Episode 304 - ENHANCED VIDEO
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Corey Kupfer: [00:00:00] Matt Bodner, a Forbes 30 of the 30 alumni and partner in multiple Inc. fastest growing companies is a private equity sponsor who has scaled businesses across multiple industries. Bodnar is the founder and managing partner of Eidolon Capital, and he is a major investor and chairman of Ozark River Manufacturing, Borax Systems, Fresh Technology, Inc.,
and Highland Industrial Staffing. He is also the creator and host of the Science of Success podcast with more than 5 million downloads. Bodnar previously worked as a consultant in Nanjing, China, and spent several years at Goldman Sachs in New York. Matt, welcome to the podcast.
Matt Bodnar: Corey, thank you so much for having me.
I'm, I'm super excited to be here and, look forward to jumping in.
Corey Kupfer: Yeah. So listen to that before we get into, I mean, the, you know, obviously the bio sits for the great background. We're going to talk about PE investment, other deals, your experience and all that kind of stuff. But before we get there, I want to take you back to when you were a kid growing up, maybe 10, 12 years old.
What did you want to be? Because I'm [00:01:00] guessing it's likely a PE sponsor wasn't it back then, but you tell me.
Matt Bodnar: You know, honestly, when I was like, when I was probably 10 or 12, I really wanted to be in the CIA. Like, I really wanted to be a spy. And I don't know, I was never into sports as a kid, you know, partially I think cause I had zero athletic talent.
But also I always just thought army, military, spy, like I thought that was cooler than sports for whatever reason. So. I wanted to be a CIA officer, obviously didn't go down that road, but I still feel like I would have been good at that. And I feel like it would have been, if nothing else interesting though, probably, a different lifestyle than being a, you know, an investor and having a family and all that kind of stuff.
Corey Kupfer: Yeah, that's for sure. One of the questions, looking back, what was your first deal of any type you can remember? It could be something smaller when you were young or something early in your career, whatever comes to mind.
Matt Bodnar: Yeah. I mean, the first real deal, you know, I guess the deal that I did, quote unquote, was, an acquisition that acquisition even probably overkill really to describe it.
But the first deal I kind of [00:02:00] bumbled into was a I. T. services business that I bought in 2011, which is when I just come back to Nashville, which is where I'm from. And, from being up in New York at Goldman. I basically met the founder of the business, kind of a family friend, and he was classic.
You know, if you've ever read E Myth, sort of entrepreneur, manager, technician, classic technician, highly technical, really limited management, social skills, that kind of stuff. And the business was doing about a million bucks of revenue. So really small and basically breaking even kind of couldn't make payroll mostly because they just were really, really bad at collecting their accounts receivable and their books were generally a mess.
And so, I basically started just helping them out because they were struggling. And then we kind of struck a deal. It was like, Hey, I'd like to basically get some ownership in this business. And, you know, using the fancy term, it was effectively a seller financed buy in or, you know, an equity earn in, into the deal.
Which started out at about 40%, eventually, ended up at about 65 percent of the company. But. [00:03:00] I really just bumbled into it helping somebody out whose business was treading water or kind of stuck in the mud. And I learned a lot in the first six to eight months, really practically one of the most important lessons I think that I still carry with me to this day, which was the importance of receivables and the importance of the really the difference between, revenue and cash, right?
Because these guys, this business was selling. Aloha point of sale terminals to give you a sense of restaurants and stuff like that. And these things, I mean an installation would be 40, 50, 000, but you'd have 20 or 30 grand of hard costs. Like you're going and buying from aloha, you know, 30, 000 worth of hardware and you're going and putting in somebody's restaurant and then you never get paid.
That starts to become a problem really fast. And so, I mean, my early days were like banging on people's doors and threatening to shut people's systems down and, you know, getting yelled at and kicked out of restaurants and all kinds of stuff. But I learned to become extremely vigilant about paying attention to [00:04:00] receivable collections and cash and.
to the much to the chagrin of most of the management teams I interact with now, because they know in our weekly or monthly report that I'm going to page through and grill them on any receivable that, you know, moves out of probably the 60 day band from an aging standpoint.
Corey Kupfer: Yeah. You know, it's interesting because, that's a weak spot for a lot of companies.
I've, whatever reason been, you know, we're very, very fortunate. We have very few receivables issues, even though, you know, I'm in new clients, we take retainers, but down ongoingly, we don't, but even the few that we have, I mean, out of, you know, a couple hundred clients in a year, you know, maybe we got one or two and they drive me crazy for whatever reason.
Right. And I'm like, yeah. You know, let's be like, you know, we got to be on top of these. And they're like, yeah, Corey, we're doing really well out, you know, like our, you know, late receivables, it's so tiny. But, but yeah that's such an important, area. So I'm curious. So you come back.
