Second-Time CEO Buys a $30m Title Company

Speaker A: Most entrepreneurs pursuing a traditional search fund fit, uh, a type freshly minted mba, probably little to no leadership experience, largely unproven. Well, today's guest is the exception. Randy Remp had already run a company at 29 with zero direct reports to his name. He was handed the CEO seat of a struggling insurance business bleeding $2 million a year. Six years later, he turned it profitable to the tune of 5 million EBITDA. He just didn't own any of it. No real upside for all that value he'd created. That rub sent Randy looking for his own deal. So he came to search funds mid

Speaker B: career, not out of a top tier

Speaker A: MBA program and had to earn investor trust on one thing that most searchers don't have evidence he could already run a business. In 2021, Randy closed on Meridian Title, a $30 million plus acquisition in one of the larger title insurance agencies in the country. This was not a starter business. It was sized to match what he'd

Speaker B: already shown he could handle.

Speaker A: Listen for how Randy broke into search fund capital without the standard pedigree, the deal saving f reorg triggered by a Georgia Senate runoff. Remember that and how Meridian kept growing through the worst home sales downturn in 50 years. Here is Randy Remp, CEO of Meridian Title. Regular listeners of Acquiring Minds will recognize the name Connor Gross. Connor is the expert at the intersection of franchising and entrepreneurship through acquisition, ETA and in a AH webinar Today, Thursday, Connor will lay out the three paths to franchising for acquisition entrepreneurs. First, conventional searching second, the plant your flag strategy and third, partnership. Each path looks different and which one fits depends on your goals, your strengths and your appetite for risk. Among the topics you'll learn today what the three paths each entail, how acquisition entrepreneurs can pursue each path, the benefits and drawbacks of each, how to determine which one best aligns with your goals, and case studies from entrepreneurs for each of the three. The webinar is the three paths to Franchising for Acquisition Entrepreneurs and it is today, Thursday, August 6th, Wednesday, noon Eastern. Link to register is right at the top of this episode's show notes or on the Acquiring Minds homepage acquiringminds co. Welcome to Acquiring Minds, a podcast about buying businesses.

Speaker B: My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it.

Speaker A: You know Enzo Technologies as one of the leading IT managed service providers serving the search community led by Nick Akers, an Acquiring Minds guest who bought the 35 year old business. The team at Inzo Regularly works with searchers and their acquisitions. And one feature of acquired businesses that Enzo is seeing over and over is the need to implement cyber cybersecurity promptly during the transition. So many acquired small businesses either have glaring vulnerabilities, lack security best practices or both. That step one to de risk the deal you just closed should be addressing these issues. INSO is your full service IT MSP for post close stability. They assess your target, surface the biggest risks in plain English and give you a day one through 30 plan to cut exposure, prevent downtime and even find cost takeouts like bloated telecom bills. Check out inzotechnologies.com I N M Z O or email nick directly@nicknzotechnologies.com Randy Remp

Speaker B: welcome to Acquiring Minds.

Speaker C: Thanks for having me.

Speaker B: M will in 2021 Randy, you acquired a title insurance business, one of the nation's larger title insurance agencies, using a traditional search fund. You are now five years in and we're going to hear all about the journey to date. Please start us off with some background on you Randy.

Speaker C: Yeah, absolutely. Uh, well I grew up in the upper Midwest and I ended up uh, in school out east, came back, went uh, to law school in Minnesota and I happened to be working for um, a force placed insurance company at the time. And next uh thing you know it was 2008 and I was their in house counsel for a couple of years. Um at that point in time the industry um, had kind of reached a low point and uh, the ownership group for that company decided uh, they'd like to make a change. And so they brought in an individual um, who had a ton of experience from AIG and um, inevitably um in 2011 I was given the opportunity um, to either become a general counsel or run a company. And I figured uh, hey, what's the worst thing that could happen here? I m have to go back to being an attorney. So I took the opportunity um, to step into the leadership uh role. Um I think at that time we had about 300 employees. I had never had a direct report in my life.

Speaker B: Uh how old are you at this point?

Speaker C: Uh So I was 29.

Speaker B: 29.

Speaker C: 29. And we were about 17 million in revenue and probably minus 2 in EBITDA. Uh so we had a long journey in front of us and it required a lot of hard work. The average age of my direct report at that time was probably in the low 60s. Um so uh, in terms of credibility I had none in all fairness. Um, and that was the first thing we really had to work to establish, um, I knew some um, executives from a peer group who encouraged uh, me to use uh, EOS as a management tool and system. Inevitably that's what we ended up using and we really coalesced around. Um, we wanted to turn the company around. And so we made a lot of really tough decisions and over the course of about a six year journey, we ended up doubling the company and taking it from minus two and EBITDA to plus five. Um, as a part of that journey I realized that I really wanted to have a stake in the business that I was running and helping to build. And I put it in an effort, uh, with private equity group or a family office to try and um, buy the company in 2016. And inevitably we just couldn't get the deal done. Um, so I hung around for another 12, 16 months, something like that. Uh, uh, because we had some projects we wanted to get done and once that was done, um, it was time for me to go out. I took a little time off and um, my goal was to um, I hadn't yet decided to do a search fund. Um, my wife and I were committed to uh, staying in the Twin Cities if we could. And so I worked with some family offices, um, locally to try and find uh, a company for oh, probably a year or something like that. Uh, after my time, uh, off.

Speaker B: The takeaway for the audience is at the ripe old age of 29, as a lawyer you are tapped to lead the turnaround of the business where you are council tapped meaning become the CEO of this business that does 17 in in revenue, negative 2 in EBITDA. Uh, and sorry, the business was what force placed insurance.

Speaker C: So if you have an auto loan or a home loan, you're required to maintain insurance to protect the lender's interest in the collateral. The lender would hire a company like ours to track and make sure each individual had it. And we would send notices, make phone calls and inevitably if you didn't get it, that's where force placed insurance comes into play.

Speaker B: Okay, so you weren't an insurance agency, you were making sure that, that these consumers who needed to have insurance by contract did in fact. And then you get on them until they got the insurance policy in place.

Speaker C: Correct. And if they didn't, then we would issue one. So that was kind of our insurance agency arm, but it was we, we only issued force placed insurance though. Um, and as a consumer I highly recommend you get your own policy. Um, a force placed policy is more expensive with less coverage.

Speaker B: Okay, so you are CEO, uh, of this business. You've never had a direct report, uh, and now you have 300 of them, average age being 60ish. Why were you tapped for this highly consequential responsibility?

Speaker C: Um, the joke I do love to tell people is, uh, I was probably the only one who knew how to read a P and L at the time. Um, not entirely true, but, um, as the business was struggling, um, I kind of stepped out of my lawyer role and really got involved in um, the business development side and really looking hard at um, our, our P and L and trying to figure out what we could do differently, um, to fix the business. We had a new um, CEO at the parent organization who was overseeing our, um, company. And we needed to make some tough choices and we weren't making them. And I think that willingness to, to look at things a little bit differently, to really dig into the numbers and to follow the numbers wherever they may go, um, gave me that opportunity.

Speaker B: Whereas you had been making noise about, you know, the way the business needed to change, you had expressed a strategic direction that you saw the business needed to go to fix things. And so they saw in you. Somebody was like, well, this guy's got an idea, let's have, let's have him run with it.

Speaker C: That's pretty much how it went.

Speaker B: Um, and so that was from the late teens through the early teens through the late teens, that whole journey. And you did turn it around from negative two of EBITDA plus five. So a $7 million EBITDA Delta over those six years, did you say? And then you find yourself in the late teens, you're now 35ish. Mid 30s, right? Mid late 30s.

Speaker C: That's right.

Speaker B: And, and you try to buy a piece of the business, that doesn't happen. But connect the dots there from, from, from, you know, understanding that you want equity in all of this value that you've added to deciding to buy your own small business, that they're connected. But that's still quite a, quite a leap.

