Tlao Cover Art 2023 Vector

Sam Rosati, Pursuant Capital

My guest is Sam Rosati who, along with his brother Joey, ran a search fund called Pursuant Capital in the Tampa area and acquired a waste management broker called Alpha Dumpsters.

Episode Description

My guest is Sam Rosati who, along with his brother Joey, ran a search fund called Pursuant Capital in the Tampa area and acquired a waste management broker called Alpha Dumpsters. There are a couple pieces about Sam and Joey’s story unique. For one, it’s one of very few search funds I’ve seen run by two searchers instead of one, and two, they are continuing to look for further acquisitions.

In the episode we chat about Sam’s experience searching for companies before and after acquiring Alpha Dumpsters, how he and his brother split roles, lessons learned, and what they want to do next with Pursuant. If you’re looking to run a search fund, you’re going to like this episode.

Clips From This Episode

What value have you changed your mind about?

What's the best business you've seen?

What college class would you teach?

Due diligence

Managing expenses

I’ve had the chance to talk to searchers, but not too many who had gone through the entire process and actually acquired the company, and who are now shifting their role to operating or looking for the next thing. So, can you talk a little bit about why you decided to go through the search process? And then, how it’s generally gone for you?

Well, going back to where I was three or four years ago, at the time, I was an M&A lawyer, sitting in a fancy office tower in downtown Tampa. And my brother was actually running a business about a half hour away, kind of a prototypical search fund deal, 15 million of revenue and couple million dollars of cash flow. And we both would laugh how our skill set was so synergistic, but we had never thought or found a way to work together. And at the time, I was desperate to gather and to do something entrepreneurial. I think, many people in their 30s, late 20s, 30s, even 40s, started thinking, “All right, what can I do that would be for my own account, and entrepreneurial, and have some upside and be an adventure?”

And just purely out of dumb luck, I stumbled on this search firm concept, and I spent probably six months thinking, “Gosh, this is this crazy, perfect fit for somebody like me with deal experience.” And I actually went to one of the searcher conferences, trying to make this decision, and left there thinking, “Gosh, I have no idea how to run a business. Absolutely, no idea.” And it just so happened, my brother was trying to leave his job at the time, because the owner wasn’t quite in a position to share the pie or sell the equity to him. And so, we just said, “You know what? This is a perfect time.” And it’s kind of special to work with your brother. It’s hard, it’s not perfect, it’s never, never perfect. Just like family never is. But, it was the best thing knowing that we’d have ultimate trust in this crazy search adventure.

So, yeah, that was almost two years ago, and here we are. We went through about a year and a half of this wild journey that is search. Every searcher out there thinks that search is sort of the project or the adventure, and that, once you get to running a business, the journey is over. That is definitely not the case, especially after the last three or so months since we’ve owned the business. But, it’s been a absolutely fulfilling journey. And it was about two years ago now that we sat down and said, “All right, we’re going to do this, and we’re going to launch it on January 1. So, almost two years ago. And so, we pretty much put together all the resources, the website, the business cards. I would say, one of the underrated things to do is putting together your website as a searcher.

It really is like the thought experiment that gets you thinking about your pitch, what you’re trying to sell, your competitive advantage, yada, yada, yada. So, that was a great December 2017 thing for us to do. So, then, we hit go on January 1st of ’18, and we pretty much spanned, if you want to call it, our entire network. We used this as a chance to tell everybody we knew what we were doing. And maybe to back up a little bit, we ran a very geographically focused, self-funded search, which is a sort of animal on its own. It’s very different than a national funded search, and we can talk about that too. So, for us reaching out locally to the deal community, that was my job, lawyers, bankers, brokers, insurance folks, you name it, that was my job.

So, I spent probably six months really working that network hard. And my brother did the opposite, he worked, bringing on an intern group, building a database of businesses in our criteria scope, and he led the process of going direct to companies. I’d say, six months later, we had probably spoken to 1,000 deal professionals and 1,000 companies, and we actually started to figure out what it is we knew, what we liked, what we didn’t like. We knew how to tackle an analysis quick, put together a model, read a SIM. It’s a lot of work, and you climb that learning curve very quickly. It’s a grind, but six months in, we finally felt like we knew what it is we wanted. Long story short, it took us another year to close the deal. But, it’s a search, you never know what you’re going to find.

So, what kind of opportunities did you see and pass on? Or, some that were interesting? And then, tell us about the company that you eventually found and how you found it.