Let's talk a little bit about this, you know, transition right into your, you know, sort of backing into your first deal [00:05:00] here. So you come back home from, Goldman Sachs. Like, first of all, you know, give people a little color into what you were doing at Goldman Sachs. And then I'm Like what was your intention when you were coming home?
And like, it obviously wasn't necessarily, you didn't come home to Target to be involved in this business. It sounds like, right. What was your intention? And then how did you sort of end up there?
Matt Bodnar: Yeah. So at Goldman, I was, I actually wasn't doing sort of traditional PE stuff. So I was at interest rate derivatives desk and the sales and trading side of the house.
So, I mean, I still learned a tremendous amount about finance, but I wasn't, you know, crunching models. 18 hours a day, though. We were working super long hours, but we were more market facing. But rates specifically in interest rate derivatives, I think actually was really beneficial from thinking about not only debt financing broadly, but especially about structure, because rates are a highly structured product and you're, you know, when I'm going through training and stuff, there's like all these flow charts and arrows and these cash flows and this is floating and this is swapped and this is capped at this and that.
[00:06:00] And like, I think that actually really helped me conceptualize a lot of more creative deal structures like seller notes and how to make really interesting earnouts and those kinds of things. And so those structuring lessons really stuck with me, but. You're right. When I came back, I took for starters a massive pay cut.
You know, this even I wasn't a Goldman that long. I was only there for two or three years, but I still had, you know, a pretty sizable down trade when I moved back to Nashville. And I originally came back my father brother in the restaurant business. So again, sort of connectivity there to the point of sale company and they have a number of different restaurants.
Matt Bodnar: I came back to kind of help them out. They sort of sold me on a move back to Nashville. Get involved in the restaurant world. And I'm still a board member of a couple businesses that they're really active in. But. pretty much all of my efforts on the PE space and sort of building a portfolio of operating businesses today.
But that's originally the impetus for why I came back to Nashville is kind of, Hey, I'll jump into this pool, sort of see what happens. And you know, I mean, I remember. I moved back to Nashville. The company was actually headquartered in [00:07:00] Birmingham, Alabama. So I was traveling there all the time. My wife had just moved.
We, we were engaged at the time, not even married. She had moved from, from New York down to Nashville. She didn't even have a driver's license when she first came down. So she was, you know, she was taking the bus and like this is before Uber. You know, and so she was like not having a great time getting settled.
I was gone like three or four days a week in Birmingham trying to turn this it company around. And so. It was, you know, growing pains, but we got through it. And, it was, I learned a lot of lessons. It was a fun time. Love it. And then you eventually sold that company, right?
Well, so it started out as a point of sale dealership and then we expanded into, being a managed service provider and we eventually, divested the POS business entirely. And so. Got out of the original business we were in, but kept the M. S. P. And then we also, did a couple kind of small originally investment that eventually an acquisition of a software company.
And built up basically a software platform that became [00:08:00] bigger than the M. S. P. Business. So today I actually still have and my general thesis is, Oriented towards longer term holds. And so I still have both of those businesses. They're technically under one umbrella, but today really the software company is actually the mothership.
And the IT businesses is, still a great company. It's an awesome little business, but it's sort of technically kind of a subsidiary of the SaaS company today. Got it.
Corey Kupfer: And then, you divested the original. That's interesting. So, let's talk about that. 'cause there's several deals in that, right?
There's the dive vestiture of a division, which is always interesting when that's the, when you're divesting what started the company, right. And then, , I want to definitely spend a bunch of time on your philosophy, which I know is very different than a lot of PE firms. Right. You know, but the concept, I mean, obviously I don't wanna put everyone in the same bucket.
It's not, they're all the same, but. Generally, the concept of buy and hold in PE is don't go together, at least for not more than, you know, five or seven years or something. So, but before we go there, I want to talk about this divestiture, like even, you know, so obviously it [00:09:00] sounds like you got more equity over time, you know, in the company.
That was part of it too. You know, yeah. And so anything, obviously nothing, confidential, but I always like to. One of the things I, whether it's our listeners, my clients, people in my circle, you know, entrepreneurs, in fact the talk, you and I were speaking before this about where I was traveling when you and I had our pre-call and I was heading the Singapore, and the talk I did in Singapore for entrepreneurs organization was on the theme of a deal maker's mindset.
Right? And yeah. And on the concept that my, my premise was that any business challenge, frustration issue, right, or opportunity, un untaken advantage of opportunity can be solved with a deal. Not that it should be, right. It's one of the tools in the toolbox. But if you're having trouble hiring, you can recruit, you can pay recruiters, you pay bonus, you can put ads online, but you could also acquire a company for the talent or do an acquire, you know, or whatever.
