Understanding Private Equity – Alan Ezeir

Alan Ezeir:
I told myself, never say never to anything. There’s a lot of joy I had from doing a startup, but there’s a lot of joy from what I’m doing now, and it’s just a time and space. I like doing different things and we brainstormed and put together a networking group about a year ago and have it in San Diego and it feels like it’s blossoming without us doing much. Let’s just keep doing different things. Acquiring businesses makes a lot more sense now. The heartache of starting from scratch, the likelihood of success is just that much harder. Not that success has to be the reason you’re doing it, but you have to enjoy the process.

Dana Robinson:
Exit Plan is a podcast for business owners and those who want to be business owners. I’m always in search of the lesser known stories of entrepreneurship. In the Exit Plan podcast, you’ll hear stories from startup to sale and hear from the professionals who helped business owners achieve their exit. Hosted by me, author and private equity manager Dana Robinson, along with my co hosts and guests, you’ll hear real stories, tips and tools that will help you plan for the exit you want, whether you are still working at a day.

Dana Robinson:
Job or running a business.

Dana Robinson:
Let’s get started with this episode of the Exit Plan podcast, everybody.

Dana Robinson:
It is the Exit Plan podcast, formerly the Opt Out podcast with a formerly Opt Out podcast guest, one of the favorites that we had on Alan Ezeir. How’s it going, Alan?

Alan Ezeir:
Hey. Hey, Dana, how are you?

Dana Robinson:
It’s been some, it’s been some, I mean, we’ve been hanging out, but it’s been some years since we did your interview. And we’ll recap a little bit of that. So people who’ve listened to the podcast will remember you. I’ll let you introduce yourself a little bit better. But Alan is an entrepreneur, serial entrepreneur has a really interesting story of some of those entrepreneurial journeys and will extract some of those stories from Alan along the way. And a super interesting just preview of some of the stuff we’ll talk about today is what is it to be an independent sponsor? And as part of that, for those that don’t follow private equity, you’ll learn a little bit about what it is to be any kind of sponsor. So we’ll talk about private equity, independent sponsor, finding deals, optimizing deals, and then we have a new feature that we’re going to have at the end if you want to stick with us. We are actually going to look at a deal on biz buy sell, the place where businesses get listed, and we’re going to ask the question of Alan, would you buy this? Would you do this deal? And we’re going to look at an interesting company that appears to be making almost 1.6 million EBITDA.

Dana Robinson:
And we’ll ask some questions of each other about what we would do if we were taking a run at that deal. Alan, for everybody else’s sake, everyone tries to introduce their guests. I would much rather have you talk glowingly of yourself. What makes Alan Azir tick? How did you get to be who you are and what you’re doing right now?

Alan Ezeir:
Yeah, I think it’s the biggest thing is remaining curious, being interested in things and being interesting. And the interesting part comes from just doing so many different things because of my curiosity. So a lot of it, I don’t have a straight line career like many entrepreneurs out there, but I really feel that that’s what keeps me ticking and keeps me young. So.

Dana Robinson:
I’ll just highlight that. A lot of people have been told you need to go to school and get a good job and have that straight line to be successful. And I love when I ask you to talk about yourself, what helped you become what you are? Why are you where you are? It had nothing to do with the things that everybody says will make you successful. It’s actually that you’ve been curious and interested in so many things and that you have had the ambition to execute on that curiosity.

Alan Ezeir:
Yeah, well, the alternative was do it the way everybody else does, which is fine because it’s obviously been successful for some, but you have to follow what really you feel in here and you’re like, what really makes you want to wake up? I feel fortunate now, I don’t know, 30 plus years into my career that I get to choose what I do with my time. And when I’m working hard, it’s because I choose to work hard. And when I don’t, it’s because I choose to not. I think that was the biggest thing I gained from my career path, is you choose the direction based on what you love versus what you think everybody else is doing and what they love.

Dana Robinson:
Well, let’s take us back to the early entrepreneurial journey for you. I know several inflection points of your entrepreneurial journey, but start wherever you feel. Right. Tell us a story about how you got into business and entrepreneurship.

Alan Ezeir:
Yeah, so, I mean, it really started when I found, I called my people and I was at UCLA and I just didn’t feel like I fit in. And I met this one group called the Southern California Entrepreneurship Academy, and it’s like all the clubs we join in college, we’re, like, just trying to meet people that are like minded. But when I met with them, I immediately realized these are the people I wanted to be around. And it was entrepreneurs that would wake up a Saturday morning and go to a business owner’s office. And if, you know, if you remember back in your college days, no one wanted to wake up Saturday morning at 07:00 a.m. To go to a business owner’s office. So that was the criteria. It was really simple.

Alan Ezeir:
It was a group of very, well, entrepreneurs now that would take in college students from the Southern California area to just tell them their story. So, like, I got to meet the founder of Quicksilver when he started. I got to meet the founder of Bugle Boy, if anyone remembers that brand when he started. The founder of. There’s various companies. I’m trying to think of some of the names now. ChapMan Medical and, God, it’s been a while. It’s been a good 35 years now.

