Elliott Holland Interviewed by Walker Deibel, Author of "Buy Then Build"

elliott i can't believe i finally got you uh welcome to buy then build so so so ladies and gentlemen today we've got elliot holland uh mechanical engineer by education harvard mba and most importantly the uh founder and and managing director of guardian due diligence elliot how you doing doing well it's it's good to be here glad we were able to connect so uh let's have some fun yeah it's taken it's taken a while to get this scheduled so um it's we were talking before we started it's i can't even believe we're we're here we finally got it so i really want to sort of explore your background a little bit and then kind of end with where we are today right so you know or maybe let's let's reverse that just a little bit tell us about guardian due diligence and what it is that that they do and that you do so we can sort of keep the end in mind sure so um guardian due diligence is a buy side mergers and acquisition advisory firm where we help search funders independent sponsors private equity groups single family offices and other investors to execute direct private equity deals or buy out deals or help people buy companies by either managing or supporting their buy side process either the full process from sourcing to evaluating to letters of intent to closing to growing or often times are brought in for specific areas like um commercial due diligence or support of legal docs or negotiations most often it's due diligence particularly around finance and accounting so in the simplest sort of form you could sign up a deal on the letter of intent hand it to us a guardian we could kick the tires on the finance the accounting the operations um get a set of legal docs ready for closing and uh seemingly you can show up at the closing table and and get your deal and off you go you could be as involved as you like or as not involved as you like uh we're sort of flexible in that way and we typically are working sort of with a couple clients at a time we particularly specifically kind of keep it um at a certain level we don't want to grow to be the biggest boutique m a firm ever we have a very personal touch with our our clients and customers so that's that's what we do so are your customers uh predominantly institutional capital backed by institutional capital or do you get any you know say acquisition entrepreneurs looking to you know buy a company at you know between one and five million so it's way more the latter than the former so we typically work with uh people who are looking to buy companies i would say one to eight million dollars in ebitda a lot of entrepreneurs through acquisition a lot of independent sponsors are self-funded searchers a lot of just private investors people who have the capital to go buy a deal and want to go do it we work with single-family offices which really are just people who last generation bought a company or built one one to five million dollars in the fda and now either them whether their children are investing their money um we've done a project or two with institutional capital but um they typically have the resources to do what we do in-house and so it's a much smaller piece of that pile that we can go after than some of the other places where it's just very difficult without hundreds of thousands of dollars to throw around to be able to to be able to find qualified resources to manage this very complicated process that's that's awesome thank you for that and then and then the other side of that would be the businesses that you're doing diligence on is there a specific niche that you find that has you know become a larger percentage of the deals you're looking at and are there any niches that um you actually you know won't work in uh okay so i would say 95 of our deals are under 8 million dollars in efda um and over a half million dollars i'd say the middle 50 percent are between 1 million and 5 million so that's kind of where most of the deals are so sorry i'm talking about i'm asking about industry specifically like like do you find that you know what you know whatever 80 of your deals or that's a huge amount are you know in manufacturing and you know we don't do you know medical device companies or something like that or is there an industry that you kind of specialize in and maybe one that you don't yeah so i answered it the way i did because we're generalists honestly so we need our client service providers and as a result we go where our clients go um you asked the question of sort of where would we not do business we don't do business with sort of very high technology based businesses just because of people that are better for that yep we tend to stay away from cyclical industries to an extent if a client wants us to do like oil and gas or sort of chemicals then we can we've looked at those industries and understand them but we're less happy or less likely to spend a lot of time there just because those businesses become more complicated investments because the cash flows can change significantly without the business function changing significantly we don't do much in real estate retail um those are sort of the industry parameters but again we're client service folks so we will we will help our clients do what they need to get done excellent generalist okay sorry thank you so elliot this is great so how did you get into this space like like where does your story start like you know i mean maybe maybe you're getting a mechanical engineering degree or how did this all sort of what's the genesis story of how you found yourself going down this path sure so um grew up in michigan so uh automotive industry both my parents were financial consultants in fact my dad did similar work to what i do which helps me oftentimes understand family businesses because my dad had a family business i did engineering because they paid for me to go to school for gm and chrysler all had scholarship money uh in my on my balance sheet i didn't know it was a balance sheet then so i went to school did mechanical engineering but sort of recognized pretty quickly that i was better at the intersection of sort of human