Today’s episode was recorded live in late April 2023 at SMBash in Austin, Texas, with my boss, Clayton Collins, CEO of HW Media. We opened up talking about how the role came together, but for a short preview, I took a Chief of Staff role with HW Media in March 2022 to help build a media and data company in the housing industry.
It’s been an exciting journey with a steep learning curve that I’m thoroughly enjoying. In the episode, we talk about acquiring within your industry, the acquisition journey at HW Media, the case for acquisitions as a compliment to organic growth, what a bad acquisition looks like, and so much more. This event is fantastic for all those looking to pursue entrepreneurship through acquiring a company, and I hope to see you all at next year’s event.
Learn more about Alex and Think Like an Owner at https://tlaopodcast.com/
Ravix Group — Ravix Group is the leading outsourced accounting, fractional CFO, advisory & orderly wind down, and HR consulting firm in Silicon Valley. Whether you are a startup, a mid-sized business, are ready to go public, or are a nonprofit, when it comes to finance, accounting and HR, Ravix will prepare you for the journey ahead. To learn more, please visit their website at https://ravixgroup.com/
Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected].
Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.
(00:03:56) Introducing Clayton
(00:05:36) The Chief of Staff role
(00:08:26) Growth through Acquisition
(00:11:15) HW Media’s 3 acquisitions
(00:14:53) What Clayton looks for in potential acquisitions
(00:18:47) Evaluating a team inside a company being acquired
(00:20:33) Building relationships in an industry
(00:22:00) Avoiding train wreck acquisitions
(00:27:24) Advice for CEOs wanting to build a repeatable acquisition process
Alex Bridgeman: Hello, everybody. I’m Alex Bridgeman. I am the host of the Think Like an Owner podcast. It’s a project I started in college in late 2018 during my senior year just to meet people who run small companies. And Clayton here hired me as a result of that podcast. So, I’m happy about starting all that. So, Clayton and I got to know each other around actually a month after last year’s SMBash. So SMBash last year was February; we started chatting in March. I think we just had a mutual enjoyment and love of media and data companies. And I was pondering a media search, which in hindsight, I’m glad I didn’t do because there’s so much I’ve learned in the meantime. But the conversation today or our episode today is going to focus on acquiring within the industry, like if within your industry. So, Clayton acquired HousingWire in 2016 after a traditional search and then had two other add on media acquisitions, and then one that I was a part of last December was a data acquisition of Altos Research, who does local market housing data. So going from a media business just doing media and publishing to now media and data, and the flywheel between the two has been exciting to dive into. But I’d love your side of the intro and just how we got to know each other as well.
Clayton Collins: Yeah, this feels like an incredibly full circle conversation. I had listened to Alex’s podcast for several years before we spoke. And I distinctly remember about a year ago, I’m at a conference with one of my investors in Boston, we’re doing a sales training activity. And Alex hits my cell, says, “Hey, I’m thinking about searching for a media company to buy.” And I was kind of in the middle of, so I’m seven years in since I bought my company, and we’ve grown quite a bit. And I’ve been investing more in last several years about building the team around me to help grow the business. We’ve been talking about hiring a Chief of Staff, and Alex is asking questions about doing a search deal and looking at pretty smallish media deals. And I said, “Alex, can I twist your arm to join me for 24 months as Chief of Staff? You’re going to see several acquisitions. You’re going to work on sourcing. You’re going to work on diligence. At the end of that time, search or stay with us, up to you.” But 24 months, Chief of Staff, and I don’t think it took you but a few hours to make that decision.
Alex Bridgeman: Yeah, it was pretty quick. I think from you calling me out of the blue randomly as I was making lunch offering the job to signing was, I think, eight days. So, I was pretty darn excited. You mentioned an investor encouraging you to explore the Chief of Staff role. That’s something I’d only really heard of from like the West Wing or House of Cards. And so, you hear startups talking about Chief of Staff now, and now it’s becoming slightly more popular within search fund backed companies to have a Chief of Staff. I would be curious your thoughts from what you’ve seen with peers using the chief of staff role and what the role is meant to do?