Yeah. So, we saw just tons of tons of businesses which was great. I think, you have to go through a lot of reps, to learn what you like, learn what you don’t, and why get quicker at that. It’s a process. I think every searcher feels the same way. It just takes you a little bit of time to get up to speed. We saw everything from, gosh, courier companies, to food brokers, to manufacturers of those green interstate signs you see on the interstate, we’ve seen everything. Naturally, we’re in Tampa, Florida, and we focused within two hours of our airport here. So, it was, these are Florida-based businesses, so, a lot of DOT businesses, a lot of hospitality, a lot of construction. And we were fairly industry agnostic. And, again, we can talk about what makes a geographic search a little different, a little tougher, potentially.

But, yeah, we saw absolutely everything. We built a fantastic database. I think, one thing that gets underrated is the broker community. It’s a really good community, you can see a lot of great deals, especially if you build relationships with brokers. So, our ultimate deal came from a broker. And so, I try and urge searchers, don’t ignore the broker community. But, yeah, so, what we ended up with, was, and this is the business that we bought as searchers to operate, it’s a roll-off dumpster company. So, again, we were searching for old school businesses within a couple hours of Tampa, and somewhere between a half a million and a couple million of annual cash flow. And that’s exactly what we found was a roll-off dumpster broker. So, everybody thinks of these big dumpsters that roll-off of back of dumpster trucks.

We don’t own a can, we don’t own a truck, we’re just a broker. So, really, we’re a lead generation business. So, we do a lot of internet marketing, we have a big brand name on the internet. And we take calls, we sign up customers who need roll-off dumpsters in their yard, whether it’s for a home clean-out or a kitchen renovation or you name it, and then, we actually turn around and we call our hauler partners in that location, they’re the companies with the trucks and the dumpsters, and they go deliver it, and they pick it up. So, we are just the intermediary. So, super asset light, low staff. It’s a relatively simple business, but it’s old school. So, we love that. That’s what we ended up by.

Can you talk a little bit about how you developed relationships with brokers in Tampa? How did you go about that process?

Yeah, it helped a lot that I was an M&A lawyer before we started, because I had a little bit of experience there. I was used to working with investment bankers and business brokers. Having been a CPA in a prior life, I had a network in that space. My father’s a boutique investment banker. So, this world was familiar to me, which helped. It wasn’t so familiar, it was, we had to go build a reputation with brokers as legitimate buyers. And that’s hard, because, as a searchbie, you want to get to be known as a private equity type buyer. But, then, when they ask you, “Well, hey, what’s your source of funds?” Yeah, it’s a tough question. And so, you really have to get your pitch down straight.

So, we really honed our pitch as legacy buyers to family business owners, and we had an investor group behind us that was willing to vouch for us in those cases. And we had lenders who were willing to vouch for us. And so, we could go to brokers and we had 1,000 coffees, and lunches, and dinners, and cocktail networking events. And at all of those, your job is just to build a relationship and to tell your story that you’re a legitimate buyer.

You decided to focus on a specific region, that being Tampa. What were some of the thought processes you went through in determining whether you wanted to stay and focus in the Tampa area, versus a nationwide search? And what were kind of your pros and cons as you thought through that?

Yeah, yeah. So, when my brother and I sat down and said, “This is what we want to do, let’s design it for us in our life.” We just said, “What are the big things that matter to us?” And this is not related to business, “What matters to our life? Searchers, I hear this all the time when we talk to them, it’s sort of business first, life second. And for us, it was sort of, life first, and let’s make sure business can work around that. So, first and foremost, this is home for us, for our families here. My wife is here, my brother’s significant other is here, all of our family is here. Second, our careers have been here.

So, we had this huge personal network in our area, and we thought, based on the criteria that was acceptable to us, we were fine going after smaller businesses than most traditional search funds. We did the research and knew there were plenty of opportunities in Florida. A big one for us is Florida is sort of population inflow, net net, as opposed to a lot of northern states that are losing people over time. So, Tampa is flourishing, Florida is flourishing. We have our family, we have our network here. A big thing too, I’ll admit is, we wanted to self-fund us, because we’re okay having a bunch of skin in the game, having a lot on the line while doing this. And self-funding our search is really affordable if you do it locally. Now, if we did this nationally, and I had to fly out to Portland to see you, it’d be impossible.

I’d burn through $100,000 of cash in a heartbeat. But, self-funding a local basis, totally feasible, if you do it the right way.

So, being self-funded, you had to, obviously, pay your way through the whole process. What sort of things did you do to control costs? And beyond just regional focus, were there certain things that you had, or certain processes? What did you do to help keep your budget in line?