interaction and quantitative analysis so did strategy consulting for a couple years i was fortunate enough to get into harvard business school and went got into the private equity industry worked for a family office that's that functions as a private equity firm called the water mill group in boston um kind of centered my life here in atlanta came back to atlanta started two different independent sponsor outfits or self-funded search groups the first one ellsworth partners i started with a mentor of mine the second one spartan capital partners which was just me and through that period i just found that it was so incredibly difficult to find resources to help get deals done call it one million to five million dollars and even yet no shortage of 500 an hour lawyers that you were the smallest customer they had that took three months to get back to you when you needed a document turned in three days and no shortage of very attractive accounting reports they weren't going to look anything like yours um and and accountants that were very reluctant to get in the weeds on some of the messiness of the deals that we deal with when you're looking at things that are one million to five million dollars at the a so through that experience i was a private equity guy and then an independent sponsor for about six years um so i've been in sort of one to five million dollar ebitda deals for a decade now and about four years ago i just realized that it was it was so tough to find resources that people were getting what i felt was bamboozled either overpaying right for good quality or paying regularly and getting below average quality and it was a bit sporadic and also a lot of investors were looking to go direct as opposed to investing in private equity funds and i actually enjoyed the process of doing diligence as you know it's not something you say at the barbecue but i actually enjoy the numbers and the legal stuff and and all the rest and so i i enjoyed this line of business arguably more than the investor side to an extent and so the genesis of guardian was just realizing that there was a market need for deal specific resources that could do a deal one to five million dollars in evda in a cost-effective way given the customers that are also the investors in the space are from someone who went through an entrepreneur through acquisition class right um and that might have been their first foray into this two people who have been working for 20 years in the industry and want to go buy a company and everything in between um we're not talking about people who are dealing with accountants and lawyers every day and they need someone who's gonna be able to speak to them in their language focus them on the right things not be condescending care this is people's personal money and time that we're talking about investing and doing that specifically like i don't do anything else i don't do sell side mandates i don't raise capital for people um you know i'm not in the circus so it's just my side m a uh due diligence so that's sort of how i got here yeah that's amazing i feel like i feel like you and i are a bit aligned and trying to tackle that you know like black hole of it of a problem right there in the in the private capital markets that's that's it admittedly i i i thought you were operating slightly larger than that and like i'm surprised to learn that that you're hanging out in the area that you are because well no i don't see it's funny i was just talking to a bunch of my guys from harvard saturday and i said you guys like those big big big deals right yeah right and i like these deals but these are deals that you know walker and i can toss some cash onto the table and go get done right that's right i like the context of being able to get deals done with other people who i know of integrity et cetera et cetera and i don't necessarily like having to need a bunch of rich uncles to be able to consummate deals and i think a lot of the people that i find the most interesting in this space are that way as well the the idea is sort of the passion to go get a deal done or high but we're not talking about people who are thinking of private equity as an asset class uh top quartile bottom quartile alpha beta we're talking about people who are trying to buy you know i would call like a main street plus operating business you know two hours from an airport yeah i i yeah i i was kind of being heavily recruited to do m a work and the sort of like 50 to 100 million dollar transaction value i just kept turning it down because it just felt so corporate and it's like no i'm i'm much more entrepreneurial right like like your point and i think i think there's more value here i mean even my wall street friends will say that if you look at the returns of deals done per size right um you're going to get higher returns and smaller deals because there's more there's more challenges to get through and to work through as entrepreneur and you get paid for solving problems and so it's not just where i like it the best for like elia's purposes but if you look at the data the search fund data out of stanford for instance if you look at that data set um it's been consistently over 30 irr since the inception you can't find a private equity asset class data set that's been that strong and so it's also favorable from a return perspective um and so you know i don't know why more people aren't here doing this kind of work but that's okay by me i'm doing great stuff here in this market and i love it part of our mission we'll get here uh so you in in your description of going from family office to independent sponsor one independent sponsor two there's a lot to unpack there um can can i just let's just cover some definitions if you don't mind like not not everyone you know really knows what a family office is slightly behind a veil and and not everyone really understands independent sponsors and in fact i find some people who say they're independent sponsors might describe themselves as very different from other people that describe so so let's just take a minute and kind of define it from your point of view would you mind explaining to us um the