The Secrets to Sourcing Proprietary Deals in Private Equity with Ryan Gable

24:10So we knew we weren't going to be investing in oil and gas, or media and telecom, or restaurants or retail, some of those riskier or more capital-intensive businesses. But outside of those few, we were looking at everything, any type of manufacturing, distribution, any services business. It was really two 30-year-old kids, it looked like, running around looking for investments. So we did a good job of getting our name out there. Went to all the ACG events, as many do. Went and met with dozens, if not 100 plus advisors and investment bankers across the US. Saw plenty of deals. Plenty of books came in the door.

24:47But we looked up 12, 18 months later and we hadn't done our first acquisition yet. We hadn't really gotten far with anything. Bob always likes to joke that Kyle and I would go home to our wives and cry every night because two years in, we hadn't done a deal. It wasn't that bad. So we stepped back about 18 months in and said, look, whatever we're doing right now is not working. There are hundreds of other small and medium-sized private equity groups out there that look just like us that have money. Our conservative approach is an auction where 200 potential buyers see a book. Yeah, we might get management presentation to be top 10, but we're usually not the one paying the most out of 200.

25:26So we stepped back and said, hey, what do we know? And we knew two industries extremely well. We knew capital equipment manufacturing because of the Barry Wehmiller angle and experience, and we knew insurance services. And that was mainly because Kyle and my years at Bank of America, they did a lot of insurance investing, given the fact that they were part of a large financial institution. And Kyle specifically was a mid-level partner in that space. So we said, forget everything else, we're going to go from being an inch deep and a mile wide to an inch wide and a mile deep. And we went deep into a handful of sectors within capital equipment and less than a handful, probably two or three sectors within insurance services.

26:02And the whole thing basically turned on a dime. We did our first platform investment core partners, which is the office we're sitting here now in April of 2011. We did our second in machine solutions, which is a medical device equipment company of ours that's based out of Flagstaff in November 2011. We had our third platform in April of 2012. We went from getting no traction over two years to buying three of our platforms in the next year. Back to the point of how our sourcing model works and been successful, you need to be more than just capital and need to be more than the money, especially with buyer-led M &A, as you're touching on.

26:37You need to have a real advantage and a real story. And you need to be able to stand out from the other 100 plus financial buyers out there that look just like you on paper and are trying to buy companies. So A, when you talk to a business owner, especially if you're talking to some 60-year-old business owner and you're this 30-year-old kid, they would know within 30 seconds that I had no clue what I was talking about with the distribution business. Yeah, I read the SIM. I did some research. But within 30 seconds, there's like, well, this guy doesn't know what the heck he's talking about. Within Capital Equipment and within Insurance Services, Kyle and I were pretty well versed with that because of our experience either at B of A or experience learning the Barry-Waymler business.

27:15You can quickly get in and they say, hey, this is a group that understands my business that I can trust. And then on the flip side of that, or not the flip side, but even further, when you talk about the Barry Whamela model and say, hey, we're long-term, we're not traditional private equity. We obviously are going to pay a fair price. We want to partner with you because we think we can take your business from X to Y over the next 10 plus years. And we're going to be a great home for the company that you built and the people on your team. It's just an advantage. On the sourcing side, early on, it was just Kyle and myself.

27:48And now we're 16 people. everybody in our group is responsible for sourcing. Yes, we have a deal origination, business development person, actually a couple of them, but that's 80 % of what they do. But all 16 of us have some responsibility with sourcing. And one person's the four or five people are capital equipment experts. They're going to a dozen trade shows a year. They're still sending letters and Bob's book out 100, 200 times a year. They're still having follow-up conversations. it is constant with us with forming these relationships because the vast majority of the companies and teams we've partnered with, we've had multi-year relationships with.

28:29I can count on one hand how many books fell on our desk or came through email and said, oh, that sounds interesting. Let's look into it. Yes, we do that. We compete in those processes. We get a lot of management meetings. We just don't have an angle in those situations. And a lot of times those are private equity owned companies or whatever it is. And capital is the main thing they're looking for. And there's plenty of capital out there. There's hundreds of firms that can provide just capital. We like to provide something in addition to that. 90 % of your deals are proprietary as you've executed.