So, first and foremost, we didn’t pay ourselves. So, this was an investment in ourselves. Fortunately, my brother and I have had moderately successful careers before this, so, we had a balance sheet that was able to support us, we have spouses that are willing to support us, that made all the difference in the world. I think, getting to your question, which is, “How do you keep your budget low?” It is a little things. We owned this little office building in the heart of Tampa, that was a investment that we made a while back. And so, we didn’t have to spend money on rent. We had interns that were working for us on an unpaid basis, and we offered them a lot in return as far as career feedback and resume advice and really good quality experience.

But, we didn’t necessarily have to go out of pocket for that. We, rather than having to fly somewhere to meet a business owner, we could just say, “Hey, we’ll meet you at the Starbucks near the airport.” And we did that a thousand times, and that was absolutely acceptable. So, when you run a search, there’s just not a lot of expenses that go into it. I would say, the one that hurts a lot of searchers is deal costs, the CPA, the lawyers, folks like that. And we, through our network, had great relationships with the service providers who were willing to work with us on a fully contingent basis. So, they had a ton of deal risk involved in our deals, which was great. It meant that we didn’t have to call our lawyer and worry about him sending us a bill if the deal died. And same goes with our CPA, they were willing to wait till we ultimately close to get paid. And that was a huge help.

Did you in exchange have to pay them higher rates if the deal closed? Or, was there some other incentive you had to… Because it’s kind of neat because it aligns their incentives with yours, to help close the deal as well. What other things did you do to help incentivize them?

Yeah, I mean, I think part of this is they were just invested in our story and what we were trying to build. I’d say, we definitely paid a premium to sort of base price, and that was the trade-off that came with that arrangement. And we were okay with that. I think it worked out perfectly in end. I think another thing too is there’s a lot of service providers look at searchers who are young in their late 20s or 30s, and they think, okay, so, two young brothers trying to go buy a business, they might own it for, who knows? Five, six, 10, 15 years, but they’re probably going to buy other businesses, they’re going to know other business buyers. And so, it was a friendly way for them to do some good business development long-term.

So you find the company that you want to buy, now you’re working with the broker, how does that process go from that point onward?

First point of touch is usually pretty cold. Maybe you’re at a networking event, or it’s a phone call, or it’s an email, there have been other private equity buyers and searchers who’ve given us advice about this, some that you know, many of that you know. We’ve been nice enough to share tips. This is a long-term playing relationships. So, when you talk to a broker for the first time, you’re trying to build a relationship on day one, so that on day 365, when they come across a deal that’s a perfect fit for you, they call you, and nobody else. And that’s a big ask. So, we stayed in great touch, we had a big outbound email, handwritten letter campaign, to companies and brokers and our whole network, all with the intent on building a relationship and proving that we were legitimate buyers.

But, every day, every week, every month, we were on the phone with these folks, trying to see what was in their sort of pocket listings, which is the deals that they don’t necessarily widely auction, that they know are a good fit for certain people. And that’s sort of the holy grail on the broker side is to get those special deals that are the right size, the right industry. They know there’s going to be a lot of demand, but they also know who the right buyers are. So, it was lots of time on the phone. With folks that we knew had great deal flow, we’d take them to dinner, we’d buy them Christmas gifts. Those things are important. So, it’s worth the investment.

And so, how did you begin to, from there, talk with the owner and go through due diligence and LOI? What was that like for you?

Yeah, it’s a whirlwind. So, this is why, you can read all the search materials you want, but I don’t think you can get good at search, until you’ve done it for three, five, six months. Because, you spend a few months building this massive outbound campaign of calls and emails and letters, and then, things start coming in, and you’re balancing your daily outreach with signing NDAs and reading teasers and reading SIMs and building financial models. And I talked to one of my good searcher friends just the other day, and he’s like a month in and already overwhelmed with the amount of work. So, it’s just about balancing it all.

But, when it comes to our specific search, what was great is, no matter who it was, a broker, or a banker, or a lawyer, or a seller, I could just say to them, “Hey, do you want to go grab a coffee tomorrow? I’ll meet you at the coffee shop down the street.” So, no matter what, because we were always just a couple hour drive away, I could definitely go sit down in person, and that made a huge difference. So, unlike a lot of national searchers, who are jumping on planes and doing this on the phone, we did everything in person. And so, lots of in-person coffees, and dinners, and drinks, and you name it, that ultimately led to, what we had is a pipeline of deals. And we’d shuffle deals from the top of the pipeline, down and through.

Everything you read in that HBS guide to search, it’s true, it’s a numbers game. So, that was a lot of NDAs and tons of teasers. Even more, we probably made 10 times more offers than we ever expected, because we found it’s a numbers game, number one and number two. By making an offer, you can test a lot of things about a seller. Their interest level in you, their price expectations, whether you can get some good structure that’s favorable to buyers. So, we made a lot of offers, and it was all just about funneling down the pipeline.

