Rolling Up EBITDA and Rents with Auto Repair Shops | Stephen and Paul Interview

Stephen Quinland, Paul Westart, welcome to Acquiring Minds. Thanks for having us.

Will: Guys, you're rolling up auto repair shops, which is intriguing in its own right. But you've also uncovered a way to amplify the value of this venture significantly. So, we're going to spend the first half-ish of the interview on the story, and then we'll turn our attention to this structure: how you found more buying power and more ways to create value beyond the conventional multiple arbitrage. Stephen, let's start with you. Give us a little personal background, please. Then, Paul, we'll go to you.

Stephen: Yeah, sure thing. Um, so I grew up in North Carolina, um, lived there most of my life. Went to school at, uh, UNCC Chapel Hill. Um, and sort of right out of college, jumped into a finan- financial management program at General Electric. Um, it's funny, I've actually listened to a bunch of the episodes where you've had ex-GE folks, um, on the pod, so it seems like there's sort of a common thread between us on pursuing this, you know, entrepreneurial, uh, venture here. But, um, yeah, so I, I went to get such a taste of corporate. You run screaming. I think that's what it is.

Yeah, I think that's what it is. Um, okay, but no, so, so I did the financial management program, so six-month rotational program. You kind of build a, you know, your foundational finance skills there. Um, I quickly moved into a corporate development or M&A role where you, I got to see a variety of deals, um, in a much larger context. So doing, you know, large enterprise value transactions, um, learned a ton, but didn't really feel like I got to, um, kind of get into the weeds of the deal-making process. Um, it was more sort of churning out models and decks for the board and, and that type of stuff, which is typical of any sort of entry-level position at that, um, in that role. Um, but quickly thereafter, I, I left GE, um, and went to Caesars. Similar capacity. So I was, uh, doing, uh, corporate development for them, largely looking at, you know, add-on acquisitions, both from a, a real estate perspective and a, and a business perspective. Um, and that's actually where Paul and I met. Um, so we met at Caesar's. Um, I was on the M&A team, he joined shortly thereafter, and we became good friends. Um, he was on a rotational program at the time. Obviously, I'll let him go through his background, but, um, he was there for a few months, we became good friends. Um, and then after, you know, my tenure at Caesar's, I moved on to a, a healthcare company. My goal, uh, you know, throughout that trajectory of my career was to really get to earlier and earlier stage companies where I had kind of more long-term upside. Um, you know, learn a bunch at these larger companies, get to an earlier stage company, U, you know, that provided that long, long-term upside. Um, was my goal, and I hadn't really thought much about doing, you know, what everyone's calling entrepreneurship through acquisition. Didn't even know it existed. Um, you know, the idea originated from Paul, and he can kind of describe where that came from. Um, but have always sort of been a, a risk-taker, um, and knew in my head at some point that I wanted to kind of be in a position to control my own destiny in that way. Um, and so when Paul and I were kind of on the phone, uh, during COVID, and we were all working from home, um, you know, kind of he mentioned this idea of, hey, there's this really interesting opportunity and a really interesting credit product connected to that that could allow the two of us to, you know, through a self-funded way, um, you know, create a totally new career for ourselves. Um, and so I, I got really excited about that, and that sort of kicked off our, our search. Um, and, you know, we cast, in, in kicking off our search, a really wide net. And I'd say we spent, uh, you know, the better part of a year just looking at opportunities and seeing what's out there. Um, there wasn't a whole lot of focus on any particular geography or industry. I think that, you know, kind of gave us a, a little bit of a leg up in terms of what we were looking for. Um, and we knew we wanted to be self-funded. That's the other thing. It was never really on the table, uh, to pursue any of these other avenues, uh, you know, traditional search fund or something similar. We wanted the cap table to be made up of of two people, Paul and myself. We could kind of dig into why that was, but, um, you know, we weren't really constrained by the idea of having to get equity investors over the line on certain deals that we liked. Um, and then obviously post-close, we, we wanted to be in a position to kind of have our decisions impact the bottom line, diluted, you know, 50%, as we're set up. Um, so that's kind of how we ended up where we ended up.

Will: Stephen, Caesars, meaning what is Caesars primarily? What would you call a gaming business, a casino business, a hotel business, a tourism business?

Stephen: I would say all of those things. Uh, yeah, so it's, it's Caesar's Entertainment. They own, you know, 50-plus or they owned, they were acquired, actually, while I was there, by Eldorado Resorts. They're they're still Caesars, but the two of those companies merged, which kind of was the impetus for me moving out of there to the healthcare company. But, yeah, so they own hotels, casinos, um, across the US. Um, and so it was a, it was a really interesting, uh, niche, and I learned a ton. The, the M&A group, as it were, was two people, myself and my boss. So I really got a lot of exposure to the end-to-end M&A process. So everything from, kind of, the, the documentation drafting, negotiation, to the financial modeling, to presenting the deal, um, for approval to the board. I was involved in all of that. So it was a really good, um, sort of way for me to, kind of, prep myself for what was coming. At the time, I didn't know that, but it's definitely been, you know, the skill sets that I've been able to leverage as we've grown.

Will: So, excellent. Paul, I want to hear, uh, your backstory as well. But first, just the, the pitch to Stephen. Was, was what it was? There's a, there's a financial product, a loan product that will enable us to, to, um, set ourselves on a different path for our careers and have exciting careers. What, I'm, I'm, I'm butchering it clearly. What, what did you say to Stephen?

Paul: Yeah, yeah. I, I had taken an entrepreneurial acquisition class in business school, and the concept really resonated with me. This idea that you could go out, buy a business, run it yourself, have all, all types of control over it. And so when I pitched it to Stephen, I said, "Look, why don't we go out and buy a business that trades at two to four times multiples? We can make them pencil." And he said, "Sounds great. Where are we going to come up with the money?" I was like, "I've got the answer. It's in the form of the SBA." And that really kicked off a learning process for us in terms of figuring out all the different ways you can structure 7A, 504 loans, uh, using essentially sliver equity from us, um, and being able to control all of the equity ourselves.

Will: Okay, thank you for that, Paul. But now rewind a little bit further and give us some personal background on you.

Paul: Sure, sure. Uh, from Southern California originally. Went to the University of Southern California. After that, went to go work on a Wall Street trading floor at Merrill Lynch, focusing on their foreign exchange, uh, spot and futures. Did that for a couple of years. Went to go work at the Robert Wood Johnson Foundation in their endowment office, focused specifically on their hedge fund portfolio. So allocating, they roughly $10 billion in capital. They were allocating it to the most effective hedge funds we thought possible. I did that for three years. It was a three-year rotational program. At which point I was told to go to business school. And, uh, applied to a number of places, got into Columbia. Went there, and that turned out to be a pivotal moment for me. That's when I took an entrepreneurial acquisition class, as I mentioned. Really, really thought the concept made a ton of sense. But like most people, graduated, took the, the least risky path, and, uh, went to go work at Caesar's Entertainment. Um, don't regret it, 'cause I met Stephen. And so it ended up being, you know, a fortuitous move for me, but at the same time, probably set us back a little bit. So it was three years, actually, yeah, three years in a rotational program at Caesars. One of those rotations was in M&A, um, where I met Stephen, introduced him to the concept, and went from there. And I think at the time, for us, it was always us, Caesar's corporate. It makes sense. But after COVID, it, it turned out it wasn't really the safest bet. Every week, it was, you know, round after round of layoffs. And kind of thought, why don't we take control of our own destiny? I know it's going to be risky to buy a business, sign an unlimited personal guarantee, but at the end of the day, we have full control for, for our futures. Let's go for it. And that really set off in motion, kind of, where we are today.

Will: And Paul, what was it that you do, you think, that gave you the nudge to finally do this? Because you'd been attracted to the concept immediately from that class. Was it COVID? Was it meeting Stephen? Was it seeing layoffs around you at at Caesars? All the above? Why, why that moment, the pivotal one?

Paul: I'll have to admit it, uh, it was meeting Stephen. I think Stephen has a, a bias for action that is, is very, very powerful. So when I pitched it to him, it was like, "Okay, let's go." I think within a week and a half, we were in Northern Nevada looking at an auto repair facility. Shortly thereafter, we're looking at multi-fam. So it was, I'm kind of an idea guy, and he is very much the energy behind it and getting it moving forward. So that was it. And yeah, the others certainly helped push, push you over the line. COVID kind of just, boredom of corporate America, and the idea of doing that for another 30 years just wasn't compelling to me. So that was kind of the, the impetus for it.

Will: Cool. Well, interesting that the, the one being pitched ended up being the, the one really driving. You know, usually the one being pitched has to be convinced, but it sounds like Stephen, you flipped the script, which is a theme in the story of you guys, as we'll get to. Great. So you decide to search, and you had said, Stephen, just the two of you on the cap table, even not wanting to raise equity, just for, to you, of course, you can raise equity for a self-funded search. Didn't want to do that either. Was that just to retain as much equity as possible? To have as much autonomy as possible? All of the above? How did you guys think about that? Oh, you're already, of course, also being diluted by 50% because you're, you're partnering, so you're, you're sharing half the economics right there.

Stephen: Yeah, yeah, 100%. Um, I think it's a couple of things. One, I think, uh, we just didn't want the constraints that tend to come with bringing on other folks into the cap table. And so what that meant to us is, both as part of the search, we wanted to be in control of the business that we found most attractive. And I think specifically as it relates to auto repair, you know, I think it's, it's generally speaking, not the most attractive, um, market out there that that people kind of view as, uh, something that won't be, you know, around in the long term due to kind of all the existential threats from EVs, at least as all the headlines read. And we can kind of get into our view on that. But, you know, our approach was, look, we, this, the deals that have the more, you know, the most hair, mean the cheapest multiples and the most upside. And so we didn't want to really have to be constrained by getting those equity investors over the line. That's one. And two, um, we didn't, we wanted to be the decision-makers ultimately. You know, everyone who takes on equity is going to have some sort of governance structure where the major decisions are run up the chain and then pushed back down. Uh, at this point, you know, any decision that's made is made by the two of us. And not only does that, you know, do what I said earlier, which is kind of give you that feeling that the decision we make is impacting the bottom line, diluted 50%, uh, you know, but it also just, you know, avoids a situation where you're, you're having to move slowly because you're waiting for that approval. And that could sometimes be, you know, killer.

