Operator-Led Acquisitions with Nate Wasson

Josh (00:00:02) - Good day, everybody. My name is Josh. I am the Deal Scout, and I want to welcome you to the show. This show is all about deals, deal makers, different types of industries, different type of deals, different types of softwares and and platforms and people who do service providers for deal makers, so on. Today we're going to talk about deal making through acquisitions, right? This idea of how to be an entrepreneur through acquisition. And we had this guy, Nate. Nate, welcome to the show man Yeah, thanks for having me. Josh It's it's great to be here. Yeah. All right. So let's start with this. Nate, where are you located? I see a sweater on. We're in September and I see a sweater. I see a jersey in the back with crusaders. It looks like a football jersey. But where are you located, man? Yeah, I'm. I'm out in in beautiful Chicago, Illinois. It is September, so it's. It's 70 leaves haven't started changing just yet.

Nate (00:00:52) - We we get all of about 3 to 4 really good days here in Chicago. So today was one of them. So it's it's a perfect light sweater sweater weather so we we got out this morning on a walk with my wife and now we're here sitting sitting with you. Cool. All right. So you and I are hanging out in a coffee shop and one of my buddies comes up and they're like, Hey, Josh! Oh, hey, Nate, Nate. And everybody goes, you know, Who are you? What do you do? How do you typically respond to that? Yeah, So so there's a gamut of the responses, right? So first is the first is to listen to what they do and understand what they do. I think it's more important to to listen first, talk second. Right. So but but people are going to want to know what you do. Right. And we lead and help those middle career professionals find their path. And sometimes that leads it to you've grown up in the corporate side of the industry.

Josh (00:01:44) - Maybe you were in a large corporate or you're working for somebody else your entire career. You've got about 15 to 25 years under your belt and you're ready for that next challenge. We help those entrepreneurs who may not have their own idea to start a company from the ground up, but are incredible operators who would be incredible entrepreneurs, find a path to acquiring company and then ultimately running that company and growing that company so that that is what we do at our core and we do that. The firm name that I work for is Hall Bar. I founded that firm and last year around this time, we're about a year in and we're what's considered a lower middle market growth equity firm. We focus on lower growth equity, which is a little bit interesting space in between venture and large scale private equity buyouts. So it's a great spot. So that's where we sit and that's that's what we do. Okay. Got it. So I was just having a conversation. I was visiting one of my friends, Brian, and we were in Venice Beach, Florida, and we were talking about acquisition, right.

Nate (00:02:50) - And and what, what kind of companies are worth buying. And, you know, a lot of people look at different stages of business, right? Or acquiring or investing in. Right. You've got the VCs who are all about the growth in that area and they're going to invest in maybe ten ones going to work. They're going to back up the dump truck and go all in on the one. And then you have the larger piece that are looking to do roll ups and all these things. But you're saying that there's a kind of a sweet spot between these two that you guys are looking at, kind of explain what does that sweet spot look like for you? Yeah, that's you. You nailed it, though. That's in terms of understanding that curve. That is that is private equity. You've got maybe not even I mean, you've got that 1 to 100 condiments holiday where if you're in venture you want to find one good company that if they if they do what they said they could do and they actually reached some of the goals that they have, they start from a real small company and then get to and get to the public markets and exit.

Josh (00:03:48) - And it's that one company actually what they call made the entire fund or and kind of paid for the entire investment strategy. We we and then on the very, very flip side, you'll have investors who buy one single company and then do a whole lot of bolt on acquisitions, control that company in the middle. We don't take controlling positions. We take minority positions in companies, but we lead with operator what we call operator lead acquisition. So we lead with somebody who's been in the industry, who knows what they're the space that they're going into, helps us with due diligence, helps us structure the deal and then ultimately will be our operator when. But that comes with a set of challenges. But I will tell you, if you can do growth equity, right, I have a passion around this space. And what I mean by that is I think it gives you enough upside to to continue to grow so you get a lot of investment return on the upside. On the on the flip side, your your post product post revenue meaning the company and in our case we even invest at post profit.