Speaker C: Yeah. You know, in all fairness, um, being a hired gun, not, uh, not coming with your own capital to the table, if you will, um, it was never something that crossed my mind that I could have a stake in, in the business until we ran into a private equity group, um, that we brought in to teach us how to do add on acquisitions. And they immediately flipped the script on us and said, well, how about we buy your company and you get some equity in it? And that was kind of my intro to the, hey, if you do a good job running businesses, um, they're Willing to give you some skin here, um, to really get some upside. And so that was the thing that made me realize, hey, I could be doing, um, the same thing, but, uh, with a lot more upside, um, for all the work that we do. And, um, I also was in YPO at the time. I got to know a couple folks who did search funds. And, um, so I started to kind of learn all of this about the same time. And, and uh, it really, uh, became clear to myself and my wife, in all fairness, that we wanted to do something different. If we're going to put this much time and effort into building a business, we want to have some skin in the game.

Speaker B: And so how does it finally gel that what you're going to do is some version of a search? It sounds like initially you didn't do it, weren't going to do a search fund, you were going to do some other format. So now please do again, walk us through the evolution of your search.

Speaker C: Yeah, absolutely. Um, so like I said, I took a little time off and, um, it was wonderful. But, um, it came time to start looking and we really were focused in the Twin Cities, um, to try and find a business. We looked in a lot of markets, um, worked with a couple of family offices, and you know, we saw a number of deals. I don't know that I, you know, looking back on it, I'm probably glad we didn't do any of those deals. Um, but they were a little slower to pull the trigger on getting a deal done. And after spending nine months of my own money, my own time, um, out there looking, I had a couple friends who said, uh, hey, the search fund thing, um, you have investors who are behind you. It's committed capital, you pay yourself a salary, um, and they really, they want to get a deal done. Um, and so after I lost my last deal because I had an investor kind of get wishy washy in and out of a deal, um, I made a commitment to myself and my family that we're going to go do a search fund. And I got some amazing introductions and we raised a fund pretty quickly and ended, um, up kicking it off in. Oh, gosh, was that late 2018? I think 2019.

Speaker B: Uh, great. And just a couple follow up there. So you, first of all, you're referring to we as you and your wife. Is she actively involved or. She, she's not. But, uh, she's the genius behind the.

Speaker C: These are big life decisions, right? And, uh, as, uh, as a married, as, uh, a couple, um, you know, they're big Choices you have to make us. And if you're going to do uh, a traditional search fund, you need to get comfortable with the fact that you could end up pretty much anywhere. Um, if you find the right business and you really want it, you could end up uh, in any location. And your family needs to be comfortable with that too.

Speaker B: Exactly. Great. And understanding that your initial format of buying a business was working with family offices as your investors to buy one, understanding that that ultimately didn't work out. So not sure how much there is to be learned from it, but how does a guy. What were these family office connections? So for the mid-30s, professional listening to this, who's not plugged into search fund circles and you know, did you already know family offices through your previous tenure as a CEO or what? How does one just have some family offices on, you know, in their Rolodex?

Speaker C: Pretty much through, uh, operating the last company I had, um, gotten to know, um, when you start to attend local events and um, uh, in particular growth oriented, um, events, you start to network with a few folks. And um, YPO was a significant help as well. Um, I always recommend that for young CEOs, um, it extends your connections, um, immensely. And so, uh, they had a few folks there that helped me find some individuals who uh, were looking for a local business to buy. And um, like I said, inevitably it wasn't the right fit. We didn't find the right deal. Um, but it was a great experience and they're great people. Um, one of which is actually on my search fund cap table as well. Um, so I enjoyed working with them. We just didn't get a deal done together.

Speaker B: Yeah. Yep. And say a little bit more about what YPO is, people probably will have heard of it, but um, most more people will be familiar with EO than ypo. What's the difference?

Speaker C: Yeah, uh, YPO is the young president's organization, um, and it's for, for young leaders who hit a certain company s, uh, young CEOs actually to be specific. And uh, I had done something similar to E.O. um, previously. My peer group, um, which I thought was critical for my growth and development, was largely 55 plus, um, individuals who had, you know, they owned their own businesses. I didn't know what I was doing. I didn't know how to run a business. And it was critical that I was exposed to them early because they really helped me figure out what I was doing. Later on, what I realized was that, hey, I could use some people my own age who are having kids, building families, have the career stress that is, that's a part of my networking um, group. And so inevitably that's why I made the switch. Um, I always tell folks in YPO it's the one thing I do wish YPO did a little bit differently is um, to get more of that mentorship from folks who have been there and done that. Because it's something that you don't have it until you've done it.

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Speaker B: people issues come up.

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Speaker B: and then so you through ypo meet some people who are traditional search fund folks, uh, including Raj, who will have aired a couple episodes before this one. You at this point are in your mid-30s. You're not a freshly minted MBA. That is the typical profile of somebody who does a traditional search fund. Their traditional search fund investors go and recruit and promote themselves at the, at the top tier, um, business schools. So if you are somebody who's more mid career and not plugged into that circuit, how do you access traditional search fund and how did you access traditional search fund investors?

Speaker C: Um, well I got lucky in that I knew some successful um, search CEOs. Um, normally when you're uh, raising a search fund or interested in the space you don't get those kind of introductions. Um, but I would tell people I think that's by design. Um, they want to know that you're going to put in the work m just like you would have to if you're out searching for a business to buy. They want to know that you're going to make those cold calls, you're going to put in those emails and you're going to, going to find a way to reach them. Um, and that's a part of kind of proving your uh, your ability and um, your drive if you will. Thankfully I had um, successfully run a company and one of the things that uh, Always stood out to me. One of my investors kind uh, of made the quip that uh, I got my MBA on the job. Um, and there's not many folks in the search space who have already run a company and run it successfully. Um, Bill Egan, a, um, ah, former board member of mine, passed away, um, somewhat recently. Um, we were having dinner one time and uh, his remark to me was, hey, finding a company is, it's a crapshoot. Um, the best searcher may never find a company and the worst searcher may find the best company. Um, so I'm not going to bet on that. But you've done this before and I have confidence that you can run a company. And so that's what I'm going to bet on. And I think, uh, I don't know if you've seen the most recent search fund study, um, that came out. It's starting to um, kind of prove that to be true, that really what you need to bet on is somebody who's going to get in and be able to run a business. Well. Um, it's tough to financially manufacture a great outcome, um, with the way the markets have changed, multiples are changing. Um, so finding somebody that you can really trust to get in and run a good business or even take an average business and make it a great business, um, is how you're really going to get a good return.

Speaker B: Well, that comment of Bill is something that I think the audience can take as just understanding. Um, yeah, that the search, your ability to close a transaction and then your success as its owner operator are just very different outcomes, very different scenarios. So much of the search is, you know, luck based and you can increase the surface area of luck. It's, you know, it's a numbers game. You can do things to affect, increase uh, your, your odds, but ultimately there's, there's going to be a lot of, uh, chance to it. Whereas once on the other side of the acquisition, once you're in the, in the ownership seat, more of that is going to be about your capabilities as a, as an operator. And so for a potential investor there, uh, or at least what Bill was doing was assessing that, weighting his decision on that, not on the chance of an acquisition happening or not.

Speaker C: Exactly.

Speaker B: Very interesting. Okay, Randy, anything more, anything to say then about how you proceeded with your search or should we jump right to the business that you found?

Speaker C: Um, search is not for the faint of heart. Um, it's a lot of work but, uh, it's well worth it. Um, it's a fantastic opportunity, especially if uh, um, you're not, uh, um, you know, if you're bringing in investors or you know, if you're doing this on your own, um, running a business is, uh, it's an amazing experience, um, and it's something that I just enjoy doing. But from there I'm happy to, happy to get into the business itself.

Speaker B: One other question, Randy. So your. Why when you decided to go traditional search fund route, your wife was prepared to move. You had said at the outset, part of the reason that you, your initial approach was to stay. You wanted to stay in the Twin Cities area. You pivot to the traditional search and one of the, the typically understood requirements there is that you'll move anywhere, uh, to buy a business. And she was on board.