Will: So, tell us a little bit about the search. You're based in Vegas at this at this time, and you haven't decided on auto repair yet. You're open-minded. You're, you're really wide open. So take us through the process of searching and, and specifically narrowing down on on this thesis that you arrived at.

Paul: I can start with a few of the things we were looking at. I think predominantly, geography was big for us. We wanted to be in the Mountain West. It's really business-friendly. You've got really positive demographics. A lot of people from California, Washington, Oregon are moving into those areas. So that, basically for us, was Idaho, Montana, Wyoming, Montana, or, uh, Wyoming and Utah. And so for us, it made a lot of sense to look there. We also wanted to be in a fragmented industry, one that wasn't dominated by one key player. I think in our particular industry, the biggest 50 players account for something like 10% of revenue. So there's just a ton of room for us to play there. And we wanted something that had pretty simple operations. You know, Stephen and I are coming from casino backgrounds with pretty limited experience as it relates to operations. We didn't want to get involved in something that had an engineering focus, anything that was really heavily dependent on one person. And that led us to a number of industries, but the most compelling one kept coming up because it was, there were always businesses for sale in the different geographies we were looking for, was auto repair, specifically.

Will: And did you have to go through the, um, rationalization that you're going to convince us of that this was an industry that, despite the headlines, had real legs to it? Or, yeah, did you have to convince yourselves? Because we all reflexively are like, "Well, that's an industry that won't be around forever because EVs are going to eat it."

Paul: It's funny, I, I vividly remember Stephen asking me one day, like, "Are we auto repair guys?" And I, I sat there, I was like, "I don't know. I mean, we can, maybe." Um, but no, look, I think because of that, you've got some pretty competitive valuations in those. So we pick, you can pick them up at two to three times pretty routinely. And I think sellers are, are, are open to that type of multiple, um, and are realistic about the prices they're going to sell for. And a lot of the deals we've looked at, even the ones that aren't off-market, we're just not paying premium multiples. And there's no sellers. There's no, I don't know that there's many people actually competing with us. As we look at these other shops, I think three of the four should just been us making an offer and getting it done.

Will: But how do you, while you could argue that there's another decade, two, three left in conventional auto repair shops, it still means that at the end of this venture, 10 years, let's call it arbitrarily, when you go to sell that, a future buyer is going to see their own runway with these businesses that much shorter at that point, only another 10 or 20 years. So it's not just about how much runway you guys have with these businesses looking into the future, but your future buyer is going to have that much less. I'm speaking now about kind of any declining industry. You don't have, you're not just thinking about, "Well, is there enough room for me to make a career out of this?" But what does my potential buyer pool look like in an industry in decline? How, how do you rationalize that?

Stephen: Yeah, yeah. Look, and I, I think I'll answer that two ways. I think the first one is the, the obvious question of where is EV going, you know? And EV vehicles obviously have a lot less moving parts, don't break down as often as, as combustion engines will. Um, look, I think the data is pretty compelling for us. You've got roughly 280 million cars on the road, two million of which are electric. It's, it's less than 1%. California, your most progressive state as it relates to EV adoption, it's at 2%. Idaho, at 0.3%. Um, I think the geographies in which we're targeting are going to be the last to adapt to that. Um, even if you take the most ambitious numbers coming out of California, Biden's, uh, 50% mandate by 2030, it's going to take forever for that in-place base of 280 million cars to, to actually move. Move when 5 to 10 million cars are sold a year. So our view on that is that the tail is very, very long. And, and the second point to that is, I think we actually view the shift to EV as pretty compelling for our business. I think it's going to be very difficult for your mom-and-pop operator to adapt to that. I think for us, if we've got five, 10, 20 shops, we're going to have the capital to be able to invest in the right people, the right technology, the right diagnostic software, uh, to be able to make that pivot. And I think for us, it actually is going to mean a lot of our competitors are going to come offline, and we'll make the shift. I mean, obviously drivetrains are going to break down less, but those are, there's a ton of load-bearing parts, suspension, steering columns, tires. They're going to wear out quicker. So the, the idea for us would be to adapt our business to EV and actually use it as an opportunity to change.

Paul: But 20, 30 years down the road?

Stephen: Yeah, yeah, yeah.

Paul: I would just add to that. I mean, I think that the reality in our industry is most owners, owners of auto repair shops are nearing or at retirement age. And the reality is, even if, you know, the TAM shrinks over the next couple decades, we believe a scaled player like ourselves that has, you know, a really tight playbook around digital marketing and the processes that we have in the shop to get work in and out the door, is going to be able to absorb or take over much more share than we had previously. So as that, as those owners retire, and most of them aren't getting the exits that, you know, we're providing to some of the larger shops that we look for, um, they're just going to go offline. Um, and so in that world, you know, we're going to end up being the ones with the capacity to take on what exists. And then, as Paul said, you know, bolting on that EV capability adds to that.

Will: I feel pretty convinced. And you're actually not the first searchers that I've talked to who who bought auto repair. Although the other person I'm thinking of, who I just spoke with recently, actually hasn't yet come on the pod, but, he made similar arguments and and convincingly as well. Um, so, so pretty interesting. We've hit on, you know, the auto repair and how EVs will affect auto repair, the kind of the giant question for this industry. You've also touched on the fact that it's a kind of a boomer, classic boomer industry, a lot of owners are at retirement age. What other industry dynamics are there? Fragmentation, low multiples, you mentioned. Give us more. Real estate is a crucial component of these businesses. Give us more attributes of the of the industry.

Stephen: Yeah, um, I'll start with one. So a big one that that we've noticed and I think has been one we've been able to take advantage of in a big way is these businesses, um, everyone that we've acquired or looked at, um, aren't, you know, professionalized in really any way. A deal that we did down in Utah, the owners were for writing up tickets, managing the workflow and calendar using pen and paper, um, and that ends up actually being a huge damper on throughput. Um, so we have the ability to come in. We have really robust shop management systems and technology that manages technician productivity, things like that, that just can double throughput, you know, kind of day one, with folks that know how to kind of manage those systems. And so that's been a really big tailwind for us. When we take over a shop, we can kind of expect a 10 to 20% lift in, um, in productivity as soon as we take over. That's one. And then the other one is, most of the shops that we take over don't have a good sense for where the market is in terms of labor rates. Um, we do pretty intense market research in that way, where we're kind of comping out, you know, the labor rates that that owners are giving us through diligence against other competitors in the market. Um, and we sort of step up that labor rate to that, to that, you know, adjusted higher labor rate, which also gives us that immediate lift in revenue. Um, so it's, it's those two things. I think most owners aren't connected to the market as it relates to pricing, and most owners aren't professionalizing their shops in a way that could really increase their productivity.

Will: Sorry, Stephen. The, the labor rates, you mean what you're paying your people? What they're paying their people that then become your people? You give them raises?

Stephen: No, the, the, we, so we basically bill our customers in two ways. One is we charge them for the parts that we've ordered that are going to be replaced in their vehicle. The other is the labor hours, um, of our technicians that are required to replace those parts. And so lab, the parts and your bill says parts and labor. So they're undercharging their customer for the labor piece of that.

Will: Sorry, correct. Correct.

Stephen: Um, and, and, you know, to the tune of, in certain instances, you know, 30, 40% off on that rate. Um, and, you know, we focus our product, I would say, is, is one that's very focused on quality. So we're bringing in the best technicians at the highest rates, so we can justify that increase in rate at the locations that we run because we're putting out the highest quality. And then on top of that, we offer our customers a really strong warranty that gives them that peace of mind on the workmanship.

Will: Paul, you'd said that you didn't want some sort of technical business involving engineering. So, auto repair is not engineering, but it is the service being delivered is a, is quite technical service. How did you guys get comfortable with with that piece of it? That you're not car guys? Or maybe you are car guys? I assumed you weren't.

Paul: We're not.

Will: How did you?

Paul: Okay. No, in the honest truth is, I would struggle to change my own oil. And in many ways, it's one of our our main advantages. I, I think for us, it forces us to hire really good, competent people. But, but to answer your question, I think it's the thing we heard time and time again as we went into this industry is that there is a dramatic labor shortage. Your average diesel technician is 50 years old, and there just isn't a group of people coming in to replace them. It was, it was concerning. And I'll be honest, day one when we closed Blue Wrench, the foreman of one of our locations was going to walk off the job. Um, you know, didn't want the change, you know, was unsure, and it was scary for us. And truth be told, there, we have not seen that shortage. We, as we discussed earlier, the, the MSA that we're in is really, really robust. We can post ads in California saying, "Hey, come to Idaho. You know, see what it's like here. Give it a chance." You know, much easier to live here in terms of cost of living, great place to raise a family. And we've had tremendous success with that type of campaign. So that big risk we had is, is, is essentially, I don't want to say it's zero, but it's, it's not really top of mind anymore.

Will: You'd mentioned how your selection of the Mountain West was a big kind of part of the strategy. Is this kind of seeing more fruits from that of that selection? That that the labor shortage you're not feeling the labor shortage because they're growing cities where you are, growing markets, and I guess they're attractive, so people are leaving California to go there? Is that, is this basically like your selection of the, if you'd been in California buying auto repair, you might indeed have a labor problem, but because you're in these attractive geographies, you don't, sort of thing?

Paul: Completely. And I would say we would never, ever look at this industry in California. That just wouldn't be on, on something we would do. But certainly, no, we have a robust pipeline of people at this point reaching out to us to join us, really skilled mechanics from, kind of, across the Western half of the US. So no, I, I think it's certainly our thesis coming, coming into play.