Nate (00:04:55) - Right. So there's different stages that you can invest in in a company's life cycle you can invest in. Free product at product. Pre-revenue post revenue. Pre profit. Post profit. We only invest once the company is profitable. So that's the moment that we get involved as a fund. And an investment strategy is that moment that a company is profitable. The other part, especially when you think about the type of companies that we look for in our portfolio and you talk about acquiring different companies, we look for those companies that have some sort of operator who needs to is ready to do something different part and core to our investment thesis. And frankly, we have large macroeconomic tailwinds. Kind of helping us out here is you have a silver tsunami coming with all of these baby boomers retiring. And now we're taking advantage of this with all of these wonderful Gen X and Gen Y, Gen Z folks who want to who are coming up and ready to operate these amazing companies who that may have been a little complacent over the last 4 or 5, six, seven years, as are the current operators who are getting ready for retirement, took less and less risk and focus less and less on growth and more on maintenance.

Josh (00:06:12) - So that's what we're actually focused on, is a very specific thesis, which is post you got to lead with an operator, you have to have an investment. That is what we call lower middle market, right? And then you find that that that retiring operator who really doesn't want to sell to some sort of big cold, you know, kind of financial partner, they really want to sell to somebody who's going who who they can look in the eye and know that there are people are going to be okay. Yeah, that's such a great point. When I was when I first heard about the seller tsunami, the silver tsunami. Right. This idea of these baby boomers, they came out of the war era. Right? They're the first kids that came out. My dad was a baby boomer, hardest working generation in the world. They had tough as hell parents, right? So they came into this world, nothing but work. And they drove they created these incredible businesses, construction companies, plumbing companies, all these things.

Nate (00:07:08) - But what what a lot of them didn't really think about is their kids. The next generation doesn't want to take over their company. So there's this huge flood of companies that they call it the silver tsunami, where they have no succession plan. So what's going to happen to the largest transfer of wealth this this world has ever seen? And because these kids, a lot of their kids don't want it or their parents don't trust their kids to run it. Well, what's going to happen is our investors at home are going to benefit from this. Right. Because we have partnered with a group called Nova Stone Capital Advisors. We run an entrepreneurship through acquisition program. And we take those individuals who are typically kind of maybe mid-career professionals think 15 to 25 years is sort of our sweet spot who are ready to lead these kind of companies. And we give them so, so well, let me tell you about a challenge for that. So let's say you and I are Josh, are similar age and we have kids and we're doing all this stuff.

Josh (00:08:09) - What's the problem for us? If we left, whatever gig we're doing is that we've got a certain amount of income that we need to maintain and support the current lifestyle that we have. There is a lot of family and financial risk for mid-career professionals to lead an entrepreneurial path like the one of lower like what we'll call search funds or entrepreneurship through acquisition. So we we went out and we started to think about how do we solve this problem. So we built the the NCAA program. NCAA program was was founded by a family office in in Europe that they were looking to invest in this space themselves. And they realized there was no easy way to invest in this. What what if you look at it called search fund space, what is ultimately an entrepreneurship through acquisition program? So they started to build this program. I got involved when they started to come to North America, and now we have over 35 people sitting in the program today and we give them a two year time frame to and and a salary to go out and find a company that they have total passion for that they believe has a huge upside and that they will lead after acquisition.

Nate (00:09:32) - So they have a salary, they have help finding a company to buy. So they have a search partner to help them search for companies to buy. They have a number of people at NCAA with a ton of M&A and deal experience, help them structure and acquire the business. And then they have capital from the NCAA network funds, including Hulbert, that can come in and help provide the capital to ensure they're able to buy the business that they're passionate. Up. Yeah. The what I love about this so much is middle middle management, right? They've been doing well their whole lives. They've got their IRA maxed out. You know, they got health care, they got all this stuff, and then they show up to work one day and they find out they get laid off. So then they go, okay, back to middle management, right? Or have to build my way back up the ladder. I thought I was at the top of the building or towards the top and have to go find or, you know, they have a conversation.

Josh (00:10:27) - I've always wanted to, you know, be my own boss. But I've been in the startup world. I've been in venture world and it's risky. I went bankrupt. Right? Like, I know the risk involved in starting something up and it is hard as hell to do so. You have solved a problem for people like that, or maybe even transition in military people to have a runway with something that is post revenue, right? So pre revenue, pre pre profit, even pre product, you've got to wear 100 different hats. They're coming in to something that is proven but that just needs the next generation of steam power. Right? Yeah yeah. You talk about you talk about our members of the military community. Good friend of mine, Nate Taylor. We went to school, graduate school together, and he went in to the NCAA program. Now he has a background, a military background. He worked for a company called Merc. And he he was living down in Texas with his wife and baby.

