Matthew Gold @Strategy_Hawk

See enough company transformations in the (lower) middle market, and patterns emerge. Exhausted executives, ill-equipped teams, too many balls in the air, no execution systems. It leads to lack of focus, dropped initiatives, and reactive surprises after the easy fix is blown

Over the past decade, my wife and I have had scores of families over for dinner. Maybe 2% of them reciprocated. For a while I thought it was something about us, but then I heard from others who are outgoing/inviting that they experience the same exact thing. What do you think?

HR: how will be boost morale? CEO: pizza party HR: brilliant

Let’s say that $GOOG actually gets broken up. What standalone business unit would you like to own?

The hallmark of expertise is no longer how much you know. It's how well you synthesize. Information scarcity rewarded knowledge acquisition. Information abundance requires pattern recognition. It's not enough to collect facts. The future belongs to those who connect dots.

The five hardest-to-land pieces of advice for founders: 1. Raise less. 2. Cut deeper and faster than you think you need to. 3. Smaller teams can outperform bigger teams. 4. Never ever take venture debt. 5. (For B2B) Don't be afraid to raise your minimum price & fire customers

We are continuing to see really good deal flow. It will be interesting to see if the rate cuts really spur the M&A environment. So far our middle market intermediary partners are not seeing a big pick up....

@ankurnagpal Oh?

CVS breaking up the company after a 20-year deal spree is a great example of how M&A—if not done strategically and intelligently—often benefits executives and service providers (bankers, lawyers, consultants, Big Four accountants) far more than it does shareholders. Over the past two decades, CVS went on one of the largest M&A binges in corporate history, rolling up not just pharmacies, but in-store health clinics, primary care centers, and even a major insurance company: > Oak Street Health ($10.6B) — 169 primary care centers > Signify Health ($8B) — home health service company > Aetna ($69B) — insurance provider Target’s pharmacies — 1600+ pharmacies and retail clinics inside Target stores > Omnicare ($12.7B) — pharmacy services for long-term care facilities > Longs Drugs — 541 stores > Caremark Rx ($21B) — merger with major pharmacy benefit manager > MinuteClinic — retail health clinics > Eckerd — 1,268 drug drug stores With each subsequent transaction, the company paid tens of millions of dollars in fees to: > Investment bankers providing guidance on structuring, financing, and valuation > Lawyers conducting legal diligence and drafting thousands of pages of contracts (those $1000-2000/hour invoices add up fast, especially with dozens of attorneys supporting a deal 12+ hours per day) > McKinsey/Bain/BCG consultants providing guidance on post-closing strategy (aka producing slides for the CEO to show the board to get them to approve the deal) > Big Four accountants producing quality of earnings reports and providing guidance on tax optimization > Other consultants advising on everything from HR to IT to PR As the company explores options to divest assets and spin out non-core subsidiaries, guess who will be there to do the same work all over again, for another round of massive invoices? Don’t get me wrong, these are all really smart people, doing world-class work (biglaw M&A attorneys are some of the sharpest people I’ve met in my career, as are the tax attorneys the Big Four firms hire for their transaction advisory teams). But, at the end of the day, they make their money when the deal closes (and, oftentimes, even when it doesn’t). Shareholders, on the other hand, hold onto the bag and have to hope the deal results in additional value for them. And we all know how that usually works out.

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Yup. Better question-how do you sell something useful to all of those single-digit $M EBITDA PE guys all chasing the same deals.

yetanothersearcher @yetanothrsearch

2 years ago

Had drinks with a PE partner buying single digit $M EBITDA businesses. He told me that I can't win because there's ten of him looking as far down market as you can go.

