Intentional Growth

#293: The Private Equity Playbook: Stories from a CEO Who Bought & Sold Over 100 Companies with Adam Coffey

Mar 24, 2022

01:12:27

Have you ever wondered what it’s like to be on the buyer's side of a private equity exit? Adam Coffey has spent the last twenty years as CEO of three private equity-backed national service companies and intimately understands the unique concerns from the buyer’s perspective during a sale. Through his experience executing a buy-and-build strategy, he has bought and sold more than 100 companies ranging in size from $1 million to $1 billion.

In this episode, Adam unpacks the strategies that allow PE firms to get the huge returns that have made the industry—for both investors and sellers—so popular. Adam dives into the three different areas of growth he focuses on to achieve a 30% CAGR, a recipe that even worked on companies that were at a stagnant 5% growth for years. He also talks about how private equity firms create their strategic planning and investment models based on what ‘good’ looks like for their investments. Tune in if you’re ready to capitalize on growth and be more knowledgeable about the buy side of the deal table.

What You Will Learn

How a private equity firm structures their investments with their limited partners and future stakeholders (e.g., previous owners who sold)
How a private equity firm structures their investments with their limited partners and future stakeholders (e.g., previous owners who sold)
What the perceptive is like as the CEO of a PE firm negotiating a purchase with one of the founders of a business
The rule of 72 that private equity firms use to double, triple and quadruple their investments
Understanding the role of a PE firm makes you less likely to get screwed on a deal
A detailed overview of the buy-and-build strategy from a private equity CEO’s perspective
Why Adam doesn't like earnouts, even though it might be good for him as a buyer
The math behind rollover investing and the real reasons why the second bite of the apple (second sale of the company) can mean even more money than the first sale
How to using a phone book to identify if an industry is fragmented and ripe for a rollup
The three primary levers private equity firms use to get a higher multiple on their investments
Where and how the investment thesis of the PE firm plays a role in the deal structure and how that impacts how they view a target acquisition
The three types of growth private equity firms use when performing a buy-and-build
How an entrepreneur’s personality influences if a private equity firm will even make an offer

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

Bio:

Adam Coffey has spent the last twenty years as CEO of three private-equity-backed national service companies. Through his experience executing a buy-and-build strategy, he has bought and sold more than 100 companies ranging in size from $1 million to $1 billion.

CEO, board member, best-selling author, Forbes Business Council member, and an acclaimed guest speaker, Adam Coffey, is an inspiring and authentic leader who creates high-performance cultures and drives transformative growth.

Over the past 21 years, he has had the honor of serving as President and CEO of three national private equity-backed service companies, each in different industries. Two of the three companies he built achieved enterprise values of $1B. Throughout his career, Coffey has a proven track record of achieving notable outcomes for stakeholders. His career average at exit is 4x MOIC (Multiple of Invested Capital).

Quotes:

07:03 - “The military taught me something about discipline, teamwork, leadership. Really great foundations to build a career on.” - Adam Coffey

08:30 - “There’s always a plan in place. Great recessions happen. Pandemics happen. You always have to be flexible and adaptable. But generally, if you have a destination in mind, and if you have a charted course to get there, you’re going to be more successful than someone who wakes up every morning and has no idea where they’re headed.” - Adam Coffey

13:00 - “[Private equity] has permeated every part of the business world at this point. This is going to be the first year (in 2022) where more than 50% of all M&A activity–on the planet!–is going to involve private equity on one side of the table or the other or both.” - Adam Coffey

14:38 - “I look at private equity as a tool and they look at me [as a CEO leader] as a tool too.” - Adam Coffey

23:45 - “Frankly, most venture capital funds don’t return more than a 2X multiple of invested capital.” - Adam Coffey

25:48 - “The more an entrepreneur knows about what private equity is, and what their needs are, and what’s going to happen to them on the journey, the better position they are to be successful. Right now, if you happen upon an entrepreneur that sold to private equity, half of them will say that it’s horrible and ‘I’ll never work with those guys again.’ And half will say, ‘Oh, I had a good outcome. It was great and it was fun.’ It’s hit or miss because it was left to chance because people don’t know what a good partner looks like, or what their needs are, or what their partner’s needs are, so you have a 50% hit or miss rate with people.” - Adam Coffey

29:18 - “The joke amongst P.E. guys is, ‘Earn-outs are a lawsuit waiting to happen. The only question is, ‘Who is the plaintiff?’” - Adam Coffey

37:35 - “I’ve always been a transparent CEO. If I’ve got 3000 employees, all 3000 employees know how much EBITA we got, what our revenue is, and where we’re going and…” - Adam Coffey

50:15 - “People tier products and services. Think of Mercedez Benz. You got a lot of money? They’re going to sell you an S-Class. What does S stand for? Spensive. It’s a spensive Mercedez.” - Adam Coffey