Nate (00:11:32) - And they've got everything going like just and he needed a path forward. He bought a water trucking company called Water Runner. The the retiring founder wanted somebody who had a logistics background. Well, Nate's military logistics background worked out perfect his and then he's got this wonderful both educational and professional background to boot that put him in such a good spot that he can operate a logistical logistics oriented water company. And it's down in Texas and we were able to actually fund Nate, help them through the acquisition process. And it took him about 18 months, you know, And now I'll be honest, the program that we offer is competitive. We are now sitting at almost 3000 applications a year to the program. And we're hoping as time goes on, we can continue to grow the NCAA program so we can take more and more of folks like Nate into the program. Yeah, super interesting. So why I'm going to ask questions about, you know, how did you get into this? But I'm super curious about the model because I think it's really smart.

Josh (00:12:38) - Why this versus a franchise model, right? There's tons of different franchises and and I get probably a thousand LinkedIn messages. Hey, I like your work experience. Have you considered a franchise? Right, Like, it seems like everybody in the world is selling franchise of some sort. So why this model versus going franchise? Yeah, So let me start and no, no offense to any of my friends who do franchise, but the person who really wins in franchise is the person selling the franchises, right? That's the person who really wins in the franchise model, right? The person who really is successful in this model. When you find a water logistics company or you find a chain of pharmacies that you're going to be run or you find an apparel company that is in ready in need of new leadership, your operational experiences use in day one, you're adding value day one and you you really incur all of those rewards rather than the franchise owner reaping much of those rewards. I would strongly say that when I think about this type of investing versus other type of investing and this kind of career path versus other career path, there's nothing wrong with being a franchise owner.

Nate (00:13:57) - I will tell you often the person who's most successful is the person selling the franchise units. So I would strongly suggest if you've got the the operational skills of passion for an individual business, those exits forward for an entrepreneur can be substantial. And in terms of a path to wealth creation for yourself is a very, very, very profitable one. Man Super cool. All right. So I have tons more questions about the business model, minority investment operator led, kind of betting on the jockey, right? Like you guys are nurturing the jockeys and the average and the men love it. But man, I got to catch your story because that gives me context of of my next series of questions to ask. How in the world did you get into this? Man, This is fascinating. Yeah, like a kid from Indiana, right? So my you know, my folks, I was born on the campus of Valparaiso University. I'm oftentimes considered, you know, here's here's how an evening in college can go sideways on you.

Nate (00:15:00) - That's and then I came around. Right. This is this is how this is how I came into existence. My my parents were students at Valparaiso University. They met each other and they they were able to and then came me. Right. So, yeah, it is. So that's, you know, the northwest Indiana, you know, kind of valpo sort of in farm country out there that my dad was from the the Chicago area. And we have family back here. So that's how we ended up as a family back in Chicago. But when you. You think about. I went to I went to high school out here in the Chicagoland area, then was fortunate enough to get an opportunity to play football back at Valparaiso. I mean, talk about full circle. I was born on the campus and then I'm playing on the football field that was right behind the hospital I was born in. Right. For for college. It was really cool. It was a great experience. My family has some deep Lutheran roots.

Josh (00:15:57) - And so, you know, Valpo is for those for those folks who don't know are listening. Valpo is a very Lutheran school. So I went to Lutheran Elementary School. We have deep, deep family ties to to the church. And so we were able to I was able to to go to Valpo. And Valpo is just it was an incredible experience. And then coming out of there, you sort of, you know, Valpo is a smaller school. So we they did have one of these wonderful kind of management development programs that I was able to get involved with at a predecessor company to JPMorgan Chase. So it was a company called First Chicago up in in the Chicagoland area, which is now JPMorgan. And my story really isn't very different, right? I went through a variety of different training and different rotations and different parts of the bank. And what's really cool is talking about coming full circle. Some of my first roles at the bank were working with lower middle market business owners and business owners and understanding I was doing underwriting for credits, I was doing loan origination, I was doing all of that piece, and then I had the opportunity to work in a in a post merger acquisition role, and I got my hands involved in some M&A at the corporate level for the bank.

