costs, but Yeah, regardless, we're there, there's still projects getting released. We're, we're still, we're, we're, we're, we're, we're definitely holding our own, no question. Yeah, well, that's good. So you said you purchased that or or got an SBA loan 70%. I don't know what the loan, SBA loans are what total max $77 million. So if you Uh, so if you just got an SBA loan for 70%, what was the other 30%? How much did you put down? How much did the seller find? You can't have seller financing with the SBA, is that correct? No, you can't. Oh, you can. OK. Um, I perhaps what you were thinking of is they can't, they can't retain any ownership. Yeah, that's right. Yeah. Are they still involved in the operation as a consultant? No, not, not anymore. They, they were the, they, they stuck around for a year or so. And then transitioned out. You know, we, we were very fortunate in that the plant manager was is is he, he, he was, he was, you know, top notch, and he's actually president of the company now, he's running the business and and he's a part owner as well. That was that a top consideration when you purchase the business if this guy leaves, can the #2 man step up? Um, I mean, yes, yes and no. I mean, we were, we, I mean, he was definitely always considered a key employee. However, going into the deal, part of the part of the thesis, if you will, was that I would be the one running the business. So I, I did step in as as president of the company for about a year and a half. After that time, I went back to more working directly for Four Pillars to try and find the, the next deal, so to speak, and it was a That point where our our plant manager really, uh, you know, ascended to the role of president. Yeah. So where did that other 30% of financing come from? It was a mix of seller financing and personal funds from myself and my partner. OK, gotcha. So what was the next one, dart casting or eagle precision? Uh, Eagle Precision was the second one. that, that deal was sourced by my partner whose name is Thomas Sanford. Uh, he was, he was living here in Kansas City, uh, but moved out to Portland with his wife to, to run that business. Yeah that, that deal closed in September of 17. OK. Was that a lot, you said uh Southwest Steel was a smaller deal. Was this a lot larger? Eagle? Probably, probably about twice the size of uh twice the size of the of Southwest Steel. Yeah. Did you set that in your target? Say, hey, look, we, you know, all the effort and energy we put into this first acquisition, probably spend the same amount of energy but get paid better in a larger acquisition. I mean, you, you hit the nail on the head. I mean, for, for some, some folks are not as as perceptive as you are, uh, they think smaller deals are easier to get done, but that, that in fact is not true. I mean, sometimes, actually oftentimes, uh, larger deals are, are easier to get done just because, you know, the larger Deals, the, the companies are more sophisticated. They have owners that have maybe been through an M&A process before. Their, their cadre of, of advisors is more experienced in M&A transactions. So, yeah, I mean, it's, it's, it's, it's no more or it's no more work to get a larger deal done. A lot of times it's, it's even less work. Yeah, and he sourced that deal from where? It was, it was from a business broker out in the Pacific Northwest. OK, would that be John Martinka, cause he does a lot of those deals in Pacific. Oh, I'd have to, I'd have to go back. My, my partner might, might recall the name, but uh I, I, I, I don't. And the uh price that you guys settled on, was it pretty close to the valuation of the banker or or the investment brokers? I mean that one, so I'm trying to think that that deal did that the business broker did have a a listing price for that business and that's that's pretty much where we settled that. Yeah, and has that did did it, was it a fair valuation, you would say, and say, I, I mean, it's easy to say like when you're getting before you purchase, I think that's a fair valuation but besides. Aside from the comps, but then you get into it and then you're like, oh crap, I, I would not have paid this much for it, or, or we got a great deal. Well, uh, it's not a, it's not a direct answer to your question, but you know, there, there have been a lot of ups and downs, uh, at that company. Uh, the, the primary down being we were, we were pursuing an acquisition that that fell through and the, the, the, that would have been the 3rd acquisition out there, not the second. So this 3rd acquisition fell through about a year or so ago probably and it was very disappointing. We all thought it was gonna get done, it would have really transformed the company. So that, like I said, that was down fast forward uh to, to about right now, and I would just say that, I mean, the, the future is very bright for these two companies. Uh, Thomas hired a very outstanding CEO CFO who's very knowledgeable of the industry. We are adding a lot of great people and very important roles. Our customers are, are seeing what we're doing in terms of buying new equipment. Adding square footage and you know, they're they're, they're hitching their start to our so to speak. And so even, even though, you know, just a year ago we were all down because the acquisition went through, fast forward to right now, we're we're all super excited about the what the future is gonna bring for for this. And have you guys increased revenue and even a bottom line too? I mean, not revenue, yes, even