family office that you worked at and what was sort of like their mission let's start there sure um so they were focused on buying well they were a strategy focused private equity firm that anchored way more heavily on strategy and operational excellence relative to financial engineering so they look for deals where call it like a manufacturing deal where the sort of median or average ebitda margin as a percentage of revenue is probably 12 to 15 percent and they would find deals where a manufacturing company was doing five percent ebitda margin right and so underperforming relative to the industry and if they thought that that company was impacted by a bad strategy or poor operations then they will be able to buy the business at a value price um institute a better strategy tighten up the operations hopefully get that business to median ebitda margin and then get the benefit of both sort of buying at a value price selling at a a market multiple or a cash flow multiple but also improving from say a five percent even on margin to a 12 and sort of you get two bites at the apple there um that's where they focus and you didn't ask but a family office really in the most general sense is just a family that has enough money where there's a job inside of the family to invest the family's money now you might find some other institutional definition typically what this is is um if you sell if you if if one of the people in your acquisition or when one of the people in your acquisition class sells their business is doing five million dollars every day right and now they have 25 million bucks and um they're gonna have to go invest 25 million dollars arguably if they had a child that was 22 or a kid right who's 22 coming out of college does it make sense for that that person to go work at home depot or coca-cola or to go learn how to invest money and so that that next generation becomes a family office because managing the family asset becomes a job and so loosely that's a family office and then you get them as big as like rockefeller or uh warren buffett or um those guys and that's of course more bigger but still that started with somebody starting a company and creating enough assets where there was a job to invest them perfect answer and at the risk of running down a rabbit hole i'm just going to ask for a quick answer on this because i'm curious which i sort of feel like the emergence of the family office over the last 10 years has kind of been a result of um for lack of a better description almost like decentralization of hedge funds like i feel like wealthy people have been like wait a minute i don't need a hedge fund manager my kid can do it to your point right yeah right as the returns come down on some of these asset classes from fifteen percent on hedge funds and twenty five percent on vc and pe to much lower the f like post fee return to investors becomes less attractive than trying to figure it out yourself yeah so would you agree with that theory i mean you think it's almost like okay interesting cool i mean i think hedge funds are dealing with a lot of challenges because as data becomes more available it's going to be tougher and tougher to get sort of differentiated sustainable data that can beat the market and arguably all of these industries are getting more mature right so the margins and then the traditional sense are going down and so that's the other reason why this part of the market to me is so attractive because there's more work to do so like the spreadsheet only guy can't compete with the operator and a million dollar even our business i don't have to worry about my my my my spreadsheets all over the world guys competing with me in this part of the industry i was asked um i was on a panel last week and someone asked um what's what's the cost of capital for these search funds and it's like a search fund maybe but i think about you know people running out and just like an acquisition entrepreneur like buying themselves a company and i just like i had an answer as usual you know over at 30 irr that's a good enough answer right but i sort of took pause and was like you are you are way over engineering how the whole uh you know acquisition entrepreneur profile even thinks about this like like once you right that's all you're concerned about is cash right you either have the access to the capital or you don't and for an entrepreneur who's sort of raising search fund capital for instance um they're not putting a lot of their capital in right uh so they're getting sort of sweat equity and the investors across the capital would be not a whole lot different than that private equity guys cost the capital he probably wanted to intimate something different but yeah cost the capital look in this part of the market i tell people all the time so in business school there's a concept of an efficient market where sort of all data is known and all assets trade at the optimum price you and i know and people that deal in the businesses that we know we just know that's not the case like a ford bronco in 50 different states they're going to trade at a very different price right now you go talk about a billion dollar ford bronco manufacturing facility you may have some sort of commonalities there but the stuff that we get into is that's not the question it's probably more of a risk reward capacity um and sort of does the person have enough um perseverance to get to a an attractive outcome absolutely very well said so you ran not one but two uh independent sponsor firms right what is an independent sponsor sort of macro and then you know maybe define what what uh what you were doing um and is there a gap sure so in the easiest sense we know what a private equity fund is you go raise 100 million dollars you get 2 every year and management fee and 20 of the upside that's a private equity fund an independent sponsor is a private equity um firm without a fund so there's there's no sort of pot of capital dedicated set aside for that um firm and so they raise capital deal by deal which means if your deal's good you should be able to raise the capital required for it to close if you don't raise the capital required