Chenmark is one of my favorite holding companies.
In 7 years, they've bought 30+ companies from landscaping to bout tours. All self-funded.
Here's a breakdown:
• 3 Landscaping / snow removal co's
• Boat tour businesses, Maine & Florida
• Network of paint distributers, Canada
• Frozen dough manufacturer, Canada
• Mosquito control business
• Fruit tree farm, Tennessee
• Landscaping & snow removal in Maine
• Couldn't raise money so creative deal
• Self-funded: SBA + large seller note
• Friends & family equity covered rest
• Sellers ok with a large seller note
• Own 100 companies for the long term
• Optimize for long-term free cash flow
• All co's have own CEOs / managers
• Be internally funded
Average Deal Now:
• Historically 50% equity, 50% debt
• Typically paid around 4x, freak out over 4.5x
• New deals aggressively debt financed since they have low debt HoldCo-wide
• Seller note always - ties the owner to a successful transition
• No earn-outs, doesn't make sense for owners retiring
• If they really don't want a seller note it is a bad sign
• Deduct from seller note if claims inaccurate
Go Fast, Go Slow:
• Bought 5 companies in 2/3 years, took 2 years off to digest
• Internally funded so have to build up cash again
• Set shared services up to integrate faster
• Tech - Protect cybersecurity and build a layer on top for better reporting
• Recruiting - Biggest problem and everyone bad at this, adds a lot of value
• Marketing - Local firms are a bad value, not a founder competency
One Team. One Dream.
• Operators get a cut of cash flow across the portfolio.
• Creates a team environment and incentive to share knowledge across companies.
• Can buy up to 100% of annual bonus in Chenmark stock during annual liquidity window.
• Recruited through search fund community often
MBAs and undergrad business programs with few years of experience.
• Try to bring in-house to teach approach, give operational experience, and match with new acquisitions if they want to run it.
• SBA loan + large seller note to get started
• Buy little monopolies. Run them for cashflow
• Matchmake between operators and capital. Get incentives right.
• Reinvest cash to buy more companies.
If you are interested in buying, growing, and selling small companies, check out my course & community on it at IndiePE.com.