Stephen: Yeah, yeah. And I would add to that. I, I think what I mentioned on the labor rates will kind of facilitate not only a retention mechanism but a recruiting mechanism. So by increasing those labor rates, essentially the, the way we're billing out or the price at which we're billing out the time of our technicians, we're able to bring folks in at above-market rates. So with those, you know, attractive compensation packages, we've also had a ton of success bringing in top talent. And we're winning talent. I mean, it's not guys who are jumping from one independent shop to another. We consistently get talent from the dealerships. And I think by all accounts, those are the places where technicians make the most money. Um, but, you know, at this point, given, you know, where we're able to be on labor rates, the quality of work that we put out, the culture that we've worked really hard to to put in place, um, we get guys from dealerships. And then it's a very, very small community in the sense that the technicians, especially in in Idaho, they basically know each other. All of, you know, they have, it's a very tight-knit community. And so when you start to get that momentum around the culture that you've built, you know, the, the strong competitive compensation packages, and we've also added medical benefits, simple IRA matches, things like that, that I don't think are standard in your average mom-and-pop repair shop, um, that, that message kind of travels quickly. Um, and we've had a ton of success through simple referral processes and things like that as well. So I think it's another benefit of being able to kind of increase those rates when we come in day one, it gives us more leverage on the recruiting side.

Will: You know, that's remarkable. I interviewed a couple of weeks ago, Scott Walton, who will have aired by the time this does, who bought mechanical, commercial plumbing, gas, and HVAC. And same thing. They really kind of transformed the culture, made it a more appealing place to work, and word traveled fast. Uh, the, there when they got into the business, there was recruiting, recruiting was tight. And after not very long, they were, you know, people were coming to them. They just had great inbound from people who wanted to work there. And not, they were doing their own marketing, but it was mostly, there was a big aspect of this phenomenon that was just people in there, guys talking to each other, the technicians talking to each other and saying, "You should come work here. You know, things are going great," etcetera. So, yeah.

Stephen: Yeah, totally. And, um, you know, I think the reality is, um, we, at this point, it's, it's close to zero, but I'll say it's zero. We basically have zero voluntary turnover. And I think that largely is attributable, attributable to some of the things that we mentioned, but also because a lot of the technicians, especially the ones that work at, you know, independent repair shops, um, get burnt out, um, and are oftentimes kind of tired of the culture of, you know, there's an older mechanic who's the owner, they aren't really interested in growing the shop, which means that technician's upside is, is pretty capped. Um, because most technicians are sort of compensated on a commission model. And so we've had discussions with with folks through recruiting or our existing team, uh, where they're just really energized by the idea that they're part of a business that's growing. And so their, their opportunities aren't just limited to, hey, I'm going to be a technician at the shop for the rest of time. It's no, there's opportunities to be foreman, there's opportunities to be shop manager, there's opportunities to be regional manager down the road, all of these things that didn't exist for them, even at the dealership, but certainly at, you know, an independent mom-and-pop repair shop. Um, and so I think that's a, kind of another driver of why we've had successful recruiting efforts.

Will: And I think that that is a theme I've heard from guests before, that new energy, bringing, meaning a new owner brings new energy, brings excitement, brings, um, career possibility for the existing staff where where maybe they saw none before under the old owner.

Stephen: Right, right. And, and I would just add one more thing, which is we reinvest a lot into making our shops, you know, state-of-the-art. So that includes, you know, bringing in lifts, tools, scanners, um, all sorts of things that are going to facilitate the team being able to do their jobs more effectively, which for them means more money in their pocket. And I think again, that's, it's, it's a trend with independent repair shops for sure, that that cash is kind of going into the owner's pocket. And when the technicians and the team kind of see, hey, we're really excited about reinvesting into the shop and making your jobs easier and listening to the types of things that, you know, you tell us you need, uh, from a capex perspective, I think that's something that that they really appreciate and kind of keeps them, um, keeps them around.

Paul: Some really easy wins there. I mean, when we took over Blue Wrench, they didn't have a single swamp cooler. Idaho gets really hot in the summer, and they were forced to wear pants and long sleeve shirts. I mean, we immediately, in the first three months, bought five swamp coolers. People allowed to wear shorts in the summer. Morale ticked up noticeably immediately. I mean, so some of this stuff, it's just, it's not rocket science. It's just being thoughtful about how you reinvest and, and the needs of your team. They are a phenomenal team, and we kind of do everything we can to make sure we can retain them.

Will: Great guys. Well, I want to hear the story of Blue Wrench, which I guess is the first acquisition. So want to get dive into the details there. But before we do, give us a picture of of how much you've, how many you've acquired to date, and where you're in Idaho now? You're in Boise?

Paul: We're in Boise. So our Blue Wrench was our first acquisition here in Boise. Then we bought Eagle Auto Repair. Sorry, and Blue Wrench was two locations. So you've got two plus Eagle Auto Repair. And then we bought G&R Diesel, which is in Utah. And then we have a, a fifth location that we'll be closing on here in a couple weeks, also in Utah, which is also in Utah.

Will: But I thought you've done five total? I just added, my math just got me to four. Oh, it's maybe because Blue Wrench is two. Yeah. So you got two, it's five locations. Oh, yeah. Right, right. Sorry. Blue Wrench is two, then what was the other one? G&R and then GNR, Eagle Auto Repair, and then fifth one undisclosed for now, but it'll close in two weeks. Yeah. Thank you. Great.

Will: Okay, so let's hear about Blue Wrench. Why, you, you said you were looking throughout the Mountain West, you kept seeing auto repair shops for sale. So there were the, the lots of pickings there. Why this one?

Paul: Yeah, I, I can kick this one off. So, um, as Paul mentioned, we, kind of, we looked at, uh, a bunch of different auto repair shops and got into, kind of, pretty detailed levels of diligence on a couple of them. The issue we kept running into was that they weren't really of size, um, that of the size that we were looking for. So we're talking just around a million in revenue, um, and it, and, you know, what we wanted to do was get something with more scale because obviously there's some de-risking connected to that. Um, and so we, we got familiar with the business by doing those, kind of, by doing that diligence on those shops. Um, and an opportunity in in Boise, Blue Wrench, came on BizBuySell, and we reached out to them. Um, so there was a couple of things that had us attracted to that one. Um, you know, your typical auto repair shop is just general automotive. They're working on, kind of, mostly passenger cars, that type of thing. And this shop, these shops, were more focused on fleet and heavier duty. And so we really liked that when we were looking at it high level because we thought the recurring nature of that fleet business was going to be a really good thing for us to step into and get our, kind of, get our bearings as owners of the business. Um, they had some really big names in there that were really strong customers. Nothing that was, kind of, a concerning amount of concentration, but definitely meant that, you know, in time, when times when there's a downturn, uh, you're going to have that, that recurring business. Um, and we also thought, you know, relative to the general automotive side of things, there's going to be a longer tail on that diesel, heavy-duty diesel business. Um, and so that is kind of the way we formed our thesis on this, on this Blue Wrench opportunity. Um, and obviously there was two locations instead of one, so you have a little bit more personnel that you can shift around and things like that. So that was kind of, um, high level how we formed our, our thinking on, on closing on Blue Wrench.

Stephen: They also, two ahead.

Paul: Sorry, just the two locations were, see, same types of vehicles, same types of labor, every kind of same business, just spread across two locations.

Stephen: Yep, yep. And they also had, uh, active managers in place at both locations. So Stephen and I had the thesis that we could go in there and focus on on more of the high-level decision-making versus some of the other opportunities we were looking at where we'd have to step into a service advisor capacity, actually selling to customers, where we knew we'd be out of our depth pretty quickly. And the other piece of it that really gave us comfort is Blue Wrench had done 20 years in a row of growing revenue. And so we sat there and said, "Okay, short of us really coming in here and really messing this up, this opportunity should be at the very least steady." And to its credit, it has been.

Will: You know, it's interesting that Blue Wrench had been so successful because it was Blue Wrench, Stephen, that was pen and paper?

Stephen: No, they, they had a shop management system in place, but it was not used effectively, which I can talk about. But the, the pen and paper was was the Utah acquisition, G&R Diesel. Yeah. Okay. Okay. Well, um, it sounds like it was a real, Blue Wrench was a real outlier that, that many of these shops. So, so for the audience, educating them on this industry, hard to crack a million bucks. A lot of these shops that you'll see on BizBuySell are going to be a million or less. So what do you think Blue, Blue Wrench had done so successfully to keep growing revenue well beyond that kind of ceiling?

Paul: The truth is, yeah, the truth is, is that it was really a supply and demand equation. Um, so there just aren't many shops of the size that exist that Blue Wrench has. So it's a large, 12-bay shop that can that can that you know, has the lifts with the capacity to handle these larger vehicles, at one, and two, the technicians to be able to work on those. They're really hard to come by. The ones that work on heavy-duty diesel. Um, and so, you know, it was, it was an opportunity that meant, you know, we're going to, we're going to be able to have sort of a competitive moat here and go out and win more fleet business. There's really one or two other options in the valley. And so they kind of were able to grow just by definition, the fact that there was a ton of demand for their service and not a whole lot of competition. And to date, we're probably the only people in the valley that can actually lift an RV. And so your, your option is to go to the dealership, who's going to tell you you're six months out, or you can come to us. We're probably three to four weeks out, but we're going to be slightly cheaper than the dealer, same quality, if not better, of work, and we can get it up in the air. So it's a big differentiator for us. And same applies for any heavy-duty fleet with vehicles over 20,000 pounds. There's just very few who can handle those lifts. They're really expensive. I mean, you're talking $50,000 plus for a 20, 30k lift. And you were treating this as your platform acquisition, I assume? So this was going to be a bigger one, maybe, and subsequent ones might be bigger, smaller, but this needed to be of a certain size because it was going to be the first of a rollup.

Stephen: Yeah, it's funny. We, we kind of originally started off saying to ourselves, maybe we do want a smaller acquisition, a smaller shop, get in there, learn the business. You know, we're not taking a ton of risk on a personally guaranteed loan at a much smaller size. And so that might be the right answer. We very quickly kind of changed our thinking on that front. Um, and that's why we went on the search for a for a much larger acquisition, which was, which was Blue Wrench. Um, and, yeah, it's, it's, it's definitely the one that we viewed as, um, kind of the platform acquisition that would be the starting point for for our rollup. And, you know, my view through the whole process was, we want as soon as possible to get into something. Um, and the reason for that is my view was at the time, you know, you're not going to get that really solid off-market deal with no experience and not being in the industry. It's being in market, understanding the players, talking to the suppliers, all of that sort of thing. And that actually kind of led us to our next acquisition. So you're not going to get those off-market deals until you actually get in industry, was our view, which turned out to be true.