Right. So, and the sort of joke, you know, the little thing around it was like, they say there's an app for that. You know, my thing was, there's a deal for that. Right. I like [00:10:00] that. Yeah. You know, there's a deal for that. Right. So, you know, but it starts with a shift in mindset and, you mentioned the e myth, which is a big Bible around, you know, one of the, Real Bibles around, entrepreneurs organization, the book everybody's read and, you know, this whole concept of, you know, the employee versus entrepreneurial mindset and, you know, creating a business that runs without, you know, all that kind of stuff, but there's another mindset shift to a dealmaker.
So you're a guy who actually wasn't on that side of the deal thing. Goldman Sachs, you come in, you take a, you know, you have a minority position in this company, turns into a majority position, right? That's a deal you divest, you know, you do, you know, So I want to hear a little bit about like, what had you, you know, was it learning around the way that you naturally have this way you looked at things in terms of doing deals, you know, and I'm sure that's part of what led you into the PE space.
Like what's the, what was the mind, you know, shift
Matt Bodnar: or yeah, there's a couple of elements there. So, I mean, I think one, I love the framework, the deal makers mindset and the deal can solve any problem. It may not be the [00:11:00] optimal tool, but I think it can. And that divestiture is a perfect example of that.
So. That business partner that I mentioned or the founder of the company really, was a very cantankerous kind of technician, like the technical piece of the business, like the point of sale business. And, you know, looking out into the future, you know, you don't, when you go to a restaurant today or a coffee shop or whatever, nine out of 10 times, they have an iPad and not a giant point of sale terminal.
Now there's still some use cases for that, but it used to be ubiquitous. Anytime anybody opened, they had to buy the big, whole POS package. And we saw the writing on the wall that, Hey, this business is probably not going to continue to be what it is today and wanted to get out of it. And it was very fortuitous because the other business partner basically really liked that business.
And so we said, Hey, why don't we give you, we sort of valued everything up and said, Hey, why don't we give you a hundred percent of that business in exchange for, you know, the equivalent value of the rest of the business? And so. and then he went [00:12:00] full time, kind of focused on that company, had a residual equity stake that we eventually bought out.
And around the same time we bought that out, coming back to sort of the second piece of this is I brought in a couple, maybe 18, 24, the year or two later, brought in somebody to be president and CEO of the company. And I stepped out of the operating role and that was really helpful for me to say, Hey, you know, now, I want to be more of an investor because I'm okay at being an operator.
I, candidly, I don't think I'm great at it. You know, I can do it, but it's not my, it's not my zone of genius. It's not where I want to play and it's not where I want to be. And so, that was, you know, we used the deal to kind of Get rid of a problem partner and a problem business unit in one fell swoop, which was amazing.
And then eventually that paved the way for bringing in a new management team that helped me scale out of the operation. And, I have at some point relatively early in my career, You know, it dawned on me that I should probably read some Warren Buffett, right? I mean, if you study investing, right?
I mean, he's [00:13:00] the he's arguably the most successful investor of all time or certainly one of them. And I started reading all of his stuff and I probably took it too seriously. And just actually listen to the stuff he was saying. And so, you know, what does he talk about? Right? Just buying businesses, like holding him for a long time.
Very simple strategy. He kind of positions himself contra to a traditional P. E. buyer as a home for somebody, you know, management team that doesn't want a lot of headaches, wants to kind of keep doing their thing or an owner who really wants their legacy to be preserved. And I mean, just basically took that entire market position and started applying it.
But I'd always had this narrative in my head that one day I can do deals, right? One day I can go buy businesses and do all this stuff. And it really the shift for me was really kind of the early emergence of the independent sponsor word and that, you know, that whole ecosystem, kind of the mid, you know, 20 15, 20 16, 17 timeframe I started.[00:14:00]
hearing about some of that stuff and seeing some more things around creative deal structures. And that was really what gave me the impetus to say, Hey, I can actually do this stuff now. I don't need to go raise a hundred million dollar fund. I don't need to go sell XYZ business for X million dollars. I can approach these deals either as an independent sponsor or using creative structure or some combination of those things to be able to transact basically now.
And so I started just hunting around for interesting deals, right? And I mean, using for better or worse, a very similar approach to probably earlier Buffett, right? So really looking for value oriented stuff, not always looking for things that have a really heavy asset base, but trying to have to use the, there's an old school book.
It's out of print for a long time called margin of safety by Seth Klarman. That's the concept is pretty basic, right? But the idea is like, buy something, Below its value. And if you do that with enough of a margin, it's really hard to screw it up. [00:15:00] And so that's basically I stuck with these really basic ideas that I like can't dislodge from my head.
Honestly I, sometimes I almost wish I was more of a quote unquote growth investor where it was like, I'm buying this thing at 20, you know, I'm buying this thing at 10x revenue. We're going to scale it up and sell it at 20x revenue. Like feel like I get like, that seems really cool. But for me, I'm like, man, but I know if I buy this thing below its replacement value or below its asset value or whatever.
That it's really hard to screw that up. And I know that's pretty certain. So I just gravitate more towards a more of a conservative approach to transactions where it's like, Hey, you know, we're looking for value, we're looking for opportunities. And you know, we're not afraid to be a little more hands on for the deals that we look at, too.
