Transcription
If it seems too good to be true, it is.
The deals that went sideways.
I've had businesses where I had to fire all of the owners post transaction because they all wanted to kill each other, stabbing each other's backs. Founders at war. I found myself on a plane every week, convincing someone not to quit.
The hidden tax of scale. You know, I I've had a guy that we bought at a huge purchase price who started his own company after we closed with one of his key guys. He made sure the guy didn't sign a non-compete. He secretly funded the business and became our main competitor and took that business we acquired effectively down to zero.
If trust breaks, everything breaks.
So, you got to be careful not to kind of believe their. That's good advice. Cory learned that the hard way. But I'm getting ahead of myself, so we'll start at the beginning.
In this episode of Moneywise, Cory Mitchell is going to show you what growing through acquisition actually looks like. Not the glossy LinkedIn version, but the messy reality of buying bluecollar businesses, managing founders who've already made their money, and nearly losing everything through a $200 million exit. Even if you're never planning on doing M&A yourself, this is for anyone building something that they want to scale and eventually sell. Because the lessons here about integration, about culture, people over numbers, those matter whether you're buying a business or running one. My name is Harry Morton and this is Moneywise.
This is not a podcast about starting up. It's about what comes next, the money, the strategy, the identity crises that happen along the way. It's made for the community of founders over at Hampton. We'll talk more about it in a little bit, but if you're curious now and you're a founder doing at least 3 million in annual revenue, check it out at join hampton.com.
Cory Mitchell grew up taking asbestos out of schools and hospitals in smalltown Iowa. Unglamorous bluecollar work where cash was king and debt, well, debt was risky, but it was profitable and it was overlooked.
You know, you talk about a bluecollar business, it literally we we took asbestous out of schools and hospitals. There's incredible businesses out there in in bizarre things like asbestous abatement that you'd never think could be a good business, but you know, I have a really nice house that Asbestous built.
For three decades, it ran exactly like that. Conservative, cash focused, and a really good living for his family.
I grew up in this very conservative family business where, you know, it was all about preserving cash, not taking on risk. It was a fantastic lifestyle business. It didn't really grow for a long time. It was 78 $9 million for many, many years, but it always threw off a couple million dollars in cash. So, you imagine you're in a small town in the middle of the country. A couple million dollar lifestyle business is an unbelievable lifestyle business for my family. And so, it had just grown really, really slowly organically. And uh my brother and I bought the business now 20 years ago.
It was working. Low risk, high margin, millions in cash every year. but they wanted to grow and in 2015 they were finally willing to take on what they'd always avoided debt. Tens of millions of it actually.
We knew there were a whole bunch of adjacent services we could offer. And so the the model we we started building out was okay let's maybe buy a small business in one of the towns where we want to work and then add service lines to it. That became the model. And so what was that urge to then go, okay, we're growing organically presumably? Well, you tell me like you kind of saw promise in it. You thought, okay, like we're we're doing well here already. We should really go super hard at that. But like given your uh kind of slightly conservative nature, what was it that would made you just decide, hey, screw it, we're going to we're going to go for this?
I always wanted to grow. I sort of had had this innate desire to to to want to continue to grow the business. You know, you look back in hindsight and it was definitely a risky move, but at the time we just we were sort of compelled to grow. We had a great team. We were building out this business development model. We had a lot of capacity um to to service these clients we were building out. Yeah.
And you know, the the the next natural move was for us to add geographies. Our industry is is very like bluecollar, so it doesn't have sales folks in general. So we were like the only ones that are out there with a business development team. We were buying little little businesses originally in cash, you know, with whatever cash we we made that year, we reinvest it and we bought a de a demolition business in Iowa. It was a $3 million revenue business. We added environmental service lines to it. Gave that team confidence. We gave them a little bit of a balance sheet and that business grew to 24 million organically over the next 3 years. The challenge that we had was cash. When you're doing it yourself, you're limited. And we were very riskaverse. And so, we didn't really want to take on debt. We were essentially funding it with our own capital.