28:59By proprietary, I mean, we had a relationship. I want to be clear, probably half the sellers were only talking to us. And that would obviously be our preference. But our model and our preference is find an industry we like or a narrow sector within industry we like, go deep in it, get 10, 20 relationships. And the vast majority of time, as you would imagine, someone gets a letter, we make an introduction to someone at a trade show. They like our model, but they say, Hey, Ryan, appreciate it, but I love what I'm doing. I got 10 years left in my career. I don't have any interest in selling, but like your model.

29:35And when the time comes, let's keep in touch. A follow-up to that is logically, we usually try to have one or two touch points a year with people like that, whether it's going to the trade shows and seeing them again or, hey, I'm going to be in Omaha and you're based in Omaha. Can I swing by for lunch and just keep that relationship going? Our goal is when the time comes for a business owner to sell or consider selling or partnering with someone, we want to be their first call. We understand we're not always going to be their only call. We understand their advisors or whatever might say, hey, it seems like a fair price, but let's check the market.

30:08But typically we are their first call and their preferred buyer if we can come up with a competitive price. So your differentiators, your story, really positioning yourself to stand out, doesn't sound like everybody else's pitch. And really emphasizing the long-term play that you have and the vision. If you click into this company and see better together, I have that combined vision of what that's going to look like. And then you build these relationships. I get the, hey, this sounds good, but now is not the right time. And you want to be that first phone call. There's two things I'm wondering about.

30:38One is how do you sort of get action I don't have patience. I don't know if you've picked up so far, but I can't wait for that. I want to get things actionable. I want to figure out how to make that possible. Do you have a view on that? Do you convince people to sell their company? I don't have a ton of patience either. I think all my kids and wife would say that. But in this model, you have to. Because this model, being relationship-based, it is based on trust. Almost all the companies we've bought from a founder or family-owned business. And it's more to them than just a number. It is their legacy.

31:15It's their family's legacy. They need to trust you that you're going to take care of that business. And the minute you get pushy or try to force something, that destroys the trust. And they think, oh, this guy's just here to do a deal. How we do force something, to use your words, just be that touchpoint and just remind them manually. We don't call them up and say, hey, you ready to sell yet? You ready to sell yet? It's, hey, I'm going to be in town. I'd love to grab lunch, swing by the facility to see you. Going to be at this trade show. Can I come by the booth? Can we grab a drink? Whatever it is.

31:47It's just a constant reminder. When you do meet them, you get into the conversation. Hey, how's business going? They tell you and vice versa. We tell them how's going. And you nicely and softly express the interests, reiterate why you're interested, what you can do with the business. Because there's been a lot of instances where, yes, a business owner liked working with us, liked our model, but had no interest. But we probably were able to convince them that now could be the time. So many people think, I'm going to sell my business when I'm ready to retire. This one we should definitely take apart because it's a huge misnomer.

32:19And that's logical, especially a family business. People think, oh, my grandfather founded it. My mother inherited it. She ran it for 30 years. She passed it off to me. And when she was 70 years old, and now I'm 50, but I feel like I need to... Hopefully, I'll pass it off to my kids or whatever in 20 years. A lot of our partnerships have been... What I said earlier is that somebody's taking their business as far as they think they can. That's not a knock on them. We find there's this 20 or 30 million revenue number that a founder or a family business can... Not easily. Running and growing a business is never easy, but logically get to.

32:55And then they sometimes just kind of hit a ceiling. It's kind of up to us to convince that, hey, you might still have 10, 15 years in the tank. And by the way, we want you to have 10 or 15 years in the tank because you know this business and this industry better than anyone. I'm never going to know a business better than someone who's been in for 30 years. But you know what? We've got these resources. We have these different things that we can bring to your business. Why don't you take some money off the table? Let us buy 60 % of the business. You retain 40%. And we'll grow this thing from$30 million of revenue to$300 million over the next 10 years together.

