Alex Sloane & Matt Perelman – Buy-and-Build Playbook in the Core Economy at GSP (EP.499)

22:21Alex Sloane:As you're building, growing this franchise business, at what point in time did you decide to branch out and create Garnett Station? Pretty quickly. About a year into building the Burger King business, we got a call from the former CEO of Burger King who took a job running another franchise system and said, I've watched what you guys have done providing capital, technology, data science, organizational design and rolling up the Burger King system and helping professionalize it, would you consider doing it in our system? That deal led to then the former chief marketing officer Burger King called and said, my wife runs this business.

22:57Alex Sloane:I think you guys should consider helping her professionalize it, buy it from the founders and grow it. One deal led to another deal led to another deal. You look today, we have 36 investment professionals, 24 operators, 14 in back office staff. That is entirely been built organically when we realized we need operating partners to help us bring the technological changes and the innovation and the supply chain and the marketing and the integration, because it used to be Matt and I running our burger king business, and now we need to build a real firm to go do it. So it was very much organically.

23:33Alex Sloane:It was COVID when we realized coming out of it that we should build an institutional investment firm as opposed to deal by deal, SPV, family office capital, because we felt like having lived through that cycle and fought through all the challenges that came with it demonstrated that we could invest through cycles. We started in 2013 through early 2020, late 19, everything was up and to the right. The fact that our returns were good, it was almost like table stakes, but surviving what was a very challenging period for our portfolio, getting through it and not losing a company, not needing a dollar of rescue capital, growing equity value across the portfolio, and then exiting those businesses prove to ourselves and prove to the institutional LP world that we can do this in a repeatable way.

24:22Alex Sloane:And that's what inspired us to build an institutional business. I'd love to take a step back and break down how you go about doing all of this. If you think of GSP, what is it that you're looking for in the type of company that you want to buy and build?

24:40Matt Perelman:The first thing we are looking for is we invest in founder-owned businesses. We feel like a lot of the alpha that we've been able to create over the last 13 years is partnering with founders, being the first institutional capital into their businesses and helping them scale those businesses, usually through M &A, ultimately to a scale, to a level of diversification to a level of revenue mix through integration, technology, capital allocation, managerial talent, and governance, create platforms that larger private equity firms want to buy. That's not something we've learned in business school. That's not something that we learned in investment banking.

25:26Matt Perelman:That's what we learned from getting our teeth kicked in as operators ourselves. We were the CEOs of our burying business for the first few years and made mistake after mistake after mistake. Those mistakes have added up to a healthy appreciation for operations, for integration, and for what true partnership with the founder looks like. That's been the single biggest overall alpha generator.

25:51Alex Sloane:We care deeply about the quality of the business, even if it's a single unit. We do basically two things at GSP. We do what we call start small scale fast buildups, where we have a thesis around industries that we want to pursue, but we're also value oriented, disciplined on price. We say we're purchase price matters investors. So to the extent we're not able to find businesses in those industries that meet our quality bar that are of a size and scale, 20 plus million of EBITDA that we can buy at our purchase price matters valuation, we build them. So we start as small as a million of EBITDA, board directors, management team, a technology stack, and we go out and we'll literally buy one unit at a time.

26:34Alex Sloane:We've done that 20 times across the portfolio. We are willing to buy businesses that are only one million of EBITDA or one unit, but they have to meet our quality bar. In order to meet our quality bar, you have to have been through multiple economic cycles. In our experience, you can't have a quality business without a quality founder. Are we willing to put in a new management team when we invest in a company? Of course. But we care deeply about the founder, not just the business they built, but also the type of person they are. We will not do business with bad people, and that's a core tenet of the firm.

27:05Matt Perelman:When you're buying a business from a founder, they're always going to know far more about the business than you, certainly, up until the point at which you buy it. If anything, they've probably forgotten more about that business than you're even going to learn after you own it. The integrity of that founder is critical because we've done so many of these founder-owned acquisitions over the last 13 years. We probably have a decent sense for what good looks like. We don't invest in newer brands. We don't invest in newer business models. The youngest business we've ever invested in at GSP is 17 years old.

27:36Matt Perelman:The oldest is 90 years old. The average is somewhere in between. That's critical. We need to be able to diligence and understand what do cycles look like for these businesses. If you take some new, hot, sexy brand or business model or sector or concept, people can certainly make money doing that. That's just not us. We're not smart enough to make a macro call or a brand call or take a bet on something new. You don't get paid for a degree of difficulty.