Nate (00:17:15) - And I worked on some pretty interesting M&A deals with the bank. And then I was it was really nice. I was on the road a lot at that point in my career for for the bank and had a chance to pivot a little bit. One of a friend of mine said, Hey, you'd be really good at kind of equity analyst and portfolio construction. So I went down that path. I actually wanted went down the investment management portfolio construction path began to to manage portfolio managers and investment advisors had a group of over 300 people working with me at that time. And then I was then I parlayed that into a private client position and then continued to work through the private client space where I was exposed to a number of the operating companies and wealth creation that people who on the other end of it at the beginning of my career is working for people who were creating these lower middle market companies. At the midpoint of my career, I was actually working with people who had sold those companies and created this wealth for themselves, and I was structuring their portfolio.

Josh (00:18:19) - And then I was fortunate enough to to get to get an opportunity to go to Yale and work with a number of amazing people, including thought leaders in entrepreneurship through acquisition and institutional portfolio construction and behavioral finance. Really. I mean, you know, some of the titans in the industry, folks that would be professional heroes to me. And when I came out, I was I was had the opportunity to kind of take a head of product will certainly create really interesting investment products and manage and continue to be a chief investment officer for some very, uh, for some family offices. And then finally a year ago came out and one of the family offices that that I knew real well said, hey, listen, if you're going if you're if you're thinking about launching this idea of entrepreneurship through acquisition, we want to be involved in any way we can be. And so I was working for a company called Silicon Valley Bank. Not sure if you've heard of that one. I've heard of that. I left Silicon Valley Bank about six months prior for things, things changing there.

Nate (00:19:31) - I had sold the shares that I owned of the of Silicon Valley Bank and use that money to start hall bar along with the with our first family office investors. So it was a really sometimes there's somebody looking out from for you and there was that for me that was a moment I started my own firm about six months before, and I would I don't know if I would have been in a financial position to start my own firm had that had that not been the case. So it's it was a really that's my journey. Quite a bit of luck on along the way. But it was it's been a it's been a heck of a ride. And I'm really proud of the work that my my partner, Yin Yang and a number of other people do that put kind of hall bar on the map for sure. Now I've interviewed like 1500 entrepreneurs, investors through the years of me doing this, and a common theme that I see from from people who've had some success that have catapulted them forward has to do with dumb luck, right? Just timing, right? Six months before.

Josh (00:20:30) - The Silicon Valley Bank had there had their situation go on like that is crazy timing. And you cashed out your piggy bank there. So your story is the middle manager, right? Like you're running these, you know, doing investment portfolio construction and you're helping these family offices and you're you're kind of helping them plan and build and structure and do some acquisitions there. And then here comes an opportunity where it's like, hey, if you're ever going to go out on your own. Yet this family office that said will be your backer. Now, if they never said that like you had money in the piggy bank, you had your self-directed IRA, you had these shares. If you didn't have that backer who said, I believe in you. What would have like yeah, would have done it. I would have just stayed on that kind of kind of path. And and, and listen, I was providing a wonderful. But this is this is why when people ask me, do you know what I'm going through, I know what you're going through.

Nate (00:21:20) - I know how hard it is to start a company, how hard it is to operate a company. I've operated a company. I've been on my own entrepreneurial journey, and I know what it means to have somebody to believe in you. Right. And that is absolutely, I think, why we've been so fortunate to to attract the investors we have so far is that not only do I have deep technical expertise and an incredible professional kind of resume and background, that's all there. Sure. I think when they look in the eye and say, do you know what it feels like? Have you been in my shoes? I can say yes in a heartbeat. Right. And I know what you're going through. And if you need a shoulder, I'm here today. Right. Like they know that at the end of the day, the prophet would say this. Now, I'm not talking about, you know, Moses or anything like that, but Marcus Lemonis he says people product process is what it takes to build and scale of business, the people aspect of it.