Mhm.
And that that makes your growth just naturally much slower. We were buying some small really small regional businesses, adding service lines, and growing them organically from there for a few years. And we built the business to about I think was around 36 million in revenue. It was throwing off great cash. It was it's a nice high margin industry. You know, the pivot for us, we found another business that was doing a similar thing in a different part of the country. They were adding uh small offices in small towns and in Texas and Louisiana. And so we merged our business with theirs. The merger actually brought something more valuable than revenue and that was it brought education. A small private equity backer taught them how to use leverage, how to think bigger and how to actually scale. They merged at 36 million then doubled to 70 million and then they did three more acquisitions all on debt and for the first time ever. And you said that like you know taking on that first debt was scary and I imagine it was like you're you were like $70 million in debt, right? Like that's that's a lot uh at least to me. Um, so like what were the internal conversations I between you and your brother, between you and like the senior leadership team that kind of like made you comfortable with that?
You know what I didn't really understand with something that I've learned a ton over the last several years is there's this magical arbitrage that happens when you you you buy a smaller business at five or six times profit or IBIDA uh and you grow it to a certain size and you can sell it for 10 11 12 times IBIDA. So, you know, this magical little thing happens when you just you get to a certain critical size. Every time you add a business for five times, it instantly turns overnight to being worth 10 times. And so, we just had a tremendous education over those years of working with, you know, with a more sophisticated team than we were. And it was incredible learning experience certainly for me. Um, and it's part of what um, has inspired me to do some of the work I'm doing today with, you know, with other blueco collar founders.
Between 2017 and 2021, they did five acquisitions. Culture, fit, safety, record, financial performance. These were the main factors that they were looking at. The business spread across the Mid-Atlantic, Texas, Louisiana, and the Midwest. But here's what Cory discovered about himself in the process.
I always was the business development guy of our business. I love talking to customers. I love the chase. I love winning clients and contracts and I felt the same way about doing deals. It's building a relationship, convincing them that we should be the right partner for them.
Mhm.
What I didn't love and I think I realized about myself over time is we got bigger and bigger and bigger.
I didn't love running a business that big. It turned into a slog.
And what about it specifically?
All the people problems. We had 35 or 37 offices or something like that. And our business is really relationship driven. So if you have a say a top founder that wants to leave the business, it it can be really damaging to our company in terms of like the revenue loss because there there are all these personalized relationships. It's a very very small niche industry. So, I found myself on a plane every week convincing someone not to quit.
Sure.
You know, which is which is a drag. You don't you can't focus on the fun stuff of chasing deals and chasing clients, which is what I like doing.
If you've bought a business from a founder, they've made a bunch of money, they've done really well, and you want them to stick around and continue to operate that business as well as they have done in the past, but they're like, "Dude, I've made my money. Like, I don't want to be here anymore." Like how do you how do you incentivize people like that?
Super hard. I mean, first of all, we always want the founder to stay. Almost always. You know, they built this great business. They have the client relationships. They've like you said, they they know how to make it run profitably. And so our approach and this is the approach of many many private equity funds as well is they they typically have a rollover equity component of the deal. Right? So you buy X% of the business 70 80% could be 60%.
And they have a rollover component where they would roll equity into our holding company. So one, you know, they're incentivized to help us grow for a future, you know, bite at the apple, the second bite at the apple. And two, we throw an earnout on top. So you've got uh an earnout that says, "Hey, if you can continue to grow at x percent, 10%, 15%, whatever it is, there's an a meaningful additional cash compensation over the next 2 3 years." But to your point, I mean, these guys often have made money for 20, 30 years.
So they might be sitting on 30, $40 million in their bank account, and they don't need us very badly. And so managing people like that is incredibly complicated. You know, we were extremely fortunate to bring in really highquality businesses with great people and almost everyone is still in the business today. Amazingly, now fast forward several years later, but it's tough. You know, you've got to convince them that our culture is like their culture. You've got to convince them that they can still have meaning and value uh working with us. So, it's it's one of the harder things that you can do when you're buying businesses of people that have made a lot of money.