How did you end up structuring the deal?

So, the business is called Alpha Dumpsters. We came across the Alpha through a broker, there are tons of websites all across the internet where you can see these deals on a confidential basis, and we saw this one, it looked really interesting to us. So, I gave the broker a call, we started a conversation. He was out of state, even though the deal was local to us, which was really funny. So, I actually was able to learn about the business over a week or so, through the broker. We put together a model and read the materials and quickly realized this was good enough. So, we met the owner. We went to Cracker Barrel down the street, we met the owner and his wife, my brother and I sat there and just gave our pitch as buyers, and what we would do for their business legacy.

And Stew and Sherry, the sellers were great. They were really welcoming, they opened up all their information to us and really didn’t hold anything back. So, it progressed really quickly. So, we made an offer, in the form of a letter of intent, and we negotiated fairly quickly. And ultimately, I’d like to hold back specifics, but it was a really friendly structure to somebody like my brother and me, who are self-funded buyers with some investor backing. The seller was willing to take a fair amount of his purchase price in the form of a seller note that gets paid out over time. And there was a bit of a contingent payment in the form of an earn-out, so that the seller, Stew, really has a lot of interest in our success. Much of the purchase price, we went and raised from a group of investors that had supported us for the year and a half journey that we had been through. And then, we found a bank loan as well from a local community bank that knew us really well and gave us very favorable terms, and put the deal together, and it’s a fantastic structure.

Are you willing to share the multiple you paid for him? Or, is that something you want to keep confidential too?

Yeah, I’ll get into that. So, first of all, prices are high right now. That’s table stakes. So, the great thing of going after small businesses, or a business that has less than a million dollars of owner earnings, so, it’s small, is the multiples are smaller. So, our multiple is less than three times cash it close, it’s less than four times all in. So, it’s a relatively fair value, we think. If you go up to, two, $3 million of EBITDA, you usually don’t hear those numbers anymore. So, we’re happy with that.

Did you ever run into other searchers who had overlaps in their search territory with you, and you were kind of both working on similar deals, wherever competing? How many other buyers did you run into?

Yeah, it’s a competitive market for sure. Especially, the private equity community has calm down market. I was shocked how often we’d be competing against funded private equity sponsors, which is super intimidating for people like us, who are self-funded searchers. But, now, we never once, competed against a searcher. Only once did we ever hear of a searcher who was a part of a process. But, they were sort of earlier and had bowed out. So, now, I mean, the search community entrepreneurship through acquisition is wide open still. And I know you’ve had other guests say the same thing, you read about this, this market for small family-owned businesses is still absolutely wide open, especially if you’re willing to stay small.

We talk to a lot of searchers who are trying to figure out how they’re going to run their search. I think, a lot of people are attracted to the funded model, and it’s fantastic. I think we ideally would have done a funded search, it just didn’t match what we wanted to achieve in our life. But, I tell you what, I definitely would not want to be going to the market right now, buying a $3 million SaaS business. Because, those are crazy expensive, and there are just a ton of buyers for those businesses right now. So, I think if you are a national or potential national funded searcher, looking for a software as a service business that’s big enough, where institutional buyers are going to want to go after this as well, that’s a extremely competitive space, I am so glad that I’m not fishing there.

At the same time, there’s huge trade-offs, right? We ended up with a business that’s smaller, there’re definitely downsides to that, we have to get our hands way dirtier than a bigger business. We laugh, like, people on the outside might call us the sort of co-CEOs, or not. We’re there as general managers, running the business day-to-day. It’s this hard work as you could imagine, but it’s great. We love it.

What have been the first few months of ownership been like for you?

Yeah, they have been a whirlwind. So, as a searcher, you think for your entire search about the day you’re going to close as the finish line. And it’s not, it’s just the starting line. So, it’s been trial by fire, getting to know our staff, really learning the ins and outs of the business. My brother and I are sort of sticklers for people who try and stay out of the weeds. To start, we got into the weeds. We got into everything from sort of pricing and getting to know every single one of our big customers or haulers, we got into the weeds. So, now, three, four months later, the sellers have transitioned out, and it’s all our business. We actually feel like we know what’s going on. It doesn’t make it any easier, but we actually feel like we know what we’re doing, and we’re slightly dangerous. But, it’s been fantastic.

And, for once, now we see what it’s like to be owners of a small business, all and around, and it’s extremely fulfilling.