Alan Ezeir:
But that was really the start of me realizing this is what I love, this is what gets me up in the morning. This is what makes me not want to go out late on a Friday or if I go out late to get up early on a Saturday, because I don’t want to miss one of these sessions. And then getting out of college, not getting a job, and saying, you know what? If I’m going to take the risk, let’s do it now. I had my degree and thought, well, let’s go start a business. And tried a dozen things, everything from owning a t shirt company to valet a parking company to a catering company, and realized that I was just looking for that thing that would get me excited. And then got into the telecommunications space, and that led to the domain registration industry and the transition there. And I’m going quickly because I could probably tell you an hour story on each one of these. You never know how you’re going to get to the thing you’re getting to next.

Alan Ezeir:
If you told me right now at 55, at 60, I’ll be running x company, I would probably look at you like, how do you know? Because I might be doing a totally different thing. And I learned that from Michael Dell. And I was in a group called the association of Collegiate Entrepreneurs, and he was maybe 26, 27 at the time. And I walked up to him, because you could at that time. And I asked him, I’m like, well, how did you know? And he goes, you don’t. You just get on the yellow brick road and you start. And I just saw a need to fill these computers in this one particular sector, and one thing led to another, and he used his talents to do what he’s done at Dell. So I’ve always told myself, don’t try to get too far ahead of yourself.

Alan Ezeir:
Just enjoy the journey and the excitement of what you’re doing. So telecommunications led me into domain registration, and not to spare you the bigger story, but the bottom line is the telecommunications industry was changing so much, it was really hard to make money. This is back in the day when you would actually have to pay for a phone call.

Dana Robinson:
Yeah, yeah. Long distance. Long distance calling cards. Yeah.

Alan Ezeir:
And 25 years ago, that was going to zero. But I was in it 35 years ago or 30 years ago, and you still could get a metered rate out of somebody at got into domain names because we knew our telecom business wasn’t going to make it. It made it in terms of it made money and we sold it in time, but we knew it wasn’t going to be a big company. It was too difficult unless we did a complete pivot. Kind of like, think of Netflix. They’ve done so many pivots to get to where they are now, and we weren’t in the mode of doing that pivot. And I found the domain registration space. And this is back when.com, dot net, and.org were the only extensions that people really recognized, and we saw an opportunity.

Alan Ezeir:
This is like 19, 97, 98 in other extensions. So all the country codes out there were the two letter extensions. And now in the marketplace, there’s all types of extensions because they’ve opened it up and it allowed more volume worldwide for different types of domain names. And we latched onto the WS extension because back then, you, you had to pick a country to latch onto to market their top level domain. And top level domain is everything to the right of the dot. So if you think about.com as a top level domain, and we got the rights to it with our mindset, thinking WS could mean website, world site, wireless, I don’t know. Will Smith, will meet William Shatner, all the different WS acronyms. And we thought, well, we’ll find a way to market this.

Alan Ezeir:
And this was before Dot website, which exists now. To think it came out in 2012 or 13, and we were selling WS names in 1999, so early on seeing the opportunity, and now it’s easy for me to look back from 2024 and said I was just at the right place at the right time. So timing is probably one of the biggest factors in my most things that we do, and we have to remind ourselves of that. So we built up that registry up to about 7 million domain names collectively over 17 years or so. And then a lot of it, for me in the middle of that was just getting anxious to get into something else. Watching cycles, seeing pricing go from $70 down to $5, back up to $15, really having to fight different market conditions and realizing that if right now you started that company, you’d have a hard chance to succeed. There’s so much competition. To differentiate yourself would be very difficult.

Alan Ezeir:
But we were one of the only players in the market back then, so it was easy. I mean, people would laugh because distributors would come to us begging to sell our product, and that’s just not common in business. I wish every business I had, I had begging to sell my product. And I’m not joking. Intel called us and said, please sell us your, like, domain names. I mean, they were, we didn’t, we weren’t even, we weren’t even selling names at the time. We were building the software, and, and they did so. So, you know, ran that company for quite some time, became an angel investor in the middle of that.

Alan Ezeir:
And that’s where I got my bug for all the different businesses. And I probably invested in 15 different companies, got involved in real estate, and really found a passion for the different ways to make money and staying interested in things. And then pretty much post 2018, 16, 18, that’s when I got involved in cryptocurrency and to other real estate ventures. A tequila venture that has been a lot of fun, actually. We represented a brand that recently was on the Today show, which was really exciting to see them get on the Today show. It’s a tequila called 1953, and then got into private equity because of my 22 year stint in a group called YPO, the young president’s organization. I had a friend in the group said, hey, you’d be really good at this. And I looked at him and said, I have no idea what you’re talking about.

Alan Ezeir:
And private equity led into, well, what are the sub sectors of private equity? And one of the sub sectors was being an independent sponsor. And I thought, well, let’s take a look. And as I typically do, I just kind of run in, into the fire and figure out how to find the water later.

Dana Robinson:
Yeah, yeah. So you go like, all right, you’re figuring out what private equity is, and, you know, for. Let’s, let’s pause for a minute. For the uninitiated, private equity is a term that could mean a lot, but we generally use it as a code word for when someone who puts a deal together, usually referred to as a sponsor, matches the capital needed to acquire that business with some other resources and acquires a business and then does something to professionalize and improve that business. And that sponsor makes, as a gambler, what might call it a vig. You make a promote or a carried interest. You make this thing that is a piece of the profit that you’re helping make your investors. And when people talk about private equity, the most common, at least that people are thinking of is committed funds, where a private equity sponsor has raised a bunch of commitments from institutional finance, and then they go find businesses, they use the money to deploy on that, and they’re asset managers for that asset, and they charge fees and carried interest for managing the asset.

