E236: Buying a Flat Pack Business: Challenges, Triumphs, and Lessons Learned in Acquiring a Business

[00:00:00] Ronald Skelton: Hello and welcome to the How2Exit podcast. Today, I'm here with Mark, Gia and Walid and we are a group of uh, international since we got Mark in here, acquisition entrepreneurs. We've got a project we're going to talk about today. I do want to disclose I'm an active shareholder in this project, but, um, they've currently already have an acquisition.

They've got some work done, uh, already, and we're moving forward. So I'm really looking forward to the conversation we have today and, uh, to learn what you guys have already done, where we're going and share that with our audience. So, uh, let's do a round of kind of who everybody is and I'll do it in the order of my screen.

So Mark Moodley, you're, uh, your first one. Tell us who you are, where you're kind of located and how did you get into this space of, um, the mergers and acquisitions.

[00:00:49] Mark Moodley: Sure. Thanks Ron for that. So, yeah, my name is Mark. I'm living in Australia. I've been here for nearly 10 years now. Trying not to get the accent, but we'll see how that goes. Uh, basically been in small businesses for most of my life, buying and selling one particular business. Worked for a long time for a European car manufacturer.

And then when I came to Australia, I did a couple of courses. Somebody is well known, um, by companies, experts that we know of and got heavily involved then into mergers and acquisitions. And that's what I'm doing now. Just looking for companies to buy, um, acquire, invest, partner with, with a view to improving and building groups basically.

[00:01:35] Ronald Skelton: Awesome. Awesome. And Gia, uh, same thing. Where you located and kind of, how did you get into the space?

[00:01:42] Gia Cilento: Um, I am in the Metro Detroit area, just, close to Ann Arbor. And I have been involved in M&A for several years now. It was part of pivoting out during COVID. I bought my first company in, um, ' 07. And, um, so since getting into M& A or acquisitions, we've, worked on several, some bigger groups like, like roll ups and as well as making some acquisitions along the way. I have a background in marketing and publishing. And, advertising. And I've also done since, since COVID, I've done a deep internship with Jay Abraham and taken several courses in the area.

[00:02:31] Ronald Skelton: Awesome. Awesome. And Waleed?

[00:02:34] Walid Costandi: My name is Walid Costandi. I'm in Orlando, Florida. I've been in the, uh, my first startup was in 1995. A friend of mine and I, we started an ISP and when we sold it about five and a half years later.He did handle most of the sale part. I handled most of the growth and engineering part, but it was a lot of, that was a good experience.

And then I did it again with, uh, my brother. We started a company and I exited that. And then, um, I got heavily into real estate.And I got back into wanting to own my own business again. So instead of starting up, I went into M& A and to, to buy businesses. So, I'm really hands on, very operational oriented.

And, uh, and I really like to focus on helping people, helping employees, you know, make the most of their careers. And that's very rewarding for me.

[00:03:26] Ronald Skelton: And since I'm a shareholder in this, I probably ought to introduce myself to the people who aren't regular listeners. I'm Ronald Skelton. I'm sitting in Guerneville, California right now, originally from, uh, Tulsa, Oklahoma, in the middle of nowhere. I say Tulsa because that's what everybody would know in Oklahoma, but, have a background in everything from, tech management, technologies.

Got burned out on that. Got a master's degree in marketing. Got in the marketing world, uh, real estate investment firm. Bought our marketing agency. Ended up in real estate for a while, and then when I got out of that, I ended up in mergers and acquisitions. And I've been doing that and hosting the show for two and a half plus years, not three years now.

So, uh,quite a bit of experience. I've interviewed some of the top people in the space, learned a lot and, uh, really enjoy growing companies through acquisition. And helping companies, uh, you know, helping people buy companies as opposed to starting them from scratch. So now that everybody's been introduced, let's talk about the, the project.

Let's start off with, uh, the industry. So what industry are we currently focused on in general?

[00:04:28] Walid Costandi: Mark selected this industry. So Mark is the brains behind it. So he should really delve into it. I mean, we love the industry too, but he gets all the credit from the selection side.

[00:04:39] Ronald Skelton: Okay. We'll have this question be from Mark. Mark, tell us about the industry that we're currently in.

[00:04:43] Mark Moodley: Okay, so it's essentially at the base, it's the flat pack industry. I did a lot of research, and I found the flat pack industry to be what I thought quite simple. Cut up some board, get a few screws, put it all together and you've got a product which you can sell to the final customer, or you can sell to a builder or an installer. 