Any like M&A cautionary tales from your experience? Any kind of like near misses or uh you know, things like that?
One thing I would say is, you know, I've done some doozies. Um we bought some businesses that if it seems too good to be true, it is. There's never a deal that's too good to be true. Uh there's so you usually if you get a valuation that is just like wow this is just I just can't believe we're buying this business for this price there's always a story. I've had businesses where I had to fire all of the owners posttransaction because they all wanted to kill each other. They all were, you know, stabbing each other's backs. I've had a a a a guy that we bought at a huge for us a huge purchase price who started his own company after we closed with one of his key guys. He made sure the guy didn't sign a non-compete. He secretly funded the business and became our main competitor and took took that business we acquired effectively down to zero.
So how do you avoid buying a disaster? I think one of the biggest mistakes that private equity does today is they come in and buy companies without diligencing the people, right? They come in, they'll do all kinds of risk analysis on the financials, the legal, but they don't go visit the people.
Talk to me about trust. Like, how do you how do you build trust during the process? How do you trust the founder? Because again, like you're there in Denver, they've got an office in Dallas or whatever. How do you build that trust and maintain that trust?
The first thing I do with any prospect is go and and have a meal together. I always like to have a meal before we do a business meeting so that you can, you know, really connect on the human level to figure out, you know, what they really value and stand for, things they care about. If if they if they if they really are worried about their team and their customers and things like that, it's usually a really good sign. It's got to be in person. You need to spend real time with them. You know, for us, like each of these deals was a was a big thing. We we couldn't take it lightly because if we had a miss, it hurt a lot.
Look, from the outside, this whole thing sounds incredible. Buy a bunch of businesses, build a portfolio, hold them long term. But the reality, two, three years in, you're on a plane every week convincing someone not to quit. There's always a cost.
There were a lot of parts of it that were really um really tough. I'm sure it's it's so different by industry because our industry was so personality dependent. you had these regional folks that had awesome relationships and they were sort of the business. So, it's really hard to transition that to being our business over time and it takes a lot a lot of work and you need really really good leadership but takes it takes a ton of time and energy.
Yeah. So, talk to me about integration. How does one successfully integrate a business? Where are the kind of common pitfalls that you've experienced there? And yeah, any words of wisdom on that front?
Yeah, look, integration is probably the hardest thing. What I'll tell you, by the way, is when we transacted, we were not a fully integrated business. We essentially were a group of guys that had regional companies, right? And literally on Friday, we would do a call and say, "Hey, how's business?" You know, it wasn't it wasn't like a there was no centralized ERP or CRM. These were essentially still unintegrated companies that were on different accounting platforms. And what I'll say is that hurt us on our valuation. There is no doubt about it. We probably could have would have gotten an additional one to two times EVA transaction had we been integrated.
Interesting.
And so post-transaction that became like you know mission mission number one. It's an enormous effort and we had to bring in outside resources to to help us. Um, and it's just now, you know, years later just getting completed. It's definitely one of the things I would recommend to do early.
Um, because the bigger you get, the harder it is to undo all of the broken stuff that you inevitably have in your company.
We were a business that we thought was pretty wellrun. We were just sort of making it up as we went. So, you know, systems are are huge. Um, but also communication. One of the things I see people do now is they really fail at at rolling out internal communication with their teams after they've bought businesses. What it hurts is building kind of a a common unified culture of the company or the business. getting really good aligned, you know, an aligned vision of where the company's headed. Even if it ends up wrong, you want people to know where you're headed and you want everyone on the same page and, you know, marching in the same direction. And then the other piece is aligned incentive programs. We had 12 different incentive plans across the country and until we started putting everyone on the same program, it it created a possibility for friction. You had, you know, guys that talked to each other on a conference call and were paid in a completely different way. Uh, and you want to have incentives where, you know, when you win, they win.