that, not right now because we're, we're, we're, we're growing right now we're adding to the workforce in excess of the revenues that we're bringing in. So over the past, over the past 2 or 3 months we probably added 10 to 20 people, uh, and, and those were, you know, very, you know, well compensated folks, and you know, that just hasn't really started to hit the hit hit hit hit the top line numbers just yet. Yeah, who are the biggest customers? Yeah, from eagle precision. What type of guy? Is it government? Is it uh Well, largely, so, so I, so I wasn't familiar with this term, but you know, the, you know, part of the Pacific Pacific Northwest is known as the silicon Forest for a lot of largely because of all the semiconductor, uh, manufacturers out there. Yeah, Intel's out there. Intel's out there. There's, you know, other, other companies like Applied material, lamb that all are in and around semiconductors. And you know, most of our work at those companies is related to the semiconductor industry. Oh, interesting. Yeah, so what was that you did try to purchase a company, it was a bolt on. Now why would have, what was, what was the gap that you were missing and say, hey, if we buy this company, it will do X for us. What, why did you Try to do that. What, what was missing there? Well, I mean, so I mean part of it was just size and scale, so it, it was a larger company and, you know, in, in the private equity world, you know, if you can get to, if you can get to get to 5 million or more in Ebi. then that opens up a a much wider universe of potential buyers. And so since our Around this is a private equity firm, you know, they're, they're going to want to exit their investment at, at some point. Um, and so the, the, the goal was to really get not just greater than $5 million which would open up a, you know, like I said, a wider group of private equity buyers, but our goal was to get to, you know, greater than 1010 million of IEA. So 10 million of IEA, not only do you have a, a very wide group of, of private equity buyers. You know, at, at that level, the multiples that are paid for those businesses, you know, multiples of IEA are, are much higher. So they go from single digits SDE to to double digits by that time, absolutely. And so that that's a core part of our strategy is that we really like companies that in the in the in the 3 to $4 million dollar EBITA range because you can continue. Typically, you know, if you're, you're diligent and you show discipline, you can, you can buy, you can buy companies in the 4 to 6X range with 3 to 4 million of EBITA. Then the next goal is to get that north of 5. And if you can, you know, even take it from, you know, 5 million of IIA to 10 million of IIA, then I mean you're, you're gonna have a very successful outcome. Yeah, and so that acquisition that you had didn't. Go through or execute, but you did add Turk manufacturing, bolt on to Eagle. What, what did Turk do that Made sense for the business. Well, the, the Turk acquisition is really a a feather in the cap. I, I would say I would like to say it's a feather in the cap for the company, but really I have to say it's a feather in the cap for my partner. And the reason why is because the, the former owners of Turk uh reached out to the former owners of Eagle and asked how Thomas was to work with, how Four Pillars was to work with, etc. etc. And obviously we weren't privy to those conversations and I don't know exactly what was said, but the feedback from the former owners of the, of the first acquisition was, was positive enough that the owners of Turk just said, we're not going to enter a process. We want to sell to you guys, uh, assuming we can, you know, come to an agreement on, on all the deal, on all the deal points and we're able to do that, um, close the, close the deal, uh, successfully and it and it's been a great acquisition, very, very pleased to have been able to uh uh get that one done. Was that an adjacency business that what did it add to it? Did it add customers, IP or supply distribution or indirect or direct competitor? What was that? I mean, really it was more around uh horizontal uh integration. So Eagle was more of a sheet metal manufacturer and Turk is more of a CNC machine shop. So are are you familiar with what a CNC? Yeah, yeah, I used to work for Autodesk, so they built. Yeah, yeah, absolutely. So it, it was like I said, it was more of a horizontal uh integration. We wanted to serve a different type of customer and have a more complete offering for customers that needed more than just, you know, sheet metal parts which are typically just, you know, bent or punched or or cut into, uh, you know, into the customer specifications. Yeah, so when the owner of Tur called the owner of Eagle, the previous owner, And said how's it like to work with him? Was it because they were afraid because like if we do merge, this guy is gonna cut all my people and they're all gone, and I love my people or Yeah, I mean, it's it it's that, it's, you know, this is a this is a legacy, you know, people, you know, uh, you know, people associate this company with with me, like I don't, I don't want the company to have a bad reputation. I, I care about the employees, I care about the customers. It's, it's, it's some of all that absolutely. Yeah, and how did you guys finance? Well, let's go back to the uh eagle precision. How where did the capital come for that to acquire that? So the capital for that came from three SBICs. SBICs are small business