Dana Robinson:
And eventually, in most cases, find a way to optimize it, professionalize it, grow it, sell it, and then give their investors a return and get anywhere from ten to 25% of the increase in value. An independent sponsor says, I can do that without the structure of a committed fund or fund structure and not have to be a financial advisor manager, don’t have the compliance and regulations. So independent sponsor has grown so much. I mean, you joined that sort of business five years ago, about five, six years ago, yeah. And so Maguire woods was running the conference, and when you went, I bet there was probably 100 people there, 200 maybe.

Alan Ezeir:
Yeah, yeah.

Dana Robinson:
And last year it was 1000.

Alan Ezeir:
Yeah. And I think this next year is 1500. And they tripled the fees.

Dana Robinson:
Yeah, yeah. So, so independent sponsor says, all right, I’m going to go find a business that I think I can bring some expertise to. I’m going to ask the seller to sell me that business. When they ask, where’s the money? I’m going to go to a bunch of capital providers that believe in people like me to, to invest with, and then they invest with you and you invest with them, and then you buy a business where you’re going to make a carried interest in the success of the business when you either generate profits or when you sell that business. Is that a good characterization?

Alan Ezeir:
Yeah, and I use this analogy, I say, you have to keep it really simple for people to grab onto it. Think of, I buy an apartment building, I clean it up, I increase the rents, and then I sell the apartment building. That’s easy for people to say, oh, I’ve seen that happen before, and there’s groups that do that in the real estate world. All we’re doing in the business world utilizing the term private equity, because that’s usually the capital source for these businesses, is to go acquire a business, make it better, sell it for more. And there’s many dynamics to that. It’s a lot harder than a piece of real estate. That’s why there’s maybe more upside, but there’s also less people involved in it and it’s a tough route now. There’s more people getting involved in it now, but that’s the best analogy I seem to.

Alan Ezeir:
People understand that.

Dana Robinson:
Yeah, it’s a very sophisticated fix and flip, I guess. And I don’t know that flipping is the right word even because I bought property that I hold and fix up and improve and all of that and then sell it for more. And it’s a slow flip and there’s some great returns when you do that. Right. But there’s a ton of work and you have to be someone who wants to buy something that’s a little dirty and a little broken and has problems that someone has to solve. Because the best way to make a large carried interest is to get a large increase in the value of that flip for you. Right. So you actually want to find something that’s got identifiable opportunities for improvement.

Dana Robinson:
I was going to say identifiable problems, but it’s not always fair to say that the businesses you’re buying out problems as much as the opportunities that you’re looking for. You know, if I just do this, this is going to double revenue. Or if I just do this, I increase gross margin by 10%. Right. You’re looking for. How do you. You want knobs and levers that you can predict that once you get your hands on them, they’re going to work.

Alan Ezeir:
Yeah, it’s the economies of scale. If I’m buying at a particular price, a particular product, we can keep it as simple as chairs. And I get chairs at $10 and you’re getting them at $20 because you don’t buy as much volume. But if I buy your company that sells chairs and I’m getting them at $10, I haven’t immediately. I’ve immediately made more money for that asset that I’ve brought in. That’s simplifying it and don’t want to give anyone the idea that it’s that easy. But that’s what you’re looking for is you’re looking for opportunities to save money in certain areas or bring in talent that knows how to take it to the next level where a lot of businesses stop because it’s tough to put in an ERP system or it’s tough to put in processes that require layers of management or some level of oversight that a lot of founders don’t want to deal with. But that’s the only way you grow.

Alan Ezeir:
You know, it requires some. Most of these companies don’t have a CFO, and then you see the value of what a CFO could bring to the table when you get to a certain size.

Dana Robinson:
Right. So as an independent sponsor, you’re constantly building your quiver of resources for fractional and non fractional CFO coo, you know, vendors that. That implement and integrate. Trying to figure out what the ERP is, I think a huge piece of, especially when you’re talking about multiple businesses and a roll up or a buy build strategy, the ERP can be the prime mover of so many pieces that are fragmented, if not completely broken in a business.

Alan Ezeir:
So true. So, you know, then just to kind of lead into the world of being an independent sponsor, I did it untraditionally, being probably the, you know, more of a business entrepreneur saying, walked into a room with a bunch of people that had private equity company experience or were lawyers or accountants or worked at investment banking firms and kind of came in saying, hey, I started a business. I’ve sold a couple. I’ve seen the good and the bad. I’ve hired hundreds of people, fired hundreds of people. You know, I’ve had to put it, take a payroll out of my pocket for six months in a row. I’ve had to, you know, all the things and recognized it. Really got down to two things.

Alan Ezeir:
Well, two major things, and then some major components after this. And, Dana, I’m not sure if you want me to run right into this, but the most important thing is finding a company at the right price that wants to sell to you at the right terms. And that’s like the number one thing. And then the number two thing is finding the appropriate financing for that. And then probably, I put it as number three, but it probably should be. Number one is, what’s your thesis? To be able to do something with this business, because not every industry or business should be acquired or should be rolled up. And. And then on top of that is, what assets are you bringing to the table? Not necessarily money, but other assets after the money is done to help that business.