I mean, I'm not. I've done some special situation. I've done some sort of distress type stuff. That's not really where we want to be all in fully distress type stuff. But we, you know, we look for stuff that maybe, either doesn't make sense for a big PE buyer or they [00:16:00] can't quite wrap their head around it.
Or the seller really doesn't want to just sell it to somebody who's going to, you know, slash and burn and resell it again in three to five years. And, I mean, I think. The last little tidbit I'll throw here, the di the divestiture is a good example of, we're not opposed to selling a business in the right context, right?
But our approach going in isn't, Hey, we're gonna do X, Y, Z and then resell this business. And I think that really fundamentally shifts our approach to say we want to invest in long-term things that are gonna help this business be really successful. The people, the processes, the market, the all the different stakeholders.
And so I think that shapes our, shapes, our approach.
Corey Kupfer: Yeah, I mean, so, you know, obviously in a classic PE model, they've got, they got a fund they raised, they promised invested certain returns within a limited period of time, certainly as the, you know, they want to show progress even before the fund's closing out, three or five years, whatever.
And obviously as they get towards the end of the fund, which years, which might be a decade or whatever it is, right? They've got to, they got to get returns to be [00:17:00] able to return people's capital to give them a return. So hopefully they reinvested the next month. Like that's, you know, it's a very different model than you're describing.
I want to delve more into that model, but I want to go back to a couple of things you said that, some of our listeners who are very sophisticated or, you know, some of us, will understand fully. And, but we have such a broad range of listeners now. And some people are earlier. So you mentioned, Two key things.
One is a, independent sponsor and the other is creative deal, right? The structures on why you were able to sort of, you know, get into the investing game, let's say earlier, you know, maybe, less capital than having to have some huge exit. So, I'd love you to delve into that a little bit more.
What is an independent sponsor for those who don't fully understand that you just give a little input on that and then we'll move up to the creative deal side.
Matt Bodnar: Yeah, absolutely. So independent sponsors. Is a fancy word for somebody who wants to buy a business that doesn't have a fund. Basically they used to call them fund list sponsors, but I guess that didn't sound as sexy and cool.
So now they call them independent sponsors. But it's basically just, an individual. [00:18:00] investor or sponsors, the fancy private equity term for a person with a deal, basically, who finds a deal and then they go and raise the money for that deal or series of deals on a deal by deal basis, right? And there's pros and cons to doing that.
The con is operationally, it's more of a pain in the butt. You have more execution risk. You know, it's you have to go re do your fundraising more or less on each transaction. But the positive is you can structure each deal. As an SPV with the specific nuances that transaction might require, you can use investors or a capital structure that's oriented more towards different goals than just a fund, which, as you said, has a life and maturity and redemption, all this kind of stuff.
And, you know, I mean, we try to structure it in a way where our investors, everybody's incentive, they're very aligned, where it's like, Hey, if we're going to hold this thing for a really long time horizon, let that should make sense for everyone. And if we're going to, you know, if we end up selling it. That should make sense too, but the impetus shouldn't be, [00:19:00] Hey, we have to sell this thing in three years or five years or whatever, we're going to miss our IRR hurdle and we're not going to get a promote and all like all of that stuff.
We've tried to structure the deals really intentionally. So that's not the case, but the other term you'll hear a lot and they're not exactly analogous, but I think there's a ton of commonalities, a lot of overlap on the Ben diagram, so to speak, independent sponsor. Another one you'll hear is, searchers broadly.
So you've got kind of funded searchers and unfunded searchers. I think or self funded searchers, excuse me. So I think a self funded searcher is pretty similar to an independent sponsor. Maybe the big difference being, independent sponsors in many cases are more oriented towards not operating the business per se, but being a board member, whereas a self funded searcher in most cases is looking to operate the company that they acquire.
But this ecosystem has really matured dramatically in the last five, seven, 10 years to where there's events and conferences. There's whole ecosystems of capital providers [00:20:00] who focus on that world now, both on the searcher side and the independent sponsor side. And it's gotten much more.
transparent, I suppose, in terms of deal structure. And there's a lot more capital availability, private equity, there's whole PE firms whose strategy is basically just to find and fund independent sponsors. And it's made that world a lot more accessible. I think it's gotten more competitive as well. But I think it's made it a lot more accessible.
And a lot of folks have realized, and especially in the searcher side of the coin, you know, I fundamentally believe this too. It's like, hey, if you want to be an entrepreneur, I think personally, you're much better served to just go find a company to buy and operate than you are to go and try and start a new business.
And there's, I mean, you've heard the stats about the silver tsunami, depending on what you look at it. I mean, there's crazy numbers and we can unpack them if you want, but crazy numbers about the amount of businesses that have to transact over the next 10 to 20 years. [00:21:00] And. For a thoughtful buyer or searcher to find a few gems in the fire hose of opportunity.