And I realized that flat pack is pretty much in everybody's homes. That was my first stage. And then I realized, never too old to learn, that the majority of the kitchens are made with a base using flat pack furniture. And then that opened up a whole new avenue for me. And again, pretty much every home has got a kitchen and I thought, well, this is an excellent industry.

And it's morphed itself into cabinetry and kitchen manufacturing. 

[00:05:41] Ronald Skelton: I think flat pack is a, a term I haven't heard before. So I get it. I get the concept. Basically, it's any product. Uh, first thing that came to my mind when you said is Ikea, right? Everything comes in a flat box and you got to put together yourself. Right? So, and I never thought about the cabinetry business, even been working for you guys for a long time and with you guys for a long time.

Never thought about the cabinetry business being like Ikea or, flat pack, but, uh,having been in the real estate space, I've had cabinets come in that way, right? My, I didn't install them. I didn't get on my hands on that stuff. I had, I had teams that would do that, but you know, they usually would curse me if they came in that way, cause it's extra work. 

They're used to them coming in boxes. Like, you know, they're actually prefabricated. All they do is, you know, take the protective covers off of them and slap them on the wall. Right. So, uh, 

[00:06:27] Mark Moodley: I think, um, I think the,the Ikea reference is, is a good one in order to situate the debate. The difference where we are is that we go into the renovation and the customization of people's kitchens. Ikea, you'll go there, you'll buy a set kitchen, you'll bring it back. They are doing more and more research into providing customization, but we take it a whole lot more further. Insofar as it's not only the kitchens that we look at, it's obviously the benchtops, it's the appliances, it's the situation and geography.

The windows, the doors, and we customize, up to a millimeter to where it needs to go. So there are no gaps, no exits, no dust, vacuums and things like this. The customization is, is really what we're selling at the end of the day.

[00:07:21] Ronald Skelton: Awesome. And, uh, you, in Australia, we've completed a purchase already, right. So you've, you've been through the process. Let's let's talk about what led up to that. The industry was identified, right. And then I assume you started reaching out and talking to people in the industry. What was the process like? Was this a off market deal, a broker deal?

[00:07:42] Mark Moodley: So went through a lot of brokers to begin with, which helped enormously in building up knowledge. And identifying the key, key criteria that you need to be looking at. The first deal we did go through with a broker, which was an horrendous experience. 

I never realized how much a broker, works defends, fights tooth and nail for his client, not really thinking about the buyer. And I thought that was a bit of a backward step from this particular broker. Nevertheless, it helped us a lot because we were able to ask a lot more questions during our due diligence process, which is important as this was our first acquisition. 

So we may have done too much due diligence, but then afterwards, we all realized with Gia and Walid that we didn't do enough due diligence. It was a smallish affair. So the risk was limited by that factor. And I think the most important thing really is that the six months since we bought the,the company, has been a fantastic learning curve for us all.

[00:08:46] Ronald Skelton: It's interesting. I've had quite a few get, sorry. Go ahead.

[00:08:49] Mark Moodley: I was just going to say, taking a small, a small company like that, you know, we both thought of buying the 10, 20, 30, 40, $50 million businesses. This one was less than a million dollars but it was manageable. And if something goes a little bit off course, it's relatively straightforward to bring it back. Which was kind of like we want to, yeah, it's a safe, it's a safe situation. For the employees, they come into an environment where we are a safe pair of hands. There's the three of us with a lot of collective knowledge. It was an established business making some decent dollars. So for us, it was a great learning curve.

[00:09:26] Ronald Skelton: I think it was a smart move to take the first dive into the industry, right? To take on something that, you know, is it going to sink you if you don't get it right. And as far as the due diligence goes, I've had a few guests that had a put it brilliant and said due diligence is always done.

Sometimes you do it correctly before you acquire it, and sometimes you do it after you stroke the check, but you always find without, find out everything within the first 12 to 18 months, right? So due diligence always gets done. You're just hoping to do the majority of it and the most scary things before any money changes hand and responsibility changes hands.

So, we take our lessons learned and apply those to the, to the next one. What was the process like as far as, you know, the working with brokers and, finding these deals that you run into a lot of brokers that, I had deals they just weren't represented, right. Or do you, or is it like, cause this is, we're talking about Australia here.