Clayton Collins: As our business has grow organically through acquisition, I’ve continually made decisions. I’m sure many other folks in the ETA world make the same decisions. Every time we have excess margin or excess cash flow to invest in growth, I prioritized investing in another salesperson in our business and media, another writer, another marketer, and really probably overly delayed building out corporate functions and overly delayed building out any support around myself to be more scalable as a CEO and be able to work on more projects and strategic initiatives that we needed in the business. And that point, that’s hit me several times in the last three or four years. But I always am like, I’m not going to- can’t spend the money on Chief of Staff, can’t spend the money on executive assistant, can’t spend the money on different roles in our finance team, just always prioritize putting money, resources as close to revenue as possible. But as we’ve kind of discovered our ability to create enterprise value through add on acquisitions, my ability to operate the core business, manage 50 plus team members, and work on acquisitions, work on M&A was just like I was killing myself. We were joking before we walked up here, I had a lot more hair when we did our first acquisition seven years ago. And in that time, I’ve not only grown the business, but I’ve also had three kids, life has happened, and fully was in full recognition that I needed support around myself to be efficient in sourcing deals, efficient moving through diligence, efficient working with investors. And that was the real decision to start searching for a Chief of Staff, and Alex had the right skill set, right interest. And oddly enough, like listening to the podcast, you start to, I’m sure other people recognize this too, he has an incredible curiosity, which is a really important skill in a Chief of Staff because you need a Chief of Staff to ask questions and not just run a playbook and not just do exactly what they’re told, ask questions, have a passion for understanding the business and push the operator, push the CEO to be better. And that’s what we found here.
Alex Bridgeman: Oh, thank you. That’s kind of you. A big part of my role almost from the get-go was focused on market mapping and looking at data companies and the landscape of housing data companies that we could partner with or acquire. When you think about growth through acquisition, what are kind of the reasons why you might decide to acquire a company as a growth method versus organic growth and hiring and building off of internal cash flow?
Clayton Collins: I think I definitely answered this question differently now than I would have when we did our initial platform acquisition. I think the term roll up gets thrown around a lot. And we’ve done a couple of media deals. We are far from a roll up play because each of our acquisitions has been incredibly strategic in either adding a new audience segment, adding a new capability, or adding a new client segment that we’ve been able to scale and cross sell against and kind of cross pollinate across the business. And I think there have been some successful media roll ups, but they haven’t really taken the complexion of what I’m trying to build with HW Media. And they ended up looking a lot more like media holding companies with distributed brands, distributed assets, teams that aren’t consolidated and working together. And that’s not what I was seeking to build. So, as we built our- our strategy on M&A has definitely evolved, as I’ve kind of learned that about myself and learned about the acquisitions that we’ve done. This isn’t like a- we can’t just add another portfolio company and portfolio company, portfolio company. We’re not building a hold co. We’re building kind of a branded house media business. And that just takes a different approach. And so, it changes sourcing, meaning that I can’t delegate deal sourcing to a corp dev team; I want to be intimately involved in identifying those transactions and opportunities and then have team members to help get to the finish line.
Alex Bridgeman: You talked about kind of learning about yourself as a result of doing M&A and more and more and having a bankers background as well helps with all that. How do you feel like your personality or behavior around M&A on a personal note has changed over time?
Clayton Collins: So, I think venturing into ETA- So my wife and I were living in New York, and when we acquired HousingWire, we moved to Dallas, Texas, where the business is based. And there was a few years where the mindset was like, hey, we moved to Texas for a deal. All of our family is in Florida. We will be back in Florida before we know it. And a couple of things. I learned a couple things about myself. One, I really enjoyed Texas a lot, and we put down roots in Dallas and decided to make a home in Dallas. And two, realized we had a bigger opportunity than thinking of this as a three to five year deal where we come in, improve operations, improve sales and marketing, grow EBITDA by a couple million bucks, and then then exit. We’ve set bigger aspirations. And that’s probably been the thing that’s changed most about me from my mentality. I don’t know if I answered your question there.
Alex Bridgeman: I think you’re getting it. Yeah, I think that’s working. Maybe as further background, let’s walk through the three acquisitions. So, beyond HousingWire, the platform acquisition, let’s go through RealTrends, Reverse Mortgage Daily, and then we can touch on Altos as well.