investment companies. It's a, it's a program administered by the, the SBA where, where a private equity firm raises an amount of, of private capital, and that's uh matched up to 2 to 1 uh from government funds. Yeah, because you're outside the SBA 7 at that point, yeah, yeah, yeah. And so the uh the the three SBICs that we worked with uh KVCI out of Kansas City, Konza Valley Capital was the lead investor, the, the, I mean, they were almost a co-lead investor was capital for business out of Saint Louis, and then uh the third, uh, which was a little bit smaller investor, uh, is Mid-State's Capital also out of Kansas City. And how much did they put in towards the acquisition? Oh, I'm thinking it was somewhere in the 3 to $5 million dollar range. I, I can't remember the the exact numbers, but somewhere in that that range. Where did the the where did the rest come from? Its cash flow from the business or? Oh, OK, great. At that point, were you still putting skin in the game personally or is it just all banks? Yeah. No, all we, Thomas and I make a conscious decision to put our personal funds into every deal that we do. If if we were not uh willing to do that, then we kind of say to ourselves, why are we even doing this deal if we're not if we're not willing to put our own money into it. Right, right. So how did you finance the Turk manufacturing? Was that from cash flow from Eagle or no, that was, well, I mean, partially it was partially just, you know, Eagle itself invested into Turk, but it was the same, the same three SBICs put additional capital to, to, to support the acquisition, as well as our senior lender uh lent us more debt as well. Yeah, so what did they say? Did you always keep that door open and say, hey, look, we have a bolt on acquisition. Would, would you guys be interested in that? And they just said, yeah, absolutely, cash flow makes sense, let's do it. Yeah, yeah, I mean that's that's, I mean that's largely, well, let me step back. So whenever we whenever we first discussed this opportunity with the with our backers, we, we, we said that we're we're not going to aggressively pursue an M&A strategy out of the gate. However, our goal was to grow by acquisition, you know, when the time was right, when the deal was right, etc. etc. So we, we had already teed it up that we, we expected to, to execute it, you know, a few M&A transactions. Whenever, whenever Turk came to the plate, uh, we had that, you know, that the concept had already been teed up with our capital providers. Whenever they toured the facility, they were able to get comfortable with the with the company much like we were. And so that, that's why we were able to, um, you know, execute because, you know, we'd already teed it up. They were supportive of that strategy and so when we find the right opportunity, it was just like, yeah, this, this makes sense, let's do it. Yeah, well, that's how they stay in business is uh finding people. Yeah, yeah, I mean they, I mean, they have to they have to deploy capital. Yeah, so the last one was Dark casting, um, how did you guys come across that deal? Well, that deal is, I mean, it was, it's, you know, it's one of those things where it was a, a, a cold phone call. Uh, one of the, one of the folks on our team, her name is Monica, and they had a uh had, you know, was able to find this company and had an email and a phone phone number, and got a hold of one of the two brothers that was the, was the co-owner of the business and You know, was able to strike up a conversation and definitely some ups and downs on that deal, just like there are on really every deal, uh, but we were able to get that one closed. The the capital source on that one is Peninsula Capital out of Detroit. Um, much like KBCI Capital for Business in mid-sates, I mean, they're all, all of our capital providers today have been absolutely great to work with. I mean, you know, in, in this business, especially for a group like Four Pillars, I mean, having trust in your capital providers is, is so important and all of, all of these groups really, really want to. Enter into a partnership with, you know, a group like Four Pillars. It's, it's not a transaction, it's, it's really a partnership. Yeah, so that was a cold outreach by Monica and using persistence to get in front of these guys and finding that they're motivated, qualifying them. How long did that process take before Hey, hi, my name is Monica. Are you interested in selling your business? Like, you know, 2 months later, 3 months later, 6 months later, I actually think this was around 10 months later, 10 months later, yeah, yeah, and so that that's very, that's very slow, um, but part of the reason for that. I, you know, twice during the twice, twice, two separate occasions during the process, the the sellers backed out and it, it, each time, each time they backed out, it took a little while to, to get the deal back on the rails, so to speak. Yeah, so they were in the uh market to sell. Then they started thinking about it, and then they go through this process like, well, what do we, we, how do we get rich, like, you know, should we get an investment or a broker or something like that to get a valuation? Did they do all that stuff or did they just go, we'll take you, what you, what you're offering? Well, I mean, we, I mean, it was a negotiation, you know, we had, we had to go back and forth, but you know, at, at the end of the day, you know, they're, you know, so let me, let me digress for just a moment. You