I don't think it's that tall of an order. And so to me, that's, I mean, my goal our general approach and, you know, my goal isn't to build some big portfolio of assets that I'm managing. And that's another element. It's like the private equity business really is a business of getting assets under management, right.
At the end of the day and charging fees on those assets. I want to be in the business of owning the companies that we acquire, which is a little bit different. And so my approach isn't how I want to go do 40 deals a year, 20 deals a year. I want to do. One quality deal a year. That's really the benchmark that I'm looking for.
And, you know, and even then, if we don't do a deal, we're not hair on fire. We have to deploy this capital or whatever. We're really just waiting for the right opportunities. And when we see them, we want to get involved with them.
Corey Kupfer: Yeah. And it's interesting because a lot of things we talk about come together in that, like, you know, you said one of the advantages [00:22:00] of doing it on an SBB basis, right.
Is that you don't have that pressure to deploy capital, right? You're not sitting with a fund of money that the investors expect expecting you to do something with. So it allows for, in my mind, it allows for more deal discipline and patience, right? On the flip side, you know, the challenge for some folks, especially who are newer, I'm sure you, you know, you're well past this in large part is raising capital in time for good deals.
Right. Obviously, once you got to track history, you got your investors, you got people, they know, so, you know, that goes away once you have that, because you can quickly access capital on a deal by deal basis, but early, you know, it may be tougher for folks to timely raise capital, although, you know, there is the argument, which I generally believe that, there's always capital available for, you know, for any good deal.
Okay. But the question is, can that particular person at that stage of their development or whatever have the access to, to find it, right? And I think the
Matt Bodnar: key is good deal, right? Because I agree generally with that premise. I think there is capital available for good deals. The [00:23:00] real question is, is it really a good deal or not?
And a lot of times the market will help answer that for better or worse.
Corey Kupfer: Well, that's right. And then it also ties in obviously. You know, that allows you, because you don't have, this need to deploy capital and sort of model on how you do the fund or whatever, and you can do it separately.
That allows for more creative deal structures, right? You don't, you can do something different over here than you do over there. And also allows, you know, for more patient capital, because you don't have a fund that sunsets at some point or whatever. So, you know, a lot of things we talked about, come together, you know, come together nicely in that.
And it's interesting, you mentioned Buffett, you mentioned these influences on you. , and you're right, I mean the area, obviously I've seen it as well, this area has developed, you know, some more, but like the zeitgeist out there, right?
Corey Kupfer: There's been so like, you know, you are bucking the sort of normal trend of what people think PE people do, right. Even though there's, you know, for sure more of an ecosystem around it now. And it is becoming more mature for people to do it, the way you're doing it.
You know, it is different. And it's certainly not [00:24:00] what, you know, what other people would think of if they say, you know, if you have those two letters P in any of the discussions, right.
Matt Bodnar: And I mean, I think candidly, that's been, I think that's been a competitive advantage for us. And if you look at Buffett, I think that's been a competitive advantage for him, right?
I mean, We effectively just cloned his market position, which was, Hey, we're an alternative to that trajectory. And some folks just want that trajectory, right? That's what they're looking for. And that's not, you know, it's, Hey, there's a misalignment there and that's fine. Go do that. Right. But for folks who don't want that, or who are more thoughtful about maybe their legacy or their employees, et cetera, we want to try and we actively position ourselves as the alternative to that.
Corey Kupfer: Yeah.
Matt Bodnar: And I think that helps us win deals and I think it helps us, you know, I mean, we have a very relationship oriented approach. We have a very, you know, part of the reason having SPVs and, having this approach, we're also able to really tailor deals that work with [00:25:00] the seller and the goals they're trying to accomplish.
Right. And so that's a big piece of our puzzle is to say, Hey, we're, even though You know, effectively, I'm in, you know, I'm a private equity investor. It's, we're not what, we're not the typical private equity that you think of when you think of New York and, you know, big fund and flipping the deals in three, five, seven years, et cetera.
We have a little bit of a different strategy for better or worse. Right. And I mean, there's pros and cons to both, but that's, that's our market position.
Corey Kupfer: Yeah, no, it's great. You know, it's clearly a differentiator. All right. So what we, you know, to oversimplify it, so I have a brand new AI startup that's going to be a unicorn and change the world.
That, you know, I'm not coming to you, right. So let's talk more specifically about who is coming to you, right? Are there particular industries, a particular, you know, size of deals? Types of entrepreneurs, whatever it is, what is the criteria? Like we know what it's not now, right? No
Matt Bodnar: unicorns.
Corey Kupfer: Yeah. No, right. Yeah. I mean, for most folks, you know, they weren't unicorns, but [00:26:00] for you like unicorn. Okay, let me send you over there. So let's drill down a little more specifically on, you know, the types of businesses, industries, entrepreneurs, you know, management teams, whatever it is that you invest in.