And I know here in the United States, you know, a great broker, if I take a handful of brokers, a great ones, like, Oh, I probably got one of my fingers would be a great broker. And the other nine are right? Uh, it's hit or miss here. And I hate to say that cause I've had a lot of great brokers on the show, but it is. A lot of brokers, you know, shouldn't be in the business.

Is it the same way there? Did you run into a lot of people that were like,horrible at representing what they were trying to sell to you guys.

[00:10:48] Mark Moodley: Yeah, I mean, yeah, definitely. I have a couple of friends who are brokers who don't operate in this space and they told me honestly, I can't help you. It's not my space, which I appreciate. They could go off and find things just for me, but it's not, they are professionals. What I found with the broker that we use that he wasn't so much a broker.

As more of a really bad salesman right from the moment where we got the information memorandum. Is that what you guys say information memorandum? Yeah

[00:11:18] (Multiple Speakers)

[00:11:22] Mark Moodley: Right from the moment we got the information memorandum the way things were presented, I mean we all understand you've got to present things as best you can. So now there was a little bit of give and take but there it was just take, take, take, take, take. And so we didn't like that and then the broker did get in the way a lot of time. A lot of times if when we wanted to communicate directly with the senior employees, and that I think we both, we all agree that, that's something that you need to be able to talk to you, the senior employees, they need to be in on the fact that the company's up for sale. That there will be a new owner.

And then the new owner needs to get some nitty gritty. Needs to get some inside details. And I really despised this broker because of the barrier that he put up, put up for us.

[00:12:09] Ronald Skelton: What's happened since then? You've, you guys reached out, I imagine, to multiple, you said. You had, you know, conversations.

What was the cycle like from the day, the, from the day you talked to them the first time, to, uh, the day you guys closed on it. Are we talking weeks, months, how long did it take?

[00:12:30] Mark Moodley: So it actually, all in all due diligence from the, for the moment we've, so I actually went up and saw the company in July and then we actually closed in January, the following year. And that was largely, largely due to the broker getting in the way. And, but once we actually signed, signed the contract, which I think was October, Gia, Walid?

[00:12:54] Walid Costandi: Yeah.

[00:12:55] Gia Cilento: It was around then. Yeah,

[00:12:56] Mark Moodley: So once we actually signed a contract, um, you know, we did go over the top in due diligence and what we thought was going over the top and asking lots and lots of questions. And then the seller went away to Europe for a whole month. And then here in Australia, January is our summer holiday. So nothing much happened in the first few days of January, which, which basically meant we lost kind of six weeks in the, in the process.

And we finally signed on the 21st of January. So, in real terms, I guess we probably worked two months from the moment we kind of signed the contract to the moment we actually, actually closed.

[00:13:36] Ronald Skelton: Were there any surprises? I know Walid's really good at, great at financials and you guys were digging through all this stuff, compared to what was presented at the first of the conversations and what the broker told you versus what the owner told you, and then what the due diligence truly showed. Was there any wait a minute here? right? Like, 

[00:13:56] Mark Moodley: The thing which surprised us most of all, and which we found out afterwards, afterwards, was the state of the machines. Now, my fault. I went up there with an expert. We looked at the machines. We said, Okay, it's there. It's there. It's there. But for some reason, I never asked him to actually operate the machine, which was afterwards, I thought, How could I, how could I do that? 

It's like if you're gonna buy a car and you don't ask the person to start the motor up. So that was a big, big, big mistake on my part. Which meant that when we actually bought the company, one of the first things that the top management came to see is was we need to change the CNC machine.

We need to change the forklift. We need to change the panel saw. And when we looked at it, they were right. No, we didn't accurately, accurately, estimate the value, and the usefulness of the, of the machines and the assets there. So that was a big surprise. And of course, nobody told us that, that like the forklift didn't have breaks, for example.

[00:15:01] Ronald Skelton: The, uh, I would imagine this information, had you got to build rapport with the, at least the top level management. You probably could have heard some of that, like, you know, uh, what needs to be replaced, what needs to be fixed. 

When you, when you told me you took an expert in there, you didn't turn on the machines that, you know, that reminded me of like taking a mechanic with you to see a car and he checks it out, but he doesn't have the owner start the engine.

