1678 – Doing Amazing Things With Freedom with Patrick Rogers

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0:58with us right now it's patrick rogers a fellow navy vet and mergers and acquisitions managing director at sterling cooper patrick your website is patrick v rogers.com to our friend that's listening just click on the show notes click on the link and follow along patrick it's great to have you. Great to be here, Josh. Thanks for having me, man. Absolutely. I'm going to ask you about your Navy experience in a moment, but tell us what you do in M &A. Yeah, you bet. So what we do is we help businesses double their revenue every year through acquisitions. And so our clients, they work with us and through acquisitions, through some of the other strategies that we do with some synergies and with the actual strategy of the acquisition, we're able to really increase the value of someone's company 15 to 20x in five years.

1:51Well, that sounds like a great path forward. I want to get into the dollars and cents. I want to talk numbers. But before we do, I just want to, again, kind of lay some groundwork about your background. Of course, anytime we have a veteran-owned business owner, a veteran-owned professional on the show, always want to highlight that. So you were, you're an officer in the Navy, a fellow Navy vet. What did you do? Yeah. So in the Navy, I was a nuclear engineer officer. So I ran two 550 megawatt nuclear reactors on board a carrier. And at the young ripe age of 23 years old, had 60 people that I was responsible for in the safe operations of a reactor underwater.

2:33Man, that's amazing. What an incredible experience. How long did you do? How many years were you in? So I was in for five years. Yeah, so I did five years in the Navy. Terrific, terrific. Okay, so so talk about what types of companies you work with today, and kind of where you fit in and, and, you know, why you've become, maybe I guess, kind of an indispensable resource in that growth plan. Yeah, for sure. So, so a couple things. One is as business owners, we're extremely busy. Two things. One is we're focused on mainly, most of the people we're focused with or work with, they're focused on growing their business organically.

3:16They haven't even really thought about acquisitions. A lot of times they think it's for the big boys. They think it's for somebody else, right? And so that's one type of person we work with. And then the other type of person that wants to do the acquisitions, but doesn't have time for it because they're so busy. So we come in and we put together a comprehensive strategic approach to how we're going to go after it. And by the way, most people think they don't have enough money for it too. And in today's day and age, with baby boomers retiring left and right, they're leaving so much equity on the table, you're able to many times pick up a business without anything out of pocket sometimes.

3:53If, you know, if we find one where the owner's actually, you know, motivated enough and because there's so many baby boomers retiring, Josh, and leaving, it's a total buyer's market. It is absolutely a buyer's market. Yeah, I absolutely agree with that. I've got, you know, even in my own family, my grandma owns a, I mean, and again, this would be, you know, kind of a unique circumstance, but she owns a health food store. She's retiring, she might sell it, but she's not going to be running it for much longer. my dad also um you know has a great service-based business and totally you know there's really no one to take it over in the family so um you know so it's you know it's you know he's in kind of in that same situation um you know i want to talk about the kind of the dollars insensitive because just because you're doing m &a i mean it doesn't mean you need to have cash on hand to you know cash out, you know, an acquisition, a business owner, I mean, you can, you could pretty easily find financing for a good acquisition, right?

4:59Yeah, absolutely. I mean, the average is, is, if you're not going to do an owner finance deal, which is, or you could bring an investor too, right? But the average is about 10%. So if you want to purchase a$5 million company, you would need$500 ,000, just with if you were going to go down the road of lenders, if you're going to do an investor or owner financing, which is what we love to do, then it's all it's all up in the air. And, you know, for me, the we were kind of talking about like, why we're doing this, the reason you know that I'm doing this is for freedom, when entrepreneurs get true freedom and get out of the day to day of running their one business, by being able to acquire other companies, the financials are such that they're able to get that freedom and entrepreneurs, as you and I both know, do amazing things with freedom.

