Merging Old-School with AI: Strategies for Success

0:00It is each of those things depending on the deal. right? And we'll see those happen. The thing that was interesting was when I was in Austin a month or two ago at the JP Morgan Chase middle market meetup or whatever it was, where they basically matched us. They had 42 family offices and private equity funds and 42 companies, and we speed dated and talked to a bunch of them.

0:30hey everybody welcome to another episode of business lunch with me roland frazier your host and co-host ryan dice ryan what's happening i um have a new business proposition for you do you want to hear about it fantastic no i'm in it's the next it's the next big thing no seriously i was reading this article um and i want to get your i want to get your take on it i think that this is right up your alley. It combines the two things that I think you love more than anything else. Dogs and synthesizers. Wine. Yeah. Dogs, wine and synthesizers. No. AI and roll-ups. I'm sure you've seen this, but this seems to be kind of the next big thing.

1:15So there's obviously all these people out there, all these companies, all these startups looking to build the next unicorn AI app, but there's also a number of businesses that are taking the track of, you know, screw all that. And what they're doing is they're saying, let's go and roll up a bunch of old school businesses and inject AI in them and then use that to add value. So you're familiar with Constellation Software and how they just went and bought a bunch of old software companies, kind of lumped them together. So that's kind of what these businesses are doing. So for example, I was looking at it, Crete is one of them.

1:55They're doing an accounting rollup and they're doing AI integration with that. Another one is Long Lake Management. I thought this was pretty cool. They're rolling up a bunch of HOA. So, you know, all the like neighborhood management, So all the HOA management companies, and they're with the goal of then AI-ifying those. And then Harvey Capital, they're doing legal tech and then AI-ifying those. So roll-ups, nothing new. Also the idea of rolling up a bunch of companies to then, and then adding some kind of tech layer. this has been done, but it's also been done and it's failed spectacularly. You know, we saw this with people who wanted to roll up a bunch of legacy retail brands and bring them into Amazon, you know, or e-commerceify them.

2:56And boy, did that flop. What was it like Thrasio or whatever was one of the big e-com rollups and it just crashed and burned. So what do you think about the strategy and just kind of rough about, and do you think it's more of a Thrasio thing that's going to crash and burn? Do you think it's more of a constellation software? And this is the next multi-hundred billion dollar opportunity. Ever wonder how some people build real wealth through acquisitions while others just sit on the sidelines? Well, I'm here to tell you, it's not about luck. It's about having the right system, the right deals and the right guidance.

3:34And that's exactly what we give you in the Epic Deal Fast Track. If you've been thinking about buying a business, but you keep getting stuck, whether it's finding the right deal, structuring the financing or negotiating with sellers, you are not alone. Too many people waste months, even years, just thinking about acquiring a business while the real opportunities pass them by. The Epic Deal Fast Track is not another course. It's actually an implementation program and it's designed to get you from the idea to the acquisition in just 16 weeks or less. We work with you one-on-one to help you find, fund, and close your first or next deal.

4:13And once you do, we're going to plug you into our elite Epic Board community so that you can keep scaling through acquisitions. We install three powerful systems in your business. The first is the deal flow engine. So you always have high quality off-market deals coming to you. Number two, we give you our offer and funding system so that you can structure offers that get accepted and fund them creatively many times with no money out of your own pocket. And number three, our closing and integration system so that you don't just buy a business, you actually successfully run and scale it once you have acquired it.

4:47Plus, you'll have direct one-on-one support from an Epic Deal advisor every step of the way. And that's people that have actually come up through the system and done these deals themselves. That's the only way to become an Epic Deal advisor. And if you're serious about acquiring a business this year, don't just sit on the sidelines. Just text I'm in to 334-458-9034 and we'll get you in. So text I'm in to 334-458-9034. We'll get you in. No fluff, no wasted time, just real deal making from people that are actually out there doing deals right now. I'll see you there. Yeah, I mean, I - And there was no in between, by the way.