28:03Alex Sloane:Restaurants are hard. They're really hard. We're very proud of our returns in restaurants. It's about 20 % of what we do. But we have very much diversified away from restaurants trying to get into better businesses. If you look over the history of our firm, early on you could argue we were guilty of value traps, buying businesses cheaply for a reason. What we learned is that we can buy high quality founder owned companies in good industries with real tailwinds and you can do it at our purchase price matters value discipline. We don't have to buy challenging businesses or turnarounds or businesses in challenging categories.

28:41Alex Sloane:That being said, if there are 10 to 12 investments in one of our funds, there'll be anywhere from one to two restaurant investments.

28:47Matt Perelman:That quality bar is a critical part of the evolution over the last 13 years. If you looked at our earlier deals versus today, there's a much more clear set of heuristics for what quality looks like. If you take multi-unit businesses, of which restaurants would certainly be one of them, they qualify for investment from us. Business has to have at least 20 % store level margins. business has to have new units that pay back in three years or less and has to have the number one average unit volume or sales per box in its category or micro category. If you look at our first two deals, we'd be over three on those quality heuristics.

29:27Matt Perelman:Now, the first one being the Burdekin business was ultimately a successful outcome, but I do think there is something to the we don't get paid for a degree of difficulty. Let's raise the quality bar here and make this a little bit easier without sacrificing price discipline.

29:41Alex Sloane:Thematically, what are some of the areas you've gravitated to? We are fast followers. One of our favorite ways to be inspired for themes is to look at what some of the great firms that are bigger than we are and have done successful consolidations. Industries that are large, highly fragmented by number of units, organically growing with real secular tailwinds. Industries where bigger is better. So there's real industrial logic to the consolidation. Industries where other firms have successfully consolidated before. We never want to be the first one through the door. We want to benefit from the technology that's there to help manage these businesses in a consolidated way.

30:19Alex Sloane:We believe experience matters from a management talent perspective. So we love to bring on management team members who've been part of successful consolidations from other firms. And then we want to know that there is a put to the strategics. We want to know that there are a bunch of strategics out there that would want to buy our businesses once we've built them. The last thing I'll say is we're value-oriented. We care a lot about multiples on single unit acquisitions. We won't do consolidations or we won't build businesses in industries where bolt-ons don't trade at our target risk rewards. So those are the key criterias.

30:51Alex Sloane:We have franchise investment. We have consolidation in commercial services, residential services, auto services. We estimate of the 10 trillion of assets set to change hands over the next two decades. Within that 10 trillion, we estimate about 1.2 trillion is the TAM, that GSP, that we have a right to win in. So it's a massive market. And whenever we get questions about, oh, there are a lot of firms doing buy and build, that's great. We welcome the other firms in the competition. These industries are so massive. We have a consolidation in tire and auto services, a business we invested in three years ago when it had less than$5 million of EBITDA.

31:28Alex Sloane:Today, it's$25 million of EBITDA. It's a$250 billion market with 150 ,000 M &A targets to go after. So it's an amazing place to invest. These are very fragmented markets, and we feel we have a long runway before these things get too consolidated. Whether it's a platform or an add-on acquisition, what does your diligence process look like to get comfortable that something makes sense? On average, it takes us two to three years from when we first start working on a theme until we get a deal done in that space. We have a whole process for how we attack the battlefield in these categories. Ultimately, what we're trying to get at is what is the lighthouse?

32:07Alex Sloane:What is the lighthouse for business quality in that specific industry? And we're not doing rocket science. The beauty of being industry specialists, there are three numbers that matter in these businesses. Once we've mapped out and gotten comfortable with what that lighthouse looks like, we can tell you quickly whether we're interested in investing in your business and what price we'll pay. One of the advantages of doing a deal with us is we can move very quickly. One of the reasons we love doing roll-ups, build-ups, is because the nature of investing in consolidations, no individual deal can kill you.

32:43Alex Sloane:We're investing between$100 and$150 million of equity, but individual deals can be as small as$5 million of equity. You can afford to get one or two of them wrong if you're buying 20, 50, 100 acquisitions over the life of your deal. And in fact, Matt has a saying, if every deal is right in a roll-up, we're either not taking enough risk or not moving fast enough. It's okay to have a bad deal. That's the beauty of the model. You're able to get the most amount of capital into your winners in these consolidation strategies. So it's one of the reasons why we love these build-ups. It's an elegant model.