Alan Ezeir:
Is it expertise? Is it talent, is it customers? Is it processes? It’s all those things you can see along this path. There’s a lot of things that can break or not come to fruition. And selling a business is very emotional. So it’s not like selling an apartment building in most cases, where it’s more a transactional thing and a lot of people are not emotionally attached to a building they bought and collected rent on.

Dana Robinson:
Right. Yeah, I mean, that’s, that, that is.

Dana Robinson:
That’s an opportunity, don’t you think, for.

Dana Robinson:
Independent sponsors to do better than the. I’m not sure whether to call them the. I guess to committed. Committed funds are often run by non operators. In other words, people haven’t run businesses. And when a typical private equity professional walks in to buy a business, if it. The smaller it is, the more intimately the owner is attached to it. Right.

Dana Robinson:
So, as you say with an apartment building, if you’re running a billion dollar business, you probably have such a big team and staff that you can be objective about an exit. But when you talk about buying a $10 million a year business, that’s somebody’s baby that they have given birth to and raised and their ego is attached to it. What you’re going to do and change that business is important to them. And I think, don’t you think independent sponsors often have a better ability to sit with them and make a human connection and understand and empathize with them and in that way maybe have an advantage in the acquisition cycle?

Alan Ezeir:
Yeah, I don’t even believe it. I see it because I’ve been in those rooms many times where the founder kind of wants to sit next to me or wants to talk to me because I’m speaking their language. That still doesn’t mean that you can execute on every deal because there’s a lot of competition and other forces out there. But the value of being an independent sponsor gives you the advantage to get the owner’s attention, to say, hey, here’s somebody that has walked in my shoes. And even if you haven’t run a business, as long as you’ve participated in business and have, you know, understand the industry, maybe there’s a reason you were in that industry as an employee and you know a lot about the ins and outs of it, and you can bring in someone else. But that founder of that company relates to you because you know everything about the product marketing, or the distribution or the customer base, or it’s a product or service that maybe is near and dear to your heart. And the founder can see that. They recognize that.

Alan Ezeir:
I mean, every business owner is seeking people that are passionate and curious about that, and it’s real because they can prove it based on their background. So being an independent sponsor has a lot of advantages.

Dana Robinson:
How do you feel about the capital side? A lot of people that I know in private equity feel like. I guess I’ve heard both the people who have committed funds feel like they have an advantage from having committed funds. People who are independent sponsors feel like they can get capital because there’s flexible deal structure, and capital providers tend to lean toward that these days. I mean, in terms of the deals you’ve done, is it just different or is there a distinct advantage?

Alan Ezeir:
Yeah, so I say there’s an advantage and disadvantage to everything, and the advantages are based on the type of deal. So the size of the deal, how the deal is brought to the market, or if it’s brought to market, sometimes it’s the relationship of all the parties involved. Anytime there’s a broker or an investment banker in the middle, sometimes their incentive is more of, we don’t care who the most important or the best buyer is, but more so will the deal get done. So there’s the disadvantaged side, but at the same time, if you can gain a relationship with the seller, the seller may lean towards you more and really see you as a better steward for the business than somebody else there. I’m probably jumping ahead here, but there’s, there’s businesses that are in the market, and there’s businesses that are not in the market. Again, same analogy with real estate. You can find somebody that’s not selling but maybe have a stage in life that they’re like, what am I going to do with this building? I don’t want to renovate it. And you walk into their front door and say, hey, I’ll do the renovations.

Alan Ezeir:
I really like that. And they may go great and not even put it on the market, because going to market, you know, is a, is a very painful process. So. So, yes, you know, again, being an independent sponsor has its advantages. If you go after deals that maybe are not marketed as much to the private equity firms, you’re competing against a committed fund. It’s not saying that you can’t win, but the biggest probably thing that, and, Dana, you and I both know that you can easily lose deals if somebody else can show that they can execute faster, maybe a little bit more money, or have some type of guarantee to close. Even so, they’re doing the same due diligence you’re doing in the process of, of deciding during that period if you want to buy the company.

Dana Robinson:
Yeah. So, in that case, the perception that committed capital can close faster, can win a deal, if that’s what’s most important to a seller, is the feeling assurance of closes is a big deal, which means as an independent sponsor. You either need to build great rapport with your capital providers so that they will execute fast on your behalf. And you’ve got to lean into those intangibles that are either maybe better. Deal structure. Talk about that. When you buy a business, a lot of people’s perception is somebody waltzes in and says, here’s $10 million, goodbye. I’ve never seen such a deal.

Dana Robinson:
They all have some sort of structure. And structure is a technical word in the industry for all of the various ways to get a deal done, including seller rolling some equity, seller carrying back a note, seller having an earn out, seller having a higher price, but with attrition calculations to claw back. And then sometimes you bring in some debt and sometimes you bring in some equity partners, sometimes it’s some of your money. Maybe you have an example, maybe you don’t. But as an independent sponsor, how do you build that capital stack and negotiate? Deal structure?