33:29And that money that you rolled over is going to be worth four or five times as much as what you took off the table today. I don't know the numbers. I probably should go back and look at this. But I'd say at least a third, maybe half of the companies that we've partnered with and acquired have been in that situation. We've kept the seller on as CEO or president or whatever role they had. and we work together to continue to grow the business. So if you talk to a banker, they'll probably tell you, you should think about your exit a year ahead. I feel like between you and I, it's more like five years plus, you should start thinking about it because that's where it becomes more attractive for working with an organization like yours.

34:07It's, oh, we're going to be around for five years. We're all over the equity and you are hitting at a peak value because if there's, I'm going to retire in three months, we're trying to sell this. and take a knock on valuation because of that. Yeah. And at least with our model, if somebody says, hey, Forsythe, I want to sell my business. I want to sell it within a year and then I'm going to retire and go to the beach. I'm going to take, I'm going to sell a hundred percent of it. It's a little bit of a red flag. Yeah, exactly. I mean, unless there's some life event that's happened, but it's a little bit of a red flag.

34:38It's, hey, are you selling? Let's be, you get something wrong with the business. You're going to perceive as more of a risk deal and you're probably going to lower the valuation on it. Yeah, absolutely. Okay, good to know. So now I got to ask you this. You build a relationship everything's going good hey ryan listen that but they get a banker and they turn the process competitive and it's a view of you got a leg up because you got the relationship one it's like how do you use that but two is there a way you can keep it from getting competitive because that's the thing that you just talked about you don't want to try to outbid 200 people because the answer is a little bit in the middle companies and people we're talking to are rarely the ones that are going to go hire an advisor to do a full massive 200 person auction Oftentimes they do.

35:18And honestly, sometimes we prefer to have an advisor involved. It can expedite the process. It can make it cleaner. I agree on that. I just don't want like a full-blown auction. Of our almost 60 deals, no two follow the same process. There's been a handful of, hey, we just had a real trust and relationship with someone. And besides a lawyer to help them mark up the purchase agreement documents, there was nobody else involved. But the vast majority of the time, there's some advisor involved. It could be a broker that the guy knows or his lawyer that's also functioning. Is there a way to keep him from turning into a full-blown auction?

35:52The way is to be fair up front. People know if you're trying to nickel and dime them. If I got a great relationship with you over the last four or five years, and finally it's time for you to sell your business, we know the business, or I would know the business from working with you. We've got this relationship. And then if I give you some offensive offer... And you're probably having casual conversations about valuation. We can say, hey, market six to eight EBITDA for this type of business. And we're going to offer, we like all this stuff. We see the potential we're going to offer you like higher end of that.

36:21And there's this trust and this makes sense. This sounds good. I don't think it's worth us going around. I almost look at our business. We're talking to investors and I feel it's different. It's more of a minority type of deal we're working on that. I would definitely give up a turn of valuation knowing it's going to be an awesome partner at five years down the road. And we'll look back and say, whoa, that was like a great ride that worked well together versus just trying to back at the partner. That's going to be a creative value add and a good journey to go with. At the end of the day, we can't control what the seller decides to do.

36:51Oftentimes I would prefer to have an advisor be involved because, hey, it's somewhat of a market check on our price. And could they get a higher price by five or 10 %? Yeah, maybe a return, as you said, maybe. But at least it's, hey, this is fair. And also when we lay these proposals out, it's not just, hey, we'll buy your company for six times EBITDA, six, seven, eight, whatever it is. we lay out what the next five or 10 years could look like. Once again, with the whole rollover equity aspect, it's, hey, you'll take this off the table today, you'll rollover this. And if we're successful at the 18 % return that we've been able to do, fortunately for the last 12 or 14 years, your rollover will be X, even if we make 15 or 10, our target returns are 15%.

37:33That's usually what we show people. But then we also show 10 and 20 and a range to say, here are the ranges of outcomes. and what your total deal today would be worth in five to 10 years. And that's usually, while they could probably go find a buyer to pay a little bit more today and be all upfront cash, if you look at the long-term outcome, they're going to be a lot better taking our option than just selling everything today. When you think about some of the metrics, do you have any rules of thumb? I'm tech, obviously. And if I talk to some of those super smart investors out there, they'll kind of look at five years out.