33:16Matt Perelman:That's a great point. You're able to buy them reasonably well, so your unlevered in-place yield is pretty high. that afford some real downside protection above and beyond the fact that we're typically structurally senior to the rollover. And on the inverse, if something's really working, you can continue to feed the capital and grow it to be a larger, more concentrated position with less risk than doing something upfront and putting 15 % of the fund into one deal. If you look at our largest investment to date, it's a consolidation called Authentic Restaurant brands that we started four years ago with a$20 million equity check.

33:54Matt Perelman:Today, it's a several billion dollar company across a number of different brands within that portfolio that's gone really well. So we've continued to feed the capital and we feel like that's a de-risk strategy in terms of how to allocate capital across a portfolio.

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35:01Alex Sloane:Learn more at srsaquium.com. That's S-R-S-A-C-U-M. That's pqiuium.com. And now, back to the show. You've mentioned speed. Once you've identified a lighthouse, why is speed important? Speed's important because of diversification in roll-ups. In these consolidations, when you buy a single unit or a single commercial roofing business, there is micro-market risk. There is founder risk. There is personnel risk. when you start to do a consolidation, you add multiple units or multiple service businesses, multiple branches, you diversify that risk away. And when you think about what drives a multiple of a business, it's growth and stability.

35:49Alex Sloane:The nice thing about diversifying and getting speed in these consolidations is you are adding diversification, you're improving stability in the consolidation.

35:59Matt Perelman:Alex's brother, Jake, who's a very successful investor as a line being small is scary in a roll-up. And it's true because if you take any one of these consolidations that we're involved with and you pick one of the underlying assets, there are fundamental micro market risks to that asset. Perhaps they have one customer that makes up 20 % of the revenue, or if it's a business that's dependent on traffic patterns or whether you have the micro market risks of traffic patterns or whether through scale and diversification of those revenue streams, those numbers on a percentage basis and on a overall risk basis start to come down.

36:35Matt Perelman:So that 25 % customer in the scheme of large enterprise becomes 2%. That weather event that could have swung your revenue double digits in Q4 now can only swing it by 80 basis points because it's blended into an overall consolidation. So that's why speed is important and being small is scary. The way that we counteract the speed point with safety of principle and downside protection is we rarely use leverage up front in these consolidations. That's a big part of our model that allows us to go faster without having the risks of senior bank covenants. And when I say go faster, I don't just mean on the M &A side, but on the team building side.

37:11Matt Perelman:We're taking businesses that typically have anywhere from one to three million of G &A. And over the course of two or three years, that G &A is going to approach eight, nine, $10 million doing that in the face of bank covenants while you're doing a bunch of M &A, while you're integrating to us, adding leverage on there feels like an undue risk, particularly when the in-place unlevered yields are high enough where you don't need the leverage to make the math work.

37:37Alex Sloane:That's part of why when you look at our team page, we often joke we must be world's worst GP owners because we have so many people relative to our 4 billion of AUM. We've got 70 some odd people. It can seem ridiculous on a headcount per AUM basis, but that's very intentional. Our model is people intensive. It's time intensive. It's all encompassing. We joke about some of our mentors and friends who run firms where they're buying incredible businesses, paying market multiples and showing up to board meetings and everything seems to go up into the right. That's not what we do. We are buying founder owned companies.

38:09Alex Sloane:Our GSP playbook is very involved. We have an incredible operating partner, value creation team and operating executive team. Them and our deal teams do a lot of the heavy lifting in order to build these consolidations in a thoughtful way. It's also why we care a lot about getting the industry right. If you get the industry right and the trends right and you're investing in secularly growing industries that don't have risk from disintermediation from technology, you're going to have secular tailwinds from the industry. We believe we'll continue to grow over time. If you do it with low leverage and great management teams, we believe we're going to win over time.

38:49Alex Sloane:That's why we have the confidence to move quickly is because we're picking industries we are very, very thoughtful about the long-term growth prospects for. And so long as we don't lever them too much upfront, we feel like we can get through cycles and get through any blips. I want to circle back on something we talked about earlier, which is if you bring together the tailwinds that you've done your work on, you understand what the lighthouse is, you want to move fast. How do you prevent yourselves from groupthink of doing acquisition after acquisition and making mistakes along the way because you want to move fast?

39:22Alex Sloane:So much of our process is looking back at the acquisitions. That lighthouse changes over time. In fact, some of our best deals don't go all that well from the beginning. We did a funeral home consolidation. The first quarter was a disaster under our ownership, and that ended up being the best NYC deal we've done at our firm. So long as you're willing to think again and make changes to what business quality is and attract great management teams, get the big trends right, you can build a diversified platform in a growing category and benefit from the tailwinds. In Microsoft Excel, every roll-up looks easy.