Right. You looked it over and a lot of things can look great at the surface, right? And you, you start the car and you start hearing the clanking underneath the hood, um, you know, that's an eye opener, right? 

[00:15:36] Mark Moodley: The other thing, Ron, is it, is it in, I wasn't experiencing buying a manufacturing business. So I put this down as part of the learning curve as well. And in the next acquisitions and previous ones that we've seen, now we have taken more time to look at the machines and study them, check the serial numbers, go on to various internet sites to check values and things like this.

So again, lucky we did a small, uh, small acquisition as opposed to a $50 million acquisition. And you walk in on a Monday morning and you realize your $20 million CNC machine is worth $5. 50.

[00:16:13] Ronald Skelton: Scrap metal, right? So, Gia, when you took a look at this, when you're the marketing person, when you took a look at this one, did you see things that you can improve? And, um, and that's one of the things we always look is what can we, what we, what can we do to make this better? Was there any, anything that you looked at and said, you know what, we can really make a big difference in this company fairly quick?

[00:16:36] Gia Cilento: Yes, there was, um, there's quite a bit.We had to take our time with that first because there was settling all of the other issues of the transition. But yeah, there really wasn't much marketing going on.And you know, so we're in the midst of working on a website update and figuring out what kind of social media presence we want to have and ramping that up.

And so it was around the board. There's really no advertising going on. Community events. The company is deeply in the community and I think that's a good approach for us because of the size and the location, and the type of population that is sparsely,they're spread out because it's more of a country area.

So, using the different local aspects, uh, local advertising opportunities, event sponsorships, community building type of, um, organizations and activities is where we're, we've been focused so far and now we're ready to gear up in the realm of social and website and Google page and things of that nature.

So yeah, there, because none of those things were properly utilized or fully, to their you know, full extent. So we have a lot of space that we can gain in that arena.

[00:17:57] Ronald Skelton: And then on the operations side, I know that Walid likes to, um, he thinks very logically and stuff. Where their systems and processes was the factory laid out. Like, did you guys look at the efficiency of, or capacity of like the fat, you know, the manufacturing capabilities? Are the, before, before the purchase and what, did you learn anything after the purchase that, you know, where a certain capacity can grow so much before they had to do something different?

[00:18:23] Walid Costandi: All kinds of operations that, um, we've had a good handle on, what the capacity was and we realized that in the present situation, the way things are now, what time we bought it, they're at 80 percent capacity or so. So, you know, we had a strategy going in, and that's, you know, we discussed this several times and I think probably Mark had come up with this first. That is to outsource a lot of the production because he knows the market.

So instead of us, or our floors have doing all the major cutting and, you know, uh, carpentry work and so forth. Then you can source that out, have it done, it comes back to you ready cut. So then your work is minor on the cutting job and more assembly. So all that speeds up the production and increases our capacity.

It reduces your margins a tiny bit, but actually not significantly because the big machines that do the cutting, are more efficient. So you may pay a higher price, but you're not paying expensive employees to do the work. And then in terms of operation efficiency, you know, I have to make a side note here that when we took over, it took us a little bit to understand that the employees were scared as hell.

They were like scared. Even the, uh, you know, one of the bosses there. And, and then, and we finally, it took us a few weeks and Mark was so cajoling and polite and gentle with them, that they warmed up and then they started taking action and discussing with us. So they removed the poor producing machine, made more space.

They wanted to do this. They started getting more ambitious and motivated to do these changes. So our production capacity is, you know, and sales now is higher than, it's probably ever been there. And we're not full capacity anymore. We hired two more people. And, uh, so operationally it's, it's gone pretty well. And, uh, and it wasn't,this broker was an ass. And the lawyer was a bigger ass, but, uh, it wasn't, it wasn't a purchase.

It was probably the most reasonably priced, broker listed company I've seen in a long time. And when we did the numbers and we made an offer price it was accepted. And after due diligence and financial checks, you know, we asked for an adjustment on the price and they yelled and screamed and they lowered the price and we had a deal. And then towards the end when the financing, you know, was just a little short, you know, we, the seller even agreed to do a seller note, for about five or 10 percent of the purchase price.

So,it, it really worked out in the end and it's cash flowing, that's why we like this industry. It's a cash flowing, you know, moderate growth industry that puts money in your pocket.

