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Welcome to Founder 2 Founder, the ultimate podcast for entrepreneurs who refuse to settle for ordinary. Hosted by Sardor Umrdinov, founder and CEO of Home Alliance - a $100+ million tech-enabled home services platform operating nationwide.
From bootstrapping his first business to building a horizontally and vertically integrated empire, Sardor brings you raw, unfiltered conversations with successful entrepreneurs, industry leaders, and game-changers who've turned their visions into multi-million dollar realities.
Each episode dives deep into the real stories behind business success - the failures, pivots, breakthroughs, and strategies that actually work. Whether you're scaling your first startup, planning an exit, or looking to acquire your next business, you'll get actionable insights from founders who've been there and done that.
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- How to scale from startup to 8-figure valuations
- M&A strategies and exit planning
- Home services industry insights and opportunities
- Investment and business acquisition tactics
- Leadership, team building, and operational excellence
- Fundraising, private equity, and wealth building strategies
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"Partnerships are everything. Success is not a solo journey." - Sardor Umrdinov
Welcome to founders to founders. I am Sardor Merinov, founder of Home Alliance platform. Today I'm joined by Alan Hartley, a serial entrepreneur with over 40 years of experience in the staffing industry and M&A. Throughout his career, Allan has held senior leadership roles at major international staffing companies and later became the CEO of publicly traded businesses. Over the years, he has built, scaled, acquired, integrated, and exited companies worth hundreds of millions of dollars. He has completed and advised on hundreds of transactions across multiple economic cycles. Today we are going to deep in rollups, platform consolidation, integration realities, valuation multiples, capital structure and what is really takes to scale through M&A in 2026. Alan, welcome to the podcast. Let me start with a tough question.
Alan, if you would start uh in 2026, uh you would still do the traditional rollup or you would build a platform. You will do virtual rollup. All my rollups have been with a platform company first, right? So, I've always had a platform company and I build and I would buy other companies off of that platform. So, I've always had a platform and then underneath it I would do so what I would usually do, my structure is pretty easy. I would have the platform and underneath it I would have all what I call wholly owned subsidiaries and and then they would have their own and I I did a little bit different than most. Um I like what I call the DNA of the companies and what I what does that mean? I keep the I keep the name. I keep the brand. I keep the way they're doing business. Um, and then we have synergies on the SGNA side and of course economy and then uh hopefully we get you know we we do cross-elling on the revenue side but in reality they would have their own P&Ls and they would consolidate up at the what I call the platform level and the platform level is either a holdco a holding company or pubco or a publicly traded company but that's really the way that I I ran all my companies. Got it. Got it. Got it. Do you think uh is classical P rollup is outdated or not? No. No, in fact, uh, a lot of investors like, uh, rollup strategies because you get, you know, you're buying the companies at a certain multiple and when you combine it all, um, you get a better multiple. So, you get that arbitrage, right, between the smaller multiple of what you're getting. 1 plus one is three. Ex. Well, you know, when I buy companies, as I told you earlier, I buy it 1 plus one four and then I go by one. No, 1 plus one equals three. when you get uh because every time you buy a company, you you should get a bump in revenue uh through cross-selling and and different kind of strategies. And I have a horizontal vertical strategy to do that, which I'll go over to later. And then 1 plus 1 equals four because you have the SGNA economies of scale because I don't need two controllers. I don't need two insurance companies. I don't you know you you know you combine that to economies of scale. So 1 + 1 equals three on the horizontal integration. Then it becomes four on correct. There you go. Yeah. Yeah. Yeah. I'm going to I'm going to steal that.
Now, now tell me what was your smallest roll out? Well, they all start small, right? Uh but in reality, um the one I'm doing right now is probably my smallest. Um I'm rolling up a $10 million about $10 million worth of businesses and I have an $8 million really platform u where I'm bringing in about another $2 million of four small little companies. But these companies, I have really good growth plans for that. And I'm actually merging that into a publicly traded company, which is about $8 million to a TSX company actually in Canada. And um and that's probably my smallest. What I'm doing right now is probably my smallest. However, um once I hit the TSX market and we're planning to go to NASDAQ and do a list on NASDAQ and the Berlin market in the Frankfurt marketplace as well as the um Dubai marketplace, I think it may be my most profitable one. Yeah. When it comes right down to it. Yeah, that's cool. What was the biggest one? Um, the one I probably just finished up. Um, there was a $440 million uh company in New Jersey um that we um we took into NASDAQ. Um and then uh we just bought a $700 million company um in Europe. Um and that's probably the biggest one. So be $1.2 billion total um revenue with about a 20 $30 million IBIDA. Uh do you are you okay like sharing just not the name of the company probably just deal structure I'm sorry can can you share the exactly the same structure I mean you have the pubco right and it's publicly traded so it's pubco is the is the um main platform in essence and underneath it you have these holy own secities the sicerities happen to be big one's 440 million the other's 700 million and then we'll have other ones beyond them we have a there's like two $300 million more worth of companies that we're going to do and there's you know so at At the end of the day, we're well hopefully this year we can be 1.5 billion. Yeah. Wow. 1.5. Yeah. Yeah. Yeah. A and uh basically first you find one platform company, right? Then you start basically building the rest. Correct. That's obviously the best to me that I find that the best and not that too, but when you're with investors, it's hard to bring in a a bunch of small companies. Um you still need a platform, right? You still need somebody to um to to um you know to share the um that already has the most of the cost already there right and then you then you could then you um you know then every you know then you when you like we have marketing if you think about a company put it this way you have expenses right and what are your expenses really it's HR it's pay people are your biggest cost um you know uh marketing cost and all that and then you allocate those costs to these the the subsidiaries underneath really so you know and then they will also have it but then that's part of the economies of scale right so you know I don't need you know two marketing companies I need one right you know probably like my team I have 200 people in my company now probably they could handle minimum five times more that's correct that's correct that hold we have hold and we have subsidiary companies below and because we've been growing organically that overhead it stays on us but we could easily actually like tech in other companies is and I don't have to add more overhead. No, no. And the other thing too that um I had one company that I I started with actually mo most you know companies um when they you do allocation of cost and there's two ways to to expense it. one you can just do a corporate allocation um to the subsidiaries you know with 2% of your revenue or 3% of your revenue and then and then um the platform company itself um you know or the the holdco or the pubco um you know you know would to give those services you know the marketing service the HR services and all that or or you could just do quick you know whatever the real allocation number is so if I'm only using $200 of business of stuff and I only get build my company my holy my subsidiary only gets build $200 you know. Right. Right. Right. Yeah. I think we have the similar structure when it comes to just hold core. We pay a percentage of the revenue for the management company and when it comes to the shared economy like call center, marketing, recruiting and we pay peace like for each appointment that's booked they pay $100 or whatever like dollar for that and their job is to optimize that P&L uh the the the pop itself but the the management company just charges like MSO management system separately. Yeah. Yeah. No, no. What I what I did is I I came up with a concept called shared services, right? So, um, one of the companies I was CEO at, um, I came up I I started looking at my SGNA on the on the on the hold co or the pubco level. And I said, you know, I already have marketing services, I already do HR services, I do accounting services, I do all these services, even legal services, right? I said, you know, so I remember I gathered all my salespeople. I said, look at I want you to go to small to medium-siz companies. Yeah. and sell these services because I'm a staffing company, right? So if I need more people, I just, you know, I can staff it, right? I mean, that's what I do as a, you know, real, you know. So anyway, so um and and um so what my goal was to take my SGNA and to turn them into a profit center. Yep. All right. And I remember you telling me you were doing that too, you know. So that's why I said we're always like-minded. So it's pretty when you said it, I said God almighty. It's like you're reading my mind. But anyways, but that is the greatest that is the and my board of directors loved it because now I'm getting rid of my SGNA. In fact, I'm making into a profit center and I have my CFO as an example for accounting. He would share in the in the profit. I said, "Look at you can do this and I'll give you a little piece of the I'll give you a piece of the bottom line on on your profit center." Yeah. You know, and uh I thought that I came up with a whole thing on that too. When you told me you did it, I said, "Wow, that's that's probably you're about I think you're the only person that ever thought of it besides me. So congratulations on that. It kind of became business evolution wise, right? Like I looked it at Amazon AWS also they did it first was a cost center then it became a profit center. Exactly right. That's exactly right. No they make more money on AWS now. Well if you think about you know I look at it this way. If you think of all the businesses whether it's small or medium size the the the big companies are you know have their own. They're going to do their thing anyways. But if you're a small company or a medium-sized company, you you're going to pay it's unbelievable what you pay for accounting services, uh marketing services. I don't have to pay that premium is I because it's not it's not my main business. My main business is staffing, right? That's what I do, right? But the other businesses like accounting and all these other services that I already do anyways for my own company, you know, that's just gravy. You know what I No, that's why we came up as a platform and we want to share our basically the management SGE with the rest of the ten other companies. So it's more on the shared economy. They don't have to buy on the market price. We can just give them on the cost and everyone will benefit out of it. That's correct. That's right. It's just and it makes sense because my accounting department is an example. they're adversant to it. I mean, I have CPAs. I mean, I have really good accounting department, you know, and and you know, and why not take advantage of it? And we know these small to medium-sized clients need these services, you know, and if you can centralize that and you know, and just say, "Look at here. Here's my menu, you know, you can either do it all a cart or take the whole menu, you know." Yeah. Yeah. Same thing. No, no, that's why we're sitting here together right now.