39:56Alex Sloane:But in reality, operations are hard. These are people businesses, particularly in a world where technology is changing so fast, building in technology, change management. Roll-ups are actually really, really hard, and particularly through cycles.

40:09Matt Perelman:If you think about what blows up roll-ups over time, at least in our experience, it's two things. It's leverage and lack of integration. We touched on it earlier, but we don't use leverage up front in these consolidations. We'll add it later once they're 10, 15, 20 million of EBITDA and have, quote unquote, earned the right for leverage and have the GNA in place to handle it. On the integration side, A, we're j-curving the GNA of these businesses dramatically to absorb the incremental units and the assets acquired. And B, Alex touched on it earlier, we're only doing roll-ups in categories and asset classes and businesses that have been consolidated before.

40:47Matt Perelman:The benefit to that is there is off-the-shelf tech solutions that have been created to manage these businesses in a multi-unit way. So you don't run into the problem, which happened to us in our second deal, the only deal we've ever lost money on, where we had dis-synergies. Every time we bought an additional unit, we actually had to add GNA because we did not have the technology in place to manage it in a multi-unit context. There's plenty of people who can be pioneers and be the first to roll up a category or maximize leverage, catch the cycle the right way and make a 14X. That's just not our model.

41:22Alex Sloane:What are the biggest challenges of integrating additional add-on acquisitions or stores? Visibility. People think about back office as some back office function. In our experience, getting the CFO right, getting the systems right, having treasury and cash management and FP &A and the right dashboards in place is so important. You can really fool yourself with run rates and add back nonsense, particularly in a roll up where you're buying a lot of stuff. At some point, you have to figure out what are the cash flows of that business. Having a warning light system in place, which has become so much easier to do with the advent of AI and all the technology that's been invented.

42:01Alex Sloane:you can identify problems in real time and you can fix them. These are people businesses that we're investing in. In our experience, we believe culture matters, people matter, labor matters. Having the systems to identify where the problems are, what the cash flows look like is important. I think a lot of people dismiss that. How long does it take to buy a platform that you've done an acquisition and have the right tech pipes in place so you have the dashboard you need to run it the way you'd like to. We will not invest in a consolidation unless we have a lot of confidence in the tech platform.

42:35Alex Sloane:That is table six for us. When I said it takes two to three years from when we first started looking at an industry until we get a deal done, part of that is figuring out what quality is, the lighthouse. But a lot of it too is making sure we have those pipes set up in place well before we even have the first asset. I want to ask you about capital allocation. You're buying businesses. There's a financing component. What do you see as the most important levers of capital allocation and success of one of these businesses?

43:01Matt Perelman:There's two things. One is, what is the pipeline and opportunity set for inorganic growth? We are actively avoiding categories where the bolt-ons are trading outside of our price range. There are categories today that people are having success rolling up, whether they be Resi HVAC or pest control or in a prior cycle, perhaps VET, where the platforms trade at big prices, but the bolt-ons also trade at big prices. You have relatively small bolt-ons trading at maybe eight to 11 times cash flow. For us, that is fundamentally less interesting than similar end markets where the platforms are trading at 12 to 15 times, but the bolt-ons because of micro market risk or just lack of private equity heat are trading it, let's call it five to eight times to us.

43:53Matt Perelman:Those are more interesting opportunities. A lot of the time we spend in diligence on a category and on the initial purchase within that category is spent on building out the pipeline. So we can think about within how much confidence interval range do we have that we can get the next 30, 40, 50 million to work at an unlevered low to mid teens return. and then with a dollop of leverage once the business is ready for it, now without even getting into organic growth, you're up into the high teens or low 20s. The second capital allocation decision that is critical to us is where are the pockets of technology implementation and investment to drive organic growth?

44:34Matt Perelman:Directionally speaking, the businesses we're investing in are GDP plus growers. Perhaps their markets are growing at 3%, 4%, or 5%. We have found that through partnerships with our operating partners and management teams and founders with tech implementation, whether it's estimating software or labor management tools or site selection, we're able to increase that organic growth rate typically by 200 or 300 basis points, which in pockets of venture capital might not sound enormous. But with us, if we're buying a business and creating a platform for six times cash flow, and we're taking the organic growth rate from three to six percent, 40 plus percent of that increase in sales growth is flowing down to our bottom line.