38:13What's this journey look like with the anticipated value? And then basically divide by three to get an idea of like where current value should be to see and get aligned around that. You know, there's like rules of thumb that you have for thinking through some of that. The typical rules of thumb is maybe not on the tech side. Maybe that's more multiple revenue. On the capital equipment side, depending on the sector you are serving, it can be anywhere between five and low double digits, 10, 11, 12 times. On the insurance services and financial services side, it can be anywhere between seven to 15 times.

38:43Our historical multiples are probably the midpoint in there. But we have obviously higher growth, higher margin industries are going to command a bigger multiple. That's probably what it is because it's so much of foreshadowing of where the business is going to go. where you do have more standardization, which you already talked about, standardizing your whole valuation approach across the organization, that you would look at that in terms of pricing the company. But then you're building out this vision of what that long-term value is going to look like. Yeah, and to your point, yes, it's a standardized valuation approach, but it's company and industry specific.

39:16The EVA model that we use doesn't value a high-growth financial services company the same as it does a mature, lower-growth, lower-margin capital equipment company. So within that, yes, the EVA methodology is very standard and same, but the inputs to those two examples are vastly different and spit out a vastly different valuation of multiple. Aside from rolling over equity, are you using any other tools? Are you using earnouts, seller financing, other things? We'll use seller financing every once in a while. I'd say 10 years ago, we used seller financing more and earnouts less. Today, it's the opposite.

39:54It's a lot more earnout based. Part of it is companies have been on a great run. The owners think that run is going to continue regardless of valuation that we're putting forth or some other competitors putting forth. They still think they look as if I sold it today, I could get this. But if I just run it for three more years and I continue to grow 10 % a year, it's going to be this times one and a half. Earnout's just a way to bridge that gap. And look, when we structure earnouts, I want to pay it. Sometimes, and it's become less this way, but I feel like five, 10 years ago when you'd structure an earn out, the seller would be like, well, there's got to be some gotcha in here.

40:29They're trying to screw me somehow. And I want to pay earn outs because that's a win-win. And we structure earn outs. So if we do pay them, it's a better outcome for Forsyth as well, because the company is more profitable and it's grown as much as we all thought and hoped it would. But probably 50 % or more of our deals these days have earn outs in them. Wow. I laugh because I just had this roundtable discussion yesterday. I hosted with a mix of private equity and corp dev folks. And I kind of said, half jokingly, but what if you structure a deal where you don't intend to play the earn out? That conversation stemmed because the bid-ass spread is so high right now.

41:07I mean, it's just people always look at these headline valuations and they reference it. And that's the thing I'm personally struggling with. Or they're just like the hockey stick growth. You don't always believe those? Sure. Why don't we build an earn out against that? And if you hit those numbers, great. Everybody's happy. We'll pay you what you're looking for here. That's why I was like half joking. I'm like, can you just structure the deal without the intention of paying their earn out? Maybe sometimes that happens or people put such insanely high targets in there. They're not going to pay out or only pay out a small portion.

41:36Back to our model in long term, it can be very damaging to the relationship. If there's a deal with a bigger earn out component and one or two years into the earn out period, it's clear that they're not going to hit it because they're demotivated. What is your announce usually based on? Usually based on gross profit or some gross profit number. Revenue sometimes can be too simple because people can say, hey, just push revenue. I don't care what the margin is. We don't want a bunch of revenue, but no margin. And then in my view, EBITDA can sometimes be just too complex and too controversial to measure.

42:11That's the adjusted EBITDA, baby. Yeah. And also, we want to make investments. We want to make significant investments in these businesses. and a lot of times those investments are in people, whether it's engineers, salespeople, whatever it is that we would put below gross profit and that's only fair. And we don't want to be in a situation where the seller, we're saying the seller, hey, we need to go hire five engineers. It's going to cost$500 ,000. And they're thinking that's going to hit EBITDA by$500 ,000. We try to make it, and there's exceptions to that, but in general, it's a gross profit-based burnout.

