Ep 469 Inside the Mind of an Acquirer: The Private Equity Roll Up Playbook
Nov 22, 2024
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Jordan Dubin, co-founder of Guild, a roll-up company focused on garage door businesses, shares his insights on raising $35 million for acquisitions. He discusses the strategic importance of relationships in private equity and the nuances of the roll-up strategy in fragmented markets. The conversation also covers minority ownership models that empower original business owners while fostering collaboration. Additionally, Dubin addresses the skepticism business owners feel towards private equity, promoting the need for trust and understanding in the acquisition process.
Jordan Dubin emphasizes the significant profit potential in the garage door industry, marked by a $14 billion market and 92% fragmentation.
Presenting a clear investment thesis that highlights untapped opportunities can secure funding from investors skeptical of traditional avenues.
Engaging existing business owners as partners preserves their operational insights, driving growth and enhancing the collaborative success within the garage door sector.
Deep dives
The Strategy Behind Garage Door Consolidation
Jordan Dubin shares insights on the roll-up strategy for garage door companies, highlighting the potential for significant profit through consolidation in a fragmented industry. Despite initial skepticism, Dubin explains that garage door services represent a $14 billion total addressable market, with a 92% fragmentation rate, presenting ample opportunity for growth. The importance of operational improvements and centralizing back-office functions allows for economies of scale, leading to enhanced profitability for the combined entities. Dubin emphasizes how the strategy benefits both investors and existing business owners by creating a stronger, more competitive entity in the market.
Financing the Venture: Raising Capital
At the age of 27, Dubin and his two co-founders raised approximately $35 million from individual investors, which was considerably beyond their initial goal of $15-20 million. This achievement stemmed from presenting a clear investment thesis that showcased the untapped potential in the garage door sector. They effectively communicated the rationale for investing in an industry ripe for consolidation, backed by market research demonstrating the lack of private equity presence. Dubin asserts that the ability to present a thoughtful plan can lead to securing necessary funding even from investors wary of traditional investment avenues.
The Importance of Leadership and Expertise
Dubin highlights that engaging existing business owners as partners is crucial for Guild’s success in the garage door industry. By allowing sellers to retain a minority stake in their businesses, they remain involved and motivated to push for growth, drawing on their operational knowledge. This collaborative model not only preserves vested interests but also provides Guild with invaluable insights from experienced operators throughout the industry. Leaders must hire seasoned executives with operational experience to achieve goals and tap into market opportunities that enhance company performance.
Valuation and the Role of Customer Mix
When evaluating potential acquisitions, Guild considers several metrics such as revenue thresholds and EBITDA margins to ensure viable investments. Businesses with less than 15% EBITDA margins or those heavily reliant on cyclical revenue like new construction raise red flags during the due diligence process. Moreover, the value of any commercial work must be assessed carefully to avoid customer concentration risks, which could jeopardize profitability. Dubin emphasizes that accurately valuing businesses based on their operational viability is essential to Guild's approach, as it leads to strategic and sustainable growth.
Building a Collaborative Industry Community
Dubin discusses the camaraderie among garage door business owners, emphasizing the benefits of creating a network of collaborative peers. Unlike the solitary nature often experienced by independent business owners, Guild fosters relationships among its partners, leading to shared learning and mutual growth. This sense of community creates a supportive environment where owners are encouraged to exchange ideas and best practices. By collaborating with fellow industry leaders, each member has the potential to leverage their collective strengths to drive long-term success and sustainability in the garage door market.
If you’re a business owner, chances are buyers are considering your industry for a roll-up. From veterinary clinics to auto body shops, pharmacies to advertising agencies—you name the industry, there’s probably a private equity firm looking to roll it up.
This week’s episode is part of our Inside the Mind of an Acquirer series, where we dive into the strategies and motivations of different types of buyers. Jordan Dubin, co-founder of Guild, shares how he raised $35 million to create a roll-up of garage door companies and reveals what he looks for in a potential acquisition.
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