Speaker C: She was on board. Um, I mean she understood the opportunity. Um, she also works full time and uh, thankfully had flexibility to be remote. And so that made it a lot easier. But um, having equity in something that you're growing and building, um, has exponential upside relative to W2 income. And it was worth it to both of us to take that shot for us and, and, and for the family.

Speaker B: I'm sensing, Randy, that that experience of turning around the, the business that you did and taking it from negative 2 to 5 of EBITDA, uh, and not benefiting in that upside really scarred you. Might be a little strong, but, but it, I mean it basically set you on the, on the path you're now on.

Speaker C: It really did. Um, and, and please don't get me wrong, it was an amazing opportunity. 29, no experience, uh, and liter managing people, um, to get that opportunity to do what we did, um, I would do it again in a heartbeat. But when you're in it and you're giving everything you have, uh, you know, I told people I think I gained about 60 pounds while we were trying to turn this thing around. So you make a lot of sacrifices and uh, you know, tiny violin on, uh, for a CEO there. But, but at the end of the day, you're putting a lot into it and, and you really hope to get rewarded for what you're doing. And um, it definitely, I don't know if it scarred me, but it certainly, um, set me on the course that we're on today.

Speaker B: Meridian, tell us about the business that you found.

Speaker C: Yeah, um, we found an amazing, um, title company here in Indiana, which is where my wife and family, uh, we all ended up moving in, uh, 2021 after we closed on the business. Um, I had seen a title company come to market early in Covid, um, so it was probably April of 2020, and I thought, oh, that's really interesting. I know insurance, I know financial services. I don't know title. Uh, but I can probably figure this thing out. And inevitably it was in Idaho. Um, we decided maybe not Idaho. We can go a lot of places, but we're not ready for Idaho. No, um, offense to anyone there. Um, it's beautiful. But, uh, we waited a little bit longer. I studied the market, um, tried to understand the business a little bit better because it was a brokered business. So I hadn't yet done my homework on the space and really came to find that the title industry, while cyclical, um, historically existing home sales have gone up in a really steady path. Um, it's not recurring revenue, but it's high, repeat revenue. Customer concentration is really low. Um, private equity really hadn't been in the space, or financial buyers really hadn't come into the space a whole lot. And then Meridian hit the market in June of 2020. It was a bigger company really. Um, similar size to what I had left. And, um, they were doing on average about 30 million, uh, in revenue, and we'll say between 2 and 3 in EBITDA, uh, for the prior years. And, um, now in 2020, numbers started to spike courtesy of COVID and lower rates. But it looked like an attractive opportunity. I really wanted something where I could jump into where I had left off, um, and didn't have to rebuild it, didn't have to fix it. And that's what we got. Um, the deal itself took a really, a really long time to get done.

Speaker B: Um, let me pause you there, Randy. We're going to get into, into that, absolutely. But help us understand what title is. We, we probably anyone who's bought a property will kind of be familiar, but give us, uh, more detail on exactly what this business does.

Speaker C: Yeah, folks, um, often think of title insurance as, as insurance. And, and don't get me wrong, it is. It's. But it's really a service. Our job, uh, when you're buying a house is to make sure that you have clean, clear title. And that means finding all before you buy the house, and then we help you get them fixed. Um, what you don't want is a year into owning a home to find out you don't own the home or that somebody, um, is owed $40,000. Now, the title policy will help take care of that, but if you don't own the home, you may not get to keep your home. Um, now we'll make you whole financially, but that's not what you wanted. You wanted the house. And so um, I think it's really critical that people understand this is a service. Um, and we do all that work up on the front end and then if we miss, if something's wrong, there's an insurance wrapper which is the title insurance, so that we go and we fix whatever's wrong for you or we make you financially whole. Um, now that's half the business. The other half of the business is what we call the escrow side. And that's all the closing work. That's the payoff statements, coordinating the buyers, the sellers, the agents, the lenders, et cetera, working all those people together to get you to the closing table and hopefully having a great experience. And so, um, each of those is probably about 50% of our business, give or take 5 or ah, so percentage points. Um, but it's a critical part of uh, the really the biggest industry in our country, right, Housing. Um, and it's uh, most people's single biggest purchase in their entire life. Um, so we take it really seriously. We think we're a critical part of that homeownership journey.

Speaker B: And one thing that you had said was, and you just touched on it is that at the, in a real estate transaction you really are the orchestrator. I mean it's, it's all kind of all, there are many parties involved, as you just pointed out. The agents, the lenders, the, the buyer, the seller. And you're the one who is doing kind of all the behind the scenes orchestration. And, and that's not just the, not just the sort of project management if you will, but the ones, the one touching the money and making sure, making sure all of that is carefully watched and wires go where they're supposed to and fraudsters don't get in the middle. So there's um, and that's all time and resources and therefore it's a service that you're providing. Um, so, so while a little bit invisible, uh, we think of the, when I think of a real estate transaction, I think of the agent first, then the lender and the title and you know, title folks I know are there somewhere in the background. But really it's a very active and sort of the linchpin of the entire transaction.

Speaker C: Absolutely. Um, I often think of us as they're the hub of the transaction. Right. All the parts have to come together really at the title company. Um, and as you said, we have a huge risk. Um, the money comes to us, the money goes out from us. Um, our job is to make sure that we have the right wire instructions, the right security and everything in place so that when that money comes in, it comes to us. When the money goes out, it goes out to the right people and the right, um, dollar amounts. And sometimes, uh, we probably consider ourselves the unsung heroes to some extent. But it's. I never thought I'd run two companies that um, for the most part you, you don't want people to actually know who they are because, um, your job is just to work in the background and to make things work for everybody else. And if you walk in, you know, to a Meridian title office, we want you to have a great experience. Um, but you know, the real estate agent's also our partner, so we want you to be happy with them and walk out. And you're probably going to think of the real estate agent before you think of Meri. That's okay. That's what our job is. We're there to, to make sure everything happens and we don't need to um, get a lot of publicity for it.

Speaker B: Mhm. And going back. So you've explained that 50% of your business is sort of the transaction execution and 50% is the clean, uh, title piece. Right? Um, that clean title piece and the title insurance, um, that revenue stream for your business. I'm digging a big business model here. Do you, is it an insurance agency where you're getting insurance payments on a monthly basis for the duration of. I don't know what, or what does that look like?

Speaker C: So it's a one time insurance payment, which is um, very different obviously from a traditional property and casualty agency. You're paying a one time insurance premium that um, covers if we've missed anything in our diligence from the past. And what's really nice actually about the new insurance policies that we issue is you actually get fewer future fraud coverage. So if somebody tries to steal your property through deed fraud, um, in the past that would not have been something that your, your title policy would cover. Now it's something that we would cover. So if you find out, hey, somebody, um, I had vacant land sitting in northwest Indiana and somebody sold it at another title company, we would actually step in and make you whole, um, litigate, do everything we need to do. So it's now an insurance policy, one time fee that you pay for kind of that wrapping wrapper in case we miss something. And then for future deed fraud.

Speaker B: Okay, great. Uh, and, but where I was going with that too is the, is the quality of revenue question. Yeah. So this is, this Is not recurring revenue. This is not a recurring revenue business. You earn revenue per transaction you're involved with.

Speaker C: That's correct.

Speaker B: Okay. And to your land example is this. We, I keep saying residential, but do you do, is do you have the same role in land or in commercial real estate?

Speaker C: We do, yeah. Uh, residential refinance, commercial purchase and refinance. Uh, we do it all. Um, uh, the risk is just bigger and um, so uh, so is the revenue on commercial deals.

Speaker B: Okay, great. And I heard you mention the real estate agent and how they're your partners and to the point about you guys sort of being in the background, they're really your channel. Right. Because as I recall from my own real estate transactions, the, my agent brought in the title company and I was like, okay, whomever you recommend. Is that typically how you go to market?