What do you think is the best? Like 10 companies at 5 million or one company at 50 million? I'll tell you it's easier to do one one company at 50 million. That I'll tell you. And the reason being is because you're doing the same due diligence, right? You know, it's just it's it's your your cost way goes down when you just do one company versus five or 10 companies, you know, because the same it's and I'm doing the same due diligence for a $5 million company as I am for a $50 million company. The So that's the pros, right? The cons, however, is that um you're if you have the buying that $150 million company, they already have the way they're doing business and you can't it's harder to change that versus five, 10 small companies, right? So, the pro is financially it's easier and and financially better to do one company per se. That's the pros and the con is is that you're sort of stuck with that. you know the quorum you might say quorum to do that where again at the five to 10 companies you can you can you know you you have more latitude more diversity you know things like that which I think count for a lot the trick is is maybe to do them both right so how so maybe instead of doing 150 million maybe you get a 20 million 25 million and then bring in maybe four or five of these companies you still need a platform right so you still need a platform otherwise you have to build all of them exactly you have to build the infrastructure right or you have to take one of those small companies and really build out that infrastructure but you do need an infrastructure which is all that SGNA right correct yeah yeah more importantly also to let's talk about revenue generation that's the main thing right um revenue generation to me is is horizontally and vertically and what I mean by that is horizontally getting figuring out whoever you buy getting into more markets how can you share the same c offer to the same customer many product right yeah right well what I do and then the vertical is the first thing I do when I when I buy a company or I look at a company I'm going to buy is okay I got this company can I can I how do I expand it how do I how can I get into more markets and then I said okay here's what they're specialized in however I have other services I can sell to their client so I call mushrooming the account right cuz I look at every every company that I every client that we have and figuring out what else can I sell to that client you already did the hard work you already got the client right so how can I take that client and get even more business from that clients Also when I when I also look at a client I always figure out is I really want that car that um company to be a partner with me. I want to say look at you you're trying to get more revenues you're trying to get a better IBIDA or bottom line you're you're no you know we're no different than you. We'll help you do that right how can we help you do that I'm in the staffing business and you know people costs are the biggest cost for most corporations. Well how can we help you with that? Right? You have you're going out to do an M&A deal. You're going to go out to do whatever you're going to do. we may be able to give you services that can help you provide at a lower cost and better a better solution than what you can do otherwise. Right? So I try to become a partner with every client I can because it it it just makes a bigger it's just a better relationship between us. So the value first you're getting is you are getting access right away to bigger market, right? Like company A's market and company B market, company C market. Now you have access to all of them. That's correct. Number two, now you can cross-ell the company A product to the company and B and C and further and the company B product to the rest. So you're already cross-selling the product to the same customers. Exa Exactly. Right. You have a perfect example. I'm in the staff units, right? So if I buy an IT company and I have all their companies, all their clients are doing it. Well, I can provide accounting services because I have an accounting staffing division, right? I can provide um uh HR services because I have an HR group that that can handle that. Um I can even find executives. cuz I have an executive search company, you know, so there's different things that we can do. I like doing the executive search where I'm I'm I'm buying an executive search company in my next company that I'm doing and it's almost top down selling cuz who do they place? They play seuite. Yeah. Right. All the seauite and so all the decision makers, all the market makers, right? And so now we can go in there and say look at we already placed you and we were doing business with you. Is there anything you need? You know, we also do, you know, we we have a light industrial division. We have an admin division. And do you need any admin people? We can do all that you know. Interesting. Interesting. So this way the when you are doing a roll up and merge platform private equity companies they don't have to really do the hard work because the hard work actually bringing a really custom right in the beginning. That's correct. Correct. Merge it you now you start getting economy of scale now. That's exactly right. Yeah.
What do you think destroys the value of the year two? The real problem with anything is integration, right? And when you know it's easy to buy a company, you know, do due diligence and and you know what I let me back up. When you buy a company, you look at valuation, you look at um deal structure, um due diligence, and then um you know, definitive agreements and all that. And then really the hard part is the integration, right? And I remember we talked about it's a cultural integration. Yeah. Well, there's a lot of integration, right? You have financial, you have the SGNA integration, right? you know, because you want to do economies of scale of that, right? But it's culture and all that, but hopefully you do your due diligence right. Yeah. Okay. I know when I do due diligence, I have a whole checklist of of things that I look for in the due diligence that you'll be able to catch the red flags before year two even begins. But the real deal for any any as far as I'm concerned is really the people, right? Right. Because we're people are, you know, we're we're only as good as the people that that that we buy in essence, right? And if the people start to go south, it doesn't work out right. You know that the biggest lesson on integrations like um is to make sure that when I do due diligence that I already have year two mapped out. So before I even buy a company, I know what I know what I my expect what I know how we're going to grow that company and what my expectation is. I already have the budget for set up and it's not me that's setting up that budget. It's the people that I'm buying and myself. We're we're collaborating on that. So they bought in and I bought in and then I also put a financial incentive to that. Mhm. So it's their incentive to go ahead and do that and they've already bought into it because they help they they helped me, you know, set up for year two. Yeah. They they already know what year two is because I look at a company and said, "Okay, how am I going to how are we going to grow the business?" And I and it's not me that's telling them. We're working in collaboration with that, right? So they they already bought into it, you know, and that's the key. Basically, you're not really buying 100% of the company here. You're actually bringing the leadership together, right? It has a higher chance of staying instead of like once you bought the company and the owner or the leader leaves, then everything falls apart. That's correct. I won't I don't buy I usually do not buy a company unless management unless higher management stays or the owner stays. Yeah. Because I I don't know their company, you know what I mean? And and uh and I I I'll tell you a quick story. I was with a major uh staffing firm and um I got a call from them and say look at you know we in our Orlando market um are we bought back our biggest franchise right it's about $40 million franchise and um but they let go of the franchise owner and of course the franchise went from 40 million to 20 million so I went in the first thing I did is I bought that franchise owner back right he knows his business I don't know his business you know what I mean so I mean I know the business but I don't know the Orlando marketplace place like he does, you know, or the intricacies. So why and that was all of a sudden a light bulb went off in my head. God, I will never do that. So I will never buy a business unless I have ownership um by who stays with it and and and also incentivize that owner. Why why would he want to come in with me, right? So when an owner wants to retire, I have no problem with that, but I got to make sure second generation management, you know, is good with this. Also, when a manager um like when somebody retires, what are they doing for the business? If they're bringing in the bulk of the business and they retire, it's that that that to me is a red flag. Yeah. You know, I mean, it's going to be tough. How what's going to happen? What's going to happen a year from now when the businesses who he's bringing in the dawn on him? God, he's no longer there anymore and all of a sudden opens up, you know, to and I I don't want to take that chance, you know. Have you saw uh any companies doing that kind of mistake? Like uh everybody does. I just told you that one company who let that manager go, right? I mean the owner go, right? And then and then went from 40 million to 20 million in not even eight months. Wow. You know, on a run rate, you know, and it was just incredible, you know. And I said, "God, oh money, why would" And the guy they let go is a great guy. I said, "Are you kidding me?" You know, so we ended up bringing him back and he came and fixed it back, right? Oh, yeah. Oh, yeah. Because he knows what the he knew he knew the customers, knew the clients. And I went I went back to the to the CEO. I said, "Why would you you know what would what made you do this?" He goes, "Well, I thought we can do it. We had the systems." They said, "Well, you know, duh." You know, it didn't work. But it dawned on me, too. I've never So, so the leadership, the culture, the finances, big time systems. Correct. Yeah. And you have to have the same mindset too, you know. Um, when you take a company public, you got people want to be go public, right? or if they want to go to a strategic, you know, you have to have that or go private equity, which is a whole another world. Um, I've even done an ESOP deal, right? Employee stock option program. Um, you know, you have to have that mindset and you have to have the buy in. That that's the key because if they don't have the buy in and they're just doing it for the money and all that, it's just not worth it. It it really isn't. You know, you need