42:40Sometimes if there's big customer concentration or something, it's a retaining the top customer for these five years or growing that revenue. but the general answer would be gross profit. In terms of nurturing these relationships, you mentioned meeting people in person whenever you can, like a big thing, have to be in town. Is there anything else that you're doing to really build that trust? I like to take people out for drinks. I feel like alcohol kind of... That usually helps. See a little other more personal side. What else? There's always comparing notes. I guess grab a call and just trade some notes.

43:12A big part with us is having them come out and visit our companies. it's the same point as you're spending time with people, but it's one thing to hear our story. It's one thing to read Bob Chapman's book, Everybody Matters. It's one thing to look at the website and read about truly human leadership and our people-centric culture and our long-term success. But those are all words. And those are all conversations from someone who's clearly does have an ulterior motive of convincing you should partner with us. This could be when we still think, hey, you're not gonna be ready to sell for five more years.

43:43If we really interested in someone's business and want to build that trust and partnership, we'll say, hey, come on out to Iowa and visit some of our manufacturing facilities or come down to Atlanta and visit our headquarters and meet our people and see for yourself that what we talk about is real. This is like our sale cycle. This is equivalent of doing a product demo. Yeah. Somewhat related. We also offer up them to talk to any of the companies, the previous owners that have sold to us, the existing leadership teams, the equivalent of customer calls and customer checks. But we are an open book and we share our financials with anyone, whether they're good or bad at that point.

44:20Our view is people selling their business to us should do as much diligence on us as we're doing on them. Because when you say to someone, I want to partner with you, I want to buy your company. And by the way, your entire leadership team, I hope they're with us for the rest of their career. That's powerful. Yeah. And it can be scary too. It's not like traditional private equity. Hey, we're going to do this transaction. it's going to be successful. Hopefully four or five years we'll sell, we'll make three, four times our money. Everybody will be happy because they make a lot of money. People can do something for four or five years for monetary motivations.

44:52If you're talking about partnering with a company for 10, 20 years, you need to have that relationship and you need to have that trust because I don't know about you, but I don't want to be miserable for 10, 20 years. Even if I make a lot of money, that's not a good trade-off for being miserable or having a... It's a bad marriage, baby. It's a bad marriage. Yeah, I don't want that. So I do like that approach a lot. It's like, here's your business case for doing a deal. Then you're validating it and just getting certainty, having those interactions and so forth. What are some of the key mistakes first-time buyers make when executing M &A deals?

45:23I would say, and it still happens 20 years in for us, is getting too emotionally attached to a deal. Really? You don't come off emotionally? I know. I need to come off more emotionally. Of course, it still happens. That's a bad joke of people in private equity. I don't take any offense. Trust me. message. I've been made fun of my robotic monotone voice my whole life. And even when I try to fluctuate, it still comes off that way. So you're number a hundred of the people that commented on that. That's all right. There's people, plenty of people actually go to sleep listening to this podcast for my monotone voice.

45:53Maybe we can help. This is the deep sleep episode right here. You're going to get your REF. Yeah. I'll say in a little bit of our model too, I made a joke a little bit earlier about how Bob Chapman would say, Kyle and I would go home crying to our wives the first two years because we hadn't done a deal. One of the biggest benefits of that model and the long-term model is there was never pressure to do a deal. There was actually more pressure to not do a bad deal than there was to do a deal. And how that relates to your question about mistakes people make, especially early on, is just that pressure, whether they have it, whether they have the monetary pressure to do a deal like some traditional private equity.

46:35You raise that fund, the clock starts. You buy that company, the clock starts. And it starts for logical reasons. But that's just the case. Especially in our model, when you've got a relationship formed with someone, it's not just a financial transaction. Then you get into diligence and something pops up. Obviously, something negative pops up in this situation. It's just human nature. You've got a relationship. You want to do this deal. It's often very easy just to overlook as, oh, it's one or two things out of 10, deal's still going to be fine. Everything's going to work out. And that's probably the biggest mistake some people make early on.

47:11It's been very rare that we back out of a deal or change terms or anything like that. If something material happens that changes the prospects of a transaction, you should do something about it. Now, you should be fair. You should explain to the seller, hey, this is what we found. Still want to do the transaction. That's a great situation where maybe some of the proceeds go to an earn out or something like that. But back to the original question, I just think it's very easy to get emotionally attached and therefore just have blinders on and want to go full speed ahead, regardless of what the red flags.