for it to close arguably the deal wasn't good enough to clear the market and in addition to all the other things you have to deal with during a deal process you also have to deal with uh fundraising and so independent sponsors operate very similar to private equity funds i say one is the capital difference and i would say as a result of the capital difference of course private equity funds have to return money to investors every five years whereas independent sponsors don't have that strict constraint and so they have the ability to hold businesses longer or shorter and and be more flexible in that relative to their private equity cousins if you will where does an independent sponsor go to get the money do they go to private equity funds they can so you can go to private equity funds some have um sort of set up specifically for independent sponsors um i think is it there's one in florida that actually gives you like a porsche if you do a deal with them on top of you that's great you can go to a private equity firm you can go to a family office you can go to your red chuckles your friends and family you can go um you can go a lot of places i mean i think capital raising broadly is is just it's a scrappy exercise in understanding who is most interested in the thing that you're trying to do which is at the intersection of you and the investment opportunities so people who love you and people who love the investment opportunity are going to be attractive investors so can you go to private equity sure um they can sometimes be a tougher group to please right sometimes you might find it easier in more private markets um you may find it easier if you want to buy a a bottling company you know somebody who made a billion dollars in bottling might be a great person to go talk to about some money for a bottling investment so i i love that point people people often ask me like okay okay i got like how do i do that the the fundraising part again like what's the three steps i do and i'm like no and it's not linear this is if like the engineering is like i had to push i call myself a reformed engineer i had to put that engineering guy to bed that's right that's right marketing yourself this is understanding interpersonal nuances this is very highly nuanced communication and this is um putting on your big boy genes because you're gonna you're gonna get 50 no's right for a couple yeses and if you count the no's you'll quit if you recognize the this one last no and route to yes and then yes it's all you care about then you'll keep going so you just got to keep going i have another theory elliot that i want to ask you about which is i i think that you know i recently read that you know that the number one desired career path for mbas in school right now is an independent sponsor okay that's right kind of like slapped my forehead because for me it's sort of like saying i've decided that i want to be an a-list actor like in other words i think it's easier to move out to hollywood with no one knowing who you are and like your way up and becoming an a-list actor then you know going out into the world and just trying to be an independent sponsor right thoughts on this um so there's a book on a bookshelf behind me that i i use as my example on situations like this so the book is entitled you can't teach a kid to ride a bike at a seminar aka you can't teach a student to be an independent sponsor at a business school yeah you can't do it yeah you you have to go visit sellers in in weird places like you know midland odessa texas or middle of nowhere oklahoma or that place in maine that you can't even find on a map and the stuff that you have to do like looking back on it business school is a good general place to learn general sort of universally applicable business things for a very specific piece of the market independent sponsors i mean you think about the things that an independent sponsor has to do successfully or find partners to do source deals very hard like nine and a half out of ten right evaluate the the hundred deals or the fifty that you get and actually pick the ones that are good very hard actually put an offer on the table that actually matches the seller's wants with your ability to finance and your desire to actually have the company at that price then take a look at a bunch of disparate pieces of information called financials and operating agreements and customer lists and try to put together a picture of what this business actually is which is different than what it was marketed to be if it was marketed at all because of proprietary deals you might start off with just tax statements then you actually have to understand enough about the business and then go to smart people with money and say hey i want you to put your liquid cash in this non-traded unaudited private company with no liquidity four four four four until i wanna sell it long and then i'm going to get you a big return look at it at the top right of the slide and then if you do that successfully then you actually have to go deliver on that with that person calling you once a quarter saying where's my money there's no class on any of those things in business school not a single one not that there's not things that are similar not that certain businesses don't give you a glimpse but it's just to your point an independent sponsor is a person who's pushed hard enough through sort of hurdles and and doubt and failure and blown deal fees and being taken advantage of to say i am capable enough to go execute a transaction on a private illiquid business that's insane that's absolutely insane like i i'm reminded that the first time i got um an offer for a company that i owned um i was not on the market and it wasn't quite unsolicited because i was trying to grow through acquisition and you know yeah i called my cpa and i said listen i just got an offer uh for um the company and the first thing he said was oh walker that's great does he have the money and i think that this is the number one question that you know a broker is going to ask a cpa is going to ask an attorney is going to ask a seller is going to ask and the sponsor there's actually