know, sometimes you, sometimes you talk to business owners and they'll say, you know, we really care about our employees and we really want a good partner and then you then you tell them what your, your purchase price will be and they'll say, well, this, this group over here offered me $25 more than you did, so he's gonna pay me. You know, $10 million and you know $10 million.25 dollars and you're just gonna pay me $10 million so I'm gonna go with that guy even though he's not gonna take care of my customers. That's an exaggeration just to show that, you know, a lot of different things to people, man. It it does changes you'll typically you'll always hear business owners say that their employees are important and sometimes they really mean it and other times they just feel like they have to say it, um, or else it doesn't, you know, look, look, doesn't look favorably on them. The, the sellers at, at DART, I mean, they, they are two stand up guys. They really do care about their employees. They did not want a situation where they, they sold the family business and they came in and ruined the culture and, and, you know, we're micro the, the, the, the capital providers were micromanaging them. They, they still work for the business. We've helped, we've helped grow the business, we've got new equipment, we bought another facility that added about 40% uh additional square footage to the facility. I mean, so far it's just been a, a, a great investment, uh, part, I mean a big part due to the fact that the two brothers that, that really we backed on this deal have just been, you know, everything we thought they, everything we thought they were, and more. Yeah, so how don't you find uh the capital source out of Detroit, I mean, versus, you know, going back to SBICs and So, 4 pillars is what's called an independent sponsor. And so an independent sponsor is a private equity firm that doesn't have a committed pool of capital. And there is a whole community of of independent sponsors, and within that community, uh Peninsula is a very well known supporter of independent sponsors, uh, largely because You know, almost all other independent sponsors that have interacted with Peninsula have had a, had a similar experience to the one that I've had just, you know, overwhelmingly, uh, unequivocated, unequivocally positive. And so because of, because of their, because of their approach and because of their their they're viewed so well, their their names got out there as as a good partner to work with. And so whenever we were trying to arrange the Capitol, you know, Peninsula was one of the first calls that we made. Yeah, and you send the deck to them or or the financials, quality of earnings, and they, you know, they, hey, we like the deal we're back with. Yeah. Yeah, I mean, I mean just, you know, just, just as a, you know, quick uh edification on the process. I mean, typically we'll prepare a teaser that has non-confidential information, talk about what the business does. You know, how, you know, you know, very abbreviated, uh, income statement, including EIA talk about why we like the deal, talk about some of the challenges. If they like that, we'll get a non-disclosure agreement signed between us and them. After that, we'll provide them, uh, you know, if there's a broker involved, we'll provide the broker preparedIM. Uh, we'll also prepare aim that, that, that talks about. You know, not only the company but what we plan to do with the company, Yo Pillars is, is the right buyer for this business, uh, etc. etc. You know, after reviewing the SIM, typically, if there's, if there's interest, we would arrange a call with the, with the sellers just to, to have a, you know, a, a, a brief diligence call, you know, after that, we'd probably visit them in person and after that, we'd prepare an LOI. Then after the LOI we'll get, you know, get into to diligence and, you know, where we initiate a quality of earnings uh process, uh, start drafting legal documents, performing environmental, if it, if it is a manufacturing business with real estate, you know, that type of thing. Yeah, I'm gonna ask you about brokers. I mean, they provide a valuable service, but sometimes I, I, I don't like the secondhand information that I get better quality information direct from the owners. What what do you Do you, how do you work with them? Yeah, I mean, we, we, we work with them as best we can. Um, obviously, as, as you know, there's, you know, in any industry, in any field, uh, you know, business brokers or people, so there's gonna be a, a, a scale as to how effective they are, and we've certainly worked on deals where the business broker or investment banker, you know, is, is helpful to the process. We have absolutely worked on deals where the, the business broker or investment banker is harmful to the process. So, I mean, we, you know, you know, uh, you know, sometimes, I mean, there's a lot of folks that, you know, much preferred deals that are not, you know, companies that are not represented by a cell side advisor because they think they'll get us so much better deals, etc. etc. I mean we, we always try to pay a fair price, you know, if we're looking at a deal, well we say, well, we think that's a 5X, but since they don't have a broker, we're just gonna pay a 4.5x. I don't think that's uh, yeah, I don't think I don't know anybody who does that. No, we, yeah, we never do that. So like from our perspective, like we're gonna pay a 5X whether there's a broker or not or or not. And so, You