5:27It is each of those things depending on the deal, right? And we'll see those happen. The thing that was interesting was when I was in Austin a month or two ago at the JP Morgan Chase middle market meetup or whatever it was, where they basically matched us. they had 42 family offices and private equity funds and 42 companies, and we speed dated and talked to a bunch of them. All of them have this model that they're either buying a platform company that they can use to do other acquisitions. And then they want to know, what do you have in terms of tech enablement and AI? Because if you have it, then they want to spread it to the companies that don't, that they're going to use your company as a platform to acquire.

6:20And if you don't have it, then they have a bench of people that they're going to bring in that will provide it so that there's a bump in value for your company. So it's like, it's a, it's absolutely all the rage. And, and I think it makes sense. And I agree with you. It's nothing different than has ever happened before. Like roll-ups really, if you think of the heart of the roll-up is we can achieve economies of scale and what they call merger synergies by bringing together these companies. So if you own a HVAC company and you've got six trucks, if you can acquire seven other HVAC companies, maybe you can share trucks, maybe you can optimize the routes.

7:10Maybe you, well, for sure, you only need one back office. So you don't need eight CEOs and eight CMOs and all that kind of stuff. So you can be significantly more efficient. And then you can take the best of breed technology that each of those has, the best of breed SOPs, standard operating procedures, the best of breed customer service, the best of breed offerings, the best of breed, you know, ads and lead gen and everything else and smash them together and make this superior Frankenstein company that is going to outperform everybody else in theory. But stats say merger synergies typically fail 80 % of the time.

7:49Now, I believe that part of the reason that that rate is so high is a failure to look at culture fit among the companies that are being acquired early on. I think it's overzealousness by investment bankers pushing companies to acquire maybe things that don't quite fit without really taking a look at it. But when it does work, it's amazing. So like the basic building blocks of why you would do a roll up applied with AI and tech make perfect sense to me. So I think it's, I think you will have the same result though, that 80 % of them won't work out like they hoped and that it will be because of all the reasons that we just talked about.

8:32But the ones that do it right, that do it carefully, that are very selective in the companies that they're acquiring or the way in which they're AI-ifying and tech-ifying will make all the difference. Okay. So I'm thinking that there's probably three different groups that could be listening to this right now. And I'd love to kind of talk through how each of them should respond. So let's say there's the old school business that isn't yet AI-ified. There's the old school business that is presently like they're adopting the new technology already. And so they're thinking that maybe they could be that platform play.

9:11And then you've just got the investor, the person who they don't, they're not operating any business. And so they're thinking about this as a particular strategy. If we were to start from the kind of the old school business, what would be your advice to them? Should they see to AIFI themselves or should they look to just get acquired by some, you know, already AIFI business and just kind of throw in the towel and say, you know, I don't want to do that? I think it depends on your appetite for change and growth. If you are old school mentality and you're like, I've had this business for a long time and I do things the way I do it and I'm kind of threatened to buy this other thing, but I'm not excited about it or hungry for it and I just assume it didn't exist and hopefully it's a fad and it goes away, then I'm not sure an acquisition or doing it yourself makes sense.

10:16I think that you thinking about selling to a company that can increase the value makes more sense. Because it takes curiosity and hunger to make that work. If you're old school sitting comfortably now making good profits, what's the motivation? right? But if you are, um, if you're into it and you like the technology and you embrace it and you're comfortable with change and you're ready to shake things up in your company and you realize that you can actually make significant advances in how well you operate and how your customers experience you, then I think it would be, it would make sense for you to think about being the the acquirer or the person that hires the people that can make the change happen that you want to happen.

11:12Does that make sense? Yeah, no, it does. I'm trying to think of what I would say to somebody if they came to me and they're like, you know, what do you think? You know, do I, do I need to, do I need to make this pivot in my business? Do I need to get with the times or can I just write it out? And I was thinking it would probably depend really on their age and timeline. I was talking to somebody in there, you know, who's in their, let's say, 70s and they're they're planning on and this could happen at any age. I'm just saying, hypothetically speaking, they're like, I'm really only going to be running this thing for the next four or five years.