Is there anything about owning a business that you didn’t expect? Or, maybe under expected, perhaps?

Every day is filled with fire drills. And, as a lawyer, I used to be able to stay out of the sort of fires, and stay above that. And now, that’s our job, right? So, every day, somebody in the business is having a personal issue, or one of our customers is calling, angry about something, and we’re having some sort of service problem with one of our haulers. This is that, all the while, my brother and I are trying to pave a new path, strategically for the business. To grow it, to do all the things that are going to make this adventure successful. And yet, we’re stuck in the weeds. And so, it’s a great classic lesson of balancing priorities every day, but it’s been fun.

And I think, starting, hopefully, in the new year, we’ll be able to back out a little bit, hopefully put some folks in place to put out the fires, so that we can start growing this business, because that’s what it’s all about.

What are your plans for, with the new year coming, you’re thinking about adding somebody, what’s next for 2020 and beyond with owning this business? Are you looking to potentially find another one to buy? What’s in your immediate horizon for the next few years here?

Yeah. So, I’d say, with Alpha Dumpsters, specifically, our business, 2020 is the start of what is hopefully a long runway of growth. So, we’ve put together a sort of third party internet marketing company, that’s doing all of our internet marketing, redesigning websites, strategically redesigning our AdWords campaigns on Google. They are handling everything soup to nuts, when it comes to our internet marketing. So, that’s fantastic, they’re super helpful. They need our feedback, but they run pretty independently. We’ve spent a lot of time developing relationships with our haulers, the companies with the trucks and the dumpsters, because they do the actual work.

So, I think, hopefully, by the new year, all the pieces are in place. And now, we can kind of hit go on the investment to grow, which takes a lot of money, it takes a lot of time, it takes a lot of people and resources, but we’re there. So, 2020 is the start to hopefully many years of just fantastic growth in Alpha. Pursuing capital, or search fund, it’s actually been a really interesting year. We’ve gotten to know search, and the process, and the ins and the outs, and the pros and the cons, so much, that we’re going to actually keep that open, and we’re going to keep sourcing deals. We’ve done that all along, so, we’re going to source deals that would be strategic to Alpha Dumpsters, and would make for a really cool roll up in that space. And we’re always open to that.

But, we’re also open to any kind of deal that we were in the past, sort of half a million to two million of owner earnings, couple hours from Tampa, that’s not pure construction or hospitality. That’s our spiel. And 2019 was interesting too, because we had, right around the time we were doing our Alpha Dumpsters’ deal, we had a friend of ours in Tampa Bay approach us, and said, “Hey, I love what you’re doing, I want to do that. I just have this one big problem, I can’t quit my job and do that like you are. Can you help me?” And long story short, we let him in to see our pipeline, he picked a deal, my brother and I went on his behalf and negotiated a structure or price terms with the owner, and we actually helped him close the deal.

So, he was able to quit his job on a Friday, we closed on a Friday afternoon, and on Monday morning, he was the president and CEO of his business. And through that process, we had so many experiences to bear on his behalf. We sit on his board, we are an investor. We’re very passive, but we’re an investor in his business, and we want to do more of that, because we think it’s really fun.

Is there something you’re looking to eventually build with Pursuant? Or, are you just looking at it deal by deal and year by year, and you’ll see what it over time, with experience, what do you want to focus on doing?

Yeah. I think we’re definitely going to focus first and foremost on Alpha Dumpsters. I mean, that’s our business. There really is no other priority but that. But, I’ll tell you, there’s two of us, and this is the great part about being a partnership with your brother, with diverse skill sets. He is a core operator, and I’m a core finance and deal guy. And so, we can really do a good job giving and taking and dividing and conquering. And while we get Alpha on a great trajectory, we’re going back to market, and we’re still developing our deal flow. We’re talking right now with other searchers, quasi-searchers, who want to buy businesses, trying to help them do that. Because, it doesn’t take a ton of time, and I think we have a lot of experience there.

We love it, we love this search community, it’s a fantastic group of people. It’s fun to see people in their 20s and 30s and 40s, get off that straight and narrow track they always thought they would be on, and just dive into this ETA world. And so, it’s been fantastic. We loved helping our friend buy his business, and see passively how he’s running that, we want to do more of that. So, we’re going to keep our deal flow alive, we’re going to keep supporting other searchers, hopefully, backing a few of them. It’s funny too, and I’ll put a little plug-in for us here is there’s just no competition in Tampa and Florida generally. It seems like all the searchers are up north, or on the East Coast, or West Coast, or Texas, there’s nothing down here in Florida, as far as competition goes.