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I TOOK A BOARD SEAT. I genuinely think this business will change (and already has) changed small scale PE investing forever and help facilitate this alleged 'silver tsunami'. Let's get into it. A few months ago, 2 gentlemen approached me with a plan to alter how SBA lending is sourced. They told me SBA 7A lending was broken. As someone who has done an SBA 7A deal, I couldn't agree more. This is how it went: 1) Cold call banks lmao 2) Hope they did deals in the industry I was attempting to acquire in 3) Send all sorts of documents for the bank to manually review 4) Hope it made it through underwriting 5) Get rejected, proceed to cold call the next bank These two guys had a different plan: 1) One portal where you upload financials, deal docs, and other things 2) Use AI to munge all the documents into a 'deal dashboard' that automatically computes the DSCR. 3) Automatically match your deal's industry to banks that have done deals in that industry 4) LET SBA LENDERS BID ON YOUR DEAL! @LendedAI was born. This idea felt like a HUGE leap forward. It felt like an industry stuck in 2005. Eventually, the founders of Lended asked me to join the board. Where is @LendedAI today? 1) 40+ banks are on platform 2) almost $50mm in M&A deals have been underwritten by banks 3) They're now expanding into working capital. 4) Banks are stating this decreases the amount of work to get to a 'yes/no' by 90%. Finally, as someone who is really bullish on AI, this feels like a real AI use case with legs. Upload all these gross documents and let AI munge them into dashboard with all the relevant KPIs. Anywho, I actually think lots of LMM deals will be flowing through this platform in 2-3 years. I've always felt like getting financing for larger PE deals was similarly busted / filled with friction. Anyone interested in getting financing for either M&A or working capital using SBA loans should reach out. The future M&A financing seems to be right around the corner...

valuations will eventually return to earth. New management will manage expenses to make them profitable, and then, equilibrium will be restored. :-)

Trace Cohen @Trace_Cohen

2 years ago

Caught up with lots of investors this month and there are so many startups from 6-8yrs ago that are doing $50-$200M in rev, growing slowly, close to cash flow positive ish but too highly valued for M&A if even an option and don’t have potential for IPO What will happen?

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Caught up with lots of investors this month and there are so many startups from 6-8yrs ago that are doing $50-$200M in rev, growing slowly, close to cash flow positive ish but too highly valued for M&A if even an option and don’t have potential for IPO What will happen?

Just because you're acquiring a company that's doing $2.5 to $3 million in Ebitda doesn't mean it's a mature business without key-man-risk, customer concentration, and all the other things you try to diligence in much smaller companies. Heard many such stories.

Are they? Employees that have options aren’t the ones you want to quit.

Anthony Pompliano 🌪 @APompliano

2 years ago

Amazon's request for employees to work from the office 5 days a week is smart. They know many employees will quit because of the mandate. The catch? The employees who quit are the exact people that Amazon wants to fire, but now the employees are weeding themselves out.

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@ankurnagpal Interesting. Can I see?

This.

Grit Capital, Ancient God of Commerce @GritGrowthCap

2 years ago

Search fund Harvard MBAs when there's a $5m HVAC company retiring

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Sneak peek into how we are going to fix the imploding B2B software company we just bought. Bonus advice for CEOs of lower-left software businesses (spoiler - take the advice and your business will be worth more). Context: • 8-figure ARR, flat top-line, run at 20% loss • 2 products. Product A is 2/3 of revenue at 100% retention, Product B is 1/3 at 70%. • They were spending 40% of revenue on S&M and R&D aimed at NEW products and NEW customers. • Forced sale: Why? Because they were out of money, equity wasn’t writing more checks, and were in default with their lender. We were the high bidder at less than 1x rev. Plan: • Stop spending for new, unsigned customers! Cut the luxury 40% S&M and R&D spend and immediately get to +20% profit. • Fix the unsexy Product B business! Value here is not the tech, it’s actual recurring revenue contracts with real customers. • Our plan is to invest 10% of revenue doing literally whatever it takes to deliver value against each of the Product B contracts for each of those customers. AI makes this easy, for example: high-value low-cost customer-specific services, completely replace Product B with a shiny AI-native variant (no, not a copilot), but DO NOT change the product market fit. • Immediate result: cash generating business with a solid top line that customers are happier with…can grow earnings from here. Advice: • This for lower-left company CEOs (all you hyper-growth startup CEOs can ignore this…for now) • First and foremost: build a base budget that assumes no spend on new customers/products. You now have money to spend… and If it still loses money, well, “Houston, you have a problem.” • Embrace the fact that your best asset is your recurring revenue customer contracts. Use cash gen to amp up value delivery against ALL those contracts (especially on the boring products). Be creative and drive REAL customer value. • AI pivots should be a full 360°. Reboot your product as AI-native but don’t change product market fit, else you’ll have to sell your customers all over again…fight the urge to chase the adjacent value prop (no partial pivots!). • Maybe invest excess in new customers, but only after you get over 100% retention (will post a thread on the failed IRR economics of new customers later). • Remember, generating cash is MUCH better than burning cash. • Strap in before you start…this isn’t easy and often requires a total culture reset.