45:19Matt Perelman:that's material in terms of equity value creation, particularly when you pair that with the fact that we are able to typically sell these consolidations for a larger multiple than we created them for because they're scaled, they're diversified, they're professionally managed, they're well integrated, and they look like what firms want to pay up for because they are M &A engines.

45:40Alex Sloane:How do you decide when a business is ready to take on some leverage?

45:44Matt Perelman:It's a combination of two things. One is, what is the depth of the G &A line? Do we have a CFO, a controller, a head of treasury and cash management? Are all of the warning lights that we touched on earlier in place so that we're able to spot things in real time if something isn't coming to fruition in a way that we underwrote it? So that's the people side of it. And to a size and scale, we have found that the credit markets are far deeper, cheaper, more flexible, less covenant-laden, and friendlier to consolidations that are, let's say, 15 to 20 million of EBITDA in size and scope versus something that's five.

46:24Matt Perelman:What does that mean in terms of practical timing for us? That's usually 12 to 18 months after we invest in a business. We've typically deployed the preponderance of the equity we've allocated to that roll-up. The team is fully formed. We have all the warning lights in place, and it's at a size and a scale where we can then go to the market and get a number of term sheets and create real competitive tension around that financing.

46:46Alex Sloane:One of the reasons why we love investing in these categories is because there are tons of high ROI opportunities to redeploy the cash flows. Before we get involved in these companies, typically these founders are not differentiating between investing and spending. Their measure of success at the end of each year is how much cash do I have in my bank account? And we totally flip that mindset to how many 20 plus percent IRR projects can we find? It's particularly true as we've done more in these commercial services consolidations where working capital is a real thing. And you think about a founder-owned business, maybe it's a third-generation family that's got a bunch of mouths to feed.

47:23Alex Sloane:Even though there are tons of growth opportunities, they have to think about the working capital investment to go capture those projects. Those are opportunities that we love because they're not capital-constrained in that way and don't think about businesses that way. It's funny because the Wall Street Journal had an article the other week about how popular these halo businesses are, high asset intensity, low obsolescence. This is in reaction to some of the AI and software problems. What we have been doing for these last 15 years has been so out of favor and so uncool. It's funny to see this swing back toward these types of companies.

47:58Alex Sloane:The other point I'd love to make here is that every one of our partner companies, we think about as though we're going to own them forever. Obviously, that's not the model. We sell companies and it's a big part of our process. But our view is what gets us to the returns that we're proud of is having the mindset. That's why we care a lot about price, because our view is if you're buying a business at a double digit in-place free cash flow yield in a growing category with a great management team and you don't put too much debt on it, that is a recipe for success. So every decision we make, we make as though we're going to own it forever and we care a lot about integrating these businesses and we care a lot about how they're managed.

48:36Alex Sloane:I think that's been a big driver of the returns. When you come at it with the mindset of wanting to own something forever and you have an example like a tire company with 150 ,000 units, you can imagine continuing to do this for a long time. How do you think about the exit strategy? We fight about this all the time, Ted.

48:54Matt Perelman:Our view fundamentally is investors give us a dollar. Our goal that we're striving towards every day is to give them$3 back within a reasonable time period. That's a 25 % or so gross IRR. Our job is to build these consolidations to a standpoint where they are M &A machines that can continue to buy things at reasonable prices, integrate them, and grow the underlying business they bought so that if they bought something for six, under our tutelage, they've integrated it down to four, and some other buyer can continue to underwrite that, we should consider selling. Larger firms perhaps have different costs of capital than we do.

49:36Matt Perelman:Larger firms are able to lever things when they buy them from us in a way that we couldn't. When we started them, market forces are going to be market forces in terms of what's popular and in vogue for people to buy today. So when you put that all together, a lot of our job as managers is to listen to the market and to understand where the pockets of opportunity are for us to create liquidity for our investors and for our management teams. Having said that, we're glad to roll. Most of the exits we've had, we've rolled equity into the deal. We've benefited from that, not only economically, given the buyers have tended to do well with businesses we've sold them, which is a good thing, but also we've learned a ton from remaining involved with a bunch of these businesses.

50:21Matt Perelman:There's a firm on the West Coast who I'll give a shout out to, Sidler Equity Partners. We've been on two boards with them from businesses we've sold. We've learned enormous amounts from watching them deal with founders and management teams and think about different growth initiatives and how to prioritize and size the prize of those. That's been hugely beneficial to us over the last 13 years.