47:43Yeah, what the red flags are. Right now, we're still a small company, generally revenue, 50 people. But I'm so eager to do a deal, especially doing all these podcasts. Which is natural. I know. And then you get friends. I'm fortunate to have good friends. and they're like a mix of just trying to cue me to pump my brakes or just getting ready to give me that quick slap across to get some sense. And it's really think this through, which I'm fortunate for, but it's tough because I get it, which I mean, I feel like a different way of thinking of it versus emotionally attached. It's what it is. I feel like there's like eagerness to do it.

48:14There's like just deal fever, but then I have the same thing. Like I just got clearly there's some bad misfit with management. That's not a good thing. And to that point, you said, what's the biggest mistake? I'll maybe say a second mistake too, is underestimating the importance of culture and people. So many people, including myself in this industry, come from a very financial data-centric background. And they say, oh, it looks great in Excel, which you can make anything look great in Excel. But when it actually comes to executing that strategy with the leadership team, all of our deals have failed or succeeded because of people.

48:50I mean, yes, there can be industry dynamics. Yes, there can be product failed or whatever. but it all comes down to people. And this is not just coming from the people-centric culture side. Everything comes down to leadership, people. You can have the best plan in the world. If you don't have the people to execute that plan, it's not going to succeed. If you've got an okay plan, but have great people, I would rather have that. So underestimating or not, or even not even paying that much attention to the people and leadership aspect of things is a big mistake too. Yeah, you're making it hard for me, man.

49:20It's not helping me. Sorry. I definitely got a touch on integration and operational improvements post-acquisition. You know, is there a different view? Because I know I had a great conversation with Bob and Kyle about the broader organization, the big emphasis on culture and how they just use that as a strategy that when they buy an organization, they're going to change their culture. That's their full-on intention. Is there a different view on how you integrate companies within Foresight? I'd say that's very similar. We have an M &A and an integration playbook, as we call it. And in our view, it's more of a menu approach.

49:56During diligence, yes, there's clearly maybe two or three areas that we think a company could improve upon. We open up completely on either the Foresight companies or even a little bit of Barry Waymiller, and they might pick or choose two or three things that they think could help them. And then we really get together and say, hey, of this menu of 15, 20 things, we think it's these two or three, you think it's these two or three, maybe a couple overlap. lap. If that's the case, it's obvious. But then we have a discussion. What we don't... My view on integration early on is less is more. Because we learned very early on that when you start a partnership with everybody, everybody's excited.

50:29Everybody wants to impress, both on the Forsyth side and the company side. And so they took on too much. Maybe they take on six initiatives for the first year because you've got this kickoff meeting, everybody's excited. And then they go back to work. And a month in, they're like, wow, this is a lot of work. and they can't execute on them. And either things fall off or things take twice as long as you thought they would. We have very much a less is more approach of, hey, if we think we should take on these six things, maybe let's just take on three or four and resource them properly and make sure they're successful.

50:59Especially with our long-term approach. If it takes us two years to accomplish number five and six, that's fine. Let's just make sure number three and four accomplish in the first year. Yeah, you want to set a good cadence for achieving these milestones versus screwing that up in the beginning and then it's just not a good relationship. And so that makes sense. So really similar following it, again, would reference and encourage folks to listen to the podcast interview that talks more about the culture and that integration approach with Bob and Kyle Chapman. We talked about leverage earlier and that you tend to be more conservative, two to three X, and definitely a lot of folks go a lot higher than that.

51:36Does that impact the types of deal you pursue, broadly withstanding economic cycles? How do you see that factoring in? The types of deals we do know. And the reason is we model everything out and look at everything on levered returns. So whenever we look at a business, it's like, hey, what can we grow it to with all equity financed? And then we back into what's the appropriate valuation to pay. So back to the tech sector or something, could we pay 20 times EBITDA for something with no leverage? Probably not, but that's not where we're probably where we're not in the high tech sector. And that'll be revenues, by the way.