Alan Ezeir:
Yeah. So first of all, you got to get out there and shake a lot of hands, talk to a lot of people and have your own pitch so people know who you are, keep a good database, stay in touch with people, and when you don’t have some of those things, use the resources that have them and pay them a fee, you know, realize that sometimes you can’t build a relationship fast enough, but you have a deal so that there’s, there’s third party providers out there that’ll help you, but they’re going to cost some money. You know, again, I’m going to use the analogy that if you ever owned a home and you get three offers and one offer is 15 day close, no contingencies, all cash, or you have somebody that says, I, you know, I need 30 days and I have a loan contingency, and then you got somebody else that says, you know, I need like 30 days, but I’m your neighbor and our kids played together and you know who I am and I’m going to get this deal done. And when I say all three of those things, they’re very different. And some people may go, oh, well, I’ll just do the 15 day, you know, deal. But you may be emotionally attached to your neighbor to say, I want to sell it to him, even if he’s going to pay a little bit less, it’s going to take a little bit longer. But I know he’s going to be sleeping in my room, even on his bed. And that makes me feel better.

Alan Ezeir:
And it happens more often than you think. You have to be aware that you got to be careful on the deals that are all financial based, and if you know you have somebody else that is going to beat you there, then it’s going to be a little tougher. But yeah, on deal structure, deciding how much as I’m not going to repeat, Dana, what you said, but all those different characteristics, a lot of it is ask for what you want and each deal demands something different based on kind of the way the deal or the way the business is ran. You know, if a business has lumpy consistency, you may want them to assure you by keeping some of the business along with taking an earn out based on some expectation in the future. If you know that them getting a coupon on debt is valuable to them, then they can be one of your note providers because you’re most likely going to put some debt on the business. So maybe they like that and maybe they see value in that because it keeps them attached to the business and they know that they’re going to need to do so to sell it along with, you know, maybe still be a part of the business in their own way. There’s no one size fits all, you know, everybody thinks differently. So that’s what makes this industry exciting.

Alan Ezeir:
One day I can be looking at the hearing aid business, and the next day I can be talking to someone about suit manufacturing and why doing them online is better than going to a suit store. So it’s fascinating to me to continue to do that. And every deal structure is different also based on that capital that’s already in the business. You know, in some cases it’s just the founder and that’s 99% of his net worth. And in some cases, there’s other capital in the business. And that’s really important because you have to figure out the incentives of all the parties that are ready to sell. Sometimes the founder doesn’t exist anymore and it’s just a management team. And that management team doesn’t really have decision making power, but they’re the guys that you’re going to be running with at the beginning and maybe they own 5% of the business.

Alan Ezeir:
And the founder has been retired for a while and he’s just ready to sell it because his child, you know, doesn’t want it or he doesn’t know what to do with this asset when he gets to a certain age. There’s so many dynamics to it.

Dana Robinson:
Yeah, there is. Every deal is different because every, every person is different. I’ll ask this question. I think I have an answer. What’s the biggest reason deals don’t get.

Alan Ezeir:
Done if they take too much time.

Dana Robinson:
Kills deals. Time kills deals is the mantra in all of our businesses. So time’s the deal killer price. Right. This mismatch of expectations. The sellers have a number in their head and the number often doesn’t come from the rational world. Have you, have you dealt with this as a buyer or seller? I mean, I’ve sold companies that I own and I always think I’m selling it too cheap and it only gets sold because I take what the market is telling me it will sell for.

Alan Ezeir:
Yeah. As a seller, I was greedy because I thought I was, you know, I was worth more. And as a buyer, I caught myself wondering how they can dare say that that’s the price, you know, so. And a lot of it is because the older you get and the more you learn, the more you realize how hard things are. So you kind of recognize that if you pay too much for something, it’s going to be very difficult to make a profit of any sort. And you have to be willing to, to have a little bit of wiggle room knowing that there’s going to be problems in a deal.

Dana Robinson:
Yeah. And that’s back to what you said was the biggest. The biggest part of the game is independent sponsor. And I’m not sure it’s the same with committed capital. With an independent sponsor, the price of the deal has to be paramount. Right. You have to get it at a fair price because of the challenges that you’re going to roll up your sleeves and solve.

Alan Ezeir:
Yeah, yeah, exactly. And then there’s the one thing that we haven’t talked about, but there’s like the minority versus majority aspect of it, and understanding who’s controlling the ship. And that could be interesting because it’s not always where you have to have majority control, but at the same time, based on your personality, you have to know what you can do, what’s best for you. So, you know, if you bring in other equity to buy a business with you, you may not have the controlling stake, which is fine, but you may have the controlling stake of the direction of the business as long as it goes the right way, you know, and that’s, that’s just something you have to grapple with versus starting a business yourself and not having outside influence.

Dana Robinson:
Do you think early in your independent sponsored career, do you think the capital that comes in is going to be more restrictive on you and treat you like you’re not in charge of the asset? Have you managed in your deals to maintain control as a minority investor but the manager of the asset?