know, you know, I, I know it might sound self-serving, but I mean, my, my advice is, is not always to hire a business broker because you, it, it's very hard to, to vet them in terms of who would, who would really be one of the more helpful ones as opposed to one who, who might be one of the, uh, not, not as helpful ones. Um, and so, you know, if, if, if there were only amazing business brokers out there, then my, my recommendation would change, but, but, you know, there's some good ones and there's some bad ones out there. Yeah, yeah. So at this point, you've made a 2 to 3 acquisitions. You've got the multiples down by, uh, you know, what a manufacturing company is worth. And when you come to a company that's off-market in a cold outreach, Uh, what's your style of negotiating? Is it, you know, hey, you send us your quality of earnings, you start carving out all kinds of stuff, or you just say, hey, look, we think, you know, it's worth X multiple and that's a fair price and It's, it's, it's more of the latter. I mean, it's more of just at that point, it's more of just a conversation to see whether or not we're in the same ballpark. You know, sometimes we talk to business owners that are really just kicking the tires and, you know, they'll, they're of the mindset, whether or not they, they say this, you know, vocally or or just in their head that, you know, they'll, you know, anything's for sale for the right price and so those usually aren't the the situations that that we're we're most interested in. Um, and, and so, you know, whenever we're talking, we'll, we'll talk about, you know, typically for a company of this size in this industry, you know, we'll be in the, the 4 to 6 X range, you know, is, is that, you know, uh, you know, is that valuation in line with your expectations? Is it? You know, if it's if it's somewhat in line, then let's let's keep, let's keep talking. You know, if you're expecting an 8X or a 10X or something like that, then, you know, you have a great company. I, I'm I'm, I'm sure you're a, you know, great, great owner and and CEO, but we're, we're probably not gonna be the buyer. Yeah, on your website, you talk about uh you're very strong at deal flow. I mean, what, what are you doing? Are you doing all of the above just to keep that constantly or what's like cold outreach, email, phone call, direct mail, uh, networking. Yep, all above constantly. Yeah, all of the above. Um, it's, it's, it's just one of those things where you, you never know. I mean, so much of this is, is, I mean really it's just luck and timing, you know, if, if we would have called those guys, you know, the, the dark guys six months earlier, they might not have been interested. Um, and so, you know, you really have to hit business owners at the right time and how How do you hit them at the right time? Well, it goes back to one of our pillars of, of persistence. You know, you've got to continue to reach out to them so that, you know, even though, uh, even though in, you know, November of 2021, they're not too interested, however, they had a conversation with us so that in 6 months or 12 months, whenever we call them again. You know, they might, you know, vaguely recollect the, the phone call, but now things have changed because, you know, if they're an aging business owner, maybe, maybe their wife or they've had a, you know, a, a more serious health issue or maybe there's a new grandkid in the in the picture that lives on the opposite coast or whatever that they want to spend more time with, so. You know, you know, whenever you're, you know, at least on the, at least whenever we're we're thinking about business owners that are, you know, getting closer to retirement, you know, a year tends to be a, a quite a long time and so like I said, it just takes persistence in order to stay in front of them, so that whenever that that that timing does turn out to be right. They, they know of us, they've talked to us, uh, they're, they're more open to having a, a, a, a, uh, open and forthcoming conversation about potentially selling their business. Yeah, do you think it's always some kind of life changing event that uh gets them back on the phone and say, we need to talk to Nick and Four pillars or like, you know, divorce or Bob. No, I mean, I think that that's one category, but it's, it's not, it's not the typical. situation. I mean, to be honest with you, that the, I, I would say that's that that's a life changing and it is less common. Well, OK, I would say less common except in the case of, of a, of a owner wanting to spend more time with the grandkids, you know, I, I think that that's, that's, that's definitely a very important driver. Uh, spend more time with the grandkids or spend more time traveling with his, with, with his or her wife. I mean, those are, those are two very common. You know, very common, uh, desires about reasons for for selling. And, and, and, you know, factored into that is, you know what, how we, how we talk to business owners is that, you know, quite frankly, we think it's foolish if they just completely leave the business. But they're they're they're, they know about more about their business, more about their industry than 99% of the population. So if they just completely walk away. You know, that's, you know, that that's not, that's not exciting for us and we're just really losing a wealth of information. So, what we talk about with business owners is that, you know, we want to create a position for that business owner where all