Josh (00:22:14) - You have to have this, this jockey or that, this person, this operator, this driver who's going to drive this business. And what I love about your story is someone betted on you, right? And they go, Nate, I believe in you. Let's do this together, right? We're behind you. And we could do this together. Gave you enough courage to, you know, probably some long conversations with the wife. Cash out the bank and you did it. Now you're saying that to other people, Hey, I believe in you. We need some training, get some, you know, education beyond your bank, uh, your your education bank. But like that, that's a really cool story. Full circle. Very nice, man. Why, Hal Bar? What does that mean? Yeah, Halbach means to sustain. And if you think about that in in a lot of varieties, it means a ton of things, right? I think you know what it means to sustain as people.

Nate (00:23:06) - As a person. Right? That's that's important. What it means to sustain as a group and a collective is important. And then I think thirdly and one of our strategy is backing an entrepreneur who works in the decarbonization space. I think there's a spot where we have to sustain, you know, where, you know, this beautiful planet that we live on, right? So I think the idea of Sustained just just resonated with me in so many different ways that that's that's why we decided to go down the path with Hallmark. So in what language does that mean to sustain? Is that. Yeah it's a it's a it's a Nordic, it's a Nordic term for sustaining. Yeah. Yeah. So does that make you a Viking. So I, I have some yeah. I have some northern European background in me. I wouldn't say I'm a Viking, but I definitely have some northern European heritage that, that goes there. Super cool. So to sustain. So ESG are super important to you guys. That's a part of your business model, man.

Josh (00:24:07) - Okay, Let's go back to I love I love the journey. Uh, you said in the beginning you're like, you're not coming in and taking full control. So you guys are doing a minority investments, right? There's risk with that, right? Especially you guys are raising money, partnering with other people with money. You're buying something, but you're saying, Hey, we're not taking over control. Does that does that like open up some additional questions there? Like, okay, how does that does think about thinking about let's take it this So, so far we talked about this from the entrepreneur's vantage point. Let's flip it around and talk about it from the investor's standpoint. If you are taking a minority interest in a company, how do you have control? How do you have what if the person you put in there isn't as good as you thought they were? What if what if the company's not performing? How do you help the company perform? So I view investing much like problem solving. So you're always trying to fit.

Nate (00:25:02) - How do you solve a problem? Well, the problem was how do we keep incentives aligned amongst the entrepreneur? The, the, the the employees of the company, the entrepreneur and the investors. How do we keep incentives aligned? So the way we did that is when we buy, we buy a company, we have a syndicate of what we call network funds that will actually invest in that company. The entrepreneur and the investors all have approximately the same amount of shares. Not one single investor has more than the others, but the syndicate as a whole has is operates as the checks and balance to the operator. If the operator is not doing a great job or not doing something, the syndicate as a as a group of investors, not one person having more power than another, but the group of investors can come together and say, yes, we actually want to make a change. And that's really important when you think about it from the investing standpoint, from the entrepreneur standpoint, they want to know that they have just as much to say as any other person.

Josh (00:26:07) - At the table. So if you think of the old Knights of the Round table kind of scenario, everybody sits in a circle, everyone's sort of equal weighted. We're on that same path, right? Equal weighting, everyone's got to say. And when we put a board together for an operating company, we don't just put investors on the board. The operator has a seat on the board. So the CEO of the company and they pick an outside advisor on the board as well. It's we've really pushed and thought a lot about how to have the type of correct investing investment controls on behalf of the investors. You allow that entrepreneur that the reason they're doing this is because they want to be entrepreneurs, they want to grow this company and they want to have a little bit of control over their own destiny. And so we've kind of we've put in a situation where we married both of those two interests and try to align incentives correctly. Yeah. All right. So give it for the listeners and for myself, give a range of in terms of revenue, right, of these typical companies, revenue employees give us give us an idea of of what size we're looking at.

Nate (00:27:12) - Yeah, you're typically looking at 5 to $25 million of revenue in terms of the Target acquisition. You're looking at 1 to $5 million of EBITDA. You're probably looking at a 3 to 5 X kind of purchase price multiple. And that generally gives you our sweet spot. And there's there's two things that happen in terms of creating value for investors that are really important. So the first part is the operator and the entrepreneur. We've talked a lot about that, how important that the jockey is. The most important thing, first, finding the operator. We only do acquisitions where the operator is the one actually leading the acquisition process because they're so heavily invested. But just as important is that the second part of that equation, which is once you have that operator, do you are you buying at the right purchase price and a company that has the right kind of thesis? And we we go through an incredibly detailed and deep due diligence process before we make any acquisition. And we push ourselves hard to make sure that we have we have price and purchase something that makes a lot of sense.