Will: So, and why did you decide though against a small business? You were entertaining it and then decided against it. Was it just quality of business? You just wanted, you basically wanted to get into something that was going to be of higher quality as a business?

Stephen: I think quality of business is a big one. I think, re- I mean, on a risk perspective, I think we were looking at a total wipeout in either scenario. And so if you're going to have that as your, as your downside, you might as well go for something of scale. And so that, that was kind of the thinking that that led us to the larger acquisition. And as you get there, you, you just got better processes in place, you've got management in place, you get better pricing from your vendors. There's just a number of things that start to snowball the larger you get. And so that was kind of the driving force for us to go to the the $2 and a half million dollar price. And it's also the, you know, the leverage on the labor. So one of the shops we looked at, for example, has three technicians. Um, you know, they're, they're doing a million bucks a year. Or three technicians for whatever reason, if we come in there and one of the technicians leaves, you basically lost a third of your revenue overnight. Um, and so, you know, in the context of Blue Wrench, we had something closer to 13. And so that's a much more manageable situation, you know, then would be kind of having three technicians. So that was kind of our thinking as well.

Will: And Blue Wrench having this kind of, as you said, competitive moat or niche in with these lifts that can lift really heavy vehicles, does that then dictate that you need to kind of remain in this niche going forward or not? Or not necessarily? You could look going forward at a passenger type auto body shop, passenger car type auto body shop?

Paul: It's a great question. And I, I think it's something that we struggle with, I'd say daily, in terms of what direction we want to take our portfolio. I think, look, there's highly compelling reasons to stay in the fleet game. It's recurring revenue. We're essentially the only player in town who can handle it. There's downsides. We don't get paid for 30 to 60 days on a lot of those things. It's really hard to find parts for RVs, for some of these heavy-duty vehicles. They can be backordered for months. And so we look at it and we compare to some of our other businesses that are cash pay, and we look at it and say, "Hey, look, we've got 12 bays in our Meridian location. Currently, four of them are set up exclusively for heavy duty. So we've got eight to play with. You know, do we want to set that up with Honda Civics, F-150s, cash pay customers that we can just come in, diag, get them out the door? Or do you kind of go for the lighter duty fleet business that Amazon and businesses like that are going to have?" I don't know that we've come up with a compelling answer. Um, we market to both, and whoever comes in, we do, we take care of them. But, but no, it's something we think about consistently is, is what direction we want to take our portfolio and then specifically that location.

Stephen: And I, I mean, I would say that we've sort of made that the decision to diversify at this point. You know, with our five locations, we have everything from that heavy-duty fleet business to passenger cars, which is our Eagle Auto Repair, to light-duty diesel, which is our G&R Diesel shop, to a mix of passenger and light-duty diesel, which is our other location in Utah. And I think it works really, really well. We have seen months where, you know, Blue Wrench, the heavy-duty fleet business, is kind of the, the, the leading group in the portfolio. And then other months where that's down for one reason or another, and passenger car businesses up. And so you kind of end up hedged across the portfolio, um, in a way that kind of makes the months more normal, uh, which I think works out really, really well. And I think that was part of the thinking behind, as soon as we got into this acquisition and got things stabilized, moving pretty quickly into another another location, you know, so that diversified our revenue, one, but two, gave us scale as it related to, you know, labor and things like that. We had the the ability to shift technicians around when folks were sick or using PTO and that type of thing. But overall, I think the, the, the way we've gone is this diversification play, and it's worked out really, really well.

Will: Well, for the listener who will hear your success here and it might, uh, pique their interest about this industry, you've done a good job here of kind of pros of con, pros and cons of each, passenger car kind of niche versus fleet and heavy-duty niche. For a first acquisition of by a searcher, do you come out really clearly one or the other?

Other than that, the best first acquisition should be X or Y, or you could argue either way. I would say, as it relates to our specific portfolio, I would say Blue Wrench wasn't the easiest acquisition. Now that we've done several, and maybe it's because it was the first one, and that skews your thinking a little bit, but we've discussed it several times. Eagle Auto Repair would have been the easiest acquisition imaginable. Um, they have management in place, the processes there are fantastic, they're rock solid, the team has little to no turnover, culture in place there is best in class. Um, it would have been a very easy first acquisition. In some ways, I'm happy it wasn't because I think you get spoiled by that, and then you come into another shop and it's like, oh my goodness, what have we gotten into? Whereas, you know, Blue Wrench, which is a pretty solid acquisition, as we go through these other ones, I think we've kind of got some battle scars and we know how to solve a lot of those problems that come up. So I'd say probably want to go with an Eagle Auto Repair, which is passenger.

Yeah, I mean, my recommendation if someone was interested in the space is to, it doesn't matter so much the revenue mix of the business that you're buying as it does the size of that revenue. Um, I would highly recommend that you go try and find a shop, and these aren't, you know, kind of a dime a dozen, but a shop that does somewhere around $2 million. It's just critical to have that scale that kind of reduces the risk around all those other things we talked about. Um, and I don't think you can go wrong between fleet and passenger vehicles. But it's just really about that size.

Paul, how about a couple, and Stephen, how about a couple of war stories from Blue Wrench? What did you, what do these battle scars come from?

Ian, we've got many. I'd say, look, the one that sticks out because it was at a time that was probably when we were most vulnerable was day one when we met the team and the foreman of the smaller location essentially told us, or he didn't tell us, he told the former owners, he's like, "I'm done. I'm going to leave." And at the time, we didn't know how hard it was going to be or how easy it could be to replace a foreman like that. Um, but we panicked. I mean, I was like, "What do we do?" I mean, we did everything we could to retain him, and ultimately he did stay, and we ended up having a great relationship with him and ended up promoting him to manage one of our locations. Um, but that was one that really struck out because I remember going home that day and like, "Stephen, what have we done? I mean, we are, this is exactly what we didn't want to happen." You know, I don't think we upset anybody, but, you know, just change as a concept was something he wasn't comfortable with. So that's one where, you know, now when that happens, I wouldn't lose sleep over it. But on the first acquisition, yeah, that was a tough one.

Yeah, I mean, I would say we got really lucky with the Blue Wrench team. Um, they are an awesome group in the sense that they kind of trusted us. We met them day one, we laid out what our plans were for the business. Nothing necessarily was going to change day-to-day immediately, but we planned on doing things like bolting on benefits that, you know, we understood from the prior owners, they had a lot of interest in, and those types of things, and bringing a positive culture. And I think some of that resonated with them. But at the end of the day, you know, they really trusted that, you know, we were going to be, kind of doing the things that we said we were going to do. Um, and you know, we're super thankful for that, obviously.

My war story is that on our third acquisition, down at G&R Diesel, I would say that we did not have complete information as it related to the role of the prior owners. And, you know, I've listened to plenty of episodes, Will, and I think this can be a pretty common occurrence. And so for us, what that meant specifically was, you know, we were under the impression that those folks, the prior owners, there were two of them, were just running the front. So they were picking up the phone, writing up tickets, contacting customers, those types of things, which we had no problem with. And we had the existing talent that we were able to port down to Utah. We actually moved one of our managers down there. Um, but that ended up not being the case. So we got in day one, and it became very clear after talking to the technicians that, no, not only were they running the front, but they were also doing most, if not all, of the diagnosis of the vehicles that came in. So, yeah, so the technicians that were in the shop were basically taking orders from those two and kind of just replacing or hanging the parts based on the diagnosis from them. They were really experienced and skilled diesel mechanics, but kind of assured us that that wasn't, you know, it was few and far between where they would actually go in the garage. Turned out not to be the case at all in that situation.

Uh, we had sort of the top mechanic step up and fill that foreman role, and he's done an amazing job, and obviously, we've kind of increased his compensation commensurate with that new responsibility. But it definitely meant, you know, a couple months of a rocky road because, you know, they were missing their two lead diagnosis technicians, and we really weren't aware of that. So it was overwhelming for our team at the front, and then certainly the guys at the shop. But we were able to pretty quickly get some additional talent in the door to kind of help at the front, and then also promote the lead technician there to a foreman role, and he's done a fantastic job. So, um, that was kind of the other big war story.

Paul, I liked how you put earlier that you've spun this "not being car guys" thing to your advantage. That it forces you to invest energy where you should, which is not developing skill under the hood, but developing skill in finding, retaining, and placing talent. And that is a skill. And that's really the strategic IC. It's really only you guys who can do that. And the better you can get at that, you know, it's just a very high leverage thing. And I'm not sure people think about, maybe they do, but maybe newbies don't think about hiring and kind of recruiting and retaining, and figuring out, especially in a business that's going to require some technical know-how, where you're going to find those people or who on the existing team you're going to promote. All of that is not something that necessarily comes naturally to somebody doing this for the first time. So it's a skill to cultivate in oneself. And I really like that you framed it that way. You know, your lack of ability under the hood forces you to cultivate this skill where maybe you would have, you wouldn't have given it the attention it deserves if you knew the first thing about cars.

Absolutely. We see it all the time. I think a lot of exactly what Stephen was talking about at G&R Diesel, it is really hard for an owner who knows very high-level diagnostics to not go into the garage and do high-level diagnostics. And second, you're, I mean, now you're second-guessing your team. You know, you never really empower leadership in the garage, it leads to trouble. And we have seen that time and time again. I mean, that was at Eagle, it's the exact same issue, G&R as he said, and then at our other shop that we're looking to acquire in a couple weeks here, it's the exact same thing. It just keeps occurring. Whereas for us, we're forced to make really targeted hiring decisions. And the truth is, it's kind of the one thing that can really sink us is having the wrong people. And so we've spent a disproportionate amount of time on hiring, training, making sure we give all of our people the right tools to succeed, and then letting them go and letting them run, giving them targets to hit, and see where we go from there.

Yeah, guys, how did you talk your foreman, your Blue Wrench foreman, back from the ledge?

