1981 – Mastering Business Acquisitions with Eidolon Capital’s Matt Bodnar

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1:06With us right now, it's Matt Bodnar. Matt, you are the founder and managing partner of Eidolon Capital. Your website is mattbodnar.com. To our friend that's listening, just simply click in the show notes. We've got a direct link to Matt's website so you can follow along. Matt, it's great to have you. Josh, thank you so much for having me on the show. You are in the great city of Nashville, Tennessee. I'm a big fan of that town. But tell me about the work that you do, who you serve. I've got your website pulled up. Here's what it says. It says that you build, buy, and invest in great companies globally.

1:40Tell us more about your impact and the work that you do. Yeah, I mean, the easiest way to think about it is I buy businesses, right? And if you zoom out, and you've probably heard some of these stats, but the data is pretty incredible, especially in the US around how many baby boomers are going to retire over the next decade or so and the amount of value that actually needs to change hands. So the rough estimates I've seen are about 70 million baby boomers are going to age out of business ownership over the next decade. Of those, there's estimated that there's about 12 million businesses. And that represents about$10 trillion worth of value that needs to exchange hands.

2:17Now, some of that will be passed down, but most of it, in a lot of cases, if the family owns a plumbing business, the kids would rather be TikTok influencers or do something totally different as opposed to take over their family HVAC company or whatever. And so there's literally millions of businesses that need to transact. And our strategy at Ilan is really simple, which is basically, we want to put ourselves in the path of that stream. And we have a really different approach to investing and buying businesses than most folks in the sense that we're long term holders. And we're typically looking for companies that we can buy and hold for ideally, indefinitely, we certainly sell things, especially if the market or situation changes.

3:00But our preference is really to buy and hold great businesses for the long term. And our approach is really about finding business owners that resonate with that and giving them a home or an alternative to either selling to a competitor that's just going to chop them up or selling to some big New York private equity fund that's going to fire half of the staff and resell the business again in three years or whatever. And so we really try to be a differentiated buyer of businesses that helps folks find really a home for their companies. Well, that sounds enticing for someone that's looking for an exit or they're looking to be acquired or looking to bring on partners in that sense.

3:41Because obviously, there are buyers and investors out there that it's almost like they want to part out the car, right? I'm going to buy it and basically so I can flip it, turn to profit. And, you know, as a founder, that to me, it just doesn't feel as good as someone who comes in and say, I believe in what you're doing. I believe that, you know, we have some significant opportunity to do great things in the world together. From a founder standpoint, that's kind of a, you know, kind of a dream. If I'm kind of designing the avatar of my investor, I would hope for that because this is my baby. Exactly.

4:22And it's funny, too, because not only do I think that there's a really compelling case for the seller of the business, right, that this is a really good path for a home for their legacy. But I also think whether you own an existing company, right, if you own an existing business, this tidal wave of companies for sale is a tremendous growth opportunity that I think any savvy business owner is going to think about taking advantage of. And conversely, if you're an entrepreneur, I also think there's a really compelling case, both just anecdotally and if you really crunch the numbers, that buying a business is actually a much better alternative to becoming an entrepreneur than starting one.

4:58And so I'm pretty much all in on acquisitions and buying businesses. And I think whether you own a company or you want to get into business, they're both really powerful growth strategies. Are there particular industries or verticals or niches of businesses that are really a good fit for you and kind of your group that maybe you've had success with, that you're just a big believer in being in? So personally, we have a pretty industry agnostic approach. So our portfolio, we own a manufacturing company. We have a distribution business. We have an industrial staffing firm. We've got a software company, an IT services business, a pretty diversified portfolio of opportunities.

5:39I would recommend most folks probably don't start with a really broad brush. We sort of fell into having that portfolio over time, just being very opportunistic and opportunities we seek out. But I'd say for most people, playing in a pond where you have some connectivity or knowledge or expertise can really be a great way to start to unlock opportunities and find value. Yeah. I should point out, and I didn't do this, but you're the host of a very successful podcast, Matt. It's called The Science of Success. I think that if someone searches in their app right now, they may either be already subscribed or they've probably listened to an episode of yours.