[00:21:11] Ronald Skelton: So the, um, you guys, now you're in there, you're operating things, you're finding opportunities to make it more efficient to have it, to have it grow organically. What's happened in that space as other, other people in the industry and other people in the market that know you acquired, if they reached out to you and said, Hey, we're interested in selling too?

[00:21:34] Mark Moodley: Yeah, it was, it was really very exciting the first couple of months. Afterwards, cause once the reps started to realize that things had happened, we did get an influx of people coming and saying, Hey, what are you doing? So it wasn't necessarily sellers, but there was accountants, there was a couple of business brokers, but it was through our suppliers who, and the reps who kind of have their ear to the ground, where we had some, some really good conversations.

So, the fact that we'd done one in that industry, suddenly took us up quite a bit in terms of reputation, I guess, and level. So some of the deals they brought to us were too small.One man band operations with an apprentice and that kind of thing, and a 35 year old machine, which we weren't interested in. But, what has really happened is that our language now is when we are talking to potential sellers and prospects. You know, I may only have six months experience compared to some people who've got 30 years experience, but that whole exchange Ron, has really changed now. So we just don't talk about the fact that, you know, are they ready to exit?

Are they looking to do this, that and the other? We can also actually go and look at the machines. We can talk about the operations. I could talk about the team with Gia and Walid and, and how we, we, there's a package there and bring it all back to the operational side. And that's, that's been really amazing acquiring the experience and the vocabulary to be able to talk to, to, to sellers.

We do have a couple of deals at the moment, which we're working our way through. And I do feel it has helped enormously. And in one of us, when we talk to these sellers, the fact that we can, not really an equal conversation in terms of experience, but at least we find connection points. And that's been so, so good in building rapport with these uh, potential potential sellers. 

[00:23:34] Ronald Skelton: Yeah, I've learned that a lot of these industries and businesses are kind of like small towns. They all know each other. So I was curious as to once, once the word gets out that you've acquired something in this industry and you're still looking, right? You're willing to acquire more, that you're, the phone would start ringing.

So what is the buy criteria? And we're going to go jump over to the United States pretty quickly here too. So we're, we're still kind of talking about Australia, in your market. What is the, what they call buy box or the criteria of the, of businesses you're looking, uh, that would fit that portfolio, that holdco in Australia?

[00:24:10] Mark Moodley: Me, Ron, it comes down to one thing. And there needs to be a general manager there with experience. That in itself dictates that it's not a 1 million dollar a year company, if there's a general manager there. That suggests there's a team, there's expertise. There's a capacity to back up. There are some machinery. There's existence, there's history, it's a, it becomes a decent sized company. So that is kind of like become my main point.

Is there a general manager? It's not just the owner who's doing everything, but obviously if the owner leaves, now he's your best salesman, your best technician, your best, you know, relation with the client. If he leaves and you have nothing, then that is a big, big gap. And how do you fill that gap? And I feel that the only way, there are other ways, but for me, the most important way that is, that there is a general manager there who can carry on the business.

[00:25:05] Walid Costandi: And I know here in the United States, we've just recently in the last, you know, in last months, really dialed up what we're reaching out to and who we're talking to. But, let's put this one to Walid. What is the criteria for a U. S. based company, to participate in the U. S. holding company? So, um, like our criteria is that we don't have to manage it too much hands on. Like we don't want to be the operator. And so, the sale process can take a little while. So there's a transition period to someone that can run the business remotely from within. There's always people interested. So that's number one. We, we don't, we own, we want to own these businesses as an independent of us. 

Number two, they have to be cash flowing or, we have to do some sort of financial engineering to get them to cash flow positively, like high revenue, but poor payment structure, right? So, they have to cash flow. And then on the third criteria really is that there has to be capacity for growth. Even if it's, uh, you know, 70 percent like, like, like the one we bought in Australia, even us, 30 percent headroom for growth.

If there's more opportunity to growth in other ways and we can make it work great if the least location has, 20%, 50 percent of the space isn't used efficiently and we can use that space for more machines, that's growth. So they had that opportunity there. And the negative criteria is that, you know, we don't want to buy, something with very old equipment.

Some of these owners have very old equipment that are just, just don't work. You can't upload the designs to them for them to cut automatically and that kind of stuff. So, those are the main criteria for us. That's what we're looking for. But as someone who is older and retiring and wants to sell their business, but there isn't a lot of value in their business, we can still talk to them and work something out because there's a lot of value in their book of business. You know that uh, they're the customer history their name and so forth. So we can probably work something out there and at least give them something to walk away with their head held high.