Matt Bodnar: Yeah. I mean, so if you look at our existing portfolio composition and then I'll sort Tell you how that shapes our investment criteria. If you look at the existing composition, we have, I, I have those, the IT business and the software company, though, the way that I got into those businesses, I probably am not super competitive at current multiples in those sectors, right?
So I'm in those spaces, but I'm not super, I'm not like actively buying. Software businesses. Currently, I would love to, but I just, I morally opposed to paying 10x revenue or whatever the price is for, you know, a SaaS company on the side and on the managed service side. That's because that's a tough. I mean, those have just crept up massively.
Yeah. So other than those two, if you look at really More recent acquisitions. I mean, we have a company that manufactures portable sinks, right? So kind of niche manufacturing. We have an industrial distribution business does material handling and pallet [00:27:00] rack and that kind of stuff. We have a staffing business that does light industrial staffing.
And so, you know, we typically. Orient more towards though, we're industry agnostic technically, but we orient more towards manufacturing distribution, old economy type businesses, stuff that's simple, hopefully relatively predictable, but not trading at 20 X revenue. Right. And so our criteria is generally, based in Nashville.
So selfishly, I want to be somewhere that's. east of the Rockies, more or less, excluding the northeast generally, right? Right. I mean, if we see a great deal that's outside of those, that geographic constraint, we'll look at it, but generally east, you know, eastern half of the U S Texas, Florida, Tennessee, some, you know, anywhere that we can moderately get to from Nashville, it's not crazy far away.
Size wise, Around two to five million of EBITDA. So we're trying to fish where it's big enough that it's interesting. But smaller than where a lot of the big PE folks really start to get active. Now, you know, once you get up to like a couple million bucks of EBITDA, you're seeing some [00:28:00] PE activity for sure, but it's definitely more Wild West than.
You know, five plus of EBITDA, right? That's where it starts to get really, really routinized and competitive and everything's, you know, an auction and all this kind of stuff. So, that's kind of geo size industry wise. We're flexible that lends itself to certain industries just because we're, we are relatively value oriented.
So we're typically, you know, trying to be. in the like mid single digit, mid to low single digit EBITDA multiples, right? So we're not looking to pay 8X, 9X. I mean, for an incredible company that, you know, some deal that we really believe in the thesis, maybe we would have that approach. But again, I've, it's probably to my detriment, candidly, but I just, I'm like stuck on this.
I know if value investing to me is empirically proven and it's like really validated. So I just try, like, I can't step outside that mental cage for better or worse.
Corey Kupfer: Listen, know thyself, right? It's like, you know, that's [00:29:00] the biggest thing of any of us try to do anything that doesn't align, you know, with who we are, no matter how lucrative it seems for someone else or exciting it seems for someone else, it never works out.
So I think it's super smart, you know, on your part to stick with what, what your call, you know, to and what you connect with. Okay. So, you know, you make these investments in these, you know, these companies. And you look for the value. So I guess on two sides of this question, one, what are the factors that have you see value in something, right?
When somebody is undervalued and then what is it that you're bringing to the table because in addition to money, right? Because the people who are less educated about this space think money's the answer to stuff and money's never the answer. Money is a. important tools sometimes towards answers, right?
You know, but it is not, you know, the answer. So what is it, you know, what are the things that, you generally look for in terms of where there's, you know, a value gap, and then, how do you help companies, recognize that value?
Matt Bodnar: So some of this is, I mean, maybe secret [00:30:00] sauce is an overkill word for it, but some of the, I mean, one of them, I'll give you one that's more, sort of company characteristic financial.
And then I'll give you one or two that are more operational. So company characteristic wise, I think one thing that intrigues us is something that has a little bit of hair that makes it maybe not a great fit for a current PE buyer. Let's say the businesses, you know, I'll give you two instances.
One is maybe it's slightly over concentrated, but we think through either just organic growth or bolt ons or whatever, we can de concentrate it. Right. So that gives us kind of an opportunity to say, Hey, some buyers just won't even look at it. Right. And we maybe have some leverage from a pricing standpoint to get it at a slightly better thing.
And if we feel pretty comfortable that the risk is not even, you know, I mean, there's some risk there. But we, if we underwrite it and feel really good about it and we think, Hey, we can meaningfully diversify this risk away. That gives us an opportunity to play in that space. Right. So that's one instance of how we would maybe think about [00:31:00] value, quote unquote, just from a company characteristic example.
Operationally, I think a lot of it is. Pretty basic, to be honest. I mean, really what we're doing. I mean, we have a whole playbook and some resources and stuff, but we're just in a lot of cases implementing really standard best practices and professionalizing the financial accounting function of the business, starting to think about professionalizing the sales and marketing.