6:21And, you know, again, getting on nearly 400 episodes, you've interviewed folks like Robert Cialdini, Brene Brown, Jay Abraham, Adam Grant. I mean, gosh, who is it? James Clear. These are people I really love. How amazing that you've been able to enjoy conversations with folks at that level of thought leadership. It's pretty wild. It's funny because I'm an investor, right? I buy businesses. And at some point in my career, it dawned on me that I should start studying the greatest investor of all time, Warren Buffett. And if you study enough Buffett, you come across this other guy named Charlie Munger.

7:02And the more you pull on that thread, Munger is a fascinating individual. And he talks about all these really kind of philosophical concepts called mental models and all this other stuff. And one of the big things he hits on is the importance of understanding psychology and how it really underpins most business behavior, whether it's investing or selling or managing really the whole world of business at the end of the day is interacting with humans and understanding why people do certain things. And a lot of times why they do things that are irrational or seemingly against their economic interest or make strange decisions.

7:34And so I just kept pulling on that thread and eventually stumbled into basically interviewing a bunch of psychologists and human performance experts and all these people. And my day job, quote unquote, is buying businesses. I kind of ended up interviewing all these people really selfishly just so that I could ask them all the questions. I'd read James Clear's book and I'd be like, man, what about this and this and this? And then I'd go ask him and then apply that stuff to buying companies and investing and all those things. So it's a very circuitous route to get there, but it's been a fun journey and a cool experience.

8:10Yeah. Any particular conversations come to mind if you think about the time that you've been able to have with such luminaries? I suspect that there's probably a conversation or two that, you know, to you, it was something that you heard and you can say, you know what, this demonstrably affected my daily life, either in the way that I think or maybe a behavior that was tweaked as a result of that. I don't know if anything immediately comes to mind. And definitely. And I mean, after hundreds of interviews with tons of people are experts in psychology and wellness and emotional intelligence and all this stuff.

8:51It's amazing the commonalities you hear. And there's two quotes that really anchor this. One is the I don't know if you've ever heard the quote, but there's no silver bullet. There's only 100 golden BBs or 1000 golden BBs. And so there's no one do this, you know, tip in five minutes a day. you're going to transform your life. But the and the and the other quote that kind of sits in this is there's a really good quote from Vince Lombardi, which is, I'll paraphrase that it's basically excellence is the mastery of the fundamentals, right? And so if you pair those two things together, after hundreds of interviews, the advice is is eye rollingly boring, and yet tremendously impactful, which is basically get a good night's sleep, do some exercise, meditate on a regular basis, use tools like journaling to kind of keep track of your thoughts and manage your emotional well-being.

9:40If you just do those four or five things, that's 90 % of the battle in terms of wellness and psychological performance. And one other one that I use all the time in the business world especially is the best negotiating strategy. And these are hardened in the crucible of things like FBI hostage negotiation and spy recruiting, which is basically getting people to turn on their countries. And the strategies that I pulled from those are the strategies I use every day to buy businesses and negotiate high stakes business deals. And the strategies are ridiculously simple, which really boil down to basically listen to the other person, understand what's important to them, and then make what you're saying about what they care about.

10:26And if you can do those things, those are the lessons from high stakes hostage negotiation that you can apply to any business interaction. But in buying businesses, especially, it's been, I think, one of our secret weapons is finding a way to connect with people and stand out from the it's not all hardball and sharp elbows. It's really about relationship building and rapport building. And that's one of the bridges we use to connect people and close deals. So I suspect then that some of your best opportunities have likely just simply come from the network that you've built. And, you know, even when you say you have a conversation with someone that might not necessarily like they're not the founder of a company you're looking for, but because they also believe in that value of just building connections and building relationships and being of service within their broader industry.

11:16That, to me, is where I see the greatest both volume and quality of, you know, introductions that lead to amazing opportunities. That's my experience. It's really funny. There's actually a lot of scientific research about this, which you've probably heard the term, the strength of weak ties. I heard it many times and I said, okay, yeah, whatever. I didn't really think about what it meant. But what it means is that the most valuable people in your network are the people on the periphery, the fringes of your network, the people you don't know very well. Because your best friend, your parents, your business partner, your network and their network are like 98 % overlapping, right?