Josh (00:28:24) - But the third thing that I should mention is there's a real once you go from a smaller mid-market company to a larger mid-market company, not only have you increased value in terms of revenue and EBITDA, but you've also increased value in terms of sales multiple. Generally, you can expect a retiring founder in a lower middle market company like the one I've just described to trade in a certain multiple range. That multiple range as that company grows with with a more mid-career operator, you're going to actually improve your purchase or sales multiple to when you look to exit that company in the future. Yeah. And as you guys are building out your portfolio, you'll, you'll there'll be benefits of having portfolio companies where they can have buying power they can have scale power, shared resources right. Like you know a shared HR team or fill in the blank. Right, right. So it's pretty cool what you're building you're about a year in of of launch in this. What have you accomplished so far right. Like so you went out on your own, probably had to do a bunch of legal compliance figuring stuff out talk to a bunch of attorneys.

Nate (00:29:35) - Right. Cost a lot of money to do this kind of stuff. Like it's no joke. I've done it. Love my attorney, but oh, man, yeah, they love you to trust me. That's right. That's right. So what name some of the milestones that you've hit and what are some of the things that you guys are looking forward to in the future? Because what we'll do is we'll we'll have you back periodically to kind of say, hey, this is what we've accomplished because this is a new journey for you, even though you're doing entrepreneurship through acquisition. Right? You're still in that stage of boosting up, ramping up and growing. Yeah. So so the classification I fall into is an emerging manager, right? And so these emerging managers, one, the good news is for investors, emerging managers are typically some of the best performing assets you can buy. If you if you do a portfolio of emerging managers, you in private equity, you do pretty well if you can. It's no different than the way I invest in operators, right? Emerging managers tend to generate more alpha than their larger competitors.

Josh (00:30:38) - This the so in my journey, the the milestones really was hey do we it's a little like product market fit. Do we do we have is this something people want and need Do they. We had to test our investment thesis. We had to back test our thesis. One of the best ways we were able to do that is leverage the Stanford study in entrepreneurship through acquisition that comes out every other year. And it really saved us a ton of time in terms of taking a look at what would a portfolio. Uh, look like. Then we had to do competitive analysis. Is there are there other people doing what we do and how do they do it? And at this point, there's not a there's there's not that that we're aware that we are aware of another firm that has access to lower middle market deals in both the North America and Europe and has a is attached to a full entrepreneurship through acquisition program. One of the biggest benefits that we have is that we can actually put a portfolio together of 2020 positions or more in one single portfolio.

Nate (00:31:43) - That's rare where we went out in the marketplace and said, okay, some people are putting 4 or 5, six entrepreneurs together and then rolling it up into a fund. But if one of those goes down, you have 10 to 15, 20% of your your portfolio under duress. We said, what if you could do 20 plus positions in a fund, still have enough governance? So we had to solve that problem. We went out to solve that problem. The way we did it was a partnership with Stone Capital and Building the entrepreneurship program. So we had to go build that program first and make sure that program was operational in North America. We did that. It is now operational in North America. We've now had closings in North America. So we've been on that journey. So the next part is, well, do we have investors who will invest in us? And sure enough, we got our first initial set of investors. We have a half a dozen or so initial investors who all came on that journey early with us.

Josh (00:32:37) - And now we're about to go out and begin our the next phase, which is launching the $100 million fund and allowing limited partners to invest in what we're doing. Got it. You have a series of milestones to hit, right? The first thing is, okay, we've got to build the operators right. This this model is dependent on operators driven by operator, like everything is built around these guys and gals who are going to launch them into business together as a partnership. And I love that. The next thing you got to go is, okay now, is there a product market fit? Right? Does does the world have it? Does Do the investors, are they interested? Then we got to go. Okay, cool. People are starting to get interested now. The real money or the you know, we got to go buy a company. The scouting of these deals. What have you found there? What are some of the strategies that you think is going to work? Because knocking on doors, talking to, you know, a guy like my dad who, you know, are you going to sell your business? You know, you might get a door slammed in your face.