Alan Ezeir:
I’ve noticed that at least the equity that we’ve brought in has allowed us to do our job. They’re rarely trying to overstep because that’s not what they want to do. And that’s just my experience up till now. They got involved because we brought the deal to them and said, hey, we’d like a check for X so that we can round out the capital stack and go acquire this business. And they agreed with us. So that’s been my experience. I mean I’ve heard both sides of the coin, you know, but the biggest thing that’s exciting about being an independent sponsor is, you know, you get to go search and seek and find deals that others maybe don’t want to go after, maybe don’t have the access to, and maybe don’t know what to do with it because you have certain expertise and you’re there at the right time to execute on that particular deal versus someone that’s in the space of private equity, has a fund, but doesn’t know what to do with that particular business. I’ve noticed that quite a bit as some people will pass going, we just don’t see the vision you have.

Alan Ezeir:
And I get it. I mean that’s fair. If everybody saw the same vision, we’d all be owners of Amazon, Apple, Microsoft, Costco, all those things. If I put all my money into those three companies in the last 30 years, I would have made a lot more money and Tesla and keep going on. But that’s okay. That’s why if you have an expertise or an interest, that’s where you should really put your energy and time into. And then also having the right leader that can lead the business if the founder is the one that’s leading.

Dana Robinson:
So in some cases your independent sponsor will be the operator because they have expertise, they’re looking in their domain and then they’re kind of double dipping. Right. They’re saying I’m going to be the sponsor and get sponsor economics and I’m going to be the operator. I’m going to get a salary and a bonus for running this business. In other cases, you’re going to be an owner who’s got intelligence in ops, but you’re going to either recruit or retain an operator inside the business. And that’s key. Right. You know, from being an owner non operator that then everything rises or falls on this person that you’ve put the hands, you know, the business in their hands, correct?

Alan Ezeir:
Yeah, yeah. And there’s a lot of, you know, one thing I always thought about when I first got into the space I thought a little bit that being an independent sponsor or acquiring a business was cheating. And a lot of that in my mind came from the fact that I started businesses, and I know how hard they are to start and get to the first million of revenue, million of profitability. You know, you have these benchmarks. You know, the first time you make a million dollars in a year, you’re like, wow, that’s a big deal. Then the first time you are generating a million dollars in revenue and then generating a million dollars in profit, that’s like another wow. And you have these steps to go through. Then I thought to myself, wow, what if I just bought a business that already had 20 million in revenue and 4 million in profit or EBITDA, and said, all right, well, let’s start there.

Alan Ezeir:
And it just felt like, at first, it felt like cheating, but I realized it’s not. It’s still hard. It’s just, I believe, a lot easier than starting a business from scratch. And it gives you a different. It just gives you a different kind of how you feel about the business because you weren’t, you didn’t give it birth, you know, so you treat it a little differently and as a different set of skills.

Dana Robinson:
I have a quick story. My audiobook partner, Corey, and I started an audiobook business in zero. Two built technology were disruptors at a time when there was not. Audible was brand new, and we were the only other online download site for e commerce, for audiobooks. Took us over a decade to build that business and sell it into private equity. We didn’t know we could have asked for some equity in the rollover. We didn’t do our books right, left a million extra dollars on the table and just bad accounting. And then when they bought the business, they did all the things we knew we should do but just wouldn’t or couldn’t.

Dana Robinson:
They got us out of a warehouse, stopped replicating CDs, renegotiated licenses with the distribution channels, and doubled the profitability and then sold it for five times what they paid us three years later. That was, you know, that was a great lesson because I looked at that and said, should I spend 1213 years building a business to sell it for this, or should I buy one that someone has built, that they’re there at their end, do what they can’t or won’t do, and then sell that business for five times more three years later? And it turns out that’s, you know, once you understand the knobs and levers and can play in that space, that is a more powerful way to approach business than raw startup entrepreneurship. I just, you know, I know entrepreneurship can have meteoric, you know, scale, but so many failures along that road.

Dana Robinson:
Dana Robinson here. Quick plug for my book, the King’s Flyswatter. You can see it here behind me. If you’re watching this, I’ve got it in my hand. It’s a great, beautiful hardcover book, printed to make it giftable, something that you can share with a family member by as a gift.

Dana Robinson:
So this latest book, it’s a fable about a person who has a really crappy job. Let’s just start there. This is a book that most people can relate to because we’ve all had crappy jobs.

Dana Robinson:
This is the story of Ubar, a servant in the court of a Babylonian king who masters his boring, monotonous job and then learns to listen to the king, hearing him rule the kingdom while quietly swatting flies behind a cane. Eventually, Ubar becomes the wisest and most successful man in the kingdom. The story is fun, and it’s easy to read, but it’s not mythology. It’s my story. And as I shared the idea with colleagues and friends, I learned that it was their story.

Dana Robinson:
And guess what? It’s your story if you’re at a job of any kind, one that you love, one that you hate, one that’s just enough to get by. This little book gives fresh perspective on how to leverage that job to get you something greater than a paycheck.

Dana Robinson:
The lessons in this parable are entrepreneurial lessons, but not what you might think from the current entrepreneurial zeitgeist. If you or someone you know are looking for a real pathway to entrepreneurship, here’s the secret. Your job is the way out of your job. It’s counterintuitive, but once you see how it works, you can’t unsee it. Learn the way of the flyswatter from the parable of Ubar and from the stories I share from my 30 year business journey. You can get a free copy of The King’s Flyswatter by going to danarobinson.com. You know you’ve done both. Would you go back and do a startup from scratch?

