Question for you lower middle market guys - where do you go to find leadership for little portfolio companies?
I have line-of-sight to multiple (5-10) common acquisitions in rural areas. They're similar business models (blue collar - heavy industrial equipment new sales / parts / service) and while it's not a "roll-up" per se (not a ton of combination value in having them all under one roof - some shared services but that's about it), they can be bought very inexpensively and that might be enough to drive returns.
Only thing is, they're often in the middle of nowhere, and current management is the owner/manager and is aging out. I asked a few executive headhunters that I've worked with before and they basically said "sorry man, you're on your own." I'd love to get young talent in, but I'm finding most people interested in leading a rural business with sub-$1M EBITDA have set up a search fund so they can get a meaningful piece of the equity over time.
The third option is to promote, but looking around the room and entrusting a business to one of these folks makes me sweat. Some of these benches are pretty thin. I suppose you can help just about anyone to run a business if the playbook has enough structure, but that playbook isn't currently sitting in my back pocket. I can't interim, either - if I have to step in to any of these, then the model breaks.
Figured I'd ask the group - let me know what's worked (or hasn't worked) for you or if you have any ideas.
Anything sub $12MM - $15MM-ish in revenue = very weak middle management. This means the executive has to very tactical and willing to get their hands dirty. In my experience it's an incredibly difficult hire because of that.
You HAVE to be able to sell them on upside more than anything and it's likely they have to have experience working/starting very small companies since it's completely different. The industry you described is much harder too since it's not sexy and not something younger people get into (who are willing to take risk for more upside)
For example, I was looking to hire a COO and a few guys told me they couldn't even do a VLOOKUP because they just had "their data guy do it". OK but if I'm paying $250,000 a year for a COO and now they need a $65,000 a year data guy...they're way way more expensive than they should be.
Do you give your management teams equity? Also can you talk about how you find candidates for your ventures?
This is a really interesting question. Commenting so I can follow.
While this is probably unrealistic, do you think it would be easier to attract quality management if you did combine the companies and marketed the opportunity as a single company with “+10M EBITDA” as opposed to a bunch of individual sub-1M EBITDA companies?
This would be my approach. You need some sort of centralized CEO/COO (maybe both) and CFO to guide and hold accountable the GMs at the various locations. You don't need a rockstar at each, but someone competent and that has the respect of the local employees, customers, etc.
Agreed that the venture is going to need professional management at the holding company level - CEO, probably a controller, and some other shared services. That I'm less worried about recruiting for, since we could put together a real exec package for them.
The challenge at hand is finding the GMs. I've never been a $90-100k/yr base plant/facility manager with P&L responsibility and 20-30 employees under my purview, so I'm not sure how to search and interview for that job.
PM me and I can walk you through hiring for the position on a call. I've hired 3 - 4 of those recently. I have some resumes too which might be a good fit.
We have tried to hire at the ~$10m revenue business level and it is very difficult. Headhunters and network are the "easiest" route although may yield little-to-no results. As someone else said, you'll have to give them some meaningful upside through equity and/or transaction bonuses.
In my experience, headhunters aren't really cost-effective when running a search at that size company.
Have experience with this one.
You can always look at direct competitors and poach.
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