another word for it fund list sponsor right and i will not allow people to call me phoneless on the phone yeah yeah yeah so it's like you're not only getting that loi in like sort of the venn diagram of things that overlap between buyer and seller you're also selling them on the fact that like you can turn around and get the money right right and the money is oftentimes not yours so the simplest way sort of here's my bank statement doesn't work that's right actually you're putting together a pitch to convince conservative right discerning people that you can do the impossible like hey i'm superman can't you tell that's what you're pitching and then keep in mind and and if you get into this you'll know that accountant like your accountant is asking that question knows that he gets fired when that deal gets consummated more than likely so people who seem to be well credentialed and um their their their reputation as high as it should be um have a bias in this process and that's something that i deal with a lot and help people see is that sometimes you need to understand the angle and the motivation of the people who are giving you certain data pieces um otherwise you'll be listening to smart people that have an angle tell you things that may not be in your own best interest that's all that's that's perfect so keeping in mind that you know success in independent sponsorship is is you know sort of in line with like winning the lottery in other words it's kind of punishment for people that don't understand statistics okay give me that you've now done two of them how how does it feel for you like like successes lessons learned failures yeah a big smorgasbord of all right gumbo yeah well let's let's back up and and piecemeal it so the the first one you did you did with a mentor so just explain to me sort of the genesis of this of this uh uh firm and you know what what you did and what the outcome was sure so elsewhere partners it was um it was a partnership with a mentor of mine that i've known for a couple years he actually grew up in ann arbor michigan where i grew up um he owned a trucking company a clinical trials business and a sliver of automotive manufacturing company um we did several tucking acquisitions to his towing company um during that time i i feel like i learned the independent sponsored business as an apprentice during that time i learned a lot about doing work internally um as long as i could to sort of push off the cost of third-party advisors as far as i could into the future um i learned a lot about sort of that tightrope walk slash uh walt's dance of sort of do you have the money when do you have it when are you the authority and in power and when are you the subservient person and taking what you can get and sort of understanding those nuances also understanding is one of the big things about diligence right sort of what data is available inside of any operating company period such that when people tell you oh i don't have this data how can you push past that to like your sales person has a spreadsheet of who they called last year so you don't have a crm there's some accounting for that or you might not have ar but you have a series of invoices with payment terms on like all of the things that you'll hear really getting a good understanding of where can you go to find the base material um so you're doing diligence at this uh at this is firm yeah i don't know how you do independent sponsorship without it um again i tell people all the time accounts are great for telling you what the ebitda was last year you're buying next year so how do you get from last year's ebitda to your expectation for next that's diligence that's and that's being a defender sponsor your lawyer will tell you what your risk profile is around a bunch of different contractual arrangements you'll have in a stock purchase agreement what they don't always tell you is how the operational and financial challenges you found in diligence could translate five or six different ways in legal documents to protect your interest in different ways or the fact that some of the legal documents they create aren't worth the paper they write them on because they don't hold up in court and so for me being more of a hands-on person and recognizing that the recourse for all of this stuff was ultimately born on me knowing those things maybe not as well as my lawyer or my accountant but good enough to be able to look on page 57 and say there's a mistake was important so yeah i was i was doing from sourcing evaluating loi writing due diligence meeting with the seller convincing the seller we could get the deal done pushing the seller to get data managing the lawyers managing the accountant managing insurance providers closing deals 100-day plans growing businesses stepping into being cfo the whole thing so getting good at a lot of different very particular skill sets awesome thank you so um are you doing at guardian i'm fast forwarding do you currently do like quality of earnings do you currently like legal due thank you diligence um and so let's go back to independent sponsorship when you were when you were doing when you were when you were involved with these firms you bringing were you the operator were you bringing the operator to the table as well i mean a lot of times i find that independent sponsors will want to be the operator and sometimes i find that they're sort of like also recruiting an operator in addition to bringing in capital and and closing on the deal thoughts on this position on this yeah so i would liken it to this so imagine sort of the operating role for an independent sponsor almost being like carrying a bag that's like 80 of your like strong man ability in the gym to like hold right and you have so many other things you have to do you really don't want to hold this bag too long but it's your bag and if you don't hold it right it's going to fall and it's going to hurt and so you'll hold the bag as the operator as long as you need to because it's your business your money or money you promise to your investors but your highest and best use oftentimes is not being an operator and so what we would we focused on