Alan Ezeir:
You know, I told myself, never say never to anything. It’s not something I would want to do. I think I feel fortunate that I got to try both or do both. So, you know, there’s a lot of joy I had from doing a startup, but there’s a lot of joy from what I’m doing now, and it’s just a time and space. I like doing different things and Dana knows that we brainstormed and put together a networking group about a year ago and have it in San Diego. And it feels like it is blossoming without us doing much. And a lot of that has to do with because we didn’t feel like we had a group. So I think my mind and I feel Dana is similar in some respects, is let’s just keep doing different things.

Alan Ezeir:
Acquiring businesses make a lot like, makes a lot more sense now. The heartache of starting from scratch and the likelihood of success is just that much harder. Not that success has to be the reason you’re doing it, but you got to enjoy, you have to enjoy the process.

Dana Robinson:
Absolutely. Yeah. Thanks for the journey down your entrepreneurship path and also kind of helping people understand what we do and sort of sponsoring deals. I think it’s time to transition to our game of the day. And that is, would you do this deal or how would you do this deal? And the deal we have picked to talk briefly about today, I’m going to read the headline off biz buy sell. This is public listing, so we’re not disclosing anything confidential. The market leader in cornhole manufacturing and sales, a California based business producing $6.6 million. No, no, I’m sorry.

Dana Robinson:
Producing $5.16 million, asking $6.6 million, alleging an EBITDA, earnings before interest, tax appreciation amortization of 1.597,384. So just shy of 1.6 million of EBITDA. Alan, you’re an independent sponsor. You find this deal, and you’re like, I want to be in cornhole manufacturing. What do you do? How do you structure this deal? How do you approach the beginning to end? What would you do?

Alan Ezeir:
Well, let’s start with when you first look at a deal, it rung through with my childhood of my son and I playing cornhole. So I thought about that. I thought, how difficult is it to make that product in terms of, is it going to spoil? How am I going to. Can you keep it on the shelf for a while? You think about the dynamics of the business. You think about the places that the business doesn’t exist now that you can enter in, and you look at the amount of profit someone’s pulled together. And since it’s public, it’s a San Diego based company. So I thought, oh, wow. Let’s take a look.

Alan Ezeir:
Things can change quickly. As soon as you start digging into an industry. And I can share with you it’s not confidential, that if you start researching the cornhole industry, which anyone can, by basically looking at this listing and saying, okay, let’s see who makes these products. You find that there are some majorly large cornhole manufacturers that are part of big sporting companies that are doing some incredible volumes. This is not one of them. They are a lot smaller. So if you are all of a sudden your mind has to go, if I could specialize, because they specialize in a particular sector, if I feel like specializing is what I want to do in the business I buy, this would be the right company. That doesn’t mean they couldn’t enter into the mass market space and get grow that way.

Alan Ezeir:
But they are very kind of narrowly focused in a particular subsector within the cornhole world. And I’ll, you know, since it’s, the rest of it is not public, I can’t share it. But, but the thought process is, let’s just say I was interested in this deal because I actually took a look at it and if I was interested in it and there was a time that I thought, okay, this would be really interesting, is speaking to the founder and getting a sense of his passion and love for the business and knowing would he want to hold a piece of this going forward. And that’s not hard to figure out after talking to him. I can just share with you. In general, you have to sense the other side’s interest in wanting to still be a part of it in a minority stake. And then the other components are, is that minority stake just debt? Is it equity? Are they owning stock in the company or equity, or are they going to take a note on it? And the decision making there is based on really getting a sense of what do you think the seller is willing to do? What is the seller really willing to do at that point? And then based on, like we talked about earlier, when you look at the history of the business, this particular business has been around for a while. If you look at the history, you can decide if an earnout is necessary based on some type of expectation going forward or within the actual information in the business.

Alan Ezeir:
If there’s any potholes, there’s things that you’re worried about in the industry that can change quickly. Something in the regulatory side or something that they could lose a big customer if they have got customer concentration. That’s a big problem at times when there’s too much customer concentration and you’re not sure if that customer is going to stay around. So all those are factors. There’s so many things you have to think about, but the beauty of it is that they become like second nature after you do them enough times and you can recognize fairly quickly after doing them to say, oh, all right, ideally we won’t get a seller note, but we’ll get an earn out and will not have any rollover equity just because the founder wants to move on. But he’s willing to keep some of the money back and wait for us to hit the earnings that he claims the future of this business is going to have. I don’t know how big this industry is in terms of the sector that he’s playing in, but you know, that, that was some of my decision making there. That doesn’t mean it’s a bad business.

Alan Ezeir:
It just means it’s a certain business for a certain type of buyer.

Dana Robinson:
Yeah, I love that. Great summary. I mean, I’d add to that that what we’ve learned as entrepreneurs with 30 businesses we’ve probably been involved with or more, there’s always a trade show, there’s always a conference. There’s always an industry association. There is a parking association for anyone involved lot with, you know, parking garages and parking lots that all the vendors show up. Right. There’s, if you’re in death care, there’s a death care conference in the fall that there’s multiple audiobook conferences. I’m involved with a business that sells audiobooks to libraries.