It was an interesting one. I mean, we just kind of hit him with logic. We said, "Look, it's going to be change to go to another shop. I mean, you're going to have to deal with a whole new cast of characters. At least here, the only thing changing is the owners, and we're not really going to be involved in the day-to-day. You're still going to report to your manager at your location." And look, the idea is, we've got two shops now, we're going to try to get to three at the time, and now five. There's going to be plenty of opportunity to grow. I mean, your career at one time was just foreman. His career then became, he went to manager, and now, you know, who knows where he goes from there. But, um, that was the vision we sold him on, and that the change was for the better. And I think very quickly, he saw our investment in the shop, in swamp coolers, in diagnostic equipment, that I think he said, "All right, they're not just talk. They're actually going to stand by what they say," and kept him.

Great. Good work, Stephen. I think you were going to say something.

Yeah, yeah, I was going to say something, just to the point of kind of not having the experience as a mechanic. So that really allowed us, especially at Blue Wrench, to kind of go in and pay attention to the data. I think when you're absorbed in like the daily operations and the diagnosis and writing up tickets and contacting customers, you don't have the ability to spend that time working on the business. And so we were able to kind of spend a good amount of time in those early months evaluating the fleet book of business that they had and saying, "Hey, this business, customer A, is coming into us at a gross profit margin of 20%. That's not tenable. We need to figure out either a way to renegotiate that relationship or terminate if we have to." And we did that fairly quickly, and with lots of success on the renegotiation front, but in certain instances, we terminated relationships that then freed up room in our bays for more positive relationships, both from a financial perspective, but also kind of bringing in those guys to get them in and out the door as fleets appreciate.

And to provide a little context on that, I think we went into Blue Wrench, and it did probably somewhere in the neighborhood of $2.5 million the year before we acquired it. And Stephen and I looked at ourselves and said, "Look, we've got no experience. This is brand new. Let's be conservative in our underwriting." And I think we budgeted that thing to do roughly $2.3 million, and we ended up cresting the one-year mark at $3 million. And it's doing exactly what Stephen was saying, just doing the simple things right. Unprofitable fleets gone, winning new customers via more effective marketing, makes sense. Let's put in place technology, processes that all are going to enhance throughput, increase the quality of the work getting out the door. Just sticking to the basics and really nailing it was enough to get us to that point, which is great.

That's fantastic. And where do you think that, well, that three might grow to?

We're probably looking at probably around $3.4 million this year.

Great, great. And what is the, the five acquisitions, what's the aggregate revenue across the portfolio today?

Yeah, it's high seven figures.

Okay, guys, I want to start turning our attention now to the kind of the structure. How you're putting all this together? Is there anything more to say before we get into that on the businesses that you bought?

Yeah, I think that, you know, as a listener to your podcast, I came across the episode of the two guys with the trucking school. And I think one of them made a really good point that resonated with us. You know, and at this point, we've gotten pretty much scientific around it as it relates to our systems and optimization, which is blue-collar business, and specifically auto repair, have very transparent operating metrics surrounding performance. And so it was really easy for us to come into a business that we really knew nothing about and understand what good looked like and what not so good looked like. So, you know, as I break down the two sets of employees, we have service writers at the front, and they're very clearly measured on and paid on revenues sold to customers. Great, that's an easy metric to kind of compare month-to-month, year-to-year, and to have transparent conversations with them. And then the same goes for technicians. It's the hours that they bill and the amount of time they spent in the shop. And so if they're billing the same amount of hours that they're spending or clocking inside the shop, they're at 100% productivity. And so you want to manage towards that and hopefully get above that because that means that they're sort of making outsized wages, and you're making the labor hours on top of that. So, just for folks kind of thinking about blue-collar businesses, this is what we really like is the simple nature and straightforward nature of the operating metrics. And I think it also provides a level of transparency to the employees as to how their compensation's going to work.

And look, it's a great point, Stephen. And I remember that, it was Tyler and Bob Bonifice who bought the trade school in North Carolina. And I remember them making that point. I had forgotten it until you just mentioned it now. Um, they were drawn to blue-collar for a variety of reasons, buying a blue-collar business, and this was one of them that really, you can measure the inputs and outputs really precisely in a way that in white-collar businesses, you can't. So really, just like you said, so understanding where there's inefficiencies or where things can be optimized, or basically just understanding overall performance becomes way clearer than in say, a white-collar business. Really interesting point. And so it sounds like you guys have experienced that, have found that. Would echo that.

Great. Yep. Cool. Yeah, great. Thank you for that, Stephen. Okay, guys, so where to begin? I think let's begin on the fact that these businesses are hard to sell for the owners, and that they typically also own the real estate. Does that tee you up to kind of enter into this structure that you've devised?

It does. I might take a step back real quick and just sort of provide the context on our first deal, which I think then lends itself to the subsequent discussion around how we've adjusted our approach to structure.

Perfect. So, you know, as Paul mentioned at the very beginning, you know, we knew that there was this SBA product out there, the 7A product. You know, in our early days, that was sort of all we talked to anyone about and all we really felt applied to what we were doing. We kind of assumed that, you know, if we're doing a business acquisition, we're going to use 7A paper, and that's at some point going to run out, given the $5 million cap that they had on it. So as soon as we go into Wrench, you realize, all right, this place is stabilized, we're in a position to start the rollup and do additional acquisitions, you run up against a bit of a wall in the sense that that basket runs out pretty quickly. And in our first transaction, and we would like to have this one back if we could, we actually included the real estate as part of the purchase using the 7A product. And so a lot of that capacity was used on the first deal. It was really advantageous in the sense that including real estate in the transaction using 7A allows you to term that note out 25 years as opposed to the typical 10. So we really liked that aspect of it. But what we didn't realize at the time is that would limit, you know, especially being self-funded or not willing to take on additional equity, that would really limit our growth thereafter. And we actually ended up in a position where, before kind of learning about the alternative, where we had multiple deals in the pipeline and underwriting and got a phone call from our bank basically telling us, "Hey, it's one or the other. You don't have the capacity to do both of these on 7A, and so you've kind of got to cut the cord in one of these situations." And to us, that was unacceptable. And one, it meant that we needed to kind of investigate alternatives, which sort of kicked off a lot of research and discussion in the world of what else exists out there.

Obviously, there are conventional products that exist for this type of thing, but the reality is they're sort of mezzanine-like products that are extremely expensive and in several instances include equity features that again, we weren't really willing to take on. And so we had some discussions with several bankers across Idaho and Utah as to what our options were, and that sort of kicked off the pivot into this new structure. And I'll pause there for a second.

If there, yeah, that's great. Thank you, Stephen. So just to be absolutely clear for people, as everybody listening, or most people listening will know, the 7A SBA loan is what we use to buy small businesses, and it has a total of $5 million of available debt. So if you're thinking about doing a rollup where you're going to buy a lot more that's going to require a lot more debt over the term of this venture than $5 million, you're limited. And then you said, as you said, Stephen, you look to other loan offerings by banks, conventional loans, and you didn't like the look of those because they can be rather expensive or maybe require some kind of equity, giving up equity. So you kind of felt a little bit stuck there. So just want to make sure I'm repeating back to you what I'm hearing to make sure I got right. Were you, do I have that right?

Then just the other thing to double-click on that you said was the 25-year amortization. So if you buy a business that has real estate as well, and the real estate component of the overall acquisition represents 51% or more than half, just half or more, excuse me, a little over half, that it could be 51%, then the entire loan becomes a 25-year loan. So far better, you know, lower monthly payments, longer terms. It's almost like you're mortgaging a business, and that's a very appealing. And that's actually what you guys did. And so that was good, but you ended up using a lot of this $5 million than you would have preferred because now you've got that much less left, and you're looking at doing a lot of these acquisitions. So you're going to bump up against the end of that $5 million real quick.

Good. Totally. That structure, we thought at the time we were brilliant because we had combined the, we had gotten it termed out 25 years, but as Stephen said, it was a poor use of our very limited SBA bucket. We would have been much better off doing a 7A loan for the operations entirely and then doing a 504 loan for the real estate. It just uses much less of your SBA capacity. It's a 40% guarantee versus 75 on a 504. And then the other miss we had, which Steph didn't mention, is we put 10% down on that deal. We kind of thought that was the way these were structured. And you can actually use a seller note from, that's on full standby with the bank. At least the bank we were using will treat that as equity. So we put 10% down, which in our case was something like $300,000. Would have much preferred to have put $150 and taken a $150 note, and I know the seller would have taken it. So a couple misses on that first deal, but we learned and we adapted going forward.

And just to be clear from your personal story here, so you guys each put in about $150 of your own money into this to get things going?

Yeah, thereabouts. Correct.

And did you have to bring in more equity for subsequent acquisitions, or are you able to do subsequent acquisitions from the cash flow of earlier acquisitions?

All balance sheet cash.

Wow. Cool. I'm sure we'll maybe get to that again. Circle back to that. Okay. All right. So conventional debt isn't the answer to your problems. What is?

Yeah, and so just to put, I also want to talk about the timeline because that's highly relevant as well. So when we did the Blue Wrench acquisition, this was April of 2022. At the time, I believe the prime rate was 3.5%, somewhere in that range. So really favorable rate environment to do deals, that type of thing, which kind of is important as I get to how we adjusted our structure. So as those two deals that I mentioned were in underwriting, that was a year later, and obviously rates had jacked up by 500 basis points. I know prime today, I think, is at 8.5%. So totally different environment for sellers and for buyers. And a world in which we basically had to figure out an alternative financing mechanism for us that would allow us to retain, you know, like I said, the equity and kind of provide this exit to shop owners going forward. So the reality is, as you mentioned, 99 out of 100 shop owners are going to own the real estate. And by and large, you know, those locations are really strong, and they're not replicable in any way in the sense that you can't find that in that small industrial real estate located there to kind of replicate what they have there. So, just to highlight the importance of ownership of that real estate for people who are in the business of auto repair.