the buy in. You need to have the same fit, you know. Um I I you know when I buy a company um I you know I I try to you know you you want to bond with the people and the manager. I have every time I buy a company when we first buy a company I'll have what's called a town hall meeting where everybody comes in and I explain exactly what we're doing. You know here's what it is you know and and um then you know and they get their buy in and because you want them you know what I mean? You're only as good as the people that are that you buy. You know what I'm saying? Otherwise don't even do it. And I'm not doing widgets, you know, I'm not selling, you know, I'm actually I'm not a manufacturing company, you know, where I, you know, I'm in the people business. Correct. Exactly. Right. Yeah. Yeah. Yeah. And and when you're structuring those ESOP deals or structures, like what percentage of the pie you put it on the side for the ESOP on the on the ESOP deals, I'm just I just learned it really because I just put a a $200 million company on on an ESOP deal. And um it's my first I I heard of it obviously, you know, play stock, but I never, you know, I never did it until then. And it's kind of interesting because it's t there's a lot of taxfree incentives to that. Um and then there's also a debt piece that goes with it too. Um but the owner does really really well. And not just that, but the you know what's key to this whole thing even when I was and I take companies public is really the stock or the stock option programs because um I remember when I first my first company I ever got stock in um and I had no idea. I'm you know I was nobody know I mean I was a kid right and I got stock and I said oh good. you know, no idea what it means, but everybody in the company got stock, even the administrators and all that. And it was really an eyeopener because everybody now, we used to put the stock price on the board, you know, our whiteboard back then, there's a whiteboard, but um but this employee stock option program is the same thing because now you're an owner of the company. Correct. Right. So, you want the company to do well. Yeah. Because it only enhances your value for you personally. That's why everybody likes the stock option programs, employee stock option programs, you know, because again it gives the employees whether they're they're an admin person to all the way to a C CFO seuite, it gives them incentive to to help their company grow. Yeah. Yeah. Because if the company's doing well, their stock exactly they do well. Yeah. Exactly right. Eventually probably that's how you kind of exited with a bigger check, right? Exactly. Right. Exactly. Yeah. And if you're an employee stock, if you can you when you retire or you leave, you get that, you know, the value of that company, right? Probably sometimes it might be better than a pension plan, right? Oh, it it should be because if you do, if everybody goes right. Yeah. Interesting enough, you know, when I get I bike businesses with 401ks, sometimes my stock or or the employee stock option program now that I just got into it, it has a better return than a 401k. Right. Right. Right. What do you think uh the biggest illusion founders have about rollups? The couple of things uh that I feel the illusion would be that first of all it's easy to roll up. It's not um because you have to have um as we we talked about earlier the right mindset, right? You have to have the same mindset, you might say, of the rollup and make sure the the owner has that the same mindset and that's an illusion because you figured okay everybody's want everybody wants to do this rollup. Um also there's a you want to get that economies of scale. It's not that you know when I keep saying integration well you know besides the we talked about owners and all that but financial integration you gota you got you need somebody especially on the CFO level who can actually put this thing together right it's harder than you think because remember now when you buy a company as a rollup right you're buying a company and you know they're used to doing you know I've had so many companies tell me well I I build a little bit different than everybody else and they really don't it's just just you know little minor changes but they but they but they think that they you know it's you know that they it's unique and they really it is unique maybe to them and all that so but they want to make sure that uniqueness stays with them right that's why I said we keep the DNA of the company because we keep that uniqueness so um what so so you have to make sure that is happening but when it comes to accounting finance is a black and white right yeah exactly but it's not as you think it is because again everybody thinks it's you know I have to build my company this way or I I have to do my payroll this way you know um in reality you know it's It's the same, but it's just uniqueness in that particular space. I get it. So, but you have to be mindful of that. And people don't don't think of that when you're doing rollups. They think, "Oh, we'll just bring everybody in the same, you know, payroll systems and we'll do that." It's not, you know, you have to still make those changes, right? So, anyway, so so there's that part of it. And then, um, and then also that, um, when you roll it up, and remember we keep going one and one equals four in my world, right? Um, you have to make sure that actually happens, right? And then also the other thing when you're an investor or you're in the higher level of this and you're actually putting this together that everybody thinks that when you do a rollup that um you're going to make more money. It's going to really happen. Well, it doesn't really have it doesn't unless you actually put the work in to get it done because theoretically investors like it because you're buying the companies at a um at a certain acquisition price or a certain multiple. It's four multiple, five multiple and then when you add them all together, you should get a six, seven, eight multiple. If you're public, it's even a little bit more, but let's say just on a private sale. So, so and so, but you have to, you know, have to show the market or you have to show why you're getting that big multiple. A lot of it is be is I know in the public markets they like to see size. Yeah. You know, so the $440 million company we did is size, right? The 700 million we bought in is size, right? Um so that that's the key to this. Even the company I'm doing now, we're starting off small, right? At 10 million, we're adding an 8 million because they already are 8 million. So let's say we're on 20 million give or take you know but we know we need to get the size in order to if we want to dual list on NASDAQ or we want to go other places with it and more importantly to get the return for the investors or the shareholders right I always when I was a public company you always think of shareholder value how can I get that shares up you know how can I get the shareholder value so do you think it's 100% ownership is overrated no no because what's good about 100% ownership is that when you do decide to exit Yeah right? You have 100% of the money coming in, right? So, um, no, I think 100% ownership is great. You know, if you, you know, depending on the if, if if if you're one of the companies that you're looking to sell, right? You want to you want to do a merger, you want to sell your company. Yeah. Obviously, the 100% ownership you get, you make the money, right? Which way is better? Do you think like holding 100% and try to exit all the way yourself or merge and you do the swap of your equity, then you exit together? That's a good question and my answer to that is the bigger you are the more money you'll make if it's so you have to look at does one and one equals three on the merger side right so right now I if I'm a a company that does 20 million and um I do a $2 million IBIDA 10% as an example and let's say I sell it for five times so you know it's $10 million give or take right and then I'm going by my my industry and then um if you combine with another $20 million company so now it's 40 million But instead of doing a $5 million IBIDA multiple and maybe a six IBIDA because you're bigger now, right? So you got to weigh how much you know and all that. And then the other thing you have to weigh on too if you merge in with somebody who who who runs the company. Okay. Is it you or is it the other $20 million company, right? So that that that all has to work out. And not only that too but when you merge you also have to make sure again to get proper valuation to get that bigger valuation you have to have economies of scale on the SGNA you still have to have econ you figure out how to how to take that one in one equals three on the revenue side and one equals four on the SGNA side that has still has to come together. Yeah, I think one of the greatest virtual mergers was a PayPal. PayPal my when Elon Musk and the Peter Teal and all of them kind of merged together to one company and they sold it to eBay, right? Oh yeah. Oh yeah. No, no, I believe me I'm only dealing in my world which is smaller than their world but uh you know but uh but you're right you know. Yeah because if they would not if they would not exit it together like that they won't be able to build the next billions of dollars. Well, it's funny you say that. I have a um remember I got involved with the ESOP guys, right? And so I was talking to my main guy that I was talking to in ESOP and I he you know, we started talking about, you know, because he knows that I I I um merge companies together to go public. So we said, Allen, instead of going public, why don't we why don't you take a bunch of companies and go and go ESOP? You know, instead of going public, do ESOP. Same concept, right? You're going, you know, you employ stock option versus stock. And I thought about I said, "Yeah, but but again and I I keep thinking about it. How do I get the most value?" Because even ESOP has to create value, right? You still need a multiple. You still need a you know, you still need the same concept as you do a publicly traded company and you still need some kind of a platform or you need some kind of, you know, you need something to to put it all together. Otherwise, you're going to have all these different companies. And I I uh he was on vacation. He just got back. So, I'm going to get more detail on that because he's he's literally just got back. But, but the concept is the same. So, I just want to get more clarity on on that part of it with an ESOP. But to my my thinking is you still need to get that, you know, you still need that platform. You still need ahead of the, you know, head of the snake in essence, right? Yeah. Yeah. Yeah. Uh yesterday, uh I think I shared with you uh the Black Rockck announced about the acquisition of the Champions Group. Oh, yeah, he did. Yeah. Yeah. Yeah. I looked at it real quickly at India. Yeah. I think $2.6 