11:53And even though they may really want to help, there's very few new connection points in that network. Whereas if you're interacting with somebody who you barely know, or someone you knew three jobs ago, or a decade ago, that person's network might have like a 5 % overlap with your network. And so that weak tie in your network has a ton of strong ties and connection points. And so one person on the very fringes of your network can actually be one of the most valuable people in terms of sourcing opportunities, whether those are deals, investors, customers and clients. And there's tons of science about that.

12:25They've done a lot of studies that show basically things like job opportunities and investments come from the biggest peripheries of your network and not the people that you're closest to in most cases. That is, it's amazing. Matt, let's say someone's listening and let's say that they're a founder and they want to be attractive to an investor group like yours, what are some of those things that you like to see that are strong indicators of a great opportunity from your side of it? Yeah, I'll give you a couple that are gold standard in terms of acquisitions generally, what bigger buyers are looking for, what private equity will pay up for, et cetera, right?

13:09So one of them, and it's very simple, but it's not easy, is size. Candidly, businesses that are below a certain size of revenue and earnings are just disqualified from most of the buyer universe. So the bigger you are, the more attractive you are to big buyers. And in fact, size is really the largest determinant of a company's value at the end of the day, bigger than industry, bigger than almost anything. And so we can talk about how to achieve size, but size is one of the biggest, for better or worse. A couple others that are more company specific, one of the most important would be owner reliance or management team strength and depth.

13:42And so the more reliant the business is on the owner, the less management team depth the company has, the lower its valuation is going to be and the less interested buyers are going to be. Similarly, customers are a huge piece of the puzzle. So the more concentrated the business is to a single customer or a small handful of customers, the lower the value the company is typically going to be to the point where a lot of businesses, if they're overly concentrated, and the general industry thresholds about 20 % or more to a single customer, those businesses will basically be disqualified from a large chunk of the buyer pool just from the fact that they're overly concentrated to a handful of customers.

14:17Similarly, things like customer health and happiness are also really important. And then the last big bucket. So if I looked at the four big drivers, size, management quality and owner reliance, customer quality and or concentration, the last one's really what I would call operational excellence, which is basically, do you have systems and processes? Do you have a defined predictable way that the business operates or is the business operate in chaos, or by the seat of its pants, and things are just happening without a system, without a checklist, without an SOP, without a team, without a predictable methodology of generating sales, closing business, delivering value to customers.

14:52And the more you have those four things, you'll see the value of the business skyrocket. And the less you have those things, you'll see either the value will plummet to the point where even buyers may not even have a bid for the company in a lot of cases. Yeah. Your website is mattbodner.com. To our friend that's listening right now, who should be reaching out, who should be engaging with you? Who's a great connection for you? Yeah. So, I mean, I have a free newsletter for business owners that's all about how to use acquisitions and buy companies to achieve scale really quickly, right? So we said size is the biggest determinant of value.

15:29One of the fastest ways to grow is to buy other businesses. And there's lots of strategies around that. So I have a free newsletter about that that's at my website. And I actually created a business buying playbook for your listeners, Josh, that's just at mattbodner.com slash playbook. And it's totally free. They can download it. And it's basically my kind of handful of tips, ticks and strategies for finding, funding, closing, buying businesses so that you can scale your company. Yeah, Matt Bodner, it's been a great conversation. Your website, mattbodner.com. And again, Matt, you are the founding partner at Eidolon Capital.

16:07And again, thank you so much. One more time on that link with the newsletter? mattbodner.com slash playbook. You can get my newsletter. You can get the free playbook I put together on how to buy businesses for your audience. Awesome. Matt, thank you so much for joining us. Thank you so much for having me, Josh. I appreciate it.

16:29Thanks for listening to the Thoughtful Entrepreneur Show. If you are a thoughtful business owner or professional who would like to be on this daily program, Please visit upmyinfluence.com and click on podcast. We believe that every person has a message that can positively impact the world. We love our community who listens and shares our program every day. Together, we are empowering one another as thoughtful leaders. And as I mentioned at the beginning of this program, if you're looking for introductions to partners, investors, influencers, and clients, I have had private conversations with over 2 ,000 leaders asking them where their best business comes from.

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