So we have these two deals, the bank says, "Hey, you've got to choose one or the other." We choose to do Eagle, and that was our last deal that we did on 7A. And we wanted to do this other deal, G&R Diesel. We did tons of research, lots of discussion with banks, and basically the findings of that were that there is a basket of credit under the SBA 504 green program that basically sits outside of any of your other loan capacity restraints. As Paul mentioned, the key attributes of a 504 loan, green or not, are that the loan is made up of actually two mortgages. The first mortgage 100% comes from the lead bank, so they come in at 50% of the loan or of the purchase price, and the SBA itself, the SBA debenture, represents 40%. And so this program not only does it exist outside of the typical $5 million constraint, it also allows you to have that $5 million capacity on the SBA portion for multiple projects. So to kind of say that in different words, you have $5, $5.5 million, I believe, per project, you know, divided by 40% gets you to a number closer to $16 million per project for multiple projects. So on the real estate side, it opens up a ton of capacity to do deals. And the structure is still the same where we're able to come in with sliver equity, and if the seller is open to it, and we'll get to that in a second, fill some of that equity gap with a seller note.

So it's a, and to be clear, that the 504 is the real estate loan. The 504 is the SBA's real estate loan product, correct? And this is a derivative of that called the 504 green. So what you just explained, this discovery of yours, is that a real estate related loan product, correct? But you're buying businesses, correct?

Exactly right. So my point about business owners owning the real estate 99 times out of 100 was to frame up this idea that if a shop owner is going to sell their business, and most times they want to do so completely, they don't want to sell just the real estate or just the business. You're looking at two transactions, you're looking at a real estate transaction and a business transaction. And so the structure that we came up with and have had a lot of success with, a lot of traction with, is that using this 504 green product to facilitate a cash out on the real estate for the owners, and then negotiating a 100% seller note on the business. And to take a step back, the reality is the individual shop is not really a marketable asset. The real estate standalone is, the business standalone is not really. And so why not?

Yeah, because I think the reality is a standalone auto repair shop is just not, typically, like we mentioned, going to be a million bucks plus in revenue. And the business owner, the current owner, is doing something significant in the business that any searcher is going to be concerned about leaving. Right? And so with our scale, where we have managers, additional talent that we can port over to take over these additional acquisitions, we end up being the only buyers in these processes. And so it's a situation that has allowed us to structure a real estate transaction that's an attractive purchase price for the owner where we cash them out, and then a business transaction where we sort of have carte blanche on constructing the note in a way that works for the owner to give them fixed income over time, and works for us so that we kind of meet our underwriting criteria.

So these owners own their businesses and they own the real estate. And intuitively, they want to sell it all. They want to get out completely. And sort of intuitively, they think, "I'm going to try to sell my business." And so they go to market with their business, but their businesses aren't very high quality and sit and don't sell. There's no, there's not much of a market for the businesses by themselves. And what you guys have done is given them a way to have a liquidity event by saying, "No, let's talk real estate first. Let's buy your real estate." So the cash that we're going to bring to closing day is for the real estate. We're also going to buy your business, but you're going to give us more favorable terms on that business. Did I just jump ahead a little bit? But the, there's the, that's the flipping the script that you did. You've now made this kind of a real estate first negotiation as opposed to they're thinking, "Let me try to sell my business," and then there's no takers. You say, "Well, we're going to buy your real estate and your business, but this loan product where we're going to be able to get financing is for your real estate, and then we'll also buy your business." And but then you have very favorable terms to buy that business because you're giving them an out which they otherwise wouldn't have.

And just to put a finer point on why the business is not as marketable, and there are few exceptions to that, Blue Wrench included, is the way that these businesses are typically run is one, the management issues I mentioned, which are the owner is heavily involved, either they're wrenching or they're running the front or both. There's that issue. But the more difficult hurdle to get over if you're coming at that deal with 7A is lots of those owners are running personal expenses, all kinds of things through the business that make the deal unbankable, especially at a size where you're at like a million plus dollars. And so the way that we get comfortable with that is we obviously own four of these, let's just use this example of the fifth shop where we've run this exact structure. We own four of these shops, we know exactly the margins we need to get, we know what the car counts look like, we know what labor rates are going to be. It's pretty formulaic. And so we don't need to get a whole lot of comfort on their financials as they exist. We just need to understand how many technicians you have, what the car counts look like, what are your labor rates, and those types of things, and we can kind of replicate what we know we can do.

And to kind of put some context around it, the G&R Diesel shop was initially listed on the MLS. And so you get a lot of investors who will look at that and say, "Okay, great property, great location, what's the lease look like?" And there is no lease, and the seller is going to want to actually sell his business. He's going to need to use that real estate if he wants to sell the business. And so when you pitch that to the investor and you say, "Look, there's no lease, but there will be. It's an unknown credit quality, unknown tenant, unknown term, everything." It's just not marketable. And I think we come in there and fill a pretty unique need where we can buy both. We just need the seller to play as it relates to providing a sizable seller note. But in exchange, we can pay him top dollar for both.

Sorry, and why is it that the real estate can't sell on the MLS? It could sell, but I'd say in that particular example, the seller is going to want to also sell his business and get cashed out on that piece, and he's going to need that building because the buildings in our industry are critical to what we're actually doing. And so you can't sell the business and say, "Hey, I got a customer base, you're going to need to find a lease somewhere else and port all the lifts over." So they go hand in hand in our industry. And so that's where we can provide a pretty elegant solution to them.

And just to go back to the point that I made on timing and interest rates, what this allows us to do with being able to negotiate terms as we see fit on the seller note, and then having a real estate loan that's going to have significantly lower rates than you would on a 7A. I mean, I think 7A loans now are north of 10%. And so to get a deal to pencil in that world is really difficult. But for us, where we can get below-market interest rates on the seller note, and then competitive or low in this environment interest rates on the real estate because they're fully secured, you end up with a much more favorable cap structure than coming in with 7A paper, taking out the business, and having to pay rent.

Ah, so the rate that you're getting on the real estate is less than what a lot of searchers get on their SBA loans because it's secured by the real estate. This is maybe basic to real estate people, but educate us.

Yeah, to the tune of three to 400 basis points delta. So our average interest rate on a loan today will be, you know, call it 7%. And if you go to get a blue sky loan, a 7A loan, those are going to be prime plus 300, so you're going to be looking at 11.5% money. And so our seller paper that we negotiate is either commensurate with the rate we have on the real estate or even lower than that. So we have rates that are, you know, what you would have assumed were deals done back in early '22, late '21, but they're just because we negotiated those rates to get the deal done.

So let's take an example. Let's do walk through the numbers on an example, if you can. Maybe G&R is the best one to do. Can you walk us through exactly what the numbers were and what the actual deal looked like?

I'll keep it high level if you don't mind, but let's just say that the real estate was worth $2 million and the business was worth $1 million. So the way that that ended up getting capitalized is we brought in a 504 green loan on the real estate. 95% of that purchase price came from some form of debt. So as I mentioned, 50% of it comes from the lead bank, and they are first lien or first mortgage on the property. 40% comes from the SBA, and then 5% comes from the seller. And so we go 5% down on that $2 million piece of real estate. And then on the business side, on the $1 million example, we were able to have them term out that note 25 years. I believe the interest rate was close to 6.5%, and there's a balloon on that. So what we basically, the way we get folks to agree to these long amortization periods where we have low payments in the interim is we say, "Okay, you're, we're going to make these payments for the next five years, and then after five years, the note accelerates." And the assumption, our end, is either we'll refinance into something cheaper as rates come down, hopefully, but in the interim, we're paying down that debt, and we've got cash flow and all of that good stuff. So it ends up being kind of a win-win. And, you know, the sellers are really agreeable to kind of all of what we pitched to them on that.

So you've got $3 million enterprise here, $2 million of it real estate, $1 million of it is the operating business. And you only had to bring 5% of $2 million, not even 5% of $3 million, 5% of $2 million. The rest of that for the real estate is debt at good real estate rates, not SBA 7A rates, good real estate rates, closer to your home mortgage rate. And the $1 million business that you've bought is 100% seller financed, also on a 25-year amortization, although it's got a balloon payment. So you're not, you're actually going to, they're going to get their money at the end of what, 10 years? Five?

I think we had five, but yeah, five.

So 25-year amortization, 5-year balloon payment, also a low rate, correct?

Seller seller walks. A seller's happy because the seller gets $2 million on closing day, and then a million that'll come over the course of five, you know, in a trickle, and then all at once at the end of five years. And you guys only put in 5% of $2 million, which is $100,000.

Great. Yeah. It's, Paul, I feel like you want to say something. Are you just basking in your own genius?

I won't take credit for it. It certainly wasn't my idea. I had the SBA idea, but I think Stephen has been the one who's really pushed it to the limit with a little bit of creative backing from our broker.

And what is the green designation here? That must mean that there's got to be strings attached.

There are strings, yes. So in order for a loan to qualify as green, you basically need an energy assessment. And so there's a couple ways you can check this box, and the bank basically manages this as they would an appraisal or environmental phase one. But they bring in energy consultants, and I believe the threshold you have to meet is that, you know, some 10 to 15% of energy efficiency improvement post-close. And so that basically means the consultant comes in, tells you what you need to achieve that threshold, you do that, it gets rolled into the total cost of the project, and then you qualify for that loan.

So it's financed. The cost there is part of the loan?

Oh, not onerous at all. It's not some, nope. No. I think it's all done by a consulting agency, and it, a lot of it depends on how old the building is. Like one of our buildings is, I don't know, from the 1950s, cinder block construction. You can probably get away with just doing LEDs to cut your cost there. A brand new building to get that even to meet that 10% threshold is going to require pretty significant investment. So there's some give and take there depending on the kind of building you're working with.

Was that you wanted to say, Paul? You were about to say something else.

It was okay. Great. Guys, okay, so you've, so what you've explained is how you can do these deals in a really creative way with little money down and a lot of powder, I guess, in the form of debt. So you're no longer, you figured out how to uncap this $5 million that most searchers are constrained by. To round this out, or to close us out, is how you'll package this at the end of the whole venture?

Stephen, that's another key element of this.