billion. Oh, yeah. Yeah. It's my my type of group. Even the black. Do they need any staffing? I'll help. No. Maybe. They probably do. Anyways, what about scale or versus EBID equality? EB equality is still the most important by far. You need you need, you know, you need profit. I mean, I can you know what, you know, it's funny when I buy companies and I have an earnout. I want to make sure that, you know, they're not giving the business away just to get a better revenue number, right? I need I need I need profit, right? And everybody looks at profit. So the answer your question is quality of profit is by far the biggest probably like recurring revenue also. Well, recurring revenues, you know that again the SAS and all the SAS environments and all that recurring revenue. That's true. However, it all has to filter down into a better profit. Yeah. Yeah. Because I can have recurring revenue, I'm I'm making $1. or I can have recurring revenue and making $100. Which which company's better, right? Yeah. You know, yeah, that's why like one of the main reasons we have implement the membership programs. That's correct. Yeah, that's right. Because you want that well recurring revenue is key, right? Remember I told you concentration of client then you also have recurring revenues. I mean there's a bunch of factors to go into when you when you actually come up with a a valuation of of you know multiple, right? Yeah. But otherwise in emergency services like how you can really like predict the revenue, right? always spend money on marketing. But this way when you sign them up on subscription now the client comes back whenever and I'll go in my industry the permanent placement industry because they're mostly oneoffs. You know somebody needs a controller you fill the controller that's it and then you got to go find another controller job. Um contracting however you know the consulting is is you know they're going back to work the next day. So you have recurring revenue right versus that. So we a contract business is has more um for the most part has more uh valuation you might say better value you might say than a than a a oneoff type of business. Got it. The business you talked about the control what percentage of the revenue you guys normally charge 30%. Anywhere between 25 to 30%. 25 30% right. Got it. That's the average you know and if you're retain there's two types of permanent placement right. You have retained which is more of a 33%. That's more of a high level um retain business where you get a third a third a third a third up front, a third in the middle after you do certain things and a third when you place um where the contingency is usually between 25 30% could go down to 20% depending on the level right remember it's a it's a there's a it's a um it's really a triangle. You have your top which is really the executive surge high level seuite type model and then you have the midsize the middle right which is more of that white collar midsize and you have the blue collar which is the bottom part of the triangle. The lower the lower you go on the triangle the less the less margin you get and the less uh I can charge. So for permanent placement position on the lower end of the triangle go anywhere between 15 to 20%. Yeah, the middle triangle will be 20 to 25%, 30% and then you got that 33% up on the top. 30. Interesting. Does the coordinated exit it creates arbitrage? Oh yes. Yes. Yeah. The arbitrage again the biggest arbitrage on a on a rollup again is you're buying the companies at a and that's why investors like it. You're buying at a lower multiple than when you have the hole. And so therefore, because I'm buying and the investor is giving me money to buy it four or five times. If I go public, it can go up to 12 times, you know what I mean? And that they like that arbitrage 10 times and go to the arbitrage. If I do a strategic, it's just going to help their multiple go better, right? Um, so if I'm at a six multiple, I bring in a I'm buying something at a four times in a sense, I'm already at a six times already. So, you know, it you're already at that six times. You already you already made the arbitrage on that. You know what I mean? Do public companies have to always acquire companies to like Yeah. You always have what I call feed the beast. Yeah. Right. It really is. Really? That's what I call it, you know. Yes. The answer your question is yes. You always have to keep there's only two ways you're going to grow a company. Organically your mergers and acquisitions, right? But when you are too big, it's harder to grow, right? Yeah. That's why you have to do these mergers and acquisitions because you're only going to grow so much on an organically. Correct. When you're smaller, you have a big organic play. You can actually make a lot of money. When you're really big though, it's tough to go 10% 20% 30% growth. Um that's why you buy companies and and and the and they're not really paying cash. They're paying with their stocks. Oh yeah. We use stock as currency. That's why people like the stock play. Yeah. Correct. Yeah. Yeah. So basically they're they're worth on like what some companies might worth 20 24%. Correct. That's correct. Yeah. I I know I tell everybody never because when I buy a company, there's always a stock in there, right? And I tell the owners, don't discount the stock. You know, you're getting it for a dollar a share today, but if we do what we say we're going to do, it's going to go to $3 a share. You're going to make you're going to triple your money. Yeah. So instead of a four times that I'm buying you or five times that I'm buying you if the stock matures in two three years because I usually have threeear deals you know instead of you can go up to six times or seven times when it when it all shakes out after 3 years. Yeah. in our home services like on propt tech uh there is a company called service titan and they exited uh to IPO uh on 33% 33 times of the topline revenue not the bottom yeah that's like I think they do about 250 million or something like that or maybe a little more now 275 and they exited on like almost $9.9 billion like 10 $10 billion right I think the stock is now kind of dropped now at probably it's like 6.6. Yeah. I'll tell you right now, you know, it's funny. I have stock, right? And you can't look at the stock market. My my my my family looks actually stock and they, you know, they said, "Dad, you know, I remember my father when he was alive." He would say, you know, my my stock goes down a dime. You know, he goes, "Elan, the stock went down a dime." I said, "Dad, don't don't do this. Don't don't do this." I said, "Please just let let just let it I don't even look at it, you know. I just let it ride." And, you know, really, because the stock market is there's no I I don't I can't even control it for that matter. I can control what I can control, but the stock market's got other external factors, you know, the White House can announce something and then then it goes down. We had co boom. You know what I mean? It's just it's just insane. There's no you can't do that. It's a longer play for the most part, you know, and you just can't. But even for them, in order to continue grow, they have to acquire company. Oh yeah. No question about mergers acquisition is the biggest one. The biggest one they have to just continue that big company I was talking about the 1.3 the 1.2 billion. You know I you know you I talked to the you know the management of of that group and all the time they're saying Alan what else can we buy you know what else can we buy because that they know they need to do that not not just them but all these public companies and and when when they are trading on whatever the multiplier when they acquire they can acquire like 10 20 $50 million company they add it on the top of whatever they have that's correct and like we talked about size matters right so the bigger you know more companies and they can actually announce to their like on quarterly like they have to quarterly earnings, right? And it has, you know, what's what I like about uh public companies is the transparency. You know, there's no, you can't, you know, good, bad, or indifferent. This is what it is, right? And uh I always like that, you know, the transparency in this. And then um and then, you know, and then let the chips fall where they may, right? And you could do whatever you can do. You do you do the best you can to get your revenue up and your EBA going. You have good management, good practices. You do as best you can, but at the end of the day, you know, you did what you can, you know. You know, one one interesting things I always do is I go uh I have some list of companies uh in the public to trade it and I pull out their like quarter and yearly report. So it might be Uber, it might be Door Dash, it might be Service Titan and I basically pull their report and actually look at the really detailed P&L how that P&L is Gene looks like and I try to kind of mirror it. Yeah. Yeah. Yeah. Yeah. I kind of mirror it. I know. I look at my competitors and I look at just the staff. I'm in the staffing industry, so I look at those, you know, staffing companies. Same thing. I have a stock watch list as well. And I have stock in some of these companies anyways, but I always do the same thing. I always say, you know, what what are they doing? You know, that that I'm not doing. So, because P&L kind of tells you the strategy. Oh, no. Without a doubt. Oh, yeah. Not that. But, but also they have to, you know, they put announcements out. Look at the P the PR releases and all that, you know. And just imagine like that kind of big company. They have probably like so many genius like smart people sitting and working on that and actually you can just copy the strategy right just learn from it. That's right. That's right. Yeah. Yeah. You can apply those things. My old boss used to say, you know, when you make a mistake, my old boss used to say you just pay tuition and you learn from it. You know, I always I told him when when he said I said I'm going to steal that. I use it all the time now. But it's true. So you you make mistakes and god forbid you do you well everybody makes mistakes. Did you learn from it? Correct. That's your tuition, right? And then then hopefully you you grow. But if you can actually watch uh if you have mentors and uh if you watch others then you might kind of skip that mistake right like oh yeah no that's the whole purpose of it right now you try to avoid what you can right yeah correct correct but no I'll tell you right that you always will make some kind of mistake but that's that's we're human right so that's what it is yeah yeah I think we learn more on our own mistakes oh no without a doubt because it's you you're actually in the middle of it right you get scars right internal scars yeah because you're actually paying that price whatever doesn't kills you. Whatever doesn't knock you up, it just takes a good lesson. That's right.