I'll tell you two or three stories just on the marketing side. Well, I'll give you one operational story and one one or two marketing examples. So we bought a business a couple years ago, 51 year old company. distribution business. And they were, the whole company operated on pen and paper, like carbon copy pink and yellow sheets, right?
So every day they would have orders stacking up and they would hand fill each of the sheets out, put them on so and so desk and they'd carry them back to the billing department and set them and they would hand key each. And so it's like, you don't have to be a genius to be like, let's digitize that.
That same company, their entire [00:32:00] marketing budget was a TV commercial from 1992 that didn't feature any products that they even stocked any longer. Right? So again, we're like, let's. Spend that on digital marketing and SEO and something that's going to have a better return. So like a lot of it's pretty basic stuff, but if you know it, I think it's totally normal and human nature for folks to grow complacent.
If you're making, you know, a couple hundred thousand dollars a year or whatever. Why break it? Right? Why make your life more complicated? And so we just see that a lot. Another business, not exactly analogous, but. When we bought the company, the, I remember sitting down like a month after we closed the sitting down with the president of the company and they were spending 500 a month on Google ads, right?
And I said, I was like, look, I want you to double our Google ad spend to a thousand dollars a month. And he was, he looked at me, he's like, I don't know, like, that's a big, like, that feels pretty risky. Double [00:33:00] it. Like, are you sure about that? Right? And so I was like, look, Double it. Let's see what happens.
Right. So he doubles it goes really well, continues taking it up. Long story short, I think last month we spent like 25, 000 on Google ads. Right. So, I mean, it's not crazy to say like, let's do some modern marketing stuff. I'm not like a marketing expert. Right. But we have, you know, we find good resources that we plug in and.
try to do basic stuff. So the benefit of looking at some of these less loved older economy companies is the opportunities for improvement sometimes are really low hanging fruit opportunities. You don't have to be, you don't have to reinvent some crazy AI unicorn, whatever, to figure it out. It's like, let's just do, you know, and our framework is, I have two they're not exactly synonymous, but similar frameworks for how we think about improvement and growth.
So what is a framework called more, better, new? Which is basically, [00:34:00] let's just do more of what's working first, then let's think about making it better, and then only after that, let's think about doing new stuff. So we don't want to do any crazy new stuff if we can just do more of what's already working, right?
So that, in a lot of cases, it's just really obviously thinking about, like one of our manufacturing business, about half the business sell to the distributors, and just in the U S. And so we said, Hey, are there any, like, if we looked at Canada, is there a distributor that's analogous, it's obviously a smaller market, but as a distributor, that's analogous to our biggest distributor.
And they were like, yeah, there's this company that's exactly like them. And like, okay. Let's sell to them too, right? So, I mean, it takes a little bit effort and you have to get certified in Canada to do all this stuff, but like, just do more of what, what's already working. So more, better news. One of our growth frameworks, another one is a phrase or philosophy that there's no silver bullets.
There's only a hundred golden BBs, right? And so it's just all these little. Hey, let's save 50 grand a year on freight and we're going to save 50 grand a year on this, you know, [00:35:00] this thing. And then suddenly that starts to stack up and you're saving three, 400, you know, 500, 000 of, on X, Y, and Z.
And like, that's a 20, 30 percent growth in EBITDA, right? Depending on the size of the company EBITDA. So just, it's not rocket science. It really isn't. It's just being thoughtful and trying to, you know, Do the obvious thing, which is, and you know this, I think most folks know this, it's not always easy to do the obvious thing, but we just try to figure out what's really obvious and do that stuff first.
Corey Kupfer: You know, it's fascinating because it just highlights further the contrast between, you know, let's take my AI unicorn, other side, you know, kind of investment thing where. I mean, they got to compete with not only like, they got to be ahead of the cutting edge, right. You know, on technology, like, you know, you, I mean, I'm going to state it a little bit of extreme, but it's somewhat true.
It's like, Some of these businesses, you're applying like 10 year old stuff that other industries have, like, you know, from a decade ago that people have been doing forever just to, you know, it's like, [00:36:00] you know, it's so far the opposite.
Matt Bodnar: I don't want any of my competitors to listen to this interview because a lot of the stuff we're doing, like no one else in the space is even really doing it.
And, you know, it's like, Hey. We're crushing people with some of these marketing strategies that are standard practices and, you know, in e commerce or like really competitive industries or whatever. And everybody's this complacent 30 year old company that don't have a website or they have some really bad, you know, marketing strategy or whatever.
And. We're just gobbling up as much market share as we can because nobody's paying attention to it. So, I mean, that's not the case in every strategy and every vertical, but we've seen it in a lot of places where a lot of these industries are pretty sleepy and a lot of growth strategies and approaches are really outdated.
Corey Kupfer: What's the, Average size of your investment, in this guy's
Matt Bodnar: deals. So, I mean, I would say if you take average EBITDA of, let's say three [00:37:00] and an average purchase multiple of four and a half, right? It's probably a 10 to 15 million transaction on average, high end, maybe low twenties, right?