And I probably shouldn’t say that, but, to the extent there’re searchers out there that want to come see a wide open market, this is it. And we’d love to support those people.

And doubling back to having your brother run the business and you have more of the financing deal role, was that a arrangement that you knew going in would be kind of what it would look like, since, I mean, there’s not many searchers or search funds with two partners? So, I was just curious from that end, how do you manage having your brother? How do you go through decision making with him?

Yeah, I think, first and foremost, it’s all trust. So, I’ve known him a fair bit of time, he’s known me for a little while, so, we just know how we work. So, from the outside, I’m sure people wonder how we make that work. People say it’s impossible to work with your family, I don’t know. We challenge that, because we say, hey, yeah, we definitely have our disagreements, but at the end the day, we’re on the same team, and we know each other better than any other partners out there. The second thing is, we are very, very different in our skill sets. So, he is a fundamentally an operator and an entrepreneur.

I mean, he would probably make for a better solo searcher than I would, because all I know how to do is source and structure and close the deal. I’ve never run a business in my life. But, he’s never run a back office, he’s never really put together financial statements, he’s never executed and closed a deal. And there’s a whole other part to running a business, besides either the operations and the front office, and then, the back office. So, we have a very natural divide and conquer approach there between, at Alpha Dumpsters, I handle the legal, accounting, finance, HR, investor relations. Obviously, networking is for both of us. And he’s core operations, sales, marketing, the front end of it. And it’s a really easy divide and conquer. So, we’ve been really fortunate.

Yeah, we’ve had a lot of conversation about it. Yeah, we always are making sure that we step back. And there’s a great book out there called The Partnership Charter, we read that book, we try and follow that, even though it’s not quite as clean as it sounds. And it really just keeps us honest, and make sure that we’re always on the same page. I could spend all day long in a spreadsheet, making sure that our accounting is clean, making sure that we’ve paid our invoices on time, that we’re collecting from our customers on time. That, to me, isn’t even work. It all makes sense in my head and I enjoy it, it doesn’t feel like a job. At the same time, having to interact with all of our employees and spend time on phones, taking orders and yada, yada, to me, that’s out of my wheelhouse. It just so happens that that’s right inside my brother’s wheelhouse.

So, I think, from day one, we kind of always knew that we would divide our operating roles. He and I would spend a lot of time dividing and conquering. Now, of course, we talk every day. And we regularly have conversations about the high level strategic focus, and where we’re going, and issues, and big fires we have to put out, and goals, and that’s easy. But the day-to-day grind of operating, we very much divide and conquer, and it works fantastically.

Since you’ve acquired a company, have you found that that has given you some legitimacy, when you go and continue those conversations with brokers, or talk to business owners, there’s some level of, “Okay, this guy’s actually done it before, we can trust him more with more deals or more interesting stuff, or, I know that he’s more of a, he’s my go-to guy now that he’s actually done it”? Have you had some of that in your conversations?

Yeah, God, it’s night and day different, to be honest. For a year there, it felt like we had to beg and claw for even the dirtiest deal flow out there. And now, half the times, we don’t even have to say it. So, we’ve closed two deals. One is our business that we run and own with our partners. And the other, we essentially supported another searcher in doing it from day one to close and beyond. So, after doing two deals in 2019, it’s just incredible how much the whole community takes us more seriously. It’s funny how that’s the case. I think, sometimes, the community just wants to make sure that you can actually close on a business, and actually do what you’re saying you can do.

But, until you do it, nobody really takes you seriously. And the great thing is, these aren’t the two biggest businesses in the world, neither of them are what most searchers would consider a reasonable size. But, that doesn’t even matter. The fact that we run and own two businesses now, we’ve executed, we’ve proven the model, it’s fantastic how much more seriously we get taken in the market.

Do you have a few examples of some interactions you’ve had that reflect that, or good examples of it?

Yeah, I mean, I would say, in the broker community, it’s made a big difference. For better for worse, a lot of brokers, investment bankers, M&A advisors, their interest is squarely pointed towards closing a deal, that’s when they get compensated, that’s their job, point blank. And if they’re not sure you can get to that table, in our experience, a lot of times, you just don’t get taken seriously. And I understand. But, now, we get so much inbound call volume from brokers, because, maybe they saw a press release, or maybe they read about it in our local paper. They saw something, and all of a sudden, they realize, shoot.

We joke about this, we used to get called the boys a lot, and that gave us a big chip on our shoulder for a while, because, a lot of brokers would act like we were kids trying to do adult things. And then, all of a sudden, we kind of pulled it off. And overnight, the broker community, not all, there are many that are great to us, no matter what. But, there were some particular brokers who really just didn’t think we can get it done, and now that we have, they absolutely give us more calls, give us more leads, take us more seriously, and it’s been great.