5:48We get, they give back, they impact the world in a whole new way. Well, Patrick, what if someone is listening to a conversation like, are you kidding me? I'm pulling my hair out running this one company right now. How on earth, or why would I do that to myself where I'd want to bring on an entirely new company? It doesn't sound like freedom to me. Yeah, I know, right? Totally. And if I was in their shoes and I was running the business they were running, that that way, I would say the same thing. Here's what I want you to know. You can take your business and by working on internally, you can get that business to run on its own.

6:23As long as you're over$2 million, you should have the resources, you should have the right pricing, the right internal structure to get it so you can have that business run on its own. Hopefully no one takes offense to this, but as a business coach, that's where I've been able to help people go as well. And then once you get to that point, when we purchase a company, we purchase it ideally that already has management in place that knows how to run the business for you. We're not buying each, you know, what we do one acquisition a year for each one of our clients. If they were expected to come in and have to run each one of those, it's impossible.

6:58So when we're buying the business, it's a total mindshare. It's a paradigm shift. And, and our clients have to make that paradigm shift and get the businesses to the point when we buy it, there's somebody else that's already running it. Ideally, they're in there. Number two in command is going to come up to number one. Or if we have to, we make sure we have the right margins. And then we hire a competitor, you know, a CEO from a competitor or whatever that is, but you are not running that business. And if you are, you're only going to do one acquisition, you're going to die on the bind anyways.

7:30How do you think that like, so say someone, you know, is running a successful company, they've got access to capital um but they say well patrick i don't know who i would buy i don't know that i necessarily know of anything what do they do yeah great question so going back to the strategy depends depends a lot on when you want to exit your company one of the first things we do is we get clear on what is your exit plan and who is the best type of company that's going to want to purchase you. And then from there, we put together a comprehensive acquisition strategy, where we're either going to buy your competitors locally, where you're going to buy people in the same industry, expand geographically, or we're going to look at what are the complementary businesses that let's say you guys right now you refer business back and forth, that is is complimentary that you could buy.

8:28Now you have a synergy, you have a synergy where you're cross selling, or perhaps depending on the industry, maybe somebody that you're looking to be acquired by five years from now, likes to have vertical integration, and that's important. So then we start looking if you're a B2B company, we'll start looking at your suppliers, or your, or your clients, if you're B2C, you're not going to buy your clients, but you know, so, so it really just depends. And so who we're going after is typically competitors, either local or geographically throughout the United States. And then once you start getting that ball rolling, then we start looking at maybe complimentary.

9:02So if you're an HVAC company, you know, right now we're doing one that's they're purchasing a commercial plumbing company in the same town. Absolutely phenomenal synergies. The first company is 1.7 million and we're purchasing one for 3 million. And so that's what it's going to be 4.7. But together because of the synergies, the plumbing company now gets to bid on all HVAC stuff that they were just doing plumbing for, and they have different clients. And the HVAC now gets to bid on all the plumbing stuff. So we're projecting this is going to be, you know, right now it's a 4.7. We're projecting to be 6.5 in one year.

9:41wow uh so there's a lot of reasons you just mentioned one a huge one right where that gives you it really expands the market um it's not just a one plus one equals two what you've just described is a one plus one equals 11 kind of situation at least three well let me let me tell you about one more that makes one plus one 11 and it's called multiple arbitrage and this is what we're really after Josh. Okay, so let me let me put this out there. What happens is, let's say you're a$4 million annual revenue company, you have a million dollars of EBITDA coming in, okay? Your multiple might be like, three to maybe four, something like that.

10:23When we grow that company, let's say we do one acquisition a year. And we get the company up to, let's say we get it up to 50 million after five years, which, you know, if we double every year, right now, we're a, let's say a$4 million company, we buy another$4 million company, we go to 8 million. And then in year two, we buy another 8 million company. Now we're at 16 million. And then we keep doing that 16, we buy another one for 16. And then within three years, you're at 32 million. Let's say we just do that. What happens, Josh, is it's kind of it's a curve. And as you go up in annual revenue, actually EBITDA, as you go up in EBITDA, the multiple that is the going rate and how you determine the value of your company goes up.