Speaker C: That is, that's certainly how we go to market. Not every market's the same. Um, but in Indiana, in Michigan, um, the real estate agent is usually the referral source. Now sometimes it could be an attorney or a lender, but usually it is a, ah, trusted partner of the consumer. And so our job really like we need to provide good service, um, we need to be responsible, we need to do a good job so that we are the company that the real estate agent says, hey, I know these guys are just going to get it done for me. And that's who we recommend. Uh, um, the consumer ultimately has the choice, um, as they should. Um, and it's really up to the real estate agent to make sure that they're making the right choice for the consumer. And it's our job to make the real estate agent feel comfortable that it's usually, um. Now there are states who are attorney driven or if you go to Chicago, um, that market's attorney driven, the Carolinas, um, attorneys are involved. So it operates just a little bit differently. Um, out in California, title and escrow are split. So you've got um, firms who do just title work and then you've got escrow only, uh, firms as well.

Speaker A: Great.

Speaker B: Randy, we heard you mention the housing market. So obviously this is despite the fact that you also up to work in on with land title. Indeed. And commercial real estate as well. The bulk of your transactions are going to be home sales. Residential. That's correct. And so you are really tied one to one with the home sale transactions that occur in any given year. That is your, that is, you know, a big chunk of your tam. Yep. And so as we all always hear, the housing market is notoriously cyclical. Um, and we don't like cyclicality as, as buyers. How did you get comfortable with that feature of this?

Speaker C: Yeah. Um, so the first thing I needed to do was really understand what does that cyclicality look like. Um, in the industry, refinance is pretty obvious, right? Rates go up, fewer refinances, rates come down, more refinances, and it's very volatile. Um, existing home sales are our bread and butter. Um, it's the bulk of what we do. Um, we don't do a lot of. We do some new builds, but it's, it's largely existing home sales. And I went back 40 to 50 years, um, and looked at the history of, of existing home sales. And what I found was that I think there was one year in that entire period where existing home sales declined. And it was by about a percentage point where there wasn't a macro like, um, a recession that impacted all business. And so it kind of stood out as this is actually a really steady industry. It's not high growth, but if we're going to have a recession, it's going to impact most business title as well. Um, now what we didn't know was going to happen is that we would actually, for the first time in, um, at least 50 years, um, see home sales drop significantly while the economy is doing great. Um, and largely that it was such a unique event with COVID and rates being already artificially depressed and then rates jumping up dramatically. Um, it just created a whole, whole new environment that I didn't. I modeled out a decline in home sales, uh, to some extent, but I did not expect a 40 to 50% drop. Um, well, uh, it wasn't probably 35 to 40% drop in home sales. Um, so once we got into the business.

Speaker B: Is that what it's been?

Speaker C: Yeah. Wow. It's. It's been brutal, uh, for everybody in the industry. Um, but, you know, there's some benefit to that. Um, we're all going through the same thing. And so at the end of the day, it becomes, how do you manage your way through it? Um, and hopefully, you know, uh, we feel like we've done a great job getting through it and it's going to, um, put us. Has put us in a much stronger position as, as a company in our industry coming out of this. Um, sure. So, hey, I would, I would prefer home sales be at 6 million SAR for, uh, 20, 26, but that's not going to happen happen. Um, and instead you just got to make the best of it. And I think we have and really given ourselves A great opportunity.

Speaker B: Randy, what else to like about this business? Maybe academically we've heard why there was good business, buyer fit. You felt like you could figure this out. The value proposition rhymed with what you had experience in. Um, but as somebody who didn't have your experience, doesn't have your experience, might be listening to this and intrigued by the business. Uh, what can you say sort of objectively about the, the pros and cons of this entire industry?

Speaker C: Yeah, uh, one of the best parts about it is, um, generally well run title companies have decent cash flow. Um, now things get thin when, um, the market moves and is volatile like it is. But um, modeling out a cash flow business versus um, a software business that barely may be generating any cash flow at all. Your leverage is different, your ability to pay back debt is substantially different. Um, I was looking at a software, software business at the same time that we were looking at the title company. And I had one investor who was uh, very excited about the software business. And I modeled them both out. And really what I found was I can run this title company well. I don't have to hit a grand slam in terms of business performance to have the same outcome that it would take to, if I had to, if I ran the software company, I had to hit a grand slam to do it. All the pieces had to line up. The growth had to be just right, right. Um, some margin expansion. And then you had to get multiple, um, arbitrage. Um, and so in order to even get to that same outcome, I had to plan for multiple arbitrage on the software company where we didn't have to plan for multiple arbitrage on the title company. So I think traditional service businesses, um, can be great in that effect. And now inevitably we should, down the road, I imagine, uh, we'll sell or uh, recapitalize the business and we'll get some multiple arbitrage business. But knowing that you can just run a company well, you can pay down your debt, return capital to investors, um, it's a good place to be. Uh, especially when you're running, I mean we're running a bigger business, but even as a smaller business, um, it makes a world of difference.

Speaker B: And to be clear, Randy, the reason that you're able to get a good return without everything having to go perfectly, that really comes down to multiple paid. Right. So in a, in the cash flow business, the way you can structure a deal with leverage, you can in a lower multiple than that high growth business. Um, that's what gives you that comfort and that Headroom.

Speaker C: Absolutely. Um, and the title industry is kind of notorious, um, in terms of multiples tend to be a little lower. And a large part of it is the belief that it's highly cyclical. Not saying they're wrong, um, but it puts some uh, constraints around multiples. So it allows you to get into the industry at a relatively decent price. Um, and then cash flow, the business, um, usually probably put 3x of leverage on it, um, and pay down debt at a reasonable clip. Uh, if you know how to use your relationship right, um, you can probably get pretty good debt terms as well. Um, and that helps uh, immensely versus uh, trying to get leverage on revenue because you have no, uh, EBITDA to speak of.

Speaker B: Take your point.

Speaker C: Point.

Speaker B: Love your point. Uh, that said, investors are still. It's hard to get investors out of bed if you say it's slow, it's low or slow growth. That everyone still, you know, the G word is basically what it always comes down to. So what did you tell your investors about the growth here or the potential, uh, growth here?

Speaker C: Yeah, um, you know, I felt confident that the housing industry would continue to grow. I was um, wrong in the short, short term, but uh, will be right in the long term inevitably. Um, again it's, it's a artificial ah, market at the moment. But we did believe that existing home sales will grow. Population was growing. The demographic, the demographics for Indiana worked. You know, we're a net, um, population, uh, growth state. So folks are moving in. Uh, we were in good markets. Um, I also felt really strongly that there was an opportunity just to run the business a little bit more efficiently. It was a great company, it was a big company, it was run well. But you could also tell, hey, this was still kind of closely held and you could see some of those things in their P and L that were opportunities for us, um, that maybe they didn't take advantage of. Um, in addition to that, there's always a backup plan. Um, as one of my investors mentioned, uh, when they wanted back in the deal, which was, hey, I love this investor. They worked really hard with me on the deal on the front end and then they, they decided they didn't want to be a part of it. Um, and about three weeks later they changed their mind. Um, but the reason they changed their mind was they kind of thought about it and they said, well, even if we can't grow this thing, we can go do tuck ins. Um, it's a highly fragmented industry so we can, um, that's kind of our backup plan. Hey, let's go do a bunch of tuck ins. We'll get some growth through that, um, build the business, um, again lower multiples on these smaller companies. Hopefully they help pay for themselves and that's really what got them back in the deal. And so it gave us multiple paths to growth and, and both of which were reasonable. Um, and obviously we're waiting for the housing market to come back, but we've picked up market share at least and in the interim close our, our third deal in the last six months um here at the beginning of next week. And uh, we did one in 2022 as well.

Speaker B: Well great that the backup plan is industry consolidate or you know, kind of rolling up and, and acquisition. The inorganic strategy for a mature and fragmented industry like this one is often lever number one. So it's nice that you, you, you saw potential that wasn't even that strategy, um, just gives you that optionality and, and to the point about fragmentation in where this, where Meridian sat as a platform acquisition. If you were, if you were really thinking serious about consolidation, thinking seriously about consolidation, how I mentioned at the top that it's one of the bigger players in the whole, in the whole category. Say more about that. What is your typical title business look like? Size and how, how much of an outlier is Meridian?