the stress, where all the annoyance, where all the aggravation is removed, and they can focus exclusively on the areas of the business that they like to. Maybe that's new, maybe that's, you know, contacting new customers or, or spending time with existing customers to In the relationship, maybe it's new product development, maybe it is adding automation to a manufacturing process. You know, it's it's different for every person. But that's, that's a big part of, of how we talk about to business owners because the last thing we want to do, like, we, we respect the business owner. I mean, we would be fools if we don't try to take advantage of how smart they are about their company, about the product, about the industry, etc. On the eagle one, the owner can't have any more equity in the business, but the other two, did you guys consider kind of like a, a private equity model where the owner still keeps a percentage of it and then Your end game at some point like there's a bigger fish out there and go your 2nd, 3rd bite of the apple might be larger than the 1st. Absolutely. I mean that that's that's our, that that's our game plan 100% on all of our on all of the acquisitions we're looking at right now. I mean, like we, we, I mean, like how we think about it is Uh, you know, we don't even, we don't even necessarily tell this to the sellers, but how we think about it internally is that, you know, if we, if we don't get the owner a bigger second buy of the apple than first, we, we feel like we have not done our job on that transaction and we, we didn't do as good a job as we should have. Yeah. So for that to happen, I mean, you can work backwards in numbers. I don't know what the equation is. I mean, you, you need to be doing. You know, organic growth could be 5, 10%, but your M&A needs to be 23 businesses a year to, to be able to do that, I would think. I mean, just a quick calculation that, yeah, I, I wouldn't, I wouldn't say 2 to 3 businesses per year. I would say maybe 2 to 3 acquisitions in, in total, uh, combined. With, with consistent ebit growth, um, and the reason for that is, you know, again, we're a lot of our deals that we look at are in the $3 to $4 million dollar range and so like yeah 33 to 4 to 6 or 3 to $4 million of Ibida and we transact it, you know, let's call it 4 to 6. Um, so if we can get to even let's call $8 or $9 million be would die, I mean we could, we would be shooting for a 7 to 8X at that point. And so, you know, if we can if we can buy a 5X and grow it to the point where now the, the average market multiple is, you know, let's call it 8. Then that's, that's the type of situation where we would be able to, uh, where, where the, the seller would get a larger second bite of the apple than first. Yeah, I mean it makes sense. I mean, if you're, you know, you can use 70 to 90% financing, we put some little down but change your multiple and multiple from, you know, 2 to 4 to 7 to 8. In a 3 to 5 year period, yeah, that's uh could be an amazing number. Yeah, and, and, and, and partially why that works is, is most of the groups we work with not only provide equity, but they provide some of the some of the debt as well. So, for example, Peninsula on on some deals is is the sole financing partner on the deal and So they'll put in, they'll put in some debt and they'll put in some equity. And so their total check size is larger, but when it comes to, when it comes to returns, you know, the, the, the return on the debt is, is what it is. I mean, it's, it's the interest rate that you that you sign up for, uh, unless there's some warrant coverage or something like that. You know, the equity though that that's where that's where you you. You really have some benefit. And so, you know, if we, if we apply, you know, common leverage multiples to a private equity transaction and we pay off that debt for 5 years and we grow the multiple from 5 to 8x, I mean that's, that is just, I mean, there's no, no two ways about it. That's gonna be successful for every, every party involved in that transaction. Yeah, what, what is the interest rate from uh private equity uh loans? So, I mean, so, so so a private equity loan would would typically be considered what's called mezzanine debt or or subordinated debt or, or junior debt. And you know, in this market, I would say the average interest rate is probably low teens with low teens in terms of like maybe, maybe 12 to 14% in terms of current pay interest with maybe 1 to 2% interest. Yeah, and is your plan to the end game is you get it to that uh that multiple arbitras 78 to find a bigger fish and then do it all over again, or? What's the next step after that? Yeah, I mean, yeah, really we would do it all again and, you know, to be honest with you, like our preference would be to stay in the deal, because, you know, we, we know, I mean, we, you know, we've been doing this not a long time, but, you know, we've been doing this about 6 or so years and we've completed 5 transactions. So our view is, I mean, if you find a good company, why are you in such a hurry to get rid of it? And so we're, we're not. Now we we realized that since we Since our private equity backers have a, a finite uh term for their, for their fund that they, they have to exit, but 4 pillars doesn't. So as long as, as long as the the next buyer, you know, if we were able to establish that positive relationship, they valued four pillars in the deal, etc. etc. then our, our desire would be to main stay in that deal as opposed to