I think we just discussed that. Why do institutional buyers pay premium? Well, it's the same thing. They they pay a premium, you know, and and that's the goal, by the way, for a public company. You want institutional buyers, right? That's the, you know, the mecca. But anyways, but um again, it's the it's it's a bunch of a bunch of factors. There's not one factor, but obviously the main factor is financial, right? Correct. Because they're bankers really. So they're looking at the IBA line, the revenue line, what's the growth spurt, what can happen um you know and and um the business itself, you know, these there's the mitigating factors, but the biggest factor is financial. You know, you need a good revenue line because I think Black Rockck paid premium for Champion Group because home service is really stable during the crisis. That's correct. That's correct. It's it's essential. And what is happening now is the real estate commercial estate gone like all of them empty. They're sitting quietly. They actually, I think, like dropping them off one by one. Well, I'm from Boston and what they're doing with commercial real estate there and probably everywhere. They're making into housing now. Correct. Cuz they need they have the the space, right? Even malls, you know, like uh people don't want to stay in the big big cities anymore, right? Oh, no. Want to move out? Well, you know, it's becoming I noticed also in some malls, they're making it into housing. Correct. You know, cuz they nobody's going to the malls anymore because everybody's shopping online, right? So these big like these anchor stores are gone you know so they they make them into housing now you know. Yeah. No, I think like the there was was the what is h what happened to the real estate after the co and uh uh what is happening with the crypto market right like all the bitcoin and everything has crashed like gold crash like right where else are you going to invest the money right yeah well I'm in the people business so I I invest in people so there you go so you know and then and then uh you know it's it's kind of interesting the way uh my business really even though it changed technology big time. You know, I wish I I had LinkedIn when I was running, you know, running a desk, but um you know, the the tools, you know, the AI tools and all that, but I didn't have that when I started the business. And it just it just, you know, further helps you get more done, you know, at a quicker pace really. And um and um and that's but I'm still in the people business. Yeah. You know, people still need to talk to people, per se, you know what I mean? So it just what it does technology just really quickens the the I could do more work because I have I have more tools at my disposal. So instead of doing five or six people I put six people out. I could put 10 people out because I have a I could do it quicker now because of technology. Yeah. Are you I uh probably you not probably your your people are implementing do they are they implementing AI? Oh yeah, you have to. Um and in my business especially it's easier to optimize the uh recruiting structure. Correct. Right. Um, and then also even the sales structure, right? Because there's so much out there. So, you have to delineate yourself. And one of the ways that you, it's still in my, you know, I'm an old fat, you know, I have gray hair, so you know how old I am, but but I'm oldfashioned in the sense that you still need people-to-people contact, human contact in order to make placements in essence. Um, however, what AI does for us, it it gives us the the better candidate that we can present at a faster clip. Yeah. Right. And that that's what AI does to us. it it really helps us crystallize that you know. Yeah. Yeah. Actually we have internally built a tool like it's again right on the hold level uh for the group of company in the platform uh where we it it has information about it does a style assessment disk assessment. That's right. They all AI does you know does we talked about it in the car. I have to do an analysis. It takes me like, you know, five seconds to do an analysis where in the old days I'd have to, you know, pay somebody or I do it myself, it take hours. Now it's, you know, nothing, you know, and um and and then and you know, it's the evolution of technology, right? It just keeps getting better and better and better. And again, it just quickens the pace. It gives you more chances to to to make the right Yeah. to to place the right person, at least in my business, you know? Yeah. Like I had to do it now like uh uh I I'm learning wipe coding. uh like I already got to the level four or something like that and I have developed like a lot of new platforms myself and learning it and even though I think like by the time this video is going to show up in few few months I think it's going to be all wide range everybody's going to be doing the wide training and when I just installed the cloud cloudbot also and I'm going to be training my own AI and I think in few months everybody gonna have one or maybe many everybody do well you know in our business sometimes you want to do white papers right Yeah. Well, you know, you don't have to do, you know, it's really easy now. You just go to AI and tell them what you're looking for and analysis and you get the you get the white paper done in in minutes, you know. So, that that changed that whole concept, but it's uh it's industry. It's it I love it, you know, because it's it's uh you have to grow, you know what I mean? And and um you know, you have to use it, you know, you learn it, you know, and and uh but I I think it's I think it's great. I really do. Three red flags that kill deals. Well, first of all, you know, due diligence is financial, right? And and um so if the finances if the financial due diligence does not check out, that kills the deal right away. So if they say they're doing a million dollars, in reality, they're only doing $500,000, that kills that deal. That's gone, right? Because so you have to have a proper quality of quality of earnings or or audited statements, you know, or something like that. But that is the quickest way that that's that is the red flag. The second part or second one would be the people, right? You got to make sure that your your your philosophy is compatible to their philosophy. That's a due diligence will show, right? And then the third do third part for me anyways is to is the future, right? We talk about the second year, right? Third year. Um can do they have the based on what I'm seeing in due diligence can and I talk to the people, you know, the people I'm buying. Well, during due diligence, how do we grow your company? So, that's got to be compatible to what I'm going to do, right? So, if they going to need, they said, Allan, for me to grow, you know, twice my size, I need this, this, and that, and it's in feasible for me to do that. And it's just they're they're so different than what I can really do. That's another way. So, those are really the three structures that I that I look at to to make sure that my due diligence goes right. How long you do the due diligence? I usually when I I usually say that um on a public company it's anywhere between it's around 60 days after LOI after you sign an LOI about 60 to 90 days depending on the size of the company. Sometimes you have to do audits and things like that. Um on a on a publicly on a excuse me on a private company 30 to 60 depending on the size of the company obviously if it's small maybe 30 days of after you sign the LOI like uh like do you what do you what do you normally do right away? Well, let let me let me back up. So, when I when I first am interested into a company, I deal with brokers because they, you know, they they show me companies. The thing that um I ask for is I need at least three years P&L, you know, minimum two. I need an up-to-date balance sheet. I need an accounts receivable aging. And I look at the aging for concentration of client and and um uh payment history. Um and I don't really care the name of the clients even though I like to see the name of the clients, but again, I just more that's the most important part. I need um an org chart and I need if they have a proforma for the you know for the you know for like 2026 or something. So those are the those are the beer nuts that I but they're things that I need. And then once I have all that then I request a meeting with the broker I mean with the owner right