Through your process and through your continuing process, have you narrowed down what businesses you find the most interesting?

Yeah, everything just depends on the deal. I think that’s one thing we thought from the start was that it was cleaner than it is, every deal stand on its own. For us, valuation dictates a lot about how much we like a business. I think we have a new appreciation for some things like recurring revenue, non-cyclicality. A lot of the core tests characteristics that searchers chase, we have a new appreciation for that. But, we like old school stuff. So, we’re down here in Florida, and there’s not a ton of tech, there’s not a lot of glamorous software businesses, but there’s a lot of old economy distribution, there’s a lot of old economy manufacturing, and there’s a ton of old economy business services, and we love those things. Because, they’re not going anywhere, and it’ll be 2050, and these things will still be around.

And we’re just hoping, over the next 30 years, to own a few of them, and build them, and grow them, and sell them, and do it again.

It’s pretty interesting that Tampa doesn’t have that same, I would have thought with Florida nice weather, there’d be some more of those software, techie type businesses. It’s interesting that there isn’t, though.

I think they’re trying, right? They’re trying to build these cool communities and towns all across the country. But, I think it’s just underdeveloped here. And I don’t know if you’ve ever been here in August, the weather isn’t that great. So, no, but I’ll just, jokes aside, it’s just not highly populated yet, with aggressive ETA professionals. So, it’s fantastic.

So, in continuing your pipeline of deals, you mentioned that tuck-ins or roll-ups were something you were looking at, how do you think about adding companies to Alpha Dumpster and rolling them in? How do you think about that process, compared to buying companies that would stand on their own?

When you’re a strategic buyer, you’re a buyer that already has a business in a space, you can do things differently. And for a year and a half there, we were the opposite of a strategic buyer. This was, we had nothing, we were starting from scratch. And so, every deal we looked at, had to stand on its own. And so, we had to be a little bit choosier about what we saw and how we bid on a deal. Well, now, it’s, when you’re a strategic buyer, you can think to yourself, if you were to close on this business, you could save costs because there’s redundancies, and you could hit a new customer base because you now have different service offerings. You can just think about a deal totally differently, and it’s awesome to be on the other side.

I’d say that, we’re looking at Alpha Dumpsters in a couple different ways. We’ve thought potentially about buying one of our hauler partners, so that we can control essentially our supply chain, from customer, all the way through. We don’t have to rely on anybody else. So, that’s interesting to us. We’ve thought about buying other players in the space that are in other geographies. Because, in our market, or in our business line, I can operate as easily from here and serve us a customer in California, as I can service one down the street. But, sometimes, brokers around the country just have built up networks in their local areas, that would be really easy to tuck into our business. So, we’re looking at all sorts of things.

How do you approach those opportunities differently? So, does an owner or a business broker react differently to a strategic buyer versus a search fund?

Yeah, absolutely. Yeah, we talked to a business broker last week about a business that relates to Alpha Dumpsters, having a business in that space makes you so much more legitimate. From the beginning, the conversation’s different. As a searcher, when you have a conversation with an owner or a broker for the first time, I mean, you are the idiot in the room, without a doubt. I can imagine now looking back how simple and kind of stupid we looked, showing up trying to figure out what this roll-off dumpster broker space was all about. But, now, we can cut right to the chase, which is, we can speak the lingo, we can talk numbers, and market size, and service offerings. We can dive right in, and it’s just a totally different conversation.

So, now, I understand a little bit better about, why being a strategic buyer is so much more helpful. And, yeah, I think over there.

Were there times in the beginning where you did something that felt really dumb, where you were like, “Oh, man, I should have said that better or done that differently”? And do you a few stories like that, that, going back, if you could do it again, you would a little bit differently?

Yeah, I mean, I’ve got a great one, after we bought Alpha Dumpsters, we actually, the seller was nice enough to take us out to dinner with one of our biggest hauler partners. And if you’re located in the southeastern U.S., it’s a waste company that you’ve definitely heard of. And our seller was nice enough to take us to that dinner with the owner’s son, who will eventually take over that business, and his right-hand man. And I remember sitting there a weekend as owner of Alpha Dumpsters, having a conversation with these sort of lifelong waste management guys, thinking, “Holy cow, I can’t even begin to talk the same language as them.” They’re talking about these kind of commercial dumpsters versus roll-off dumpsters, and I was just blown away about how much of an idiot I was at that dinner.