52:12Yeah, sorry, revenues, even more so. But the last part of that question, nobody hopes a recession happens or a downturn happens, just given the impact that it can have on economies, countries, people, and that stuff. But we have found, given our model, that when there's some disruption, whether it's a recession or capital markets come down, it's weird, but activity for us picks up. And a perfect example of this is COVID. COVID was two or three years long, and it ended up being a boom for capital markets because interest rates went almost to zero. But remember those first six months of COVID, call it March through September of 2020.

52:48Nobody knew it was happening. Markets crashed initially and M &A completely dried up. We did six deals in those six months. What happened, at least this is my theory of what happened, I've never gone back and confirmed this with the sellers, is all six of those were companies that we had been talking to for years. All six of those were companies that were experiencing that boom of the five, 10 years before COVID, that was a pretty strong economic time for most industries and companies. And then COVID happened. And a lot of these business owners said, I don't know if this is going to last six months or six years.

53:23I don't know what the outcome is going to be for my company. I'm going to call Forsyth. And they did. And yeah, some of our companies had a little pickup down like all did. Now they ended up coming back given what the broader economy did in most sectors, at least. Capital equipment was a beneficiary. But in all those instances, we said, yes, we're still interested. Yes, we don't know what's going to happen over the next one or two years with COVID either. But honestly, we don't care. We're in this for the next 10 or 20 years. We did six acquisitions in six months where the rest of the market was pretty slow, given the uncertainty.

53:53And we did that because we still believed in the long-term aspects of our platform companies that were acquiring these add-ons, better than them too. And we got them fully debt financed by our lending partners because they trusted us and we were still two, three times levered and not four or five, six or whatever it was. And all six of those ended up being great acquisitions for us and are still with us today and continue to grow. It's so interesting that you don't model a debt on, it's all off of equity. Yep. And you still use that to get your target IRR. I feel like everybody would just put the debt in there so you can say, Hey, we can do more deals.

54:27Yeah. I'm not saying it's the right way. It's just back to the conservative approach we take. You guys are some true Midwesterners over there. We are just boring, simple Midwesterners. It's coming back with some good returns because I want to give you my money. And also, you mentioned earlier about Pierre Wamele being the sole funding source. We have considered potentially looking at other parties to probably be like-minded, high net worth families. And we actually talked to a couple of placement agent guys just to say, hey, here's our model. And they said 18 % is not top, top decile. But if you look at it in a risk-adjusted basis, probably top decile, top quartile, because our companies are so lowly levered.

55:06Once again, back to the conservative nature of Barry Waymo's model, I'll take 18 % returns all day and sleep well at night and pushing for 25 % returns and bust covenants and have to hand the keys over to the company to the lenders any day. That's so true. It's interesting too, if you look at those public pension fund, like Calipers that post all their data, A lot of funds don't make... 15 is like really good. There's so many of them performing below that. A lot of them. We've been very fortunate to have some great companies and great teams so far, but it's getting harder. I'll say that. Somebody has some good fund data.

55:37Reach out to me. I'm curious to work on some content around there. There's a lot of data out there. And as you can imagine, people can cut it any way they like. But the good stuff's behind a firewall. And they want you to pay$50 ,000 for it. That's true. I feel like somebody could sit there and compile from all these public sources and make it pretty good. Right. Where do you see the M &A market heading in the next five years? What are the trends shaping how investors approach acquisition? I know we're a little bit of a M &A lull right now. Just given some of the uncertainty, it's going to be absent of major recession.

56:06I don't think this lull is going to last long and I would expect it to bounce back pretty quickly. There is just so much money out there chasing fewer and fewer good companies that, as I said, I think is going to take a massive economic downturn to change that in the medium or long term. So near term, I'm with you. We had a lot of things happen thanks to our administration here. But it's settling. That's what I anticipated. Dust will settle. And then because a lot of these, I've seen companies just ready to go on market. They're just waiting because they don't want a new big regulatory change.