Sure. And so those are all like pieces that we had to start redoing. We were 13 or,400 people by the time we started kind of redoing a lot of those programs. And let me tell you, it's just it's a lot harder to do it that way. So,
you know, I tell people all the time, you know, you do it when you're still a really small business. I'm doing right now. I'm building out a business now and I'm I'm trying to put a big boy ERP in place now while we have six people. Um cuz it's like I know where we're headed. I'd rather start now.
Why is culture important especially in a business like yours when you're acquiring all these different companies that exist in their own right and also when like you're sitting there in Denver and you're buying you know another asbestos removal company in Dallas like why is that cohesive culture important? I'm really fascinated by that. For us, we were trying to build a a national brand and an identity of what, you know, what the business is. And for us, it represented a lot of things. It was like integrity, you know, high quality workmanship, safety, compliance. Our industry is one of those things where if you do it wrong, you know, it's it's bad for a lot of people. So we were trying to build this image of ourselves as you know the best in the best in the industry and you know the national leader in the space and in order to order to do that you have to communicate the vision to your teams and they also want to know you know people are afraid they're terrified of hey you know they watch TV and they they see downsizing and they see cost cutting measures and things like that the reality is is in most cases is when you buy a business, you're actually trying to grow it and you're adding people to it, not shrinking it. And so that messaging of who we are and where we're headed, it's like super important to the team on having confidence that they this is a place they want to be and they want to, you know, run through walls for us. building out a really good communication strategy internally uh is so so important to you know just to have a shared vision of where we're all headed together.
Let's talk about why this podcast exists at all. Conversations like this where people that have built incredible companies are literally giving you their entire playbook, what worked and what didn't to build their business. These conversations are happening all of the time inside of Hampton. Hampton is a private, highly vetted community of founders and high- netw worth individuals. And there's stuff that you just hear only behind closed doors. Those closed doors, they're Hampton. If you want access, you can. If your business is doing 3 million in revenue or more annually, you should apply at join hampton.com to get access to amazing people just like Corey. By the way, Hampton just launched a channel called I'm That's exactly what it sounds like. It's a place where people are sharing all of the stuff that just went wrong inside their business. It's both entertaining, educational, and frankly pretty cathartic. Uh, and it's fast becoming or has already become pretty much the most popular channel inside of the uh the Slack community. Community is invaluable, and I recommend you check it out. Go to join hampton.com to learn more. Talking of I'm Let's find out what happened after Cory sold.
By 2021, they had it all figured out. Five successful acquisitions, 120 million in revenue, 21 million in EBITDAR. They sold for 200 million and Corey stepped away from the CEO role to be able to focus on what he really loved, which was chasing deals. Then everything went to hell.
So you sold in 2021, but you didn't leave until 2024. So what happened in those three years?
A lot. I was planning on leaving the business probably two years post close and my plan was not to run the company. My plan was to do like really focus on organic and M&A growth which is what I love doing still what I love doing today.
Yep.
So I didn't take the CEO role and we brought in an outside CEO to run the business and right it did not go well.
Really not well. How not? Well,
let me put some numbers in context for you. So, when we transacted, we were about 21 million in in Ibbitita. We did a couple of transactions postlose adding about six or so million in Ibit. So, took it to 27 with with the new acquisitions and 9 months later we were at around 12 million in Ibita. Now, when you're thinking about the purchase price plus the added debt for those new acquisitions, you know, you're now running at, you know, a a massive massive deficit. And so, what what went wrong? A couple of things. We brought in a a CEO that was more of a hired gun from outside the industry, and he was used to doing really large industrial projects, and we weren't. We were a commercial business and so one he pursued five or six really large projects. Our business was lots of small you know repeat and recurring customers small at high margins. He said well we got to go after these multi-million dollar projects you know and that was sort of his background was industrial. So he um he wanted us to pursue some large projects which we did. We won them and they were an unmitigated disaster. So, these five or six projects were only about 20 million in revenue, but lost somewhere in the neighborhood of 12 million in net loss.