50:41Alex Sloane:When I say we fight about all the time, I think it's part of our process. On the one hand, we're building these businesses we're really proud of. And we talked about, be able to feed our winners and continue to grow and compound. On the other hand, we have the scars with some of the early businesses of having lived through cycles. We understand that when the opportunity is to return capital to our investors and generate great returns, that's the tension that we have. That versus the incremental IRR. When you're talking to a founder that you're trying to win the deal, how do you position that tension with wanting to be their partner forever and treat it that way?

51:15Alex Sloane:And the knowledge that in the structure that you're in, you're ultimately probably gonna sell it in a few years.

51:21Matt Perelman:We're very upfront about the point that we are a private equity firm. Our goal is to monetize the investments within a reasonable time horizon with our founders. It's self-selecting. If they have an issue with that, there's probably not gonna be a partnership. And if they don't, then let's turn over the next card and talk about it. That also comes to the discussion around incentives and incentive alignment with us and the partner companies One of the things that we've spent a lot of time, effort, and energy on over the last 13 years is coming up with incentive and governance structures in place to make sure that people are maximally aligned to a successful exit.

52:00Matt Perelman:And so what does that mean for us? That means the importance of rollover in a founder-owned transaction. Founders are typically rolling anywhere from 20 to 50 percent of a transaction with us. Also, incentive economics above and beyond that. general private equity hygiene is to allocate a 10 % management incentive plan at the time of the deal. And we do that and that's important. But what we found is going above and beyond that to create even more alignment in some of the, I'll call them upper tier outcome cases. When we do a deal with the founder, we present to him or her, as well as their whole team, what the management option program looks like.

52:39Matt Perelman:But we also explain that if they are willing to write a new check into our deal side by side with our security, we will give them additional one-to-one options on that dollar. So if you write a check for$100 ,000, Mrs. Regional Manager, we will give you above and beyond your base options another$100 ,000. In addition to that, we are forward about providing incentives above 3 and 4x outcomes. We call them super options. Our view is the incremental dilution above a three or four X is more than worth it for the incremental incentive for these people to be max be aligned with us. And we've had a number of those outcomes come to pass.

53:19Matt Perelman:And that's the best part of ringing that bell.

53:21Alex Sloane:With you guys as founders of the business, your own operating experience, what you've done, how have you gone about building Garnett Station to take all of those lessons and scale them with your team? We view the opportunity to bring in great people as an investment. One of the effects of the DPI problem in the broader industry is not just on LPs, it's also on investors. And you think about VP, principal, MD, even partner level investors who've been at firms for a while and haven't seen their carry paid out. There are succession logjams that have only gotten worse. We've really gone on offense to recruit talent from other great firms, people who we brought on that years ago, we never could have got to join our firm.

54:10Alex Sloane:And that's one of the ways we've been able to grow our business is attracting great talent and investing in the team, not just on the investment side, but also if you look at our operating team and value creation team, we brought on Will Gadsden, our COO and partner about four years ago. It's an unbelievable accelerator to the business. I will often say to each other, I can't believe we ever had a firm without having a will there to really manage and ensure our processes and our back office is up to the same standards as our investment activities. Our third hire we ever made is our partner, Howard Norwitz, who we call him the left tackle of the firm.

54:49Alex Sloane:Howard has a 35-year background in debt and distress. When we brought Howard on, we certainly could not afford him. That was an enormous investment. But an example of looking back, without Howard, we never could have built the firm. So I think investing in talent, not just at the partner companies that we've talked so much about, but also at the firm has really allowed us to grow the business.

55:11Matt Perelman:There's been tactical things we've done as relates to hiring from having operated the companies in the early days that we've learned. For example, we have an operating executive program where these are all full-time employees who go and live in market shoulder to shoulder with a CEO of each of the consolidations and help them with executing and implementing the 100 -day plan. And when we were running the businesses ourselves in the early days, one of the things we quickly noticed was it would always take us a lot longer than 100 days to implement the 100-day plan and make sure that all the integration and the tech adoption and the things that go along with institutional ownership were happening.

55:51Matt Perelman:An aha moment occurred to us as we started doing this ad hoc in an informal way years ago, where we would have people spend real time down in the portfolio companies, was that if we actually put someone there whose sole job was to project manage that process, that was a real accelerant for us. So I think that's been a huge part of the value creation in the last few years. And then two, a lot of it's good luck, honestly. I mean, Alex talked about Will and Howard, who we built the firm without. But our very first employee and hire was at the time a 24-year-old named Jordan Gray, who came to meet with us to get advice on going to business school.