Yes, it is. And just one thing I would say about this structure, because I think there's going to be some raised eyebrows listening to us saying we're putting $100,000 down on a $3 million deal and concerned about potential resulting leverage from that. We don't change our underwriting criteria. So those deals pencil the way Blue Wrench did, the way Eagle Auto Repair did, in the sense that we have north of two times debt service coverage as a result of the transaction. So you're able to achieve that obviously by having the flexibility on the terms of the business note and then having the cheaper rates on both the business note and the real estate side. So it's nothing's changed. As you know, we're not taking more risk in that sense, but we stick to our underwriting criteria, and that sort of shapes the high-level terms of the deal, and then the capital comes in behind that.

And one, the portfolio pays for, we already said this, but to be clear, these $100,000, the equity that you need to do subsequent deals is being paid for off the balance sheet. So it's not out of Paul and Stephen's own bank account. The portfolio is self-funding its own expansion.

Yep, yep. Very, very powerful. Tell us how the other element of the big value unlock here upon exit, because that's another key element to this.

It is. Yeah. And so what I will say is, you know, Paul and I, our approach is that, you know, we run the business as if we're prepping to sell it. That means a lot of things, but it doesn't mean necessarily that at the end of all this, we want to, but we want to, but we're putting ourselves in a position where, at an exit, we're able to maximize the value of all of these transactions and that value we've added to the business. So to that end, I'll describe, and Paul, help me out here if I'm missing any of the details, kind of how we think we're setting ourselves up for that. So at the end of the day, we will, and we are building two separate portfolios here. One is a portfolio of what we believe to be really valuable, well-located real estate, and then a business of rolled-up auto repair shops that will become or is highly marketable. And the reason I say that is, you know, we have done a lot to implement systems, management teams, governance, controls on the accounting side, all of that good stuff, to kind of build a business, a standalone business apart from the real estate that's marketable to someone that would be interested in something of that size. And so by taking these what we call onesie-twosies that aren't really marketable, pulling them together, putting in the systems, the management, all of that good stuff, we've created something that I believe strongly believe is very marketable. And that goes without saying, obviously, that's any rollup, but I think it's an interesting industry where we've done it, and there's very few strategic players in the space, but a lot of opportunity to continue to do it if you have the capital.

So Stephen, let me interject that piece. What you've just finished saying is the kind of conventional rollup. Buying onesie-twosies, improving the businesses, and then realizing multiple arbitrage. You get in for two and a half or 3x, and then you roll up 10 of them, and you exit for something much larger than the multiple that you got on each individual business. So that's basically the conventional playbook that you just described.

Totally. But in an, but in an interesting, unlikely industry. Exactly. And so like I said, we've got this, we've got this business that we've now created five locations that are sort of running as you would expect with a sort of platform kind of support functions and management team systems and all that, and now a portfolio of real estate. So to get into sort of the way the math starts to work, right, is if you focus on that business side, and you know, assume we own all of the real estate of all of our locations, you're in a situation where you can sort of leverage this arbitrage between what people are willing to pay for business EBITDA and what investors are willing to pay for real estate rents. And so to give a very simple example, let's assume we have $5 million of what we'll call EBITDA, so it's EBITDA plus rent. So you have all the earnings power of the business represented in EBITDA before you pay any rent. The idea is, to the extent that you can rationalize this, and we'll get into the details of that, you can pull rent out of that EBITDA number and sell that rent, sell that real estate portfolio at a premium multiple relative to what you get on any business sale. And so what I mean by that is, let's assume small businesses trade for anywhere from, of our size, trade from five to eight times. If you pull that rent number out of that EBITDA, $5 million, that's going to trade at anywhere from 15 to 18 times. Right? And that's obviously highly dependent.

On the rate environment and things like that, but just for the sake of broad stroke example. Um, so what you've done is you've given yourself almost, you know, in certain situations, 10 turns on that rent that you're pulling out of that business versus selling that same number at, you know, selling that $5 million at five to eight times. Um, so I'll pause there for a second, but that's kind of the arbitrage play that we're set up for.

So two follow-up questions here that I have a hard time understanding. First, you earlier said that these businesses and their real estate are kind of inextricable, but now you're you're talking about indeed extricating them from each other. How, how is that going to work? How can I buy? How can there be a market for the grouping of businesses and not the accompanying real estate, since they are so fused?

Yeah, it's, it's a great question. And so the main mechanism to solve for that is, is the term of the lease, right? So let's assume the order of operations is that you sell the real estate portfolio ahead of selling the business, right? The lease is going to have to have a longer term, so say 20 years plus three five-year extensions. So whoever's coming in there knows that for 35 years, they don't have any risk that at the end of the lease term, they're going to be asked to leave the property. So you can, you can set yourself up to mitigate a lot of that stuff by kind of selling the real estate first, ensuring that the lease represents something that's market, that a buyer would sign up for. Um, and, you know, you kind of mitigate that issue of, okay, at the end of five years, am I going to be out of a, am I going to be out of a location here for my business?

And I'll say like, the reality is, is it just the business and the real estate attract two different kinds of capital. You know, most of the folks who are going to be looking at our our business are looking for or have much higher return thresholds than someone who's buying the real estate. So real estate trends, trades on what's called a, you know, capitalization rate, which is essentially a cash flow yield. And so that is typically between 6 and 10%, depending on the property and things like that. Whereas, you know, folks search funds, things like that, you know, that type of capital that's chasing our business in theory needs something north of 20%. So you have two different, two different buyers coming in here. Um, and, you know, it just, it allows you to kind of part, you know, partition the real estate, do that deal with, with real estate investors who are focused on that type of return, and then, you know, focus the, the business on folks who are focused on that type of return.

That makes sense. And, and you can only do that decoupling at scale when, when both portfolios are of a certain size. A portfolio of five or 10 body shop, auto repair shops in five or 10 pieces of real estate.

Totally, totally. And that's where it gets interesting, right? Because it's like the larger you are, the more capital you're attracting. And so that's why we are focused on growing as fast as we can, because we want to be able to put together a portfolio that attracts as much interested capital as we possibly can on both the business and real estate, because inevitably, if we decide to exit, um, you know, that's going to get you the best price. Um, but it's just not going to be the case when you're a shop owner with a single piece of 6,000 foot real estate, well located, but, you know, with a single auto shop, it's just not, yeah, that you're not going to be able to to take advantage of that.

And, and you guys can choose to sell these two portfolios, these two packages at different times. So you don't also don't need to worry about the synchronization that so many sellers do, where they want to sell their real, you know, you'll hear my guest say the seller only would accept me as buyer if I also took the real estate because they just wanted to be done with it. You guys don't have to do that. You can sell one, then the other.

Indeed. It sounds like you would, you would, um, sequence things. So you sell the real estate first, and then you'd sell the opcos.

Exactly. Yeah, you kind of focus on crystallizing the value of the of the propco. Um, and then, you know, you can either run that business as you have, and then eventually market it subsequent to that, or, you know, shortly thereafter. But the important part is that you have now in place a marketable lease, and you're operating under that lease that you can then, in theory, if we were to decide to exit, you know, kind of, um, go to market with the operating business.

And I recall from the pre-call that you're, you're also raising rent. So that's another way that you're getting kind of immediate, immediate value creation.

Exactly. And, you know, it, it's not like you just press a button, right? So the, the, the, a lot of the value that we're adding is increasing the earnings power of the business at those individual locations, so that you don't end up in a situation where you're overleveraging the business by by putting, you know, by increasing rent and putting it in an unsustainable place. Um, what we've done is we've increased the earnings power at those businesses, which increases the amount of rent that they can reasonably handle that would be market. And typically, you know, that's measured in what's called rent coverage, um, which is Ebitda divided by, you know, rent. And so that kind of gives you a sense for, um, kind of where you're at. And that that number, I think most people like to see closer to two times, right?

Because I guess the question otherwise would be, if this rent coverage concept weren't there, the the argument would otherwise be, well, why don't you just charge your your opcos as much rent as possible if you're going to sell that rent for a higher multiple? Like just as, you know, just jack up rent and, and I guess that that points to the other question I was going to ask, which is my impression for my guest is that when they buy a business where there, where there's real estate, um, as well, typically seller owners, the generally retiring seller owner has charged themselves less than market rent because they want to show their business having more profit. So but if what you're saying is that the the the multiple on that profit, they can kind of allocate where they want that profit, either is it profit coming out of the real estate because the rents are higher, or profit coming out of the business because the rents are lower, you'd want to see more profit coming out of the real estate because real estate trades at higher multiples. So why is it that so often that, um, owner sellers are charging themselves less than market rent? They should be charging themselves as much rent as possible to juice the value of their real estate, which trades at high multiples.

Right? Um, well, I would say two things. One, this devil's in the details on the real estate. So I, you know, what I don't know is, is this a, you know, towing business that just has a yard in the middle of nowhere where vehicles end up after they've been removed from certain properties, in which case, you know, something like that is going to be, you know, pretty easily replicated. Um, versus our business where it's, you cannot set up shop anywhere else, and so the earnings of that business are 100% facilitated by that real estate. So it's not a storage facility, it's not, you know, what, whatever, you know, because a lot of these businesses, I think are, that's where the real estate comes in, is it's a, it's not necessarily where the earnings are happening. Uh, so it's a little bit of a different equation. But in general, to the extent that, you know, it's reasonable to assume that you're going to get, you know, let's say even a 10 cap, right, which would represent a 10 times multiple in my mind, it doesn't make sense not to move rent over or increase rent to the point where you get that premium multiple.

And to your point about devil being in the details, and if it's just real estate that's like you said, an acre in the middle of nowhere, um, in fact, your structure here, I guess, is there a takeaway for the audience in them looking at businesses that have attached real estate where they can do some sort of try to figure out some way that they can import what you figured out here into their own deals, or is it very specific to kind of auto repair, or any business where the real estate is almost intrinsic to the business? Could, could that, could that kind of, this only kind of work in that context? Or I guess, I guess really, what's the takeaway for the audience?

Searcher? Yeah, I think, I think you hit, hit the nail on the head, which is in so far as the, the real estate is intrinsic to the business, as it is for us, um, it's, it makes a ton of sense, uh, to do what we're doing, which is figure out a situation where you can, you know, efficiently capitalize the deal, getting the real estate and the business, and then set yourself up to move as much rent as you reasonably can, you know, obviously there are lots of constraints on that, but as you reasonably can, to that real estate business, because it just inevitably is going to trade at a higher multiple.