[00:27:17] Ronald Skelton: And then, um, Gia, what is it for you, uh, what is the, long term goal for us as far as getting these brands and these different companies out in front of people and modernizing the approach? Cause I, I've looked through them. You've looked through them. I've got a marketing background. You've got a marketing background, quite a few of these companies we've looked at they're stuck in the, being nice to two thousands, but being honest, probably in the nineties, with their websites.

[00:27:46] Gia Cilento: Yeah, I was thinking 80s. But, um, no, I mean, there are, there are the odd companies that have kept up. But, um, a lot of companies are,they're paper. They're still using paper or, um, doing things manually or not doing anything at all. Sometimes we've found places where, uh,a nephew or child has put together some of the social media.

So, the longterm goal is to come up to speed, up to date in the, in the digital realm. Make sure that there's a strong online presence. There's a strong method for, pulling people in. Getting them, gaining attention, building reputation, building that online presence, having people, have it, establishing a strong funnel to begin with.

And that can be paper based. It doesn't have to be all digital, but, organic growth, paid growth, things that we have some say in. Making sure that the market that the company had originally identified as their own is accurate. And if they're actually have been targeting that, that market, or have they been, have they been too narrow or too general. So things like that, looking for where we can optimize.

Everything about the presence of the company, even if it's, if it's the look, the color scheme, the whole, without taking away from what they've already established. So we want to blend what they have and the depth and the reputation in the community and deepen that and have people come in who, new customers or repeat customers who can strongly advocate out in the community for us. 

So that's, that's a long term goal, but to get people advocating for us, uh, customers to advocate is, um,that's kind of like the, the golden ring or the brass ring. I prefer golden rings myself, but,

[00:29:41] Ronald Skelton: So a lot of these business owners, they're out there, they run the business for 10, 20, even 30 years. Some of them longer, because it's a 2nd or 3rd generation business. When they go to sell, there's a few things they're looking for, right? The safe pair of hands. They want to know their employees are going to be taken care of that maybe they really love the brand they created and the reputation they have and they identify with it.

They tie a piece of their own identity to that brand and to the safety of those employees. How are we going to make sure that we're the safe pair of hands and how are we going to make sure that those employees stay employed and can thrive in their communities? 

[00:30:20] Gia Cilento: For me, I think all of us are on a similar plane in this regard. Um, the, the employees are the lifeblood of the company and most companies have a footprint in their community. They impact more than just the owner and the employees. So there are stakeholders, there's suppliers, there's customers past and present and future.

And the dependence on having solid businesses, local businesses it's, uh, it's very important. So we want to nurture our employees. We want to build good relationships with them. We want them to feel comfortable and, and know that there's a leadership team that they can count on, that they have good direction.

They work in a safe environment. You know, that all, all of the, the benefits that can be afforded are, are there for them to take advantage of. And I know that everybody else feels the same way, or similar.

[00:31:10] Ronald Skelton: Yeah, I can imagine making sure the environment is both clean and safe. Here, when you say safe environment, all I can see is table saws and bandsaws, right? I grew up in a woodworking shop. My dad has a few, or before he passed, he was missing a couple fingers. I don't know any woodworkers who did it the old school way that's been doing it for more than 20 years that don't have at least a partial nub somewhere.

[00:31:34] Gia Cilento: So, uh, yeah. So that's, that's not the normal vision I have of a woodworking shop. Now, these manufacturers, they have automated tools and stuff like that. A lot more safety procedures and then somebody pushing a, you know, piece of wood through a table saw. Nowadays, we're more, more worried about hearing and, vision protection and, and inhalation, you know, as, I mean, because the machines are so, so much better nowadays.

[00:31:58] Walid Costandi: On the point of the employees, I mean, you know, we, in the purchase contract, I mean you have the option to decide which employee you want to, you want to keep and leave. And in Australia the contract, I guess their standard broker contacts stipulates if you have to specify which ones you're going to keep before closing. So, we were all upset that one employee was leaving and then turns out that nobody wanted them and he was very disruptive. So like, it worked out like the bad employees will weed themselves out. So, know my my concern with employees is, is everyone happy with their position?