Low end, you know, five, six million, something like that. So, Varies a little bit, but I think that's generally strikes zone we try to be in.
Corey Kupfer: Got it. And then the way you're doing is you're doing an SPV for each, you're raising capital from a group of investors, probably, you know, in large point Yep.
Done before maybe some new ones, whatever it is, right? Yep. And you, and then you guys, you know, your company is, I dunno if you used the promoter word or sponsor word or whatever, you know, but Yeah, that's right.
Matt Bodnar: Yeah, yeah. That's exactly right. Yeah. I mean, we're typically. Typically raising from friends and family, high net worth individuals.
But you know, I mean, I'm always. meeting folks, cultivating investor relationships, you know, staying in touch with people. I think that's part of the game, quote unquote, of being an independent sponsor, right? Is just staying in front of capital relationships [00:38:00] and all, you know, I'm always looking to meet new investors.
You never know. Right. But yeah, we have kind of a stable of folks that have invested in a number of deals and generally know what their appetite is and what they like and that kind of stuff. And, you know, I mean, for the first X amount of deals. Like, I mean, I still do this honestly, but there's a lot of smiling and dialing, right?
But I think, I mean, raising money is just the same as any sales activity basically. Right. It's just pipeline, have enough conversations and eventually we'll cross the finish line.
Corey Kupfer: And in terms of the investors in your deals, what's, what's the investment range, minimums, does it depend upon the
Matt Bodnar: deal?
Usually 100K minimum and you know, I mean, like if you structure the deal, I mean, you're buying something at like four or five times EBITDA and you're levering it with some senior and you're putting some seller structure in there, like. Yeah. you really don't end up with a massive, I mean, two, 3 million equity check, right?
I mean, it's not like a huge lift. And so it's usually candidly, we get better terms in most [00:39:00] cases from high net worth investors than we get from going to a bigger, you know, either a PE shop that backs independent sponsors or a family office that has really strong terms. And so we like the flexibility of working just with high net worth folks that give us better economics.
And, you know, we still. drive strong returns for them. That's great.
Corey Kupfer: All right. We got to wrap up in a few minutes, but before I ask you my final two questions, this, is there any particular trends you're seeing? I mean, you know, there's so much out there that people talk about in terms of affecting deals, whether it's, you know, cost of capital, whether it's, you know, inflation, whether it's, you know, there's certainly a lot of money still out there.
Yep. That's whether it's getting deployed and how it's getting deployed and how underwriting is and all that kind of stuff is a different question. But I mean, there is so much dry powder, you know, out there still these days. But you know, any just super quickly and any big, you know, things you're seeing in terms of trends or, things that
Matt Bodnar: be aware.
And nothing shocking. I think maybe some softening of the consumer, right. I think [00:40:00] just on the operating level, I think a lot of folks are seeing that. I don't know, I don't have a well informed view about whether we're headed to a recession or not, right? But I think thinking about, it seems like consumers softened up a little bit broadly, spending consumers have kind of taken the brunt of the inflation and COVID savings have run out.
And so to me, that's just something that I'm being thoughtful around is what does that mean? Right. And how did that impact whether it's existing portfolio companies, things that were underwriting, et cetera, and, paying attention to it. But I mean, we were in a time that there's still a tremendous amount of uncertainty.
I mean, election year, the rate environment, the Fed, like, you know, this is definitely uncharted waters for me. I mean, my entire career basically was rock bottom interest rates until about two years ago. So it's been an interesting experience. Yeah. So,
Corey Kupfer: If people want to find out more about anything you have going on, what's the best place for them to do it?
Matt Bodnar: Yeah. So I have a free newsletter where I talk about doing deals and buying [00:41:00] businesses and M and a, and it's just at my website, Matt Bodnar. com, M A T T B O D N A R. com. And, check it out if you want to hear more war stories and how I think about doing deals and all kinds of other stuff.
Corey Kupfer: Great. And my final question on the podcast is always about my.
in life, which is freedom. And for me, that means everything, from freedom around the world for people from oppression to why I've been an entrepreneur for decades and I haven't had a boss, what does freedom mean to you and how does it impact your life and business?
Matt Bodnar: I mean, I think he's similar to you.
It's critically fundamental to my day to day existence, right? I'm similar to you in the sense that. I struggle to work for somebody else just cause I'm so independent. I want to do things my way. I want flexibility and freedom over my schedule. And, you know, to me, entrepreneurship, capitalism, et cetera.
I mean, we could get into a whole art, like sort of moral discussion around this, but I think it's a really, really powerful vehicle for achieving a lot of that stuff. And so to me it's a cornerstone of the way I live my life [00:42:00] and, why I do what I do. Love it. Matt Bodnar, thanks for being such a great guest on the DealQuest podcast.
Awesome. Corey, thank you so much for having me on. It's been a pleasure.