Wow. Okay. Yeah. Let me put that in perspective. They took on $20 million worth of work and somehow managed to lose $12 million doing it. That's not just unprofitable. That's paying clients to let you work for them.
And on top of that, we way overhired. So, you know, the idea is, okay, we're going to grow to a $450 million revenue business and 75 in Ebida. So, we need to be ready for it. Let's build this big management team.
Y
So, we added $7 million roughly in
in overhead while also having massive losing projects. That math is really bad. And so nine months into this tenure, um, he left the business and I took over as CEO and we had to do a full turnaround of the company. So you go from having this business that's like kind of story book, you know, we we were up and to the right for a long long time, printing cash, have a great transaction, um, leader in the industry in our business. Uh B we we need to do bonding. Um so you for like a large public projects you have to bond the work. We lost our ability to do bonding. We um we were cash strapped you know we had um there was there was debt on the financials because of um you know the the it was a PE back deal. So they put some debt on the balance sheet. So now we're in lender covenant issues. So essentially, we had to go into crisis mode and it was the hardest period of my entire working life by far. We, you know, we couldn't do any transactions, of course, you know, there's no way we could afford them. And what we did is not rocket science. All we did is get back to the basics. So we essentially got the bad projects off our books. We wrote down the losses. We cut a huge amount of that overhead. So we rightsize the overhead structure and we just went back to the basics. The core businesses were doing great. Our leadership at all those businesses were doing well. They were going up and to the right. Organic growth was actually working really well cuz the business development team was cranking. Everything was going well under the surface. The only thing going really badly were these five or six large projects and added too much overhead. And so all we had to do is course correct. So we went back to the basics of what the business did. We um focused on our core competencies and we cut overhead. And then you fast forward a year and a half time that I left the business, we had grown a bunch and our EBIT was back up to like 30 30 million. So it was a
Wow.
And it's not some genius move. Um we just went back to what we did well. But it was hard. It was really really really hard. By the time I got to last, you know, so the winter of 2023, I was just fried. My physical health sucked. I was on the road all the time, stressed beyond belief. It just didn't feel well. And um so honestly, I needed to leave the business in order to like regain my my uh physical and mental well-being because I was just like beat. So deep.
So 18 months later, how does it how does it feel? Like how does it feel to be out and done? And yeah, where are you at now?
It feels great. It's awesome. So first of all, I mean, I took I took a solid 6 months off. I have a now seven-year-old son. I'm 49, so I've got a seven-year-old son. At the time he was six, we my wife and I and our son um kind of traveled the world together. We took our kid to like 14 countries. and I focused on my health and didn't drink for a year. Um, just like full clean out, eating well, not drinking, focused on my mental health, like all the good stuff you're supposed to do. It was like full, it was like a full um midlife crisis, like classic. I bought a Porsche. I did all the things you do, right?
I never I'd never had a fancy car. I was like, you know what?
I I'm now not pulling up to a job site so I can have a fancy car. So, I I bought a I bought a I bought a Porsche. I got in shape. I traveled the world. And then I, you know, I started a new business. And I'm I'm in like bootstrap mode cranking up a new business now. And I'm having like the best time of my life.
Here's what happens when you spend 30 years building something.
You don't know how to stop. Well, not really. Cory left the CEO role in early 2024. He took the sbatical, did all the things that you're supposed to do after burning out. He took six months off, focused on his health, time with family, all that stuff. But if you're wired a certain way, which most of us founders are, eventually the rest starts to feel like the hard part, and it's time to rebuild. So, talk to me about why start another business. What's the pull back to starting a new venture?