Clayton Collins: Yes, so we actually did one really small one before RealTrends, really small reverse mortgage publisher that we tucked in and now is part of core operations, no one ever sees the brand anymore. So, I’d say successful on that front. That was the smallest one we did. We acquired a company called RealTrends in 2020, which the idea for that kind of culminated on starting to learn more about our audience and getting more audience intelligence on the core HousingWire business. We thought we were a mortgage publisher, and as we got to know our audience better, realized that we had 30 or 40% of our audience that actually identified as real estate agents or brokers. So, we saw this opportunity, hey, we’re not monetizing this audience. They’re coming and reading our content. We need to figure out a way to serve this audience better and monetize the business. So, I started kind of market mapping the services and content businesses that serve the real estate agent and broker segment and met the founder of RealTrends. We talked for 18 months before we actually got a deal to the finish line. So, we started in 2019. We were planning to be in person in March 2020, COVID hit, decided it wasn’t the right time to do a deal. Because at that time in March and April 2020, in some states, real estate agents were deemed non-essential services, and they shut down completely. This might not be a business we want to really jump into. But after seeing how the real estate market adapted to that short period of uncertainty, we got a lot more conviction on RealTrends and moved pretty quickly in the second half of 2020. So RealTrends brought in an increased audience, but it also brought in a new data capability. We sit on one of the largest databases of real estate, broker agent and team performance information. We publish that through our own brands. We also license it to other parties, and have a partnership with Dow Jones to publish that information in the Wall Street Journal, which has been a huge credibility boost for a small media company in Las Colinas, Texas. So that’s RealTrends. Reverse Mortgage Daily, another relationship. There’s a media group out of Chicago I’ve known since I acquired HousingWire, so four or five years at that point. They had an asset that was kind of outside of their core focus of where they were taking the business in healthcare and got a text one Friday night, like, “Hey, you want to talk about doing a little carve out?” And by the following Friday, we’re like, yeah, let’s do a deal, put out a number, got it done pretty quickly. We actually got that one done the week after my second daughter was born, and I was able to like, at that point, we had a COO, and he took it to the finish line for us while I was in the hospital and out on a very short parental leave. So that was pretty cool to see that one come together without me literally doing every single piece of the deal. That was the first time I like actually successfully delegated anything on like corporate strategy.
Alex Bridgeman: Did you get baby swag for R&D as a result of it?
Clayton Collins: Man, those fellas missed that opportunity. They should have sent me something. We’re still moving a little too quickly. I think we have swag down now. And we send it and we get it. But that was kind of a point, even though it was only two years ago, three years ago, that we’re still running too fast and a little too small, a little too entrepreneurial to worry about celebrating things.
Alex Bridgeman: You kind of touched on it a little bit, but there were reasons to make those acquisitions. They added audience, data capability, maybe key team members. When you look at a prospective prospect or target or acquisition that either we get from a broker, banker, or friend, what do you look for to figure out is this a real opportunity or would this be kind of a waste of our time?
Clayton Collins: I mean, we’re looking for successful businesses. Even for tuck ins, I don’t want like turnarounds. I don’t want to come in and fix somebody else’s problem. Even if the price is right, I think the opportunity cost that we have, all of us have our time is limited, and I don’t want to mess around fixing somebody else’s mistakes. I’d rather pay a fair price and get something that’s on the right trajectory that we can supercharge with sales and marketing and better digital strategy. And so, size, like we get a lot of outreach and teasers from bankers of tiny, tiny tuck ins. And business media is filled, I’m sure you guys are- on dozens of newsletters of tiny media companies with six figure, likely six figure revenue profile. And that’s just, it’s too hard. It’s not worth the time to fight for some of those small acquisitions. So that’s probably been the biggest thing that I’ve taken away in our acquisition strategy. And we’ve done deals from, like ranging from half a million in enterprise value to over 10. And I’ll err towards the larger side every day of the week. I’d rather have to go raise capital than then do small tuck ins.
Alex Bridgeman: What other ways has your bar for acquisitions increased over time, beyond just size and not a turnaround? What else comes to mind?
Clayton Collins: I wouldn’t call this a bar, but it’s an understanding of the management situation. So platform acquisition, we help the founders transition out, CEO was with me for like all of a month. It is a crazy story, not really his fault. But he had grinded hard for a while and after the acquisition really wanted to get back in shape and took a weightlifting class, like Olympic weightlifting class and dropped 225 pounds on his right foot like two weeks after the transaction. And this was before we were like on Zoom and Slack all day long. The doctor told him he wanted him to be in bed with his foot elevated above his heart for like four months. I was like, well, give me the keys, and I’ll see you later. And that was kind of how that transition worked. His co-founder did stay with me for nine months. That was good. We knew what we were getting into. We knew that was a management transition situation. Our next two tuck ins were retiring owner and carve out. So, we knew we were not getting management on either of those. And so, at that point in time, up until December of this year when we acquired Altos, all the deals that we had done were through the lens of management transition, knowing that I had to lead the business, our team had to lead the business post-acquisition. This latest deal that Alex was part of the diligence and deal process and now has aligned himself inside of the business helping build our sales structure, the founder stayed around because we wanted him. We recruited an amazing- like we pursued the deal in a big part because of the founder. And he’s running that business as a business unit inside of our company. And he carries the title of president of that business unit. And that’s been a wildly different dynamic, a great one, nonetheless, but a wildly different dynamic of doing founder transition or carve out versus keeping a founder around in the business with a significant piece of skin in the game. So, I wouldn’t say that’s something I screen for but something I want to understand fully upfront. I wouldn’t want to continue an M&A strategy where we attempted to keep every founder around. That would just be noisy and probably not be the right management team for what we’re trying to do. But situationally, like this situation with Altos, incredibly important component.