11:05So right now, if you're at, let's say 500 ,000 to a million EBITDA, your multiple is maybe three and a half. Well, we get you up to that 30 million in three to four years. And this, this, I know some people are listening and it's like, oh, it's not possible. It's very possible. You get up to that 30 million and let's say your EBITDA is, you know, 10 million or maybe it's a 40 million. Let's just say you're at 10 million EBITDA. The multiple now is like a six. It depends on the industry and all that. So now that, that company that you paid, you know, maybe you paid 30 million for whatever that is, because the multiple is so high, you take your EBITDA times that multiple, you're creating millions out of thin air just by putting them under one roof, people are, especially private equity companies are willing to pay a lot more for larger companies under one roof.

11:58And I want to ask you about the, obviously using the term multiple, most people know what that is, but for someone who's like, I think I know what that means or how that's figured out, but how do you use that? And again, kind of talking about valuation, can you give us just a quick one-on-one on that? Yeah. So the question is how you actually calculate the value of a company using a multiple? Yes. Thank you for clarifying. So what you do, how you, and I'm a certified exit planning advisor. There's a lot more detail to what I'm talking about, but just to give you the 30 ,000 foot elevation view, you take the EBITDA of a company and you multiply that times some kind of a multiple.

12:36And that multiple is determined by a number of factors that we look at. And one of them would be how many years of growth does it have in the company? What's the projected growth? How involved is the owner? Is the management team able to run the company without that person? You know, all these different factors. And that's what really determines the multiple. And then so you take the EBITDA times whatever that multiple is, again, for larger companies, the range of the multiple is going to be larger, let's say seven to 10 for larger companies, and smaller for smaller companies. You take that multiplication, whatever that is, EBIT.times and multiple, plus the assets generally.

13:15And that pretty much determines the value of the company. Now, once you get into really, really big companies, it's very different. You're diving into assets, you're looking at balance sheets and a lot of other things, discounted cashflow method, a lot of other things play into it. But for companies under 20 million, that's a pretty good starting point. Wow. Patrick, what is the relationship between, so obviously your personal website, Patrick V Rogers.com. Um, when you work with your clients, they're working with you, but again, I know that you also have, you know, your association, um, with the larger, um, yeah.

13:50Acquisition, the, um, Sterling Cooper. Um, can you maybe explain that? Oh, sure. So, you know, I started, uh, the, the, the, uh, podcast, and, you know, that my coaching high performance, CEO coaching, and so I built up a following there. And that's something else as CEOs, I think it's very important, no matter what company you run, it's very important for you to also be a thought leader in your industry and branding. So yeah, so I've aligned with someone who is my mentor, and he's the CEO of his company, Sterling Cooper. I've been in the business for 40 years. And so I'm very fortunate to be with him and be with this company.

14:30It's where I've always wanted to be. And so, yeah, I mean, I funnel the business through there, but, you know, we're doing it as, you know, Sterling Cooper. Yeah. Great question. Yeah. Your website, PatrickVRogers.com. For someone that's been listening to our conversation, what is kind of like, what do they do? Like, Like what's their kind of their first touch with you? What generally happens in that? I would imagine a conversation and kind of where do you generally go from there? Yeah, you bet. Great question. So if you are interested, it's Patrick V. Rogers and there's no D in that. It's just R-O-G-E-R-S and it's V as in Vincent.

15:05So right on the cover page is a big bold letters and it says ready to double your business every year, guaranteed question mark. And there's a big button that says apply now. So if you want to have a conversation, click on apply now. It'll ask you a few questions and we have a, just a quick discovery call and see if it makes sense to have a follow-up call after that. Yeah, awesome. Patrick Rogers, again, your website, patrickvrogers.com. To our friend that's listening to this, very simple. Just go to the website, click on the blue button that says apply now, grab some time and kind of fill that out and get connected with Patrick.

15:42Patrick, it's been great having you. Thank you so much for this conversation. Thank you again. You hear this all the time, but one fellow veteran do another. Thank you for your service. Yeah, you bet, man. Always great having veteran business leaders on the show. Thank you. Very good. Thanks a lot.

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