and then I go through I have a little checklist that I look at you know what kind of ATS system they have you know different you know are they uh are they self-funded what kind of an accounting system they have how many people do they you know getting more involved in the you know uh what is the you have an internal employees what do they do you know that kind of thing. Um, and then once I have all that information, then I go back and do what I consider a um an evaluation or how am I gonna buy the deal structure. Then I go and say, okay, if if everybody agrees with the deal structure, then I put that into an LOI. Then that kicks off the due diligence. And then during the due diligence, like I said, you talk about next year and go through the due diligence. Then you get the definitive agreements, you know, the that and then close. Biggest postclosure surprises. Uh, that's a good question. Um, well, you know, you we sort of take care of the surprises in the definitive agreement because I have in my agreements that to make it easy. Anything before close, their problem. Anything post close, I it's my problem, right? So, if something comes up, they're getting sued or a tax issue, that's their issue, right? If it's if if I doing a if I'm doing a stock deal, an asset deal, doesn't matter. But if I'm doing a stock deal, which I do mostly, that that's the that's what I would do. So, and so that's my biggest surprise if something comes up like a a client, a big client leaves, right? Um a um and that's my problem because I should have saw that in the due diligence, right? If I do my due diligence right, I shouldn't have any surprises. But if I that could be a surprise, one of the my a major biller leaves and I may not know that even dur do diligence because he may be saying, "Yeah, I want to join you. I want to join you." Then he leaves, right? So then I'm screwed, right? So, so that that that's a big issue for me, right? So, because I'm then I'm losing a I'm losing a revenue stream, right? Because my big builder's leaving, right? And so, those are probably the biggest surprises, I guess, in my business. Got it. Got it. And you do most of the stock deals. You don't do asset because it's the midmarket, right? I'd rather I'd rather do asset deals because you have less exposure. However, uh you cannot do bigger bigger companies. you don't well if I'm if I'm a publicly traded company it's all stock deals right you want to do stock deals right because what you're trying to also with a stock deal in my business is you don't want to if I do a if I do a stock deal I take over all the clients I take over everything right and what I don't want to do if I do an asset deal because sometimes if you have um um a change of control or something happens on a stock on an asset deal I may have to go back to the client and and have them resign an agreement which I don't want to do right I don't want the client to say Oh god, they're, you know, they're they're changing. And I said, well, maybe we ought to look at their agreement again. And I don't want that to happen. Also, the employees as a stock deal, they automatically come with you, right? In a sense, an asset deal, I'd have to put out new I have to say, you have to do new new agreements, right? Right. A stock deal is easier. You just got have But again, if you have the good reps and warranties in your in your um definitive agreement, they're really not an issue. And again, I come back to my old adage. If it's before close, it's their problem. If it's after close, it's my problem. Right? So, god forbid a they get sued because an employee was suing them for whatever reason and it happened a year ago. That's their issue, not my issue. So, I'm not responsible for that. How much normally it cost to close a deal? Depends um on a you have to pay lawyers and you have to pay accountants. Those are the two biggest costs you have. And a public deal, they're a lot. Uh when you do a a public company, it can go anywhere from 500,000 to a million and a half literally. Okay. To to to do to go public and do all that. Um when you buy a company, you have to um it can depending on the size of the company, it can go 15,000 for a lawyer fees, give or take 10,000 for lawyer fees depending if depending how small it is and then your accounting fees. Right. So, but I have my if it's a small deal, my CFO can handle that. Yeah. Right. because he's, you know, he's savvy enough to do that. If I need an accounting or if I need a a fairness opinion, right? Um, then it's going to cost me money to do that. So, that that really the but the true cost for it is all that. Then, of course, you have just the time, right? Because it's not just me as an owner or as a CEO doing it. I have people other people involved in this, right? Because I may have my depending on what I'm buying, I may have my CEO need to talk to these guys, right? And do help with the due diligence and all that. So it's just time cost as well as actual physical cost. Yeah. Let's talk about integrations. Uh why do most integration fail? Because um it's a couple things. Remember I said that um one equals three because of financial um um because you have the economies of scale of SGNA, right? So that is one reason we have to figure out a way. I usually say 5 to 10% on the bottom line just on SGNA savings. that that we have to figure out a way that that does happen. And that you should know that during due diligence. By the way, if you do by the time you get to integration, if you do your due diligence right, you won't have a problem in integration because you already figured out those issues already. And the other issue is besides the financial, you know, making sure you have the economies of scale stuff is to make sure that the systems integrate, right? So um you know we we have software ATS you know applicant tracking systems CRM you know that the sales all that you got to make sure those systems can are compatible to what you're doing as well. So you got to and that's during due diligence phase by the way but that'll also hurt integration right because if you want everybody on the same platform and it's not there's that and then the third is to make sure that even though you do due diligence you got to make sure the people are compatible to the people that you're already working that's already in your company. Right. Right. So those are really the three things. So it's operations, financial and people. Uh can shared services replace heavy integrations? Yes. And I'll tell you why. Because I keep going back to that economies of scale, right? So I have shared services of the answer is yes. And I'll tell you why. Because one is let's use human resource as an example. I don't need as much human resource services to the actual portfolio companies because I have it on the on the top level. Yeah. Right. So that is that's one of it. Accounting for sure, right? They now I do need each s each company that each subsidiary a yeah a justeping really I just going to say bookkeeping services right but the but and maybe a P&L but it it all consolidates up at the it's really my CFO at the consolidation. So to answer your question is yes that definitely shared services by far is is the first of all it help you save money right and more importantly you have the expertise and the people you trust at this at your at your company level yeah what synergies are real versus fantasy I think the fantasy is is that you're going to get an unbelievable multiple uh valuation by doing all this you know by doing that there has to be you have to be realistic on what you can do and again what I what I mean by that is if you um buy a company you have okay I'm going to do one in one equals four there has to be realistic in that three economies of scale and what can you really achieve with revenue growth right because remember those are the two things the lynch pins right three and four right so you have to have realistic expectations on that right you can't just say okay I'm doing 10 million and then I'm going to do with this company I'm going to do 25 million next year you know can you you know what I mean so you have to have realistic goals I think when you when you're when you're planning out Right. Fair. And also when your when your economy is the scale of the SGNA, okay, if I can can I can I get a 5% savings or a 10% savings, you know, or or maybe I'm unrealistic. I think I can get 20% savings. You know, you got to be realistic on your goals.
