E223: The Acquisitions Pilot Project: A Solution For 1st Time Buyers to Buy Lower Markets and Sell A Roll-Up - Watch Here

About the Guest(s):

Roger Best is a seasoned professional with a diverse background spanning mechanical engineering, law, and private equity. He has a rich history working with prominent organizations like BP, Honeywell, and General Motors, managing complex engineering and construction projects. Roger transitioned into the real estate sector, focusing on condo development and conversions, and later into corporate law, sharpening his skills in mergers and acquisitions. He is currently a key figure at GenX Capital Group, specializing in private equity and strategic roll-ups of lower market companies.

Episode Summary:

In this engaging episode of the How2Exit Podcast, host Ronald Skelton sits down with Roger Best, a multidisciplinary expert from GenX Capital Group. Roger’s journey is both fascinating and multidimensional, encompassing mechanical engineering, real estate, law, and private equity. Roger shares his compelling story of transitioning from managing large engineering projects to diving into the real estate boom of the early 2000s, eventually leading to his current role in private equity. The conversation offers a deep dive into how Roger utilizes his extensive skill set to navigate the complexities of mergers and acquisitions, making significant strides in this highly lucrative sector.

Roger Best elaborates on the strategic initiatives at GenX Capital Group, specifically focusing on their innovative pilot project aimed at leveraging SBA financing for business acquisitions. The project is designed to assist budding entrepreneurs and corporate managers in acquiring and scaling lower middle-market companies. Roger discusses the importance of implementing professional infrastructure and operational systems to render these small businesses attractive to middle-market buyers. Furthermore, the episode sheds light on the selection criteria for ideal operators, emphasizing the need for leadership skills, p&l responsibilities, and a strong background in managing complex projects. This insightful discussion is a treasure trove for anyone interested in private equity, mergers and acquisitions, and strategic business roll-ups.

Key Takeaways:

• The significance of diverse professional backgrounds in succeeding in private equity.

• How GenX Capital Group is addressing the "Silver Tsunami" of retiring baby boomers with their innovative pilot project.

• The strategic role of SBA financing in facilitating business acquisitions for entrepreneurs.

• Importance of operational systems and professional infrastructure in scaling lower middle-market companies.

• Criteria for selecting ideal operators, emphasizing leadership, project management, and financial oversight skills.

Notable Quotes:

1. "I quickly started to see how my number crunching and deal analysis were very applicable to real estate and entrepreneurship."

2. "Our investment thesis is really targeting that lower market to create middle-market companies."

3. "We walk participants through the entire SBA process, from deal identification to post-acquisition management."

4. "Engineers and business development types, especially those with p&l responsibilities, make excellent candidates for our program."

5. "We are really focused on implementing professional infrastructure and systems to make these small businesses attractive to middle-market buyers."

Article:

Navigating the Silver Tsunami: Insights into the Private Equity Strategy of GenX Capital Group

Key Takeaways:

• Silver Tsunami Opportunities: A focus on acquiring small, profitable companies from retiring baby boomers and rolling them up into larger, more appealing middle-market entities.

• Comprehensive Acquisition Support: Genx offers hands-on mentorship and financial structuring to ensure smoother transaction processes and higher success rates for new acquirers.

• Prototype and Pilot Programs: GenX's innovative pilot project, bolstered by potential backing from hedge funds, aims to streamline acquisition processes and validate their roll-up strategy.

The Opportunities Within the Silver Tsunami

The concept of the Silver Tsunami represents a significant shift in the business landscape. This demographic wave is composed chiefly of baby boomers who own and operate small to mid-sized businesses and are now approaching retirement. Roger Best, a notable figure from GenX Capital Group, explains how this phenomenon presents a multitude of opportunities for private equity firms looking to acquire and roll up these businesses into larger entities. Best elaborates:

"Our target market is these lower market, the silver tsunami. Obviously, the biggest buying market in this country is private equity firms. And they can't touch these deals. They're entirely too small. They've got way too much capital to deploy to even look at companies like this."