Speaker C: Yeah, um, so typical title business is um, it tends to be a mom and pop type shop. Right. It's a, it's a family business. Um, they could have two to 14 employees, maybe 500,000 to two and a half million in revenue. Um, even at two and a half million you've kind of become somewhat sizable in our space. Um, often you're serving one county, maybe two counties, a couple, two to five offices, um, something like that. And um, you know in this, in the last few years some of them have struggled to make any money. Uh, some of them are doing better and kind um of have really figured out their, their niche and own their markets really well. And so maybe they do 25, 30%, um, EBITDA margin. Those are probably the outliers, um, on the, on the small side of things. And then we sit, um, probably closer to 40 million in revenue, um, strive for a 20% EBITDA margin and feel good about it. We've had to invest a lot in the business. Um, technology's um, a big issue and on market consolidation I think it's going to be a driver. Um for us. It's almost impossible for small title companies at this point to keep up with the way that uh, the technology and the environment is really changing, changing. Um, all it takes is for one, one instance of wire fraud and your um, entire revenue for 12 months is out the door. Um, and so that's, there's substantial risk in what we do. Um, but if you do it well and you have the right procedures and processes in place, um, it's not something that should keep you up at night. Um, but you know, we always say it's, it's a matter of when and

Speaker B: not if M that there will be some sort of fraud in some.

Speaker C: Yep.

Speaker A: If you ask owners in the ETA and search community which insurance broker provides

Speaker B: highest quality work, great outcomes and has

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Speaker B: to know August and the team at

Speaker A: Oberle to take advantage. Check out oberly-risk.com that's o b e r l e-risk.com link in the notes.

Speaker B: So 40, approaching $40 million in revenue with 25% net margins. That's uh, my quick math says closer

Speaker C: to 20%, uh, EBITDA margins, but still, um, a very healthy business.

Speaker B: Okay, great. So upper, upper single digits of ebitda. Upper, upper single seven figures. Figures of ebitda. Um, upper upper seven figures. Uh, as opposed to the vast majority which as you said could be 500 to 2 and a half million of revenue.

Speaker C: Okay.

Speaker B: So really actually was there anything, was there anything about that, the, that the platform, that Meridian as a platform was so big compared to so much of the, of its competitors in the industry that could that be perceived as a, a negative almost like most of the. We've already talked about growth, but just to kind of revisit like that, most of the um, juice has been squeezed out of this because it's already a giant in its industry.

Speaker C: Yeah. Um, there's still a lot of us at this size and a lot's relative. Right. Um, you know, whether we're a top 50 in the country. Ish. Um, you have some really, really big ones. Um, now what I would say is part of what kind of makes us stand out a little bit is um, we're still I think 48th in the country in terms of premium. So we have really low premium in the state, yet we generate um, a significant amount of revenue in business. Um, so that kind of helps us stand out as, as being one of the bigger, bigger agents. But um, I always saw it as a win. Um, at the end of the day, having a platform, having stability, not having to come in and rip a bunch of things out and rebuild was something I was excited about. So building on top of something is so much easier um, than having to fix it. Um, so I always recommend that for folks. But you do create a lot of value, um, when you find um, businesses and opportunities where it's fairly obvious that you could do things a little bit differently and just make it a better business too.

Speaker A: Sure.

Speaker B: Randy, thank you for all of that. I've been curious about the business. Back to the plot. So can you tell us about the structure of the acquisition?

Speaker C: Yeah. Um, so we ended up acquiring Meridian, um, again we were, this was kind of 2020, early 2021. So the market is uh, going wild. Ah, low interest rates, high refinance volume. And so we had to, we couldn't look at the company on a, on a TTM EBITDA basis. Um, we ended up taking a three year average, um, of their EBITDA because their EBITDA had gone from low single digits to all of a sudden now it's eight. And um, a good chunk of that eight was refinance volume. That was not going to stick around for a period of time. Um, inevitably we kind of settled on about 5 million in EBITDA as the number and we applied a 6x multiple to it and uh, closed somewhere kind of in that 30, um, $31 million range. Um, of that we did a seller in a note, um, for a little over four and then um, we also had senior debt, uh, for about 14 and then um, we put in uh, about 13 in investor, uh, equity, uh, the bulk of which we have already returned.

Speaker B: And that structure sounds pretty conventional for a traditional search deal of this size, I'd say.

Speaker C: Yeah. And we have an amazing um, uh, debt partner in KeyBank that uh, we've refinanced the business and created kind of a nice structure that allows us to go and do future acquisitions as well.

Speaker B: Say just a little bit more on that. What does that, what did that look like, that. Refinancing.

Speaker C: Yeah. So, um, we refinanced the business last summer, um, in order to return, um, and this might help too in, in search fund, um, for quite a while. There was a structure of investor equity that was um, pref A and pre B And um, the first half of it often would carry um, you know probably a 14 to 16% coupon on it and the other would sit at 00. And um, I chose that because I, my goal, having a cash flow business was to be able to pay that original pref a down so that it was not continuing to compound on itself. Um and so that was kind of our goal um, with the refinance. But while we did the refinance we also created a delayed draw term note that we could tap so long as we were in certain um, um, debt, uh, covenants. Um, we could just go to the bank and say hey, we're going to go do these two deals. We need you know, four or five million dollars to go do it. And that note's already sitting out there and available for us. We don't have to go back and do all the underwriting, et cetera. Um, so it's a really nice feature for us to have. Um, and if we don't want to use it for acquisitions we can use it to uh, return equity to investors.

Speaker B: You would tap that loan to pay out. To pay out investors?

Speaker C: Yeah, we could either do acquisitions or ah, pay back investors. Um, because we also do you know as we're grow um, that we were going to end up bringing you know that 3x of debt to Ebitda was going to come down fairly quickly and so um, this delayed note allowed us to not have to refinance um, again so quickly. Um, but really we have the discretion as to how we want to use that additional um, capital. Um and I'd much rather use bank debt than um, to go to investors and ask for um, you know, additional capital into do um tuck ins.

Speaker B: And when you refinance were you able to take out a little bit for yourself?

Speaker C: Uh, I did not take out any for myself. Um, and that is one of the things about um, search funds that's a little bit different is we do have investors and a significant amount of equity that goes in. Um, so for the most part searchers usually don't get um, uh anything out until there's a real liquidity event, a ah, sale or ah, or recap. Um, you know in this case I really believe in the business. I love what we're doing. Um, we're constantly getting inbound offers on the company and you know my comment is why would I sell? Um, we love, I love the people, I love the business. I think we've got A great opportunity. Um, and the market's probably sitting 30 to 40% lower than um, it will be in three to four years. Um, so I'd rather be doing this um, than trying to find something else to do.

Speaker A: Mhm.

Speaker B: And those inbound offers are coming from. What's the character of buyers for a large title business today?

Speaker C: Um, they're both the underwriters, um, in the industry as well as financial uh, buyers. Um, I would say I think there's a number of folks who are um, trying to time the market and they, they do look at what we're doing and um, it's a space that's highly fragmented. Um, really all the things that I saw a few years ago we're starting to see folks have gotten wind of hey this might be a good space to go do a roll up play, deploy some technology. Um obviously AI is the buzzword of the day. Um, we'll see how uh, how much that improves our space or not. We certainly, we've used it, we've been using it. Um, but uh, you have a lot of investors who think hey we're going to come in, we're going to deploy AI and um, we'd love to go do a roll up strategy in the space.

Speaker B: Are they wrong about how easy it would be? I know they're not thinking it was easy but how juicy that opportunity is.