Alex Bridgeman: Yeah, certainly. It certainly makes sense for someone like Mike to join the team and stay on full time, longer term. Obviously, the founder may not always stay on but the team itself from the business you’re acquiring is going to come over. How do you evaluate that team before acquisition to figure out is this going to be a team that fits culturally with us so they can have the entrepreneurship and speed that we’re looking for as a more ambitious company? How do you figure that out?
Clayton Collins: So, I mean, since we are running a business and an acquisition strategy in a tight vertical, like we are housing news and information, we’re not doing any deals of companies I don’t already know. So, what we were able to do uniquely with Altos and Mike and his team, like I know Mike for six years now, like I’ve reached out to him several times over the years. We had him join HousingWire as a contributing writer. So, he was already blogging for us and contributing content. And our team started using their data product. So, I got kind of a full glimpse into what he was about, his style, the team’s style before we were in acquisition talks. And I think that’s something I can’t say it was 100% strategic, like some of it was just fortuitous. But that is 1,000% a strategy I’m going to carry forward is look for ways to do business or partner with the companies that we intend to acquire down the road at an earlier stage. And that doesn’t work like out the gate in search. I couldn’t have done that in 2016 when we acquired HousingWire. But now that I have a platform and I’m building in a vertical, there’s no excuse to be meeting somebody for the first time and we’re going to talk about deal conversations.
Alex Bridgeman: You’re kind of talking about it already, but the three businesses we’ve acquired so far all originated from personal relationships. You’ve gotten to know the founder through some way being in the industry. When you think about building future relationships like that with any prospective future acquisition, what activities are required or necessary to keep building those relationships? How do you spend your time at the conferences? Are those valuable, going on podcasts? Like how do you kind of get yourself out there to catch those serendipitous new relationships?
Clayton Collins: The podcast is funny. So, I also host a podcast called Housing News. And it is like there is no C suite executive who turns down an invitation to go on a podcast and talk about their expertise and company. And so, the podcasts are incredible door openers. I’ve built a lot of relationships by having guests on our Housing News podcast. It’s great content, but it’s also an awesome networking tool for me. So that’s an interesting point to bring up. Outside of industry involvement, like I’m involved in our Mortgage Bankers Association. I get to know other operators and acquisition partners. But I mean, that’s not even the main motivation, most of it is bizdev. Like, we’re still running a business. I need to sell and like see our clients. So, industry involvement matters from that perspective, but, hey, it can carry over into deal sourcing and M&A. But outside of that, getting involved in other executive organizations like YPO and EO have been door openers, and they help you get to know people in related areas and improve my network in Dallas, which to me is kind of an adopted hometown. So, I look for other opportunities like that.
Alex Bridgeman: So, if we take all of these thoughts and ideas around doing acquisitions well, how would you design a train wreck, a complete disaster acquisition that would go horribly wrong almost instantaneously? What would that look like? How would you avoid something like that?