deals that were owner transition so oftentimes retiring owners that didn't have sort of a like a lieutenant that could take over and so if we needed to step in and be ceo cfo whatever for a period of time we'd do it but we were looking for somebody whose highest and best use whose experience was best in operating as a cfo or a ceo so we could step out of the operating seat and be more thoughtful about how do you grow the company how do you manage the balance sheet so complicated answer to an extent but sort of when it's your deal you have to do i swipe the floors too and clean the toilets like it's all yours right and so you do what you need to do but also try to be cognizant of um bringing in the right people to do certain things longer term even if you have to step in temporarily i have a buyer right now um i happen to be the broker on the deal and he is asking me about should he run the business does he have to run the business himself or should he should he hire a operator on day one right my my advice to him was um and you know i'm gonna summarize an hour long conversation in like one sentence but that but my advice was was along the lines of um i can't recommend enough that you get in and operate the business at least for a few months and the the biggest reason for that is simply um because i feel that you as the buyer in this case this was not independent sponsor other people's money this was his money i'm like you can't be in a position where the operator for lack of a better description later has you over a barrel because you don't want to operate the business right so you need to get in there learn all the nuances write it all down so it's like written so okay i didn't know how you felt about that 100 agree yeah okay also when that operator tells you i can't get back out to that building in the back of the shed it would take me 45 minutes to get out there 50 minutes to get back because i got to jump higher on the way back because of the way the hill is situated i can't go check that mission critical thing in the back right right and until you sit out there for a week and do it yourself ten times and say it's actually five minutes dude help me understand where else you've taking five minutes to be 45 and let's talk exactly you don't know and oftentimes and this is diligence as well like if i'm getting paid a salary now i don't have significant upside with significant p two percent is not significant upside right so sometimes these like warrant pools that we give people are not sufficient enough my incentive is to do the job and not necessarily be over encumbered by lots of hard work right you as the owner if you get all the money after you pay all the salaries and so it's your responsibility to recognize where there's inefficiencies where there's opportunities where things should be done better and and if you don't know and people are sitting here like it's almost like my friend always laughs about like the whole idea of like the walmart worker and then like corporate you know like you're you're the cash register taking the money oh corporate's just out of control i don't know anything well this is sort of like that if you're corporate right and you don't show up and you're not in the trenches i mean i've i've welded metal together i've driven a tow truck you know what i mean i've gotten dirty in a chemical facility if you're not willing to do those things you're not going to get the full respect of the people who are and when people say sort of wild things that hey this can't be done you're not going to have a sense of whether it can or not so not only over a barrel but sort of you don't actually have a fundamental data set on how the work gets done so people can tell you stories all day yeah you can't see it yeah um let's talk about your second independent sponsor effort this was your firm right that you started spartan capital i spun out for my business partner um he decided to sort of be less focused on deals and more in an advisory capacity and so i went out and sort of did things myself i would say it was a bit tougher um honestly so i was really big on durable medical equipment and sort of healthcare distribution broadly i really like that industry i still do like it quite a bit um i had an amazing deal in the middle of nowhere arkansas lined up and was going to do an sba loan and had some of my older engineering friends as equity guys and we had the whole thing set up and within two weeks of closing one of my one of my equity guys like mentors blew the deal up like right in front of my face i mean it was like what up how what happened um in i understand there's confidentiality going on here but i just i'm trying to figure out was he you was he was good everyone together i mean did he just like pull his investment i mean what what was the sort of lever that was pulled so people will tell you when you're looking to buy a company the number one relationship you must keep is a relationship with the seller i don't care who you upset i could have said a different way of saying it right but i don't care who you upset do not inadvertently upset the seller sometimes you have to push the person right you should never inadvertently upset the seller i also have this concept of the owner of a business being what i call a free man or woman this person has bucked all of the trends and said i'm gonna actually eat what i kill and i'm gonna do it however i need to and so therefore i can move freely through the world nobody calls me and tells me i need to be somewhere when you infringe upon the freedom of a free man or woman just because you're bringing money to the table that their business is worth whether you're there or not you you cause like you cause issues that you can't solve because you're actually so the thing about down to business people don't understand is the seller becomes your employee so they give up their freedom how so oh because maybe they've got a seller note maybe there's an employment agreement i mean they're they seller still has to tell you about his business after close because you don't know diddly squat compared to him i understood you you there's still going to