Dana Robinson:
There’s two big public library conferences coming up. You can find the center of gravity for the business. For this, there might not be a corn hole convention, but there’s probably a outdoor game trade show with associations and speakers and people. And so you can get into the center of gravity and then kind of diligence the business from the standpoint of where is it in the market and who else is out there, and then I think you’re getting at you really, and this kind of thing, if you’re a sponsor and you’re not from the cornhole industry, you probably need the owner or someone that’s been in key and management to stick around and have some incentives to help you. Because now you’re going to come in, you’re going to say, I’m going to solve your capital problems. I’m going to help you get an ERP. We’re going to get to those trade shows. We’re going to improve our marketing.

Dana Robinson:
You’re going to do the things that you see as an objective owner group representative, and you need an operator that’s going to do it. And it probably needs to be this guy. It needs to be that the person who’s there, the incumbent, has got to stick it out and if they’re going to stick it out, you’re saying they need to have some skin in that game. There’s got to be an earn out. There’s got to be a holdback and a rollover. There’s got to be multiple layers of incentives because you can’t have this person flee on you after you’ve brought in some millions of dollars on this deal. Right.

Alan Ezeir:
Yeah. And it’s a little bit of shackling the right parties that have been building the business up, not forever, but just for a period of time to. To make that release work better, where when they eventually let go. You’ve got your hands around this. Yeah. Yeah.

Dana Robinson:
I love it. They. That’s, that. That’s a. That’s a fun one. Great example. I think this is an uncommon profitability. There’s the observations that you’d learn when you’ve been shopping for businesses the way you have, or I have pretty disproportionate to have more than 20% EBITDA, which on this business would be about a million.

Dana Robinson:
So it’s highly profitable is probably true, but also a thing to be sure you understand what drives that and whether the moves you make to the business are going to erode is profitability and then how you scale past those. But, yes, that’s a cool one. You looked at it, decided it wasn’t the right one for where you’re at. I think you have to on your quest. I think this is the tale of the independent sponsor. You have to look at hundreds of deals, don’t you, Alan, to find one, where you go, that’s the one.

Alan Ezeir:
Yeah. At least. I mean, it’s hundreds to find one. And there’s different methods of finding those deals, and that’s. You’ve got to be willing to. I always tell people, no matter what you do, I don’t care if you go work at a restaurant as a busboy or you start a company or you go into politics or you do whatever you do, you become a fireman or a firewoman. Just do something where you enjoy the journey. You really like the whole process.

Alan Ezeir:
I really enjoy looking at businesses, and, yeah, closing them is an aspect of it, and there’s a monetary gain in some cases, but the majority of it isn’t closing companies, it’s not closing businesses. And Dana could tell you his story one day. I’m sure he’ll put himself on the podcast where it’s like you spend a lot of time doing a lot of other things that you better enjoy, at least to a certain degree. And I’ve tried to make a point of always doing that, whether it was in the domain space, telecom space, the tequila space, cryptocurrency space, whatever it may be. This week I started to learn how to sell calls and puts on gold and oil because I thought it was interesting, you know, and everyone’s like, why are you doing that? I go, because it’s interesting and I like the process. And it’s really, it’s really interesting to see how the markets work. So, you know, chasing companies or looking at companies. You look at a lot of these as they want to say.

Alan Ezeir:
You look at a lot of frogs before you kiss one. And you have to enjoy digging in and, and setting up calls and going to visit businesses and saying no a lot because you’re like, no, that’s not going to work for me. And being okay with that process.

Dana Robinson:
I love it. Alan Ezeir, thanks for coming on the podcast and reviving your story for people who were excited to hear and for anyone who’s listening to this. You can hear the blow by blow of going and negotiating with the west west Samoa, western Samoa’s government and royalty on the beach with our old Opt out podcast, which is still in this feed. Thanks for listening. Anyone wants to reach out to me, it’s hello@danarobinson.com. Alan, are you LinkedIn guy? How can people connect with you?

Alan Ezeir:
Yeah, just find me through LinkedIn at Alan Ezeir. Or, or you can go to circlesquarecap.com. And I want to. First of all, I didn’t say it at the beginning, but apologize. I’m on the stand up desk. As you see. I lean forward. The sun is hitting me when I sit down during this time of the day.

Alan Ezeir:
Dana, I got all this light coming in and I decided not to have any shade because I like the light. Well, it’s very difficult at certain times to. So that’s why I look like I’m looking down on this podcast, which I’m not. That wasn’t the intention.

Dana Robinson:
All right, well, there’s, there’s 5000 people will download this and only hear it and they won’t see what I see. For those that are watching on the YouTube version, you’ll see that Alan looks like he’s looking down at me and I’m, I’m okay with it. Alan, I know you’re a tall guy, so no need to apologize. Great, great to have you on the podcast and, and we’ll talk again soon. Oh, yeah. For anyone, private equity wise, SD Bain Allen and I are co hosts of local meetup, San Diego based sponsors, capital providers and or out of the area with assets that you own and manage in San Diego. Sdbain.org is for San Diego Business and Investor Network. Connect with us and come hang out.

Dana Robinson:
Thanks, Alan.

Alan Ezeir:
Thanks, Dana. Appreciate you.

Dana Robinson:
Thanks for joining me on this episode of the Exit Plan podcast. I’d love to hear from you. Feel free to hit me up with questions or comments by emailing me at hello@danarobinson.com or leave comments and questions by calling 858-252-7785 call 858-252-7785 and leave a message.