56:36But if we go out even five years out, because right now we're working on a deal, start working with someone like you. I work on this five-year journey together at the minimum. What do we see happening then? Because you've got a strong point that there's so much capital. I got in this industry early 2000s and anybody in PE was on this pedestal. Went there and tried to kiss the ring and just get in front of them. And now it's just like everybody's got a cousin in private equity that's hunting for deals. And then there's so many, now we saw the explosion with the private credit. Now we're in retail.

57:09All these big PE firms are getting into retail and it's just putting more capital into these private equity platforms. What do you think that's going to do to... Are we going to just keep these valuations keep going up? We always get referenced. Maybe your business will start trading like the tech revenue multipliers. That'd be nice, boring old capital equipment companies. I'd love those to trade at 15 times. First off, I think return expectations and actual returns will come down gradually, just given the insane prices that are being paid. Now, I've been saying that for five years and the prices keep going up.

57:40I could easily be wrong. You pointed out 10, 15 years ago, good private equity returns were in the low 20s. Now they're, as you just said, probably mid to high teens. And will they come down to the low double digits? I doubt that. I mean, I think the mid to high teens is still probably expectations in this overall industry. For the reasons we just talked about, I just think overall returns, both on the actual side and the expectations will naturally come down just because price is being paid. That's a good takeaway. You're kind of right. You can explode value up to a certain point, but there's got to be a return because of that expectation of those returns have to come down.

58:12What's the craziest thing you've seen in M &A? I'll maybe poke fun at myself a little bit. Back to those early years, I don't know if it's crazy, but just like the extent of what people will do to get deals done. There's a good story in Forsyth. Kyle was covering one and I was covering one. There's these two companies that both of us identified early on as, hey, this would be good for our model. And he chased one and I chased one and we met with the owners probably at least 10 times each. Every time we'd come up with our latest and greatest proposal. You talk about trying to be a pushy and trying to convince someone.

58:45That's how we were. We never ended up buying those companies. And maybe that's why not. And even one of them ended up coming to market and then we passed on it because we had gone elsewhere. But just when starting up a company, and you probably feel this way too, looking for your first acquisition, but just the extent and just craziness of, hey, they want to talk to us again. Refresh that presentation, do it again, do it. I mean, it's an ongoing joke. across Forsyth of Kyle Meyer's early days. And just, I wouldn't say how desperate we were, but just how hard we were trying to make a few deals happen.

59:17But that ended up not happening. And we look in hindsight, it's probably a good thing that they didn't. It's kind of wild. Well, it is like the chase, but it's almost, I don't know why I keep always referencing like marriage and dating. It was like an element of playing hard to get and a little, that banter back and forth to. We weren't playing hard to get. We were easy to get, but they just didn't want us. If you're trying too hard, then you're being the creepy guy at the bar. And we were the creepy guys at the bar that just kept going at it and kept getting turned away. It makes for a good story and fun and making fun of each other.

59:46I got a great game. You got a great story to tell. You got ways to validate it. First off, this has been a great conversation. Really appreciate the invite. And I do encourage everybody. If you listen to this one, definitely listen to the Barry Wimler one with Bob and Kyle, because Forsyth has been successful. It's been the most fun and rewarding I've had in my career. And even from a personal side to working with great friends and great people. But it all starts with Barry Wehmiller and what Bob has created and what Kyle's now bringing to the next level and the next generation. The key is relationship and partnership and trust.

1:00:16And when you have that backing, it's a lot easier to go out and do what Foresight does. Make it look easy. But it's just because it's real simple. Just do the right thing. It's really simple to say that. Sometimes in life, it's harder to do that. But with business and with partnerships, I like to think that we usually do the right thing. And because of that, it's a big reason of our success. That's the culture that drives success. This has been great, Ryan. I appreciate you taking the time to have this conversation. Anybody still listening to this? My fellow M &A scientists, thank you. I really appreciate it.

1:00:49I always welcome feedback on these podcasts. Connect with me on LinkedIn. I'll take the criticism. Sure, trying to get better at doing this. Topic ideas are always fun. There's stuff I haven't covered yet. Love to get those topic ideas. Until next time, here's to the deal.

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1:02:00Again, that's mascience.com. Here's to the deal. Thank you.