Speaker C: I think the opportunity is really um, solid. Um, what I would say is finding um, willing sellers is not as easy as they probably think it is. Um, and it's similar to us. Uh, your best bet is uh, finding folks who have been in the industry for a long time. They're looking for a succession plan plan. Um, often in a mom and pop business you're tied to that, that local um, realtor base. They know you by name, they probably have your cell phone number. So it's really tough for you to sell your business and think that you're going to retire right away. There's got to be a transition plan. So that's what they kind of have to bank on. Um, versus I've seen a number of title companies um, go to brokered opportunities. Um and uh, for the most part I think they're where it's going to be tougher to get a good deal. Um, doing that versus going out and doing a proprietary search, finding these owners, getting well connected. Um, obviously I'm in the industry so I don't necessarily need a river guide anymore. But I don't know if I even understood how important river guides are. Um, when you're doing your search. Um, search funds talk about them all the time. But um, as there's a ton of money out chasing deals, whether it's our space or any space, having people who are well connected, who are going to make an introduction to somebody who's thinking about selling a company but doesn't want to go to market, isn't quite sure, um, we're more like, I'd say our odds of getting a deal done in that circumstance is 95% versus if I have to go out and cold call somebody, um, you know, it probably drops below 50. I got to convince them to sell, I got to convince them of the numbers. Um, and it's just not as easy to do. Do.

Speaker B: Define river guide for us.

Speaker C: Yeah, um, it's somebody who's highly ingrained in an industry that you're, um, interested in, uh, doing an acquisition. So it's somebody that's well connected, um, can teach you about the space, uh, and if you find opportunities, uh, whether you find them or they help you find them, they're well connected and can set you up, uh, for a warm introduction. And it goes a long ways. But, uh, the key is that they've been in the space for a long time. They know a lot of people, they know the industry well. Um, and it's just, it's somebody that you've got to make a connection with personally. Um, thankfully, being in the space, um, I know a lot of folks, I'm connected well. But, um, doing that as a searcher, uh, it makes a world of difference. And one of the ways that, uh, folks often find those river guides, one, it's, you know, personal connections they may have today, but going to conferences and, and just networking and finding that person who's um, just a good connector of, of individuals.

Speaker B: Mhm. And so to be clear, it's not some sort of outsider investor or industry analyst. It's an industry insider, an industry actor, uh, who's willing to sort of show you the way, show you the river.

Speaker C: Yeah. At least I think those are certainly the most effective. Um, you need those connections, those, those warm introductions. Find the deal that's not on the market. Um, and those are the folks who are going to know it.

Speaker B: Randy, there were a few features of the acquisition process itself that were tricky. Um, I'm thinking of the f reorg and the reps and warranties. Which do you want to tackle first?

Speaker C: Well, let's hit the f reorg.

Speaker B: Mhm. Great. Tell us what problem you, you bumped up against and how this was the Solve.

Speaker C: Yeah, um, we had been working on the deal since um, July and I had uh, been in South Bend meeting with the executive team, kind of sharing what I thought our um, strategy would be after we got the deal done. And um, Mark, the CEO at the time, uh, right after we were done meeting, called um, me into his office and we were chatting for a little bit. And um, this was just right after the election. And he shared with me, hey, um, you know that Georgia Senate runoff, um, if the Democrats win, I'm not sure that we're going to be able to do the deal if we don't get it done by the end of the year. Um, needless to say, that shook me a little bit because I didn't think we had a chance of getting the deal done by the end of the year. Um, um, so I was driving and.

Speaker B: Wait, sorry Randy. Just refresh our memory. That was a key state election and if the Democrats. So, so just give us a little bit more on what he was, what behind what he was saying.

Speaker C: Yeah, so that was, uh, the two Senate seats in, in Georgia were um, up. They were going to have a runoff and it was going to ah, affect the balance of the Senate. And the fear was that the capital gains, um, tax, uh, treatment and structure would change retroactively to January 1st if the Democrats took control of the Senate. And so they really wanted to get the deal done by the end of the year. My concern obviously was we hadn't made enough progress and to try and get that deal done quickly. It was complex. It's a 30 plus million dollar transaction. Um, it really felt unlikely. So I spent half, um, my drive home from South Bend, Indiana to Minneapolis, talking to investors, talking to our attorney and finally calling um, Mark and saying, hey, I think we got to pause this thing until we see what uh, the results of the election are. Um, and he agreed. Um, we both knew it was a risk, but um, in the search space, ah, you accrue those bills pretty quickly and if your bills get big enough, um, uh, if the deal doesn't happen, your search is over. And so it was not a risk I was willing to take, uh, to lose the rest of my search, uh, for a deal that might not close because intellectual action went a certain way. Um, thankfully about a week later, um, they had an accounting firm who realized, hey, it's an S corp. Let's do an F reorg, um, which creates a taxable event for the sellers. And we did that on the last day of the year so that we could buy ourselves more time into, uh, 2021 to get the deal done. Um, and really the crux there is they just had to determine and make a final election on how they wanted to be taxed. Um, but that allowed us to get the deal back up and running. It still took a long time, uh, for us to get there. Um, some complexities, et cetera, that, uh, came up. But it, uh, at least allowed us to get the deal back on track, um, and proceeding, uh, well.

Speaker B: Congratulations or thank you to that accounting firm for coming up with a good solution.

Speaker C: Yeah, very much so.

Speaker B: And by the way, for regular listeners or deep listeners of acquiring minds, they'll recognize effort reorgs as the way of doing an a, an A. A effectively an asset sale, when it's actually an entity sale, a stock sale, but looks and feels like an asset sale. Or you can kind of have your cake and eat it too. But they're complex, uh, and messy. But that's not actually the use case here. The use case here was more of a timing thing to be able to. What was your word? Register. Uh, a, uh, liquidity of it.

Speaker A: What was the word?

Speaker C: The credit. Yep.

Speaker B: So taxable event. Thank you. So they could time the taxable event happening in calendar year 2020, December 31, 2020, even though the real transaction sort of didn't consummate until later. But again, f. Reorg got kind of thread the needle for everybody.

Speaker C: Exactly. Yeah. Thank goodness for, um, creative accounting folks. Um, it really saved the deal and allowed us to get it done.

Speaker B: Yeah. Great.

Speaker C: So reps and warranties. We, uh, did get thrown another loop or, uh, thrown for another loop. Uh, close to close. I can't remember if it was, uh, about three or four weeks, uh, ahead of time. Um, the, uh, seller's council had realized, hey, we, uh, think we want to rep some warranty policy, uh, and, um, with the company. Um, there was a kind, um, of a consent order that had occurred back in, um, 2017, 2019, uh, that was going to stay with the company because we were doing a stock purchase because we needed the licenses and things like that. And um, there were no issues with the company. But, uh, I think just to make themselves all feel better, they, they wanted to reps a warranty policy and we needed to move quickly. Um, so we ended up, uh, uh, finding a group that was. That was willing to do it quickly. Um, it's not cheap, um, I'll say that much. Uh, the policy itself and Define it, Randy.

Speaker B: Define it.

Speaker A: Give us more.

Speaker B: For those who don't even really know what it Is.

Speaker A: Is.

Speaker C: So it's an insurance policy. Um, you know, in the event that we missed something, um, in diligence where something was wrong, um, a liability existed that we just were not aware of and maybe even the seller wasn't aware of it. Um, it could be an HR issue, a tax issue, um, in this case a regulatory issue, um, so that we would have an insurance policy to go back against instead of coming back after the sellers, uh, for the thing that was missed. And that kind of helped get them a little bit more comfortable with a couple of the things. And um, inevitably though, um, your diligence gets way more intense when you start doing a reps and warranty policy. Because your obligation is that you've. You dive into every aspect of that business and you have a subject matter expert for, um, every aspect of that business. I have never racked up, uh, a legal bill that fast and, um, prior to or. Or since. Um, thank goodness. But, uh, um, because you have to have an attorney from every discipline essentially dig into the business, see if there's any, uh, liability that exists that we weren't aware of and surface that. And then they have to, um, get in front of the reps and warranty carrier and essentially certify what they did, what they found, um, so that the carrier feels comfortable that, hey, they didn't find anything, there's nothing that we can call out is not being covered. Um, and I would say that probably very quickly added another $150,000 in legal expenses, uh, to what we were doing. One, we were doing it quickly. It's a ton of different experts. Um, and then on. On their end, I think the policy itself was probably 2 to $300,000. Might, um, be. Might have been more than that. But thankfully they were paying for the policy. We were paying for the legal work.