Nate (00:33:37) - So kind of talk to us through your strategies of the acquisition piece. So the good news is with our operators, generally, they know the industry so well. So some will be in peril, some will be in food, some will be in logistics, some will be in SAS. They know that industry so well. So we show them the type of companies. But the good news is most of those operators come with a set of a dozen, two dozen, three dozen target acquisitions right off the bat. We also have a wonderful network of lower middle market business brokers, and we get proprietary deal flow, which is from folks that I'm in the family office space and others that I'm connected to that we're able to actually put amazing group of of opportunity set in front of our operator. The operator does the first set of due diligence, right? They go in, they develop the thesis, they do the first set of due diligence, and then we go through a multi step investment committee process and then final finally get to acquisition and purchase.

Josh (00:34:38) - I got it. So as they're going through this training to be the entrepreneur, right, they're learning about how to how to be the operator in a business, how to be the founder, like how to build the teams, how to do this stuff, how to actually run the business. They're bringing their experience already to this training program. And part of their role is, Hey, show us which ones you want to acquire because the ones you pick are the ones you're going to be running. So make sure you choose well, right? That's good. It's a valid incentive alignment, right? They have an incredible you. So if you did lower middle market acquisition the other way which is you find the company and then you go hire a CEO, they have nowhere near the alignment of incentives. Then if somebody found the company and here's the other part. If I'm a if I'm a a business owner like your dad and I want to sell to a human, to somebody who is as passionate about this business as I am, I do not want to sell to some crazy cold what I'll call evil empire private equity firm.

Nate (00:35:42) - I want to sell to somebody who's going to take care of my people. We have such caring and thoughtful leaders in our program. They know how to take care of people. And this is why we are getting people interested when they're not even when they weren't even thinking about selling because they know they have an opportunity to sell to somebody, get get up the price that they need to for a great retirement, but also sell it to somebody who's going to be there for the next 15 plus years running that company and taking care of their people. Yeah, that's been if you want to know the secret sauce, right? I mean, that's been our secret sauce and our competitive advantage in getting to deal flow that other folks aren't. Yeah, yeah. That is because a lot of times that will happen like a group they'll go acquire and they're like, All right, we've got our Swat team that we'll send in and to do the work. But and then those that Swat team will go on to the next company and get it up and running and hire someone.

Josh (00:36:37) - But like having the person who's like, this is going to be your your baby. Right. What kind of business do you want to acquire that meets your lifestyle, that meets your values, that meets your demographic and where you're located and everything else? That's really cool. Let's talk. Holy moly times. Fine. We got to talk about exit strategy, right? Uh, or maybe. Maybe there is no exit strategy. Maybe they. Maybe it's just about pure cash flow and creating these companies. So what is the. We've acquired it. We're running it. We're already profitable. Now. The goal is to increase margin or you know what? What's next? Yeah. So again, let's go back to solving a problem. Yeah, larger private equity generally has a problem. And the problem is when they go and buy these companies, they don't have the operator. What we've done for large private equities, we've taken a lower middle market company. We've put an incredibly passionate and talented operator in the business.

Nate (00:37:35) - We've worked with them for seven years to grow it, and our operators don't leave at the next stage. We as financial partners will will leave when the when at the early stage of the growth phase. Right. And we will we will sell it to the next phase. And in terms of growth, the larger private equity firm, that's generally where we'll exit. And that happens between year six and years eight. That's our that's our our target window for exit. The good news is the operator, they'll make some money at that first exit, but generally they'll roll some of their equity into the next transaction and they'll be there another 7 to 8 years. This ends up being for if you're thinking about this, I'm a I'm a 40 year old mid-career operator who's got this great domain expertise. I now have the ability to go have a salary, find a company, run a company for seven years, make some money at that seven year mark, and then go then then make a ton of money. Seven years after that, I've now got the next 15 years.

Josh (00:38:39) - And now at 55, maybe 60, I can decide. All right. I do. I want to go one more time. Do I want to start another company? Do I want to stay for one more round or do I want to retire here? And they'll have the means to do so. And that is really a special situation that we put somebody in. Yeah.