be a component of it where the seller is teaching you i.e he's your employee so he gave up or she gave up their freedom to you to now be encumbered by your shenanigans whatever they are yeah so if you infringe upon the freedom of a free man or woman because you get upset because the data comes too slow because you you wish they would do it this way because you like working capital with this peg and they don't believe it any of those things can can cause sort of issue that you can't undo and and to sort of put in a summary a person created a huge infringement on the freedom of my seller inadvertently or maybe purposefully i don't know and although it doesn't like die that day you lost all your credibility with that person now that person does not want to work for you so then they don't want to work with you and so you that's why like a person who doesn't have patience or sort of is full of hubris doesn't win in this game so there's sort of like three three big mistakes that buyers make in my opinion i'm not i'm not gonna you know take the microphone here i just wanna i just wanna reiterate that when i was doing um uh when i was pitching a startup right the um or when i was a judge for startups what happens is all of the investors kind of come in that you know they put on their analytical uh face they put their feet up on the uh on the desk they lean back and they're like why the hell should i invest in you bozo okay yeah yeah when you look at buying of a company um i would i find that one of the big mistakes that first-time buyers make they come in doing exactly the same thing right and they and they um yeah yeah i'm just echoing yeah the point is is that is that the you are applying to be the ceo of this person's company right that's why i've always viewed it and and that's what that's what uh we sort of teach so thank you so much for this case study yeah fire hubris and the impact yes very very well bottled thank you so much elliot thank you hubris home with you yeah um i want to back up real quick what what what was it like working with a mentor right like like in your first venture as an independent sponsor you partnered up with a mentor and and this was um this is something that has been instrumental in in my um life and i'm just curious how it was with you you obviously did it then you obviously split off for one reason or another maybe it was just talk to us about that and what you would recommend or not he had hit all his goals when we split and he no longer had to take the risk and i respect him for it because part of what i wanted to learn was how to walk away from the game while you still had the game to win so um just to clear that up i know there's plenty of reasons to not work with a business partner anymore um he made a good choice in my opinion about choosing family and other things over uh another dollar but how was it it was beautiful um so i think the difference between a mentor and a boss is a boss wants to exact in the truest sort of capitalist sense right a boss wants to exact maximum output from you for maximum benefit for them and give you just enough so you don't leave like in the worst scenario cold i've worked for that guy yeah in the worst scenario and some are a lot better than that right i think the good ones are a lot better than that but in the worst case scenario that's what you're getting into a mentor wants to see you succeed but here's how that plays out they actually want more out of you than the first dude wait hold on ellie wait up so the nicer guy that wants a better future for you works you harder than yes because the only way that the mentor wins their goal is to develop you the only way they win is if you actually get good at the thing they're teaching you and you only get good if you work harder the difference being the mentor typically has already achieved their success and so they're not fighting with like hr for the next promotion relative to you or worried about somebody saying that you know your elliot might be smarter than his boss maybe we should promote him twice there's no concern about that they're there to help you get to a level of excellence so you can perform and so having that in the context of a business partner means that look we spend 60 70 80 hours sometimes on our businesses depending on what you're doing the deal business can be a lot you're traveling you're back if you're dealing with two people heard a conversation with the seller or a lender or an equity person a different way and now you got to reconcile what to do when that person cares about how you're going to succeed and what you're going to learn it's a beautiful thing because this business takes a lifetime sometimes to learn not saying that people can't execute quickly because everybody has to to sort of stay in the game but you can always learn and having somebody who's been out for 20 years on them by themselves doing deals you can't buy that there's no school well there's some schools now when i was when i was coming out there there were not schools you could go to to learn this and so um it was it was a huge benefit what school are you talking about i'm a school where you can go study under somebody who's been through the process like like what you have with your acquisition letter oh i see thank you yeah when i came out of school in 2011 i should have picked up on that one so hey so you'll think about the next question but yeah i mean like in 2011 there is no school you could go to to learn how to buy a bit nobody was telling you that you could go to wall street you go to a private equity firm um or you could have a rich uncle to ball company right that's right no that's that's exactly i mean that's yeah it's the struggle we all faced back then right so spartan is the is the is the fund firm that you started when you were doing your own independent sponsor right okay so your first time at bat uh didn't go uh the way that you wanted which we've covered was was the sort of logical uh outcome of the effort anyway okay so taking that in mind you know how did we get from you know spartan to guardian and your due diligence firm today how how did that take us through that