Speaker B: Ah, uh, okay. And so to be clear, the sellers

Speaker C: wanted this bluntly, I think that, um, this was sellers counsel, um, more than anything else. Um, we. We struggled to move the deal quickly with them in general. And I think this was a little bit of a delay, um, and just a really conservative approach. Um, they had run into a regulatory issue in the past and they just were really concerned. They wanted the deal to consummate. Um, they didn't want future, um, litigation. They didn't think there would be. But their, their council, um, highly, highly encouraged the sellers to get this reps and warranty policy. It'll make you feel better for the amount of money you're selling for. It's a drop in the bucket. And Then you don't have to worry anymore. Um, and we don't have to have a contentious relationship. Um, if something did come up that neither one of us was aware of.

Speaker B: Okay, so. Right. So after the transaction, if something comes up without reps and warranties insurance, you, buyer, if it gets particularly contentious, you, buyer might go after them, might sue them for, I guess what you would claim is a breach of the reps and warranties.

Speaker C: That's exactly right.

Speaker B: And so they're, they're protecting that eventuality Even though they didn't think that it would happen. It was just, uh, as you just explained, what the lawyer said, their attorney said to them. But so I'm clear, Randy, but is it unusual that this, that the seller

Speaker A: buys reps and warranties or isn't it

Speaker B: usually the buyers who.

Speaker C: This was correct. Okay, this was a little bit unusual. Um, we felt comfortable doing our diligence, um, that we, we didn't want one, um, it's expensive. Um, two, we felt like we had done our diligence. Um, and again, I think this was an overly conservative seller council.

Speaker B: Okay.

Speaker C: And so we just said, hey, look, we're happy to have a reps and warranty policy, but you've got to pay for it. We'll pay for the legal work to, to get us across the finish line on it. And, and it worked out fine. And in all fairness, um, there are not many search deals that end up with a reps and warranty policy. Um, but when we acquired in 21, there weren't many search deals of our size that had, had even been done. Um, so we're a bit of an outlier in, in a couple ways Now I would say the search space is doing larger deals that, that look a little bit more like ours, um, today.

Speaker B: And the point too is that reps and warranties insurance, because of the expense both to get the policy issued and then the expense for the policy itself, um, is, is usually for larger deals in general. So middle market type acquisitions and above, not for small little stuff down here in search land. So it's, it's a little bit more.

Speaker C: Yeah. If you're doing a, a couple million dollar deal, um, that reps and warranty policy makes up an awfully large percentage of that transaction.

Speaker B: Right. Okay. By the way, now that you're on the inside of the business and are its CEO and have been for five years, that concern they had is were they, were they prudent to get their reps and warranty?

Speaker C: Um, they didn't need it.

Speaker B: Yeah. Like you Said it was, it was, uh, a transaction, um, tactic of some kind.

Speaker C: It really was, um, the business was, was run well. Um, and, and I would go so far as to say we, we really did dig into kind of the, the issue that they were probably concerned about, um, which had already been taken care of, um, quite bluntly. And we looked at it and we felt comfortable that, um, they really didn't, uh. I don't want to get too much into it, but it wasn't a big deal. Um, you know, it was unfortunate the way that it was publicized and, and the way that it was handled, but they got through it, um, and they ran a really clean, um, great business. And we were more than happy to, to take the reins and, and just build on what they had.

Speaker B: Great, Randy. Okay, well, I only have you for a couple more minutes. Um, so five years of your tenure in a couple minutes. We, we've heard about, uh, the revenue, new growth, um, we've heard that you've done some acquisitions. Um, we haven't heard about some of the leadership changes that you made. I think that that is material, as is the EOS Lite model that you have embraced. Um, so let's go through those and then anything I might be missing.

Speaker C: Yeah. Um, so one thing I would, uh, so this is unsolicited advice for folks, um, as you come into a business. Be slow to make change, learn the business, um, gain the trust of, uh, people. Um, there were probably some things that I would have done differently early on, um, inevitably the right decisions. But change that came faster than maybe the company was ready for. And having a little bit more trust and credibility with the team would have made the change a little bit easier, um, for us.

Speaker B: Can you tell us what it was?

Speaker C: Yeah, um, we made some, IT related changes, um, some personnel changes, um, um, and I'd say some of it just, uh, they weren't all seen as the right choice at that time. Um, inevitably it was by far what the business needed. Um, and if we had just probably taken a little bit more time to, to work on those things or really build the trust because I was coming into a team. I was coming in to lead a team that had been there for a long time. So I'm the new guy. Yes. I've run a business before, but they don't know me. Um, I've got to build a whole new set of credibility with these folks. Um, the old owner's out, um, and so I probably should have taken, uh, a little bit more time, um, to build that credibility before we Pulled, uh, or made some of those decisions. Um, but in terms of leadership team itself, um, we had a little transition with some of the old ownership that we weren't expecting, uh, which inevitably worked out great. Um, I think that they had kind of been preparing for retirement. So it gave us a little bit of a lift, um, as the market started to turn down in terms of some folks who. No more that we shed their salary, but didn't necessarily lose productivity. Um, wonderful folks, but they were ready to retire. And so it worked out well. Um, we had a transition early with our, um, sales leadership that turned out, uh, to work out, out, um, in our favor in the long run. Um, and we've got great leadership there now. Um, really seen a ton of growth and super proud of what they've done. Uh, our coo, Terry, um, she's been with the business for a very long time and, uh, her and I have been through some ups and downs and really learned how to work well together. Um, and building trust, like right there, that's my number one, was, uh, building trust with her as really my right hand. And, um, you did mention leadership changes, which, um, we ended up, um, changing out our cfo. Um, probably about a little over a year into the business, um, we kind of came to the realization that, um, we had a great, um, CFO by title. Um, but she had kind of been thrown into that position without the requisite training and experience. And so we've kind of offered her the opportunity to, hey, we want you to stay. Um, but we want to bring in somebody that's got, uh, a lot of great experience, who can train you and really position you for, for future growth. And there were some personal things, um, in her life that led her to an opportunity outside of Meridian. But, uh, we picked up a great CFO who's been with us ever since. And, um, having a great CFO and a great COO make, um, your life as a CEO exponentially easier. Um, and if you don't know your numbers, um, uh, that's the first thing you got to figure out in the business is know your numbers. Um, know them like the back of your hand. Um, and so having somebody you can trust and rely on, um, even in the first company I was running, we made a CFO change early on, and it changed the business. Um, because you have the right insight into the numbers, which means you can pull the right levers and make the right decisions, but if you don't have good insight, um, you're hard pressed to make good decisions.

Speaker B: Say more about that Randy, because I'll see people talk about this and the importance of a uh, CFO or, or somebody bring, bringing that sort of financial rigor and discipline to the business. And I'm just wondering how a business gets to, to be $30 million in revenue without, without uh, some of that place in place already. Um, like m. But so the question would be, what did you not have before and then what did you get with the right cf? Give us an example maybe.

Speaker C: We certainly had people who were really good. They could put together a good spreadsheet, um, they could get the P and L out of the accounting system. But it's your ability to crunch the data, to crunch the numbers, analyze it and help us gain real insight, um, and forward looking insight that I think makes a world of difference. Um, it's one thing, I mean great, you got a report out of your accounting system, but what's your report telling you? Um, do you have the data, you know, do you have the expenses broken down properly? Are you tracking them? Um, you know, year over year, month over month, Are you watching the trend? Um, and if you're not doing those things, like that's what we were really missing out on. Um, and you know, and to some extent like just financial rigor, um, I think is really important. Um, our CFO M today, like the first thing that both, the first document both of us get into every day is we've got a bank account document and we look at our bank venture balances. The um, transactions are all logged in the same spreadsheet. It's financial rigor. So we know exactly where our cash sits, we know where our escrow balances sit, we know what transactions occurred. Um, and I think it's really important to stay on top of that. The next set of reports you get into is your orders from the last day. How are those trending? Um, what's your revenue projection, um, looking like? Um, when we came into the business, um, yes, they had financial projections, um, because it was a brokered deal, but they really hadn't budgeted um, in the past. They might have a high level sales goal, but there wasn't a full budget that was built that anyone could be held accountable to. Um, and that lack of accountability drives spending. Right. Um, if folks don't know where they're supposed to be, it's tough for them to make good decisions. So we started building budgets and giving them to people and, and holding people accountable to it. And it doesn't have to be standing um, over them and pointing at the sheet of Paper. But just giving them um, that tool, meeting, um, with them, talking to them about it changes the behavior of those folks and it changes the way the business performs. Um, and so those are really the things that I'm talking about is um, that forward looking stuff, the guidance, um, and the accountability. It allows the business to operate, um, not necessarily on its own, but it allows the people who are really doing the day to day work to know, um, how they're supposed to be, uh, or what parameters they're supposed to stay within. Um, and if they need to do something differently then it's a conversation that they know, hey, I got to go talk to my boss or I have to go talk to Terry, uh, because we need two more people and it's not in the budget, but here's why. And now we can have that conversation.