11:45And then I'm kind of just going to let it sunset. And I, too, I'm going to retire. Yeah. Then I'd probably say, you know, you can just keep doing what you're doing and let your business die a slow and profitable death. yeah that's kind of what you're planning to do anyway and now it'll happen on its own and you'll have the clients you have they're loyal and they'll stay loyal and and that's fine but if if you're like planning on giving this thing another 10 years or if you do plan on selling it i kind of feel like you've got no choice but to get with the times um and and so and and it seems to me like if you don't invest in, you know, up-leveling and AI-fying your business now, then if you do get acquired and if you're one of these businesses, I mean, the reason that these roll-ups are so excited to buy all these old school companies and then AI-fying is because they're getting a deal.

12:38Yeah. Right? They're paying below what they perceive as market so that they can scoop them up on the cheap, inject AI, and then boom, they're instantly worth more. So I don't think you want to be the company that's being acquired cheaply. Yeah. So not unless you are keeping a significant retained interest to roll over into the new deal and then basically letting them do the work. And so the premium that you're paying to have an experienced team that's going to run the playbook of AI-ing, AI-ifying and acquisitions to grow is the premium to get that team is basically the discount you take on the sale of your company.

13:19And that's not bad either. I mean, if you sold 60 or 70 % of your company and, um, and had a retained, a retained interest of the balance, and then an experienced, well-funded private equity firm comes in and builds it up and brings the talent and AIF is it. And six X's sales, you're 40 % that you kept now is worth 2.4 times what you sold the company for in the first place, you're doing okay. Right. And you didn't really have to do that much. So that that's not a bad play there, but, um, but man, that timeline is rough because it could be three years and like three years with a big cliff. And, um, and you might find yourself, you know, in a fire sale situation because you aren't really like you're like if you're experiencing declining sales and revenues, your sale price is going to be hammered because of that.

14:15And, um, and then you will be bought on the cheap. And, you know, so it's, I think it's like, if you're planning on just shutting it down or letting it die a slow and profitable death, then cool. And, and your horizon, I would say is three years or less, but if it's, if it's longer than that, I either have to get on the bus one way or the other, or face being put out of business, I think. I think it's truly the correct use of the word existential, and that you will literally go out of business. Yeah, literally. It's literally existential. Both of those words being used appropriately for a change.

14:52All right, so let's say I'm the business who I'm all in, and I'm reading about this. I'm seeing these AI roll-ups, and I'm thinking, I can do that. you know, I don't, I'm not one of these investors. I've already got the business. I think I can be the platform company. You know, I am this accounting company or, you know, I have one of these HOA management companies. I want to be the one who goes around and buys them up. What, what do I need to have in place? Cause we get this all the time, right? Let's, let's be honest. People come to us and they're like, Hey Ryan, Hey Roland, I want to do a rollup.

15:26I've got a business. Help me do a roll-up. Or better yet, I don't own any business yet. I'm like, well, then number one, you must acquire one business. Right. So let's say they got a business, it's operating and they're operating it. They got a decent business. But what would you say a company needs to have if they themselves want to be roll-up ready? I mean, I think it's cultural to start because I do really believe that if you're not into this and you're not comfortable that things are going to get shaken up, it's not going to work well. You're going to be fighting it and you're not going to be happy.

16:03So I think you have to be open to rethinking how things are done. And then I don't really like the idea of acquiring a company that's already done it unless you can get a deal on it, because I feel like everything that gets AI-ified right now is priced to the moon and it just doesn't make sense. And you'd be way better off getting a team that does AI transformations to come in and do it. Um, if you were like a large company, but if you're, you know, a small, medium-sized business that might be unnecessarily expensive and questionably effective. Um, so I think it's a jobs to be done kind of approach where you say, you know, what are the things that we do right now that we feel could be done more efficiently and more profitably and faster and providing a better customer experience?