evolution sure um so for me business success is at the intersection of personal elliot success and sort of dollar success right so it's not just dollars it's sort of how can i enjoy the fruits of my labor and not like in 2030 like 10 years when i get all this stuff i'm gonna enjoy it i i have a pension for wanting to enjoy it now and so after sort of my my the one i worked on the most and spartan kind of blew up um and you know i had to really do some rough things to sort of get back on my feet financially because i was sort of all in on that deal i sort of looked at the marketplace and said look i i have 20 or 30 years to really create the business that i want to have two or three operating companies throwing up cash that are invested in by friends of mine that's what i want to do sort of at the end of the day um how do i get there i could keep attempting sort of the independent sponsor model um and sort of going through some of the challenges that i had and let's just be honest i don't have rich uncles i have some rich friends you keep referring to this rich uncle i'm like wait a minute who's this person some people have them you know this is written in books i i don't have them you know i've made friends with a couple of people but they don't share blood with me so there's no there's no family reunion where i'm gonna see him so um i wanted to continue to practice my craft i wanted to deliver value to people in the industry i wanted to solve a problem for people who i thought were getting sort of bamboozled with bad advice um and i wanted to do it in a way where i could enjoy my life today and so sort of thinking about it putting on the white board figuring out what was sort of my only objective and sort of my constraints i said look people are not going to go interview 50 lawyers like you have they're not going to go interview 50 accountants like you have they're not going to spend 10 years in this figuring out how to do it and then become available to people on an open market so you can have a differentiated opportunity to help people through some of the stuff that you had to sort of take the punch yourself you can actually shield people from it make more friends who are in the deal world collaborate more and still create the future you want but be able to enjoy it more now and so guardian sort of came out of that thesis that thought that idea um i also want to be able to and i've said it a couple times but i want to be specific i could go get institutional capital today for the deals that i wanted to get done um i would prefer to have my friend's capital and my deals for a myriad of reasons we can talk about next time but to me it matters let's actually spend a minute on that that's that's kind of that's that's a most people would totally disagree with that right i mean i mean can you would you mind elaborating on that let me just i'll ask you a question as an entrepreneur because i consider myself that first before a deal guy or a private equity asset class manifestation right yeah anything that you can't do yourself has the risk of having to find somebody else who's willing to do it at the time they need to do it in the way that you need them to do it for your benefit right as you increase the dollar amount of capital you need to put in your deals right and go from the levels that your friends can cover to the levels that your brand new acquaintances and institutional places can cover you've now created an environment where although institutional people have a higher need to get money out the door and so have a huge benefit to people who need to sort of get a deal done like this quarter or this year it comes at the expense of the familiarity of you're essentially walking into like an engagement or a marriage so that same concept of the seller being your like your employee is the buyer afterwards as an independent sponsor the person who has the most capital in your deal or the most sort of equity capital in your deal becomes effectively you know a board of directors slash boss like instrument for you it's your boss isn't it it's a different manifestation and then let's be honest as an entrepreneur my customers beat me up so i don't get away from it but i wanted to be able to in the in the simplest sense go get a deal done by myself with my own capital so i wouldn't have to adhere to other people's capital constraints right and then i could say hey walker you want to take half of this it's closing in two weeks and either way i'm closing you want half of this two weeks no i gotta go i'm in yeah and at that point i can i can i can i can drive a harder bargain then hey i have one dollar i need a million welcome you got 999 bucks in two weeks in my turn here's my turn sheet you want it's very smart i just didn't want to life's too short and i saw the most successful people if you go back to who i learned from the watermelon group is a family office and how they work is very family oriented links partners where i intern another private equity firm very familiar sort of place there i work for a mentor who chose arguably some family things over absolute valor that's the spirit of how i think about this and so being able to continue to operate in that capacity was important to me it's so smart elliot we're out of time thank you so much today let me just you know before we jump let me ask you you know if people want to learn more or get in touch with you or guardian i mean you know what resources you want to share you know yeah go to my amazing website guardian due diligence dot com uh and if you google it and you misspell one of the letters they'll still take you there um or linkedin elliott holland i have a bunch of connections so i shouldn't be too hard to find um and you can catch me either one of those places and i'm very responsive in both locations elliot thanks so much for your time i truly enjoyed our time together and uh we share we share a common view on the world so thanks for having me walker uh look forward to the next time

Channel: Guardian Due Diligence

Views: 205

Rating: 5 out of 5

Keywords:

Id: Lbl06NLqR9o

Length: 53min 24sec (3204 seconds)

Published: Thu Aug 20 2020