56:29Matt Perelman:And now 12 years later is mission critical to the firm. He's a right-hand guy, and we couldn't have built the firm without him.

56:38Alex Sloane:How have you systematized and organized the 70 people underneath that leadership? It's no different than a lot of firms where we have an investment team. Jordan helps oversee that. We have a number of deal quarterbacks on the investment team who report into us and have a VP. Those are principal and partner level. And they have a VP, a senior associate, and often an associate on deal teams. They then report into me and Matt, who are the investment committee. Will oversees our CFO and our back office activities. We have a business development five-person team that's done an incredible job helping source opportunities and give me and Matt leverage.

57:16Alex Sloane:We used to have to do every first meeting. Now, with a business development team, every first meeting with founders, our business development team is able to not only handle the first call, but actually handle the first meeting and then help decide whether Matt and I should fly out and spend time in person with the founders, which is a big part of our program. So investment team, business development team, and then all the back office activities of the firm. How do you think about where to take GSP from here? That's a question that Matt and I think a lot about. I'll say one of our mentors, Brian Friedman from Jeffries, he's a really thoughtful guy.

57:51Alex Sloane:We were meeting with him a couple of months ago, partly on this question. Where we come out is putting one foot in front of the other, not having these big, hairy, audacious goals. Proud of the business we've built. We've got an incredible team. We're investing in industries that are growing with huge TAM. Rather than saying, oh, we have some goal to do X number of deals and Y sectors, continue to put one foot in front of the other, stick to what we're good at, what we know, the playbook that we've developed and continue to generate great returns. We certainly don't have an AUM goal. That's not the business.

58:24Alex Sloane:Our goal is on the incentive side. Brian was very helpful in clarifying that type of thinking.

58:30Matt Perelman:I think the problem, if you say, well, we want to do a deal in this space, or we really want to do a deal of this size, or we want to get to this AUM, is that you may make decisions to force yourself into that. And ultimately, that may prove to be a misstep. So I firmly agree with Alex, putting one foot in front of the other and not changing the model has gotten us here and hopefully over 30 or 40 years of doing this. And we love it.

58:56Alex Sloane:We have the best time. We love what we do. We love working together. We love working with the team. Our favorite part is working with the founders of these businesses. I was on spring break with my kids, but I was on the phone randomly yesterday with Tony Lamb, who's the founder and CEO of Kona Ice, one of our best friends. Been invested with Tony and his wife Susie for seven years now. Unbelievable founder, person, close friend, talking about AI and technology and innovation and learning from him. He runs a food truck franchise or business. You might think, what can Tony Lamb do to help you with AI and innovation in our firm?

59:28Alex Sloane:But Tony is brilliant. He's extremely helpful to us and a great friend. So we love what we do. We're just going to continue putting one foot in front of the other and continue to grow. All right, Matt, Alex, you know what's coming. So I want to get a chance to ask you a couple of closing questions. Before we get to the closing questions, I want to tell you about one of our strategic investments. We've made a few, and each are working on a product or service we think will be valuable to our community. One is Ascension Data. Ascension provides workflow software for compensation that allows you to track, plan, and take care of your team.

1:00:04Alex Sloane:We're excited for you to check out how they can help solve the sticky pain point of compensation. There's a link in the show notes so you can learn more. And here are those closing questions. Matt, what was your first paid job and what'd you learn from it?

1:00:18Matt Perelman:My first paid job was when I was 14 years old. I worked at a pet store in Connecticut called Pet Pantry. I wasn't old enough where they could pay me in cash compensation. So they paid me in kind and I had a lot of pets. They would give me pet food and dog food and interesting wheels and contraptions for my various animals at home. And God bless my parents for putting up with that. It taught me, A, the value of hard work because every day I came in, I would clean out the exact same cages and refill the same bowls and food. And it was relatively rote. But I think doing that at a young age does teach you the value of showing up on time and working hard.

1:00:56Matt Perelman:And B, I think there's something to be said for everyone having to work in retail at some point and deal with tons of people, tons of different personalities. and some of the more complicated factors being relatively young and working in a retail environment is something I learned a ton from. I will certainly force my kids to do something similar once they're 14 years old. It was a great experience.

1:01:20Alex Sloane:Alex, what's the best advice you've ever received? My favorite advice is my wife's grandfather, he's an incredible entrepreneur, built an amazing real estate business from nothing, used to tell me when he was alive, every deal is the enemy and never forget that. And we talked a little bit about groupthink and our fear of groupthink and think again. And every deal is the enemy is hung sign in our office just to remind us on the one yard line, never get comfortable, never let inertia take you through a deal, never let quote unquote pattern recognition allow you to invest money. Make sure you're thinking again on every single assumption and every set of diligence.