16:57And you make that big list and then you're going to say, okay, what are these things do we think are the biggest priorities that we'll have? You know, that's an ice analysis, impact, confidence, and ease. What will have the biggest impact that we have the most confidence with the greatest amount of ease? and then you've got those ranked and now you've got your jobs to be done. Okay, what are my jobs to be done to make that happen? And then have someone start on that one thing and then just start knocking them off. And we've been doing this across a lot of the companies that we own together. And I think it's been pretty effective.

17:28It's not been like this all at once wave of change, which is very disruptive to everyone and has all kinds of stuff that goes wrong. It's been, you know, where can we have the biggest impact, the fastest, the most certainly right now. And then let's do that. And then we move to the next thing and the next and the next. What are your thoughts on it? Yeah, I completely agree with that. So I'm saying like, we've got a business that they've already done that. So they've got a business, they've AI-fied themselves. And now they're thinking they want to be that platform and they want to start rolling up.

18:00What other things do you think they need to have in place from a management perspective, from revenue, from a profitability for them to feel comfortable to go and start doing these acquisitions and be a platform in the roll-up? I don't think revenue and profitability are nearly as important as management and systems. I think roll-ups fail at the integration level, and the integration is bringing the companies together to operate as one, and that's really what systems do we have to do that. And then in your diligence, you're looking at the company and saying, does it have management strengths that we don't have?

18:39Does it have management philosophies and a culture in the business that complements ours? Are they on the same back office systems as ours or are those systems easily migrated to what we're using? Because that's a big hassle. And, and if you've got the systems and the team that has the ability to do that, and preferably a team that has actually done integrations or acquisitions before, then that's going to make a big difference. And if you don't, then I think you probably want someone who does have that experience as a consultant on board to advise you to help make it happen. Because it's like a blended family.

19:14If somebody with kids meets somebody with kids and they want to get together and build one family out of that, there's integration issues. And it's the same thing that's happening in that company. So to me, that's the single most important thing. Yeah. And that's, and that's, that's great because so many people think that just because they have a business and just because they have a profitable business that they can now go and just start doing acquisitions, what they don't realize. And in many cases, and they've got solid systems, but the systems are only as good as the people running it. And if your business really is taxed and if you have, if the people who are running that business at that executive leadership level has never led at the next level and now you're going to ascend to the next level inorganically so they don't even have time to grow, which usually, even if they do have time to grow, they're going to fail.

20:11right you rarely see people actually growing to the next level and now you're going to force them to go to the next level all at once because you're doing it through acquisition yeah it's tough it's tough so yeah you you got to make sure and so now think now let's take on the investor so somebody's listening to this and they're like love the strategy i'm gonna go out there i'm gonna i'm gonna execute on this myself what what would be the first thing that they should do and let's say they don't have a ton of capital to throw at it. Would it be to buy, to look to partner with or to acquire one of those businesses that has excellent management team?

20:47Yeah, that could be done as a merger. That's more than an acquisition. It's kind of bringing together two roughly equal companies that have roughly equal contributions into one and then using the strengths of each to supplement the weaknesses of the other. So it might be more of a merger situation if that's kind of where you were sitting. Um, but like the, the capital isn't to me nearly as important because there's so much capital that's out there that's available to, to access, whether it's SBA funding, you know, up to 5 million bucks is relatively easy to get your hands on. If you're, you know, if you're an existing company that's profitable and you're looking to do something else, um, there's all kinds of funding sources.

21:26You can go to private equity if you're looking for like, um, you know, Our mutual friend, Wayne, with the printing company, talked to me last night, and he's got a competitor that is significantly larger, and this is an acquisition that'll be mid-eight figures. And he's like, well, I don't have it. And I'm like, you don't need it. It's past SBA because it's more than$5 million that it's going to take to do it, but that company is profitable and your company is profitable. So if you get the answers to these questions that I gave them, you talk to them and find out the answers to these questions.