exit. Yeah, yeah, most of these guys, even if you go, I know a guy that uh Uh, he was being funded by a $500 million private equity group, and then was purchased by a multi-billion dollar equity group. And of course he stood on because, you know, the multi-billion dollar private equity group only had 5 people working for him. It's not, they're not gonna take over it. No, no. So you're doing a great job, keep doing what you're doing. Yeah, and, and that's what we look for. I mean, there, there's, I mean, but, but, but, but truth be told, I mean, as you can expect, there are, there are folks, there are private equity firms with people in them that they are still good, but we wouldn't work well with, you know, you know how it is. I mean that's that's true of, of anybody and in any industry, any company, etc. etc. So. You know, even though there's, there could be a private equity group that is, you know, 10 times more sophisticated than us, better than us, we, I mean, they, they're still probably great people like we wouldn't, we wouldn't, we wouldn't uh disagree with that. But there's at least the potential for us to have different management styles, different a different vision or strategy uh for the business and you know, all those things have to align for us to really feel like there's a A, a strong and and great partnership to be had. Yeah, so I'm gonna ask you, I'm gonna just go back to your kind of adventure here. I mean, you, according to your bio, you've worked for a lot of large corporations. What was your call to adventure? Did you say, hey, you know what, let's go out on our own, start buying companies. What was like the, what was the moment you just, we're doing this? Well, I mean, it's it's a, it's a very good question. I kind of laughed because, you know, if there, there really was a a a moment of realization, if you will. So if, if, if you look at my, you know, if you if you've spent a little bit more time on my background, you'd see that, you know, the, the, the longest I've ever. I had a job after grad school was about 2.5 years, not even that. I noticed that it was a short term stays at Mo's company, yeah, yeah. So I worked, I worked for Deloitte Consulting was the longest one that I worked for, and that was, that was 28 months, not, not even 2.5 years. So, what, what I noticed over my career is that I, I, I get this job that really had a lot of potential, really excited me, and, you know, a year, a year and a half in, I started just getting really burned out, wasn't very, wasn't very happy in the job for whatever reason. And at the beginning, I just, you know, kind of be like, man, what's, what's going on here? Like, why, you know, this is another job where I get in, I'm not very excited, I don't feel valued, I don't have the seat at the table, etc. etc. And so, you know, it took, it took a few of those before I kind of started, you know, started being a little bit more introspective and said, OK, wait a minute, is it really the job or is, is it you personally? And I think the challenge for, I think the reason why it took me so long to get there is because my idea of an entrepreneur was always the, you know, somebody coming up with an idea for a better mouse trap or a killer app. Yeah, the startup stuff, yeah. I've never had a bad idea for a better mousetrap. Never had an idea for a killer app. There's one guy that I'm, I'm very good friends with. I mean, he'd always be coming, coming to me. He'd say, Nick, I got this awesome idea. I'd be like, wow, that really is an awesome idea. It's like, how do you come up with those? I've, I've never, like, that's just amazing. I, I. But there's a term that has been, um, that has been popularized within the last, you know, maybe, you know, 34 years, and it's called entrepreneurship through acquisition. Yeah, that's the flavor of entrepreneurism that really resonates with me. It's the idea of buying a business and growing that business and you know that's exactly what I've always wanted to do is is have have an existing business and see how, see how far we could take that thing. Yeah, Junior, uh, Career, I mean, who did you rely on for inspiration, advice, mentorship? I mean, you know, some people just use books and tapes and conferences. Other people just got, you know, I, I went to my dad and, or I, I just had this great mentor all my life. My uncle was wealthy and sometimes it's at a distance, like, we didn't really have a close relationship. I just watched how successful he was and what he did. Yeah, I would say part of it has been intrinsic and part of it has been, you know, a few, you know, a few experiences from, you know, I've been around and whatnot, you know, at, at the, you know, at at the beginning though, it it's it at least a part of it has always been intrinsic. Like, even, I don't know if it was all the way in high school, but definitely in college, you know, I, I, it was. Very clear. I mean, I, I have it written down that, you know, I want to be CEO of a Fortune 500 company. And I was, you know, mapping out the steps that I thought it would take in order for me to get to be a CEO of a Fortune 500 company. And so how that started was, you know, industrial engineering in, in, in uh undergrad, didn't know where I would go from there, but knew uh 2 to 3 years after I graduated, I wanted to, to get an MBA and, you know, my uncle went to Harvard and so my goal was always to, to, to go to Harvard. Um, you know, after, after I worked for consulting, applied for a few schools, didn't