I'm a deal guy. Even all that time I took off, I was flying around the country looking at businesses to acquire. I started doing some board work on large um specialty contractors that where I'm working with young founders and I I really get a ton out of working with founders who know that they need coaching. I've been in a peer group for a long time and like the the guys in fact one of the guys in my group is the one that introduced me to this podcast. So yeah, so for me that coaching that that you get from really smart people around you is one of the I'd say one of the smartest things that I ever did years ago. And so now I feel like I can give back to younger founders or or not even necessarily younger founders, but also ones that maybe just haven't gone through what I've been through, you know, the process of doing M&A, but also transacting. So I'm now uh working with a whole bunch of founders in bluecollar industry that want to put their business, you know, they want to take it to market. And so I'm helping to coach them to know what good looks like and helping them sort of scale and and and build their businesses. But I'm also, you know, I'm also doing transaction advisory work and it's fun. You know, for me it's the most fun part of what I used to do and like chasing deals, chasing customers except now I don't really have any risk. You know, I'm doing it as like a as like a mentor and it's also, you know, it can be a lucrative business. So, it's it's the best of all worlds for me. Now,
you know, when you're like you're taking your 6 months off and you're still flying around the country looking at deals, like where where are you finding these things? Cuz I think a lot of folks listening will be like, "Yeah, like okay, I want to grow through acquisition. I'm really excited by this. I want to go find some debt and some backers. I want to go and buy some cool businesses and like uh you know, they might be in their space and they're like, "Cool. I know I can think of like three or four competitors. Makes total sense for me to kind of have that conversation." But outside of that, like talk to me about sourcing. This is maybe the secret sauce that that I have. That's one of the things that I've learned to do well over time. Um, and in fact, the the idea for this business uh for me started with I'm sitting in a board meeting with a private equity guy who bought this company and he said, "Corey, every time we talk to you, you're you're meeting with some founder somewhere." He's like, "How the hell are you finding all these deals? we we would die to find deals like this. And I'm like, really? So, I sort of figured out that connecting really good companies with really good buyers is actually um is actually a rare talent and I didn't know that I had it. Um so, you know, it's a combination of things. A lot of people in my universe connect me with founders and they say, "Hey, you should really talk to Corey about, you know, I know you've talked about where you want to take the business over the next couple years. Um, I know you've talked about selling. I know you're burned out, whatever it might be." So, a lot of people get connected to me from friends that they trust. And so what I started doing is building out a national network of sort of spheres of influence, people that are in a relationship of trust with founders. And that's what I have now. You know, as I as I build out our business, I spend the majority of my time talking with sources of influence who can connect me with really really great founders and great businesses that want to take it to the next level. I I guess one more just question about the M&A thing like who so if you again re rewind rewind to 2006 who shouldn't do the M&A thing who shouldn't chase that kind of like growth by acquisition do you think
you want to make sure your own house is in order like you need to have a really stable company I had a business call me once that their business was cratering and they thought the solution was let's go buy another company and I'm like dude like you're fixing to have a huge problem if you take on additional debt thinking that your you know that your income statement is going to look better just by buying this other business. Um so h you have to have a really firm foundation in your company you know great you know great fundamentals good systems um good good management team etc. Um, so one I would say it's really important that you've got your own house in order before you even think about bringing on another business because it's you're going to end up spending a huge amount of time, especially if it's in another geography. You're going to spend a huge amount of time in person working through all the challenges of integrating this totally different business with with founders with their own ideas. And that's just a ton of work. So that means you need to have someone on the home front that's going to keep your business running while you're spending a lot of energy on the road. Um
so yeah, I would say a key key operational leader in your own business becomes key or or you need to outsource out the the M&A function to a competent team so that you can keep running your business.
Most people think M&A is about numbers, multiples, EBIT DAR, leverage ratios, but Cory's story isn't really about that. It's about something that spreadsheets never show, which is people. The landfill owner, the construction guy, the scrap heap business. These are bluecollar millionaires that nobody's really talking about. And when you buy their business, you're not just buying their revenue, you're buying their identity, their relationships, their life's work. We've had another guest on recently who talks about these businesses. He calls them sweaty startups. Nick Huber, he's also built a massive empire on these kinds of businesses that nobody's really talking about either. And if you want to hear more, you can listen to that conversation with him by clicking