22:00And if that's all the case, then let's take a run at it, right? Because I know the funding is there. There's plenty of money that's out there for a good deal. And if the deal will carry the payments on the funding, then that's not a problem. So I'm not really concerned about that. And then as you know, you know, we have hundreds, literally, again, literally correctly used, hundreds of ways that you can fund businesses to stack a deal, you know, financing plan without having to have a bunch of capital. So that doesn't concern me nearly as much as what we already talked about. Yeah. I don't know.

22:36I just thought I wanted to chat about it just because the, anytime, I know you love acquisitions. We love acquisitions here. And one of the best things about acquisitions is not just bringing in talent, bringing in media, all the assets that come with it, but the ability to add value to those assets when you bring it in. And AI is the ultimate value add if the business that you're acquiring doesn't have it. So when I saw this, I was like, yeah, this is pretty cool. Think about what it can do. Like think about if we can automate the front end of sales, like if we've got a sales team and we've got 100 sales development reps and we can effectively eliminate that because we can do appointment setting, qualification, lead scoring, all using AI, and then have our salespeople talking in order of ranking only to the people most likely.

23:32to close and buy the thing that we have to sell, that's huge. If we can automate, you know, the front end of customer support and reduce customer inquiries by 70 % that need to be handled by a live human and get the customer, the information they want 24 seven as they need it, as opposed to when we have people in the office, like those are giant things that exist. If we can not have hundreds of people taking data that gets uploaded to portals that then has to be transferred to other software to use it and provide the service. If we can, you know, route our people more efficiently to go on routes to do services for home services without, you know, without having to have human people involved.

24:20I mean, like all of that stuff, it's, you know, It is not dehumanizing like dehumanizing, but is dehumanifying. It's reducing the headcount. Like that's straight to the bottom line profit with superior service and significantly lower interruptions. It would only be like a tech outage, not somebody's called in sick or has a doctor's appointment or doesn't feel good. I mean, like it's, it's insanely value adding to put that stuff in. So like when we look at our three things to increase the value, you know, to, to really hit scalability, and we say leverage sales, bankable profits and transferable value, all of those are affected by AI-ifying.

25:07So I think buying non or minimally AI-ified companies and then taking them up to a standard that you've got is a great playbook that's going to work well for a whole lot of people and definitely one that we are using, you know, together now in our businesses. Yeah, there you go. All right. So there you have it. If you guys have any thoughts about this, if you have questions, doubts, concerns, or input or case studies or stories that you would like to share with us about how this is working with you, we would love to hear it. Hit us up on the socials. And if you enjoyed this, please share it with a friend or somebody you don't even like.

25:44but you want to help them out. And we'll see you next time on Business Lunch.

25:59Ever wonder how some people build real wealth through acquisitions while others just sit on the sidelines? Well, I'm here to tell you, it's not about luck. It's about having the right system, the right deals and the right guidance. And that's exactly what we give you in the Epic Deal Fast Track. If you've been thinking about buying a business, but you keep getting stuck, whether it's finding the right deal, structuring the financing or negotiating with sellers, you are not alone. Too many people waste months, even years, just thinking about acquiring a business while the real opportunities pass them by.

26:32The Epic Deal Fast Track is not another course. It's actually an implementation program and it's designed to get you from the idea to the acquisition in just 16 weeks or less. We work with you one-on-one to help you find, fund, and close your first or next deal. And once you do, we're going to plug you into our elite Epic Board community so that you can keep scaling through acquisitions. We install three powerful systems in your business. The first is the deal flow engine. So you always have high quality off-market deals coming to you. Number two, we give you our offer and funding system so that you can structure offers that get accepted and fund them creatively many times with no money out of your own pocket.

27:15And number three, our closing and integration system so that you don't just buy a business, you actually successfully run and scale it once you have acquired it. Plus, you'll have direct one-on-one support from an Epic Deal advisor every step of the way. And that's people that have actually come up through the system and done these deals themselves. That's the only way to become an Epic Deal advisor. And if you're serious about acquiring a business this year, don't just sit on the sidelines. Just text I'm in to 334-458-9034 and we'll get you in. So text I'm in to 334-458-9034. We'll get you in.