And you kind of fake it till you make it, and I think, a few months later, now, we know what we’re talking about. So, it’s way more comfortable. But, if there’s one lesson that searchers learn quickly, it’s, you feel like an idiot every single day, sometimes. Trying to learn these industries you’ve never heard of, and, you know what? That’s the adventure of it all. So, we’ve had fun.

If you could teach a class in college about literally any topic you wanted to, what would you teach? And, why would you teach it?

I would have said accounting, because I’m an accounting dork like that, and I think it’s just unbelievably helpful. I think the answer is probably, my dad studied philosophy, I’m not old, but the older I get, I feel like, the way you approach the world, the philosophy you carry around, it impacts the way you think and the way you see everything. I think that would be my answer. Most 18-year-olds don’t know what philosophy is, and tend not to care. So, I think maybe my practical answer would be, I think habits are huge things, so, I’d love to teach a class on how to acquire good habits and to lose bad habits. And, to me, that would be enormously helpful.

What kind of habits in particular?

I think it’s just the way you go about your day. Learning that sometimes the lifestyles you build in college and right after college are not exactly conducive to the life you have in your 30s, which usually means, a wife or a husband, and a kid, or two, or three kids, a stressful job, pals and bills and friends and some semblance of hobbies. So, I think, to me, habits means, how do you structure your day, to make sure you do all the things you need to do? And how do you say no to distractions? How do you make sure you get time to do your hobbies? For me, that’s golf in gym. With all of other crap in my life, there’s not a whole lot of time. So, I think, habits around how to structure your day and time management, say no to things that don’t matter, and yes to the things that do.

Is there a belief you had early in your business career, not even necessarily with pursuing, but just early that you had and you believe it really strongly that you’ve since changed your mind on? Or, loosened up on?

I used to be that young, brash kid who thought experience didn’t matter. I always just thought about my bosses, or professors, “Why can’t you do that better?” Or, “Why this way?” And always second-guessing and not having an appreciation for experience. Or, I’d think all you ever have to do is go through a year and a half long search fund process, and holy cow, experience matters a ton. After doing this for a year and a half now, it is incredible how much actually doing the work, actually diving in and taking the risk and getting your hands dirty, that experience matters. So, now, my brother and I laugh all the time, like, experience is everything. You can read all the books you want, you can listen to all the podcasts you want, but you only learn the good lessons by making your own mistakes and screwing up.

Are there a few mistakes you feel that you really only could have learned by doing them? And even listening to a podcast interview and hearing the mistake, still wouldn’t have really ingrained in your mind that idea.

A search is just way more time consuming and harder than it looks. You can read those search fund bibles all you want, and, man, they make it sound clean, and easy, and straightforward. And then, you see your first 10 deals, and you haven’t seen an ounce of recurring revenue yet. Or, you make your third offer, and every time, the owner has told you to that, screw off, when you ask for a 30% seller note. Things like that, right? I mean, there’s so much art that goes into these things, that only experience can teach you how to get through.

What’s the best business you’ve come across?

I was going through the other day, we’ve probably seen something like five to 7,000 deals, companies. And, I mean, there’s something around service businesses. I’ll put SaaS aside, because I think that space is super competitive, and that’s just not our wheelhouse. I think, if it was, that would be my answer. Alpha Dumpsters is a fantastic business. So, I think that’s why we were so patient in trying to find the right one, is because it’s worth the wait. But, Alpha Dumpsters, there is no CapEx requirement. We don’t own any hard assets. 99% of businesses get paid by their customers 30 or 60 days after they’re invoiced, our customers prepay us. So, we actually have like a positive cash flow, in a way that insurance company does. And, in order to scale, we just have to be really good at the internet. And the internet is a master scale tool.

So, those are all the kind of things that make this business phenomenal. Now, don’t get me wrong, it’s hard to run these businesses every day, and we’re constantly in the weeds. But, honestly, after a year and a half, two years now, Alpha Dumpsters is one of the best businesses we’ve seen, and I think we’re just thankful to be owners.

Thanks, Sam, for your time. I’ve really enjoyed this conversation. I’m really glad that we got to do this.

Yeah, me too. Glad we could do it. Hopefully, we’ll meet up at a conference soon, right?

Oh, absolutely. I’d love to.

Related Episodes

Subscribe to our newsletter

Join small company investors, search funds, private equity firms, business owners, and entrepreneurs in reading the Think Like An Owner Newsletter.

Generic filters
Tlao Cover Art 2023 Vector

Sam Rosati, Pursuant Capital

My guest is Sam Rosati who, along with his brother Joey, ran a search fund called Pursuant Capital in the Tampa area and acquired a waste management broker called Alpha Dumpsters.

Read More »