Okay, let's talk about the capital structure depth versus equity in high rate environments. The way that I buy companies, so let me go back to that, right? So my deal structures are pretty simple, right? It's there's a cash component, right? And that cash component can either come from debt or equity, right? Um and then usually usually it's off my balance sheet, right? So but it could be debt, you know, as well. And then um I usually have an earnout component or a note component, you know, depending on earnout or note. And the note would have a clawback because I want to make sure, you know, I haven't drisked as much as I can. And an earnout, my earnout's usually against gross margin versus net. And the reason being is because I need the owner that I'm buying to have the same mindset as me. I want to grow the I do want to grow the Ebida do. But if I had his earnout against the Ebida if I want to hire people to expand his business, he's going to say, Allan, I'm not going to bring this, you know, you're putting this expenses, it's going to hurt my earnout, right? But if I do it against gross margin, it doesn't it doesn't. You put it on gross profit, right? Yes, I do gross profit, right? Versus versus V versus V versus V versus V versus V versus V versus V versus V versus V versus V versus net. Because again, I can put it on top line because it might hurt. That's correct. Gross profit gross profit because that that's if you think about gross profit. That's the actual line that you pay your bills and make your money. That's really the line, right? So, I just want to make sure. So, we're on the same page on that. But anyways, go back to my deal structure. So, I have a um a cash component. I usually pay anywhere between 50 60% cash at close. And then the other 50% as an example would be um an earnout, which is maybe 25%. And then I usually have the owner roll back equity if they you know and whether I give them equity in my public company or if I'm doing a private sale they keep equity then within three years they can I buy that equity back right um or if it's stock they just keep the stock but if I buy and the the the goal is they have to believe that we can grow their IBIDA line right so therefore that that equity that they're rolling I'm rolling back that equity is is a lot more than what it is today that's why I keep telling everybody after a three-year period, which which your valuation is today is $100, in three years it could be $500. Correct. Right. So that that that's the key. I actually came up with a a form that actually shows owners what they will make in three years based on a 10% growth, 20% growth even on the stock that I give them. Here's, you know, it grows, it grows to a dollar, it's a$150, it's at $2. So I actually have a whole sheet because owners don't know and I it's hard to an owner anybody really to say okay what's gonna happen in three years you know I don't know you know how long is normal look up period and a public company anywhere between 6 months to a year and it's the same thing to the sponsors as well right they changed it uh before sponsor could do it from the day one now actually they're in the same shipment yeah it's saying we we do six months to a year six months a year okay yeah it's fair yeah no it is and Chris what you don't want to do is buy company you give him stock and then he sells it the next Hey, that's not that's not not going to happen cuz then your stock, you know, goes down, right? They they all understand it, you know, because it is, you know, Yeah. Because uh I got an offer like I think 2019 or 20. It was a spack reverse merger. I refused it because at that time the sponsor could exit. I couldn't. No. No. Don't do that deal. Yeah. Yeah. Yeah. Yeah. That's that's why like I was funny. I just had that meeting before I met you. We rebought that up as well, you know, cuz you know, we said, you know, so everybody's on the lockup. Yeah. Now, lockup, I understand like if if you do a deal and everybody's in lockup, it's fair, right? Oh, no. Every It's fairness really. What you don't want to do. We'll lose a line. But if the sponsors can exit right away, then they will just dump. You did the right deal. If you did that deal, you wouldn't be here talking to me today. Correct. You'd be asking me for a job.
my minority pooling versus full acquisition. Which one you would choose? Um, well, I told you my my best way I it's always full acquisition. Yeah. Okay. For me, right? Because I'm I'm a public company. Full acquisition. However, they will have I I will never do a minority acquisition. I I need to be able to call the shots, right? Yeah. But um but I as I as I explained in my deal structure um there is roll back of equity but not you know it's 25 10% 15% and it's either public stock or they keep the equity in the company and then we and then I buy it back but it but it's a it's we're on the majority all the time. Yeah. When does the uh fragmented industry deserve a public vehicle? Anytime. Anytime. Okay. You got to be able to show the market um that you can that this is a growth industry and and and investors like fragmentation of industries because it's you can grow because it's so fragmented you can buy companies. You should be able to consolidate enough, right? Like at the No, no question about it. That's why you like fragmented that's why investors like fragmented industries because you have room to grow. There's so you know and the I'll use my industry staffing. There's so many staffing companies out there, small, medium, big size that are not public or not, you know, big enough to, you know, to call the shots or being a strategic. Um, so it's it's um there's so many out there that, you know, that's why there's always there's always inventory, you know what I'm saying, to to buy. Would a spec make a sense for the platform? Yes, it could. Um, spacks are difficult in a sense. I I looked at spacks, you know, to be honest with you. And and um you know, depending on the spa and depending on the sponsors, depending on, you know, what they're looking to do, you know, what the how much cash is in it. I mean, there's a bunch of things you need to figure that out. Um I'm not you I'm not I don't want to mislead you. I'm not, you know, an investment banking guy. U you'll need, you know, definitely need help on that. But just from my, you know, just from what I did on Spaxs or learned on Spaxs, um, yeah, spaxs can be useful because what's good about it too, they you're already public, right? Or the public vehicle, which is usually a NASDAQ or a New York Stock Exchange. Um, you usually have cash in it. So, you got to find out about that. Um, and then you got to find out also about the the the shell or the correct what you're going to do. So, there's different mitigating factors. Um, I never did a um I I never did a spec personally. I I I I you know I shopped around for I I definitely talked to Spaxs. I don't know. I just um I went more traditional which is really I merged into a public company or I merged into a shell, you know what I mean? And um so I I did it that way. Um so um but you know spaxs are good. You just got to you know make sure your spaxs really you know spaxs had was really good at one point then was really bad at one point because you because you said the sponsors sell out. So your your stock starts at $10 and then it's down to five or two. You know what I mean? So you got to make sure on all that. And again, I would advise anybody to get a professional like an investment banking to to really help you on that. Yeah. Yeah. Yeah. Yeah. Yeah. I know enough to be dangerous and I don't want to tell you. I mislead you on that. But I I I know I you know as well as I do. You need to really look at it. So okay, let's talk about AI and infrastructure. Does AI increase valuation? Yes. Yeah. Yeah. And the reason we talked about a little bit before AI gives you the chance to be um more quicker and better at your job, right? It gives you the tools to be able to do that, right? And I'm in the staffing industry, so recruiting is big, right? So, it gives me a chance to really um streamline recruiting, right? And get the right candidate at a faster clip, right? And it also looks for my organization. It helps me um um even on the M&A side to do an analysis of the company I want to buy, right? So where it used to take me whatever I used to do when I was um CEO, I had to do these analysis to show my board or my M&A committee this is why I want to buy the company, right? And here's why we're going to here's what we're going to do and all that. And it used to take me, you know, it's timeconuming. I had to do it, right? I had to really sit down, go through their financial, you know, do the whole thing. Now it's what you know 10 seconds or 20 seconds it's done for me as long as I put the right information in the AI gives me that. So in that regard, yes, it helps me. I wish I had this back when, but I you know, it is what it is. But we the answer your question is yes. AI to me is a tremendous tool utilizing, right? Right. Yeah. And it does increase the valuation. No question about it because you're going to because everybody you're going to see that and I'll be honest with you and I use my industry, but all industries, everybody has AI now. You have to, you know, I mean, some form of it. How important is centralized data? And very important. Okay. Um because when I buy a company, I don't want to decentralize the data. I want to centralize the data. I want control of that data. Correct? Right. So, and the only way you do that is through um is that so remember I told you we do um during the um integration, right? You have a you know in a sense an economy is to scale you. So you're creating a centralized database versus decentralized. Yeah. Right. And you want the control aspect of it and by the way that'll help evaluation down the road as well. Correct. Yeah. Correct. Yeah. Yeah. Yeah. We we are basically uh we use PowerBI and to centralize like uh in architecture and everything else. When it comes to the recruiting uh in HR like centralized HR and hold core you can actually we push the culture of the person is leaving or for some reason the manager wants to hire unless for some wrongdoing we can always re not recycle I cannot use a word of recycle we can move the person to within the ecosystem elsewhere or if the candidate doesn't fit in one we can either put it on virtual bench or we can actually exactly right it gives it gives you more options, more options, none of that, too. But as an owner or as a CEO, you want to control your as much as you can. And a centralized database, centralized accounting, anything that you can centralize only helps. I centralize my marketing. Correct. Right. Correct. Um because again, I want to have I want to make sure everybody's doing it the our way, per se. Even though they do have latitude in the in the subs. Correct. Um but you still want to have u control of your of your information when it really goes down. Yeah. And then they can reutilize the same data for many different purposes because it's centralized. No, you're 100% right. Yeah. Yeah. Yeah. Yeah. You're doing it right. Yeah. Would you pay more for