Are they doing their work well enough that they are deserving a promotion or a raise they didn't get. So like, you know, we give everybody small raises across the board and we promise the top people to give them a performance review and a raise and they performed well and we gave them a raise so, and then the jitters just went away. You know, that's that's our occasion employees because I don't know how to do the work.

I just want to tell you I want you to do the work. So like I want you to be happy. Like, if you're happy, and I'm happy, that's our whole approach to it, right?

[00:33:09] Ronald Skelton: When did you guys tell the employees that, Hey, we bought this.

[00:33:12] Mark Moodley: Tuesday morning.

[00:33:14] Ronald Skelton: So a Tuesday morning. Before work or like during the middle of the day?

[00:33:18] Mark Moodley: It was actually about half past nine, 10 o'clock in the morning.

[00:33:22] Ronald Skelton: Okay. So people were just getting busy.

[00:33:24] Mark Moodley: Totally, it was, it was, it would have

[00:33:28] Walid Costandi: It wasn't a perfect Wednesday, according to Ron. It was almost perfect.

[00:33:32] Mark Moodley: Yeah.

[00:33:33] Ronald Skelton: Pretty close. Did pretty good. Yeah. I just, I only know just this because of, you know, talking to people that, you know, multiple times who,I've talked to a guy who bought a company in Africa and,within, I think he said 21 days, every single engineer, every, he had 20 some odd employees, a hundred percent of them quit in the first three weeks. Cause he, he came in and started making, it's a software company. He's come in and started making changes and,they just all panicked and left. So, he ended up with some software, but no, no employees and no code. So there's, there's definitely a wrong way to do it. I don't know that there's a perfect way to do anything in this space, right?

It's just, my curiosity is, uh, Mark, you were probably present when it happened, when they told the employees it was being sold.What was the look in the room, right? When you looked around and you were watching everybody's faces and stuff, did you, did you see any, like, you know, did people kind of expect it?

Do you kind of see it like, okay, yeah, that makes sense. Or were people totally shocked?

[00:34:29] Mark Moodley: Nothing Ron. It was dead pan. I felt like a really bad standup comedian. Yeah,

I did. It was atrocious. I tried to make a couple of nice comments. And just looking around the room thinking, whoops, that didn't go down too well. But, um, then what I did immediately afterwards was the legislation is such you have to make an offer as Walid, um, mentioned previously. 

So I had all my envelopes with me and I was able to individually go to each person and say, well, you know, Hey, Brandon, Hey, John, Hey, This is your offer. Please come back to me in the next couple of days. Let me know what you think so we can talk about it. But, um, yeah, really bad public. I'll tell that.

[00:35:15] Ronald Skelton: That's it. You had to go to and say, Hey, we'd like to keep you and like do some type of offer letter to the, like an employee. Uh,cause you did an asset purchase, I imagine then, right. So you, you purchased the assets and then you had to hire all these people into your new hold co or your, your new, uh, special purpose vehicle, as a lot of people call it SPC.

So that's interesting. I'd never even thought about like, happened to go and say, Hey, here's your offer letter. 

[00:35:42] Gia Cilento: There's a stipulation in Australian law that you have to present that two days before closing.

[00:35:49] Ronald Skelton: So you had a

[00:35:51] Gia Cilento: You're required.

[00:35:52] Ronald Skelton: Two day. Yeah, so it's required to do that two days before closing. Were there any one guy, you said one guy left, right?

[00:35:59] Gia Cilento: Right.

[00:36:00] Walid Costandi: But on the point of the jitters, it's important to note something that we didn't realize before, is that we weren't making changes. We were talking with the two top managers there, sales manager and the product manager, about our ideas about certain changes. And they came to the next general meeting and they're like, please stop making changes.

Like, we didn't do any changes. Like, you guys want to do this, and Mark said this, and, and we're like, but we're just discussing them with you. So you can't even talk about changes. You have to keep your mouth shut, right? And, and then introduce anything, like, what do you think if I move this mouse, a little over this, one inch to the right.

Do you think they'd be okay with that? Okay, we'll do that. And the next, I mean, not that small, but so if you don't want to keep people leave, you have to introduce the changes very slowly and not even talk about them. Just introduce them. Like,

[00:36:55] Mark Moodley: I think, um, I think you, that's, in our experience, listening has been really good because effectively we did go in and say, we'd like to improve the business and make more money and et cetera, et cetera. And that sort of got the resistance of what he'd mentioned. But then when it came down to listening to them, there was like three or four purchases we had to do.