Now, bring this home. Say you do this over 10, you buy five, make five more acquisitions, and you've got a portfolio of 10, 10 pieces of real estate, 10 businesses. How much value's been created? I, that that's kind of open-ended, but put some numbers around this. I mean, how, what are we looking at here? Can you do that, or is that, is that too? Is curious what Stephen's answer to that one is.

Yeah, yeah. I mean, I, I, I think that, so let's just assume that where we are now at at five locations, 10 locations is is double that. I mean, I'll talk in very broad strokes here, but, you know, we'll be, um, something close to $20 million in revenue. Um, and on the business side, you know, my view is that we'd be able to create three to four turns of of sort of multiple arbitrage on top of just the, you know, growth of the bottom line number itself. Uh, and so that, you know, that that's a pretty meaningful, meaningful number. Um, and I think, you know, going from where we are today and getting to that 10 shops is going to be a, a very heavy lift. I think we're right on the sort of cliff where you have to start to really build up that overarching infrastructure that supports those four-wall locations, uh, which, you know, Paul and I do a lot of today. So a lot of the, the back office support functions, managing benefits, employees, HR, all of that good stuff, is a lot of that runs through us, and that's just not sustainable from where we sit today. And so, you know, that means significant investment in that, in that infrastructure. Um, and then, you know, when we get to that point, like I said, I think there's going to be a, a three to four turns of of creation on that and some growth in the bottom line number. Um, and then on the real estate side, I think that's kind of where most of the value lies. I mean, these auto repair facilities are located in prime locations. I mean, one of our locations is at, you know, spitting distance from a, from a soccer stadium in Utah. Um, they're just, they're in really, really location, really, really solid locations. And I think if you look at our portfolio now and you assume that that we kind of added additional five locations, I think it's a, that there's going to be a lot of value created on that side as well.

And I would just echo what what Stephen said earlier, it's, it's pretty muddy when you take over one of these on-to-end locations. I mean, the amount of financial plumbing, hiring that you need to do, dialing in your marketing strategy, all of that, it's exhausting, and it's a, it's a ton of work. So I think the idea of us getting to a portfolio of 10 to 20, getting it optimized and offloading it is, is tough to stomach. I think for us, it's, let's get to that point, enjoy kind of the fruits of our labor where you finally have the processes, the management team to handle that, and then you can explore what the next option is, but it's probably quite a ways down the road for us.

How many acquisitions, how many acquisitions would you guys like to be doing a year?

It's a great question. Or maybe you think maybe you think in terms of revenue, how much revenue would you like to be buying a year?

I would say in the initial pitch deck we put together, we had said, let's do one more deal in the next couple of years. And oh, I would say our pace has dramatically increased. I mean, we're already at five. I think we're now getting quite a few inbound deals that come in organically. And so I, I don't see any reason that pace would slow down. I think if anything, that'll increase now that we've got a playbook that's replicable and that we can just continue to just rinse and repeat. I think if anything, the goal would be to get to 10 here in pretty short order and probably reassess there, but I don't see any reason we couldn't get to 20.

Yeah, and there's, I mean, there's sometimes I, I, I, I dream and think about there's some certain opportunities where you could really accelerate your growth, um, with sort of larger rollups of shops that exist, um, you know, to the tune of 10 plus locations, um, that haven't already been kind of picked up by strategics. Um, and to the extent that, you know, we have the capital available to do those things, we, you know, we'll definitely pursue it. And there are those types of of options out there in in both of our geographies. So there's, there's a world in which, you know, at some point you kind of turn your attention to those larger deals, but obviously that means more expensive multiples, potentially, you know, you're not picking up the real estate in that world, that that type of thing, but it's definitely something that we've, we've sort of batted around.

Sorry, Stephen, that was portfolios of of businesses like yours that have kind of already been built, consolidated into a portfolio like you're talking about doing, and so buying one of those yourselves?

Yep. Is that what you meant?

Y. And, and with, and you said without the real estate. So this idea that you guys have of separating, buying multiple, um, auto repair shops and then pooling them and then separating them into the opcos and the, the real estate, that's something you've already actually seen in the market, people selling these packages of auto repair shops that are already decoupled from their underlying real estate? So there's a precedent here?

Yeah, there's a precedent. Um, I don't know that it was the same sort of steps that we're talking about, where that group owned all of the real estate, subsequently did a sale leaseback, and are now owning the operations. I think a lot of times the, the existing rollups, you know, their most efficient use of capital is to just buy the business and not buy the real estate, you know, for those kind of yield reasons we discussed. Um, but certainly, yeah, there's, there's, you know, operating companies out there with multiple locations that, um, that don't own the real estate.

I say we also have a challenge now. I mean, we're getting inbounds from, I would say adjacent industries, um, like towing businesses that we could certainly incorporate into ours. I mean, logically, you could pick up broken vehicles on the side of the road, tow them to your to your repair facility and get that maintenance, as well as all the maintenance those big heavy-duty vehicles require themselves. So we, we, we struggle a little bit. I mean, I think a big part of our job is capital allocation, and and that's one where we sit there and take a step back and say, look, in auto repair, this strategy of ours with the sale leaseback of the real estate just makes a ton of sense. Is it actually going to apply? Are we going to be able to juice the slim capital we have on those bigger transactions when in a tow yard in the middle of nowhere doesn't have the same properties? Those are tough decisions. I don't have an answer to it. Um, it's something we struggle with quite a bit because we do see quite a few opportunities in adjacent industries, but it is something that that's been coming up and probably something we talk a year from now that we'll have done quite a bit more research and maybe have a deal in that space.

Great, guys. And for the listener who whose interests you've peaked, this opportunity, do you believe it exists? You've already said you wouldn't go near this in California. You've said that you strategically chose the Mountain West and that it's appealing for all the reasons we've already talked about, and it helped you solve your recruiting problem. Do you think that other regions of the country, if somebody's not, um, in the Mountain West, I mean, you, you've already got that locked, so you're not going to encourage them to go there anyway, uh, but, um, you know, does this need to be in a high-growth area necessarily, which the Mountain West is?

Is this your your playbook? I view it as just forgiving. We were able to make small mistakes and you have this kind of tidal wave of people moving in that really helps us out. You know, we lose an employee, we can replace him. I mean, the Boise MSA has grown 30% in the last few years. I mean, that type of change is massive for us and really allows us to absorb some some mistakes we make here and there. I think your, your margin for error is a lot smaller if you're operating in in a, in a place like California, where the market itself is shrinking.

Um, those would be my thoughts on that, but still possible, certainly. To be clear, Paul, the reason you didn't like California for this business is because the population dynamics?

California's population dynamics? Yeah. I mean, California's got a few specific issues related to them as it relates to our industry. I mean, they're basically saying electric vehicles by 2035 are 100% of new vehicle sales. That's going to require a waiver from the EPA, which in a Trump administration is looking highly unlikely. Um, but that's a risk that we're probably not willing to take.

Yeah. Yeah, I think just, I mean, naturally, the coasts, west or east, are going to be much fiercer in terms of competition. And I feel like on, in some of these East Coast markets, um, you know, I'm from North Carolina, there's auto repair shops on every corner. Um, whereas we're, we're playing, you know, a good example of ours is Eagle. It's the only shop zoned for that purpose in the entire city. So you basically set yourself up in, in certain instances, when you go to these places away from the coast that are not as densely populated, to to kind of have those outsized or asymmetrical, you know, return options.

Okay. Anything that we didn't get to do? We feel like we captured the essence of what you're building here. I mean, more than the essence, the essence and the details.

Yeah, yeah. I mean, I'll touch on the big one that that impacted us. I mean, it's a, it's a big step jumping from, you know, the comfort of W2 into an entrepreneurial pursuit in the geography you don't know, industry you're not familiar with. Um, we did it and it worked out so far well. Um, so I would encourage anyone who has kind of that entrepreneurial bend to to pursue it. It doesn't have to be in a highly leveraged strategy like ours. There's numerous other pathways to entrepreneurship, but I would encourage those who are on the fence to to give it a shot.

Cool. Yeah, my, my, uh, point I'd leave with is, um, I think a lot of folks, and we started this way, uh, especially if you're sort of financially inclined or have the backgrounds that Paul and I did, um, you can kind of end up in this analysis paralysis situation where you're going to go through, you know, hundreds of deals, never find that perfect one at that perfect price. Um, and sort of my recommendation is, um, find something and execute on it. Um, because because you know, you just, you got to get started. And then the best deal is assuming, you know, you're doing what we're doing, which is trying to roll up a, a portfolio here, are going to come from being in the industry. Um, you're not going to to win deals off-market and things like that when you have no industry experience. Um, and so I think that's, that's a big, that was, that's been a big tailwind for us as being in the industry, reaching out to owners and having that credibility and being able to kind of assure them that, you know, we're not going to take their shop and run it into the ground. You know, they know we have an existing operation, they can look at our websites, they can, you know, talk to our, um, our managers, if things like that, that just really facilitate that, that growth once you've gotten into the business.

Yeah, yeah. No, I, I love that advice broadly. The value of of of getting in the game. There's a lot of value of getting in the game, including, uh, if you're especially if you're going to implement a rollup or some sort of kind of programmatic acquisition, the sooner you can position yourself as a player in the industry, the sooner those those subsequent acquisition opportunities will present themselves to you.

Totally. Yeah. Stephen, Quinlan and Paul Westart, thank you guys very much for the, the story and the explanation of how you're building this really, really interesting.

Stephen, thanks for raising your hand to come on. I'm really glad we're doing this. Um, definitely a unique, uh, structure and episode, uh, for acquiring minds. If people want to ask you questions about what you're doing, do you have a preferred mode of communication?

Yeah, mine is email.

Okay. Happy to provide my email. People can reach out anytime.

Okay. Same. Paul, you?

Same. Good deal.

All right, Stephen and Paul, thank you guys very much.

Thanks a lot, Will. Much appreciated. Bye-bye.

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