1:01:57Alex Sloane:We say that a lot in our office. So every deal is the enemy is my favorite piece of advice. Which two people have had the biggest impact on your professional lives?

1:02:05Matt Perelman:For me, I would say number one is my wife, Annabelle. She's allowed me to spend the time, effort, and energy traveling around the world with Alex the last 13 years, doing the things we need to do to build the firm. And she's picked both of us up off the ground from the lows over the last 13 years. But equally as important, she actually suggested that Alex and I worked together while we were in business school. So GSP is very much her brainchild. Her and Alex have actually known each other for longer than I've known either one of them. They went from preschool through college together. We both give her and Alex's wife, who's also named Alex, a ton of credit for helping us in the early days of figuring out our partnership.

1:02:49Matt Perelman:Two is Royce Yudkoff, who we mentioned earlier, who's our HBS professor for me, and I'm sure Alex agrees, has been our most impactful and important mentor and thought partner over the last 13 years. Even to this day, almost 15 years later, whenever we have a serious problem, our first phone call is to Royce and just an unbelievably thoughtful, smart, humble individual who we owe a lot to.

1:03:15Alex Sloane:I'll start with my wife as well, Ted. That wasn't my planned answer, but I'm going to get in a lot of trouble. Probably a good move. My wife was an incredible, amazing person and wife and mother and business person in her own right. Keep going. But in terms of most impactful on my professional career, the two for me, Paul Freiburg, who is now the executive chairman of Continental Grain, who was the CEO of Continental Grain, has been my mentor for 20 some odd years. and I guess saw something in me when I was a teenager and has been there for me every step of the way. So our largest investor has been there.

1:03:49Alex Sloane:The depths of COVID, every Sunday, two-hour phone calls to strategically and psychologically get us through the lows. I'm forever grateful to Paul. The second person I would say is a man by the name of Mark Becker, who unfortunately passed away about two and a half years ago. Mark was one of the very early partners at Apollo, one of the first employees there and was a senior partner there. Mark was the first person I met in business, other than my father, who I wanted to be like. For me, he was the first person other than my dad where I saw you could be very professionally successful, family successful, philanthropically successful.

1:04:26Alex Sloane:And I wanted to be like Mark and I still do. What's your biggest investment pet peeve?

1:04:32Matt Perelman:My biggest investment pet peeve is when people seem to have all the answers and won't simply say, I don't know, let me get back to you on that. Particularly with our team, I'm completely fine. I know Alex agrees with people wanting to go do some extra work or analysis to get the right answer, but I am not a big fan of people responding to things off the cuff without full diligence and confirmation there.

1:04:57Alex Sloane:Drives me nuts. For me, Ted, when people don't write things down, I can't stand we're in meetings and people aren't taking notes. It drives me insane. All right, guys, last one. If the next five years are a chapter in your life, what's that chapter about?

1:05:10Matt Perelman:Certainly the first 10 years of us building the firm was very much that. It was us building the processes, the team, and building the overall enterprise to go execute on our mission of hopefully continuing to generate attractive risk-adjusted returns and do it consistently. When I think about the next five years, I feel like today we're very much in replication phase. Over the last three or four or five years, the engine has started to hum where Alex and I don't need to be involved in every single decision. We don't need to negotiate the same credit agreements that we used to 10 years ago or put our nose in documents that maybe we would have six, seven, eight years ago.

1:05:53Matt Perelman:The team is in a place today where we feel like everything we're doing is based on processes and decisions and substance and form that we put into place four, five, six years ago, some intentional, some unintentional. Today, if we were to look at the next five years, it would be the replication phase era, hopefully, of our firm.

1:06:13Alex Sloane:I'll just add to that, Ted, which is not only replication phase, but what gets me so excited is all the AI and all the technology that's changing and focused on how we bring that to help grow our businesses and improve our outcomes. I get jazzed about all the things that are happening and we're very much leaning into all of the innovation and change. Matt, Alex, thanks so much for sharing your journey. Thank you, Ted. Thank you, Ted. Thanks for listening to the show. If you like what you heard, hop on our website at CapitalAllocators.com, where you can access past shows, join our mailing list, and sign up for premium content.

1:06:49Alex Sloane:Have a good one and see you next time.

1:07:09Matt Perelman:and securities discussed on this podcast.