Speaker B: Okay. Randy, the EOS Lite model that you embraced.

Speaker C: Yeah, um, in my prior company we used um, kind of the full, full boat eos. Um, we did it by the book, by the letter and um, it worked well for us. Um, I also was, was uh, a rookie. We, we also transitioned um, leadership over, over time there as well in the same way we did here. Um, for Meridian though, being the new guy, having a team, um, and largely folks who have been here for a long time, um, EOS was, it can be a rigid structure. And um, that was probably one of the things I should have taken a little bit more time implementing in the company and really figured out that hey, we can use a lot of these uh, uh, tools that EOS provides, but it doesn't have to be exactly the way that EOS says to do it. Um, do we have our KPIs? Yep. Do we have our regular cadence of meeting, uh, meetings? Yes. Do we have our rocks? Yes. Um, how we surface issues, can we, can we do it in, in a different way that, that allows people to feel comfortable, but we know problems are getting solved. Open communication. So what I often tell people is, and I think it's the same um, situation when you're leading individuals. Right. We as leaders, we each have our own style. Style. Um, but we can't expect our uh, our team to meet our style. Um, I think that's a quick way to have a dysfunctional team. I think we need to go meet our people where they're at and adapt our leadership to those individuals and to uh, what works best for them. And you're going to get the most out of them. I think EOS is the same thing. Take the pieces of it that work well, for you, and if it's the whole thing and if it's a rigid implementation, that's great. Um, but if it's not, there's still a lot of great tools sitting inside of it. Um, the number of businesses that you probably talk to where they don't have, um, a long term plan or maybe they have an idea where they want to go, but they don't know how to go from today to three years down the road. And that's one of the great things about Eos is, hey, I want to be here as a business in three years, but to get there I need to be here in one year. To be here in one year. I know I got to do these things in each of the quarters, um, going forward. And so you can still use those tools. Um, but sometimes the meeting cadence can be, um, a little rigid or the structure of your quarterly meeting, meetings, um, maybe doesn't work well for the personalities and that's fine. Um, but get to the core, core tenants, right? You're accountable, you're addressing issues, you have your KPIs and you know, what you need to do to move the business forward and what you're supposed to be working on as the leaders of the company and then making sure that your people below you are doing the same thing.

Speaker B: Randy, how does this experience of being a CEO, uh, compare with your, your one of ten years ago? Obviously then you were a rookie and now you're more experienced. Similar size employee bases, right?

Speaker C: Yeah, very, um, similar, uh, sized companies. Um, this one was, uh, we certainly had a couple years of stress, um, an amazing first year. But that's your transition year. Um, year two. The market is, is turning down. Um, but having been there and done it, it before, um, I've kind of learned to uh, figure out what's really important. Um, what do I need to stress about, um, it's not worth carrying certain things around with you and um, how to handle that stress, how to stay even keel, um, is really important. Um, don't get me wrong, my hairline continues to recede. Um, but that's probably less the business's fault. Um, so I learned a lot. Um, and I'm so thankful for that first opportunity and for everything that it taught me. Um, I mean one thing it taught me too was, um, my health's important, right? Not just for the business.

Speaker B: No more gaining 60 pounds.

Speaker C: Correct. Now I might have gained a little bit of weight, but I stopped myself early. Um, but my health for the business, my health for the family, those are important. Things and making sure that you're taking care of everything and not just giving, you know, working 80 hours a week isn't the answer either. Um, if you're working 80 hours a week, um, and this is all you can focus on, it probably means you have some things structurally that you need to fix. Um, and inevitably we did those things. And when I transitioned from being the in the weeds, the um, the integrator, if you will, at my last company, to finally, towards the end, really being more of the vision, my life changed as well. And you know, that's kind of how I came in here too. It was a little bit more of an integrator role, a little bit more in the weeds, trying to learn the business, probably pulling more levers than some people would prefer that I pulled. But getting the business to a place where, um, you've got, you know, your people are doing the right things and now it's your job to go and figure out where are we going and when you can spend your time on that and you've got to the structure right. Of the business. It makes your life, um, in this seat immensely easier.

Speaker B: Well, you present very, uh, much as a CEO, Randy. And so this is your, your second time doing it. And both, in both cases, the businesses were of good size for our world. 300 employees. And then when I hear you talk about having this fantastic cfo, this fantastic coo, and how the trio of you work so well together, yeah, it really starts to paint the picture today of a true CEO, like one you might see in a much even larger organization where you are probably doing a lot of selling inside and inside and outside the organization and strategic thinking and just sort of symbolic leadership. Um, it feels like, um, um, yeah, more of a proper CEO than, than I often encounter in these interviews. Close us out with, with bullet points on, on where the business is today and where you think you'll, you know, be taking it over the next three years.

Speaker C: Yeah, um, well we're, as I mentioned, we're very excited. Uh, we're um, all in on uh, doing tuck in acquisitions. We're trying to grow geographically speaking. Um, and so we're focused on, um, hey, let's go find um, great fits for us as a company. Um, so geographic expansion, um, product type expansion relative, uh, to commercial investing in technology as our market continues to change. Now we won't build the technology, but finding the right partners, um, is really important. Um, we have an amazing, um, sales leader, uh, or leadership team in Lisa and Nicole who are out there really trying to to help build our business organically and staying focused on that. While it's kind of um, my job I guess if you will, to go out and find acquisition targets, it's their job to make sure that we're doing the best that we can do in our existing markets. Um, and those two things are our biggest goals over the next few years is let's find good fits, um, businesses and opportunities where it makes sense for them to become a part of Meridian. And it works well culturally. Um, and, and then let's empower our people to go and, and sell um, great service. And, and I should say that's got to be one of the bullets as well is make sure that we continue to provide great service. Um, inevitably we are a service business so we're going to stub our toe on something um, and we just need to be uh, big enough to admit it and to go solve the problem. And if we can um, approach every issue that we have that way we'll be successful.

Speaker B: And you said it was 30 million million to start in revenue and today

Speaker C: is um, despite the downturn, um, we're

Speaker B: now approaching 40 and you started at 30, your tenure started at about 30 million?

Speaker C: Uh, yeah, so I, what I was, it's again it was a little comp. We bought the business basically at 38 and once uh, rates popped that immediately fell, um, right kind of right back to where they had been before, kind of in that 29, 30, 30 million dollar range. And now over the last 20 last couple years, uh, once we got the business stabilized, we've really been able to, to start to grow the business.

Speaker B: And while you were not uh, modeling any uh, multiple arbitrage, you bought in for about a 6x. What do you think the business would trade for today?

Speaker C: Um, let's call it an 8 or 9.

Speaker B: Good for you Randy.

Speaker C: That's great.

Speaker B: Any last thoughts?

Speaker C: Uh, no. A uh, wonderful opportunity. Um, think you uh, do a great service to this community. I think it's a. Entrepreneurship through acquisition is an amazing um, uh, journey for folks. Um, here's what I would say. Be prepared to be a leader. Um, not everyone signs up for it but it's what you're showing up to do.

Speaker A: Mhm.

Speaker B: Yeah. Great point to end on. Randy rem, thanks for joining us on Inquiring Minds.

Speaker C: Thank you Will.

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