companies plugged into the shared infrastructure? Plugged into my shared infrastructure. It' be probably if you would take them all together, right? Like I would definitely be if you would own the shared and Yeah. No question about it. It is a platform basically, right? Exactly. If you brought in small companies together and you and somebody puts it all together which you have a shared platform without a doubt to me it's it's a platform and that's why then then we are doing correct stuff. Exactly. That's right. That's right. Yeah. Yeah. Looks like we are doing the right thing then. Yeah. Okay. It's about the cohort-based virtual merger platform. Right. So if someone build a cohort-based virtual merger platform where would it break? You know it depends on the mitigating factors right. So you got to look at the the different it could break. I mean, anything, you know, can anything happen to anything, right? But for the most part, if it's done right and you're watching it and you're on top of what you know, the the virtual part of it, you know, to make sure that the, you know, make sure that everything is correct in what you're looking to get. Yeah. Then you should be fine. You what what I'm basically saying is you have to oversee it. You have to oversight it, right? There has to be complete oversight and oversee in that. Otherwise, it can't. So, you know, again, everything everything we're talking about right now on the technology side is sort of new. You know what I'm saying? In a sense, right? And so there you need somebody to stay on top of it. You know what I mean? So, what kind of government uh governance would you require? Well, first of all, depending on the size, right? Um if it's a um on the accounting is the biggest part, right? You got to make sure that their security is big, right? Um and that you have certain things in place. Um so there you can mitigate f fraud um you know so there's governance like that as a public company you're governed you have you have to have rules of governance in order to be public to show the people anyway so that's easy because it's very transparent yeah what your governance is but on and I you sort of use that as uh even on the private sector right so you have governance in the that's why you audit in essence because that is the purpose of an audit is governance right so that's a governance then but you also have to make sure that um whoever signs the checks. I mean, there's different ways that to make sure that there's no fraud, that nothing can happen. Make sure there's no um oversight. I think that's the key is oversight. Make sure you have correct oversight to all the things that you're doing, whether it's putting something in your um your database. And because what you don't want to do is to have your database stolen. Yeah. Right. So, how do you not do that? Right. So, you know, and that's why I keep going back to that centralized database because it's hard to do that at one point. And I I know myself I when I was running companies I would say okay well this person can only see this database you know what I mean not the whole company just just their company's database unless unless they're doing other work then I can open it up to this particular company you know so you have governance that way because you're trying all governance really is is you're trying to make sure that um you're lawful and you're morally and and ethically correct. Mhm. That's what it really comes down to, right? And to make sure there's no fraud. I mean, those are the, you know, the legal stuff is easy. But even on the moral stuff, you want to make sure ethics stuff that that you're you're you're you're running your business correctly and that is really what governance really is. Yeah. And when you put those merges together, you're putting international, right? Like not just US. Correct. So that they can be actually anywhere. Yeah. if there is a like a platform like for the virtual a virtual merger and cohort um and would you participate in and under what structure? That's a good question. I don't know enough about it to be I don't want to give you a wrong answer because I I don't know enough about it to be to give you that answer. Um but again I go by the same principles I've always looked at you know I would participate in anything if um you know if the money structure is correct the financial structure is correct I'm making a money um the I can grow the company. So those, you know, there's certain tenants that I look at, no different than anybody, you know. So, um, but I don't want to I don't know enough about it to give you an answer on that, but I do know my the way I buy companies and the way I participate. Good. Okay. What kills 80% of the acquisitions? Until you know, when it when I do due diligence and I see that uh, you know, it's a $100 and it's and they they told me it's uh, $200, you know, so that that that kills it pretty quickly. So, the financial and also honesty that that's a that's a big thing for me. Um, and also the I just want to make sure there's a cultural fit in essence. So when I do due diligence, I look at cultural, operational, and financial. Any of those things can can be a red flag. And once I see a red flag, I don't need it. There's too many. Remember I said we're fragmented industry. So I can I'll just go on to another company, you know? I I don't need a headache, you know what I mean? So I try to avoid that as well. But that's 80% would be financial uh operational or culture fit. Got it. what kind of advice you would give someone building a consolidation platform. The first thing I would do is to make sure you have the right um industry, right? Um that can actually thrive, right? Um that's that's the key, right? Make sure you can make money at what you're going to do, right? And then um make sure it's growing, right? Like Yeah. Make sure there's a growth industry, right? You don't want to, you know, do that. Second thing is um is to um decide how you want to do it. Uh I've always been a flavor as I told you earlier of a platform company and then bring in the uh and then bring in um smaller companies underneath it. Um so if that's your this way I would do but that's I would find a nice platform company who's already got some systems already intact that you can help make it better and then bring in these smaller companies under that. So the platform company to me is key because after that you can you can find these other companies. Got it. What do you think? What does the next decade decade for consolidation looks like? Again, depending on the industry, I think very strong. Um, I'll tell you what's happening in in it doesn't matter the error and we're in the era today. People are are or companies don't know what the future is. So, it's much better to be part of a bigger company than a smaller company, right? Because the bigger companies have a better chance to survive than a smaller company. So, um, so to answer your question is I think it's I mean I'm in LA right now, right? You know, the home of, you know, Paramont is wants to buy, you know, uh, um, you know, Warner Brothers and next Netflix next. I mean, those are two bohemoth companies, all of them, right? Um, and and just think about think about us smaller guys, right? And I'd rather be part of a bigger company than a smaller. I think I have a better chance for survival at a when when I'm with a bigger company to take you're d-risking your a smaller company derisk themselves. Correct. So to answer your question, I think the decade is going to even see more. We're seeing more of that now. I mean I think there's more um and I don't have the I can't back it up because I don't have it in front of me, but I think there's more things going on right now with um consolidation than ever before. Right. So um and I think it's because of that. You want to de you owners want to derisk because there's so like in today you know here we are in February of 2026 there's uncertainty correct in the marketplace right so how do you how do you stop that uncertainty well if I go to a bigger company you know I'm taking some chips off the table yeah right and on top of that I I have I'm part of a bigger company which has a better chance for survival right if you really look at put it in an analogy of the country like it's better to be under big country like United States European That's exactly that be like a small country like you have no access to resources. That's exact You're absolutely correct. That's actually a better analogy than what I had. But you're right. I'm going to use that. No, you're right. No, that is the concept though. You're right. So, if you ask me in the next decade, I think it's going to be the same. Yeah. You know, I mean, if I'm a small guy, right, you know, it's funny. I'm I'm doing this rollup strategy now up in Well, I told you this company in Canada and these small companies I go I talked to and they said, "Yeah, I mean, where are they gonna what are they going to do?" Yeah. You know what I mean? I mean, you know, where you going to go? You know, where you going to grow to? You know what I mean? You know, and and their aspirations if you're a small company is to sell to a bigger company, right? Who are you going to sell to? You know what I mean? You know, and you're not living it to your next generation, right? Your kids don't want to do that. What you're doing? No. The kids. Yeah. Yeah. Yeah. I have two kids that are not in my field. But interesting enough though, the uh But you're absolutely right. I mean, who do you sell to? Do you sell, you know, or maybe the maybe your employees buy you, but that's that's that's, you know, and they don't have the capital to do that. And you know they take a look back they're not going to do it. You know what I mean? So no no it's like when the people build the personal brands that's the only exit you have like Tony Robinson he had to sell it to employees. Yeah. Yeah. Yeah. Or or or you give it to your kid. Right. You give it to your kid. Right. Right. Yeah. It's not scalable but it's the best way I think to strategic buyer like a public company. It's the best way. Well again the way that I'm buying the companies again I keep their DNA right. I keep their brand. I keep the way they're doing business. So they so a company because I agree when a when a a person or an owner uh builds their company they're proud of their brand. They're proud of what they built. Yeah. Well, I don't want to take that away, you know. I want to keep their name, you know, because again, how am I going to compete with the big boys, right? I can't I don't have their balance sheets. I don't have their money, but I do have We're a network of boutiques. Correct. Right. And that's the way that I I position ourselves. Yeah. Allan, thanks for the conversation today. We talked about what really drives the value in M&A, the structure, integration, scale, and preparation. The key takeaway is simple. Successful exits aren't the luck. They are engineered. If you are a founder thinking about growth through acquisition or preparing for exit, start building intentionally now. Thank you for listening Founders to Founder podcast. See you on the next episode.