Clayton Collins: Okay, I think there’s two different train wrecks that can happen. And the last panel, I was up here, there’s a lot of talk about leading a team and leadership. And that’s probably one of the most overlooked components of early stages of ETA. And I think the skill set of identifying an acquisition, closing an acquisition, and successfully leading a company are like very different skill sets. And if you don’t understand that you’re coming in on day one, and you have a seller that’s going to like bring the team together either in person or on Zoom and say like, “Team, it has been so wonderful working with you for the last 14 years, please meet Alex, he’s now the owner of your company and your new CEO. You report to him now,” and they’re not scared to death, like you’re fooling yourself. Keeping the confidence of employees as you transition into leadership I think is one of the most important and under discussed components of platform ETA and tuck ins. And so, we’ve become really strategic about how we announce acquisitions, how we integrate team members in the organization, how we move them onto our benefits plans, and be 100% certain you cannot make their benefits or comp anything less than it was before. So, we kind of keep having to get better and better in retention and making sure that we bring people in the organization that they stick around, and they’re happy about it. And they’re not just there quiet quitting or whatever the phrase of the moment is. So, train wreck would be not being prepared to lead the organization that you’re stepping into and having heavy attrition in important roles in the organization. So, sales, client success, product, like whatever the company does. So, I’m constantly thinking about how do we avoid an HR and people strategy train wreck on an acquisition. And in the deals that I’ve invested in a few search deals and that’s the biggest thing that I talk to searchers and new CEOs about is like their leadership style and ensuring that teams are confident in their leadership ability and they’re not leading them into unemployment of some kind in some way. The second would be, the second train wreck I would say is not being honest with yourself about what you want out of entrepreneurship. And I think I was pretty good about defining this to myself early on, but now seven years in, I know that I never wanted to acquire a job. I was looking- success to me looks like being a CEO that can focus on capital allocation, think about alright, so we have excess cash. Are we doing dividends? Are we doing acquisitions? Are we investing in organic growth? And then having a team that can execute on those strategies, and that’s what I want. That’s what makes me happy. I want to be super involved with the business, involved day to day, but I actually get to drop all responsibilities and think about capital allocation all day long, and I’m happy guy. And so, a train wreck for me would be acquiring an incredibly small business that required me to wear 10 hats for five years and the opportunity cost of not being able to focus on growth because I’m too focused on managing dumpster fires with HR or upset clients or trying to track down receivables. I want a business that has the scale to hire a VP of Finance, a VP of HR, and a VP of Sales very soon. And if I made any mistakes, even on our platform deal, HousingWire was a pretty small business, sub 5 million in revenue, 14 employees when I joined. I spent a lot of time doing functions that I wasn’t the most prepared to do and probably wasted a few years like building out, trying to be an HR expert, trying to be an IT expert, trying to build a sales function where if we had- I should have invested faster into having that VP level talent. So, for me a train wreck would be not having enough EBITDA, not having enough sellers discretionary earnings to surround myself with a management team in the first 12 to 24 months.
Alex Bridgeman: A lot of other panels today have also talked about SBA debt and higher amounts of leverage as part of a deal. None of the deals that you’ve done so far have used debt to a massive, to that degree.
Clayton Collins: I levered it three times out the gate, not SBA, but conventional financing.
Alex Bridgeman: So how has your debt thinking evolved then? Because with Altos, that wasn’t a major component for us in that deal. And that’s certainly one of the larger ones that we’ve done.
Clayton Collins: That’s another part of being honest with yourself, what you want out of a deal. So, I’ve learned I can run a business at a certain margin profile and grow it at a certain growth rate that’s lower. So, I mean, I’ve been involved in businesses that run at 40% margin profile, but you’re running so damn lean, you can’t grow more than like 5 or 10% because you just can’t allocate resources into marketing and sales. And I’m learning now that I can run at a slightly lower margin profile and grow at a lot faster rate. And the limiting factor of which if you want to be able to choose between those two scenarios as an operator is debt. Can you afford to spend down EBITDA, to make important hires and invest in sales and marketing?
Alex Bridgeman: Any last pieces of advice for CEOs who want to acquire in their industry and are looking for ways to improve or build a repeatable process to do so?
Clayton Collins: Yeah, someone asked me earlier, so I’ve edited a traditional like funded search. And so there’s plenty of events, of like the Stanford GSB, search model events in that community. And there’s this community that has a little bit of a different flavor, and asked me why I’m here versus there. And I’ve stopped defining myself as a searcher and started defining myself as an operator of a media company in the housing industry and a data entrepreneur in the housing industry. And that self-definition, most of that’s in my head. But when you talk to people, whether they’re clients, prospects, potential acquisition targets, nobody gives a damn that you run a search fund, nobody gives a damn that you know about SBA. They care that you’re good at the trade that you’re in. And there’s a point where you just got to shed that ETA exterior and be the operator in the business that you’re in. And that, like shedding that self definition that no one else ever gave a damn about but I did was probably one of the more influential points in being able to influence outcomes with organic growth with new clients and like how people perceive me and the vertical that I operate in, and with acquisition targets. It’s confusing as hell for someone who you’re tucking into your business to like want to understand the search fund model and like Googles it and reads the primer, like they don’t need to know that. They need to know that you run a successful business in the vertical that you operate in. And so self definition was probably a major turning point for me. So, you asked me to frame that in the message of advice, how you position yourself, how you tell your story I think is incredibly important as a searcher and as an operator at any stage, whether you’re six months or six years, or 16 years in.