get into Harvard, unfortunately, but did get into Michigan, which was, you know, a great experience, very, you know, very lucky to to have that experience. And it was, it was while I was at Michigan that I realized that, you know, 20 years at a Fortune 500 company might not really be the the the right path for me, and that's when I started getting exposed to investment banking, private equity, middle market dealmaking. Um, and so that really drastically, uh, altered the, the path that I wanted to take after, after grad school, and it was, you know, really, I mean, transformative, not just to my career, but really to my life. Yeah. Yeah, I guess you were uh were didn't, couldn't come up with the next Post-it note at 3 a.m. Yeah, exactly. Yeah. What was, when you went through your journey, I don't really have a lot more time with you, but what was like the biggest stumbling block or, or just challenge that phased you and how you kind of broke through it. And it's just like, oh my God, that's, I never looked at it like that. Why did I waste so much time on that obstacle? Well, I wouldn't say why I wasted so much time. I would, I would almost say why did other people waste so much time. I mean, I say that partially in jest, but, you know, I would say one of the biggest challenges that we've always, that my partner and I both have had to overcome is that the, the perceived lack of experience that we have in, in, in pursuing the goals that we have. You know, whenever I, whenever we were trying to buy Southwest Steel and I was positioning myself as, as The next president or CEO, I'd never been president or CEO of a business. And so I really had to tell myself that I was the right person to run that. Same, you know, we had to go through the exact same process whenever, uh, we were involved in the, the eagle transaction. My partner had never been CEO of a business. His background was even less manufacturing related than mine was. And so we had to, we had to convince them that his experience was, was the right one. You know, fast forward to, to how do you do that? He goes like, wait a minute, how, why am I letting this, I don't know, I don't know how old you are, like 30 year old take over my business. You've never been CEO. Where does that make sense in my lifetime experience? Yeah. I mean, it it it it's really, it's, it's not something that happens in one phone call. I what I would say is it's a, a series of of professional, um, relationship building phone calls that ultimately gets the person comfortable that, yeah, this might, this guy might be young, but he has the maturity and the, the, the, the, the mindset, etc. that I think he's gonna be successful running this business. Yeah. Well, Nick, I, it's uh already an hour past. I kind of put you in a hot seat analyzing your deal. But what are you looking for now and how can we help or my audience? I mean, we are, I mean, we are looking for companies, you know, preferably in manufacturing or B2B services with about 3 to $8 million of EBITA that have an untapped potential for growth and Uh, when, when we say that, we really think about three different types of, of business owners that, that, you know, that have that. The first type is the, you know, a business owner that doesn't have the risk profile or investment horizon, uh, to rapidly pursue growth. You know, maybe it's an aging business owner that it doesn't really want to spend the next 5 years working 60, 80 hour weeks trying to double the business. Um, so that that that's one type of persona. The second persona is more of like a technician owner who's done a great job at perfecting a product, but doesn't necessarily have experience making the, the company more process and procedure, uh, driven as opposed. To, well, that's, you know, Joe handles that. He's been here, you know, since we started the company, so he, he's a good job. Uh, on top of that, we, we always think about, you know, what would happen if we added to the sales team or created a, uh, uh, you know, outbound sales team for for the company. And then the third is an operator in a in a fragmented industry that has a lot of potential for growth via M&A but doesn't uh personally have the experience or or doesn't have a bench that has the experience to to execute an M&A strategy. So that that's, you know, very, very high level, those are the types of deals that that we're looking at and You know, outside of that, we, we always like to have calls with business owners because, you know, you, you, you probably know as well as I do. I mean, there are so many amazing stories out there, there are so many businesses out there that you just think, wow, that's, that's really a business. That's, that's great, and that's just amazing that you're, you've been So successful as you are, and it's really, it's really just there's so many interesting uh conversations, interesting businesses, interesting people. Yeah, there's like the entrepreneurial spirit and what they build out there it's just always, I mean, how do they, uh, how does the audience get in touch with you, Nick? So, I mean, uh probably email is best. Uh my name's Nick McLean again, and so my email is in McLean at 4 F O U pillars P I L L A R Svetors.com. Cool, and you just go to fourpillars.com or he's on LinkedIn too, yeah, or 44 Pilars Investors.com. Four pillars Investors.com. And by the way, he's also on Searchfunder.com, you can do, that's how we reached out. Yeah yeah. All right, thank you, Nick. I'm gonna stop recording right now.