GenX Capital Group specifically targets these smaller companies that are often overlooked by larger private equity firms due to their smaller scale and perceived lack of infrastructure. By consolidating multiple small companies, they aim to create valuable middle-market businesses that attract attention from more prominent investors.

This strategy isn't unique but is remarkably effective, particularly during this current wave. The sheer volume of businesses up for sale due to retirement creates a fertile ground for acquisitions. This method not only helps individual business owners realize the value of their life’s work but also strengthens the economy by preserving jobs and maintaining market diversity.

Comprehensive Support for New Acquirers

One of the standout aspects of GenX Capital Group's strategy is their comprehensive support system for individuals looking to acquire businesses. Recognizing that not every potential acquirer has the necessary experience or capital readily available, GenX steps in as an active mentor and partner.

Best emphasizes the holistic support offered, ranging from deal identification to post-acquisition management:

"We handle everything, really, from helping them to identify a deal, whether or not it's a deal they should pursue, what the criteria should be, structuring the deal, negotiations, drafting the Lois and even the purchase contracts, things like that, and then post acquisition managing, helping them manage the company."

This approach mitigates many of the common fears and barriers that new acquirers face, such as lack of expertise or funding concerns. By leveraging their extensive network of SBA lenders and seasoned professionals, GenX ensures that the deals are not only feasible but can be executed efficiently. Their involvement extends to taking on a minority stake in the businesses they help acquire, aligning their success with that of the new owners and providing ongoing support.

The Pilot Program and Its Implications

A significant development within GenX's strategy is their Pilot Program. This initiative is designed as a prototype to demonstrate the effectiveness of their roll-up strategy on a smaller scale, thereby attracting more substantial investment from hedge funds and other financial backers.

Best discusses the importance and approach of the pilot:

"The pilot project is sort of a standard scenario, but for folks that have alternative scenarios that they want to talk about, we're certainly open to talking about other ideas, other ways of getting deals done."

The pilot program's ultimate goal is to validate the roll-up strategy by showcasing successful smaller deals consolidated into a larger, more appealing package. This proof of concept is crucial for securing further investment and scaling the operations. By ensuring that each participant in the pilot has sufficient support and guidance, GenX aims to build a replicable model that can be applied on a larger scale.

Further, the firm is open to exploring various financing structures beyond the SBA, such as sell leaseback agreements and asset-based lending. This flexibility ensures that they are not overly reliant on one funding mechanism and can adapt to the specific needs and strengths of each deal and participant.

As Best notes:

"For people who don't even, you know, have enough, we want to leave a little room in there for passive investors who may be interested in being involved with this, but they don't want to be a buyer, but they want to participate, perhaps, in the upside of being involved with this roll-up strategy."

By providing a pathway for both active and passive investors, GenX casts a wider net, ensuring robust financial backing and increased chances of success for their ventures.

Strategic Vision and Future Growth

GenX Capital Group's strategic vision focuses on leveraging existing market opportunities within the Silver Tsunami while providing substantial support to new business acquirers. This dual approach not only maximizes the value from current market conditions but also fosters the growth of a new generation of business owners.

The detailed preparation, from initial training to hands-on mentorship and the eventual roll-up and exit, reflects a comprehensive understanding of the market dynamics and an adeptness at navigating potential obstacles. Their willingness to explore various financial structures further enhances their adaptability and scope.

As Roger Best articulates, the future is promising, with potential backing from significant hedge funds poised to expand their operations:

"We are prepared to write a check for $250 million to back your entire fund. But they said what they want to see is a sample, like a prototype of it with these smaller deals."

The ongoing pilot program serves as the testing ground for this grander vision, illustrating that a careful, strategic approach can yield substantial rewards. By consolidating smaller companies into more formidable market players, GenX is not only setting itself up for success but also contributing to economic stability and growth amid the Silver Tsunami.

Overall, GenX Capital Group embodies a forward-thinking approach in the private equity space, meticulously constructed to harness current market trends and pushing towards creating a sustainable, profitable future.

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