Nate (00:38:59) - The the acceleration of of wealth through an exit is, is by far one of the the biggest windfalls of cash unless grandma has a bunch of money. Right. Right. You could get in real estate, real estate's great and you could have some really great returns. But building and selling a business is a great unless you win the lotto. If you know how to do that, let me know. But that. That's super cool, man. Love to see you on the journey and cheer you guys on and you know, be involved in what you guys are doing. Let's talk a little bit. I've got a few more questions about the the model and the portfolio.

Nate (00:39:31) - And then then we're going to have to go for the day. I'll give you an opportunity to tell people where to go to find you. But, you know, we're looking if we're looking at 5 to 25 million and, you know, 3 to 5 x multiple, what are we looking at? Maybe in fund number one, ten, ten acquisitions, 10 to 15.

Josh (00:39:48) - So because we take that's the that's the total and we take about a 15% of these acquisitions. So we have about a million and a half to a $3 Million position size in each company. So good news is we'll be able to take 20 to 30 positions with some follow on capital available as they grow. And so that is we have a nice ability to and when you think about the diversification effects that that creates for the investor, I'm not placing all of my a bet in one single company. You again the problem we solved is investing this way at a at an individual level for a family office or for a smaller endowment is really hard to do.

Josh (00:40:31) - Now they can go out and get access to a portfolio of lower middle market companies with all passionate operators really hard to recreate.

Nate (00:40:41) - Yeah, and especially if you have the strategic support of family offices and in these capital groups that are willing to go, Hey, when you do acquire one of these companies, we'll put our balance sheet or our name behind you to get the acquisition because a lot of times people will run into that situation, they'll make an offer, then you've got to get the bad boy financed. But if you already have that problem solved or at least prepped, you got a leg up on them.

Josh (00:41:06) - For sure.

Nate (00:41:07) - For sure. Awesome. Where can people go to find you? Learn more about you, learn more about the opportunities of entrepreneurship and acquisition, or maybe how to link arms with you and become a strategic partner.

Josh (00:41:20) - Yeah. So for for if you're mid-career, professional and really interested in entrepreneurship through acquisition, you just go to Nova Stone Capital Advisors NCA and you can find them online.

Josh (00:41:33) - There's a chance to apply, learn more and you fill out. It's a quick two two line form. You're good to go there to learn more about Hall Bar and. The investment strategies that we have for growth equity. You just go to Halbert and fill out that form and go through. And then if you're interested in just strategic partner and linking up with me, hit me up through LinkedIn. I'll I'll respond pretty quickly.

Nate (00:41:56) - Sounds good. If I were to pick up your phone and go to your playlist, your music playlist, what is the song that has been the most played over the last 20 years?

Josh (00:42:05) - Oh, over 20 years. I was going to say, I thought you were going to say artist. So I'm a big Zac Brown fan. You're probably probably going to get chicken fried in there a lot Like that's going to rise to the to the top of the playlist quite a bit. The other one is in similar genre, but but maybe one generation earlier is going to be Jimmy Buffett, right? I miss him already.

Josh (00:42:31) - It's a great it's a great guy to Jesse Jimmy. Yeah. And you know, kind of that's that's any Jimmy Buffett song. You're going to catch my playlist. You're going to see a lot of those up there.

Nate (00:42:42) - You know, I just had this conversation with one of my friends. They were having a drink and it was like around lunchtime I go, What are you doing? Having a drink around lunchtime. And they just raised the glass and they said to Jimmy, and I go, Oh, you get it. All right. Right. That right.

Josh (00:42:57) - To risk.

Nate (00:42:57) - That, right. Wow, that guy. What an impact on the music world. Holy moly. Really great. Nate, man, I'm so glad that we got to talk about investing, building companies, buying companies and Jimmy Buffett. Awesome. Oh, we're cool, man. Nate, are there any questions other than that that I probably should have asked you that you wish I asked?

Nate (00:43:17) - You know, I would say it's just great meeting you, Josh, Thanks for having me on and really appreciate the time together.

Josh (00:43:23) - Absolutely, man. Fellow listeners, fellow dealmakers, as always, reach out to our guests and say thank you for sharing your your wisdom, your experience and your knowledge on the show. Their contact information will be in the show notes below. Make sure you connect with them and just say thank you if you if you want to talk about this, show the deal Scout, head on over to the deal. Scout, fill out a quick form and maybe we'll get you on our show next and talk about some deals. Till then, talk to you all on the next episode. Bye, everybody.