So like the forklift was one, a panel saw was another. So we went along with this and we, we, you know, we did what they wanted. Pretty much. It's true. We're a bit, we lacked experience. So we were a little bit depending on what they wanted, but it's been great. They've, they have said exactly what you said, you know, the management have listened to us.

We've made these two or three purchases. We've improved their working conditions. It's great. And even at the moment now, we're, we're about to embark on the introduction of a central IT system, which will cover everything from, from start to finish. And it's been really welcomed. Cause they've seen that we've listened to them before and now we're, they know we're genuine that we're trying to build the business.

So it's been, that change was, um, it was really good because we listened.

[00:38:08] Gia Cilento: Yeah, I think it builds some level of trust. There was some, a level of trust that wasn't there that over time by, by listening and our own observations too, because we want to expand. We had things we wanted to do, and it was kind of like what you're talking about. Gathering the information with Mark's meeting with everybody and finding out what do you think we need?

And it, it made a big difference in the receptivity. And the, and the, not joy, but you know, the, the appreciation of their work and what they wanted to do with it. You know, there was kind of a, you could feel it, you could sense it. So it worked well.

[00:38:47] Ronald Skelton: So, were there any surprises in the employees or the employer, the like, one of the things I learned over the years and talking to these business owners, owning many businesses myself, I'm even guilty of it, is sometimes you keep somebody around just because they've always been around and they know how to do something. Even if they're not the best employer, the best at doing what they're doing.

Was there anybody that, you know, having that, all those discussions with everybody, you realize that somebody was just really miserable at either doing their job or miserable being there? And, they needed to find another position either with, in the company or outside of it?

[00:39:22] Mark Moodley: Not really. We have, we have one, one chap who did a four year apprenticeship with us. He's in his second year afterwards now. So he's been with us for six years. Previous owners included, obviously. He's 22 and he's desperate for dollars.

Always that underlying conversation with him. He wants dollars. He's very financially driven.So that's the only kind of, um, it's not even an issue really, but you know, that's, we have to manage that.Everybody else, it was, um,you know, are you moving the factory? Yeah. Nope. Okay. Thanks, mate. 

[00:40:03] Ronald Skelton: You talk about resistance to change, uh, there's certain things that you got to be real cautious with and, uh,there's a, the whole book Who've Moved My Cheese came up to mind because you move the factory. I don't care if it's five miles on the road. You change somebody's traffic, you know, pattern they have to go through their routine in the morning.

You just wrecked their entire world, right? So people, I remember, you know, many years ago, I haven't had a W2 job in probably 20 years. Many years ago when I had the W2, you probably had the same days, uh, the same experience when you were out there working. There were days where you got up, got ready, had your morning routine and showed up at work and you're like, how did I even get here?

I don't remember driving to work. Or the same way, like you leave on a Saturday morning to go somewhere and you accidentally drive to work. You're so into a cycle of routine that you, like you do that. So moving the facility is a very, sometimes required if you have to like scale or you don't have enough space at your facility or something, but it's something that I bet would take deep, deep thought. 

So, and I think as the U. S. requirements, as we're looking at companies in the U. S., the last thing we want to do is remove any of these, you know, facilities, unless it's just strategic that they have to, right? It's the only logical thing we can do is to move them to a bigger, better, or different location.

What's your thought on that, Walid?

[00:41:21] Walid Costandi: Well, that's why we look at the capacity, you know, like it has to have the capacity because it's not easy to move. It's not like you're moving desks. It's not software development, design, engineering, or it's, it's equipment, it's a factory. And you have to lay the electrical, you have to remove them, disassemble them, reassemble them.

You can't do that without the help of the manufacturer's rep. So you're talking about a, like, several days loss of production, plus days lost before and after to plan the move. So that's why our criteria is like, you know, there has to be some capacity availability, right? Someone's capacity could be replacing equipment that's old.

Replace it with a machine twice as fast, right? That's an investment.

[00:42:03] Ronald Skelton: So are these machines and I'm going to display my ignorance in the machines a little bit. Are they single phase or triple phase Mark?

[00:42:09] Mark Moodley: Triple phase.

[00:42:11] Ronald Skelton: So if you need to move, you have to move to an area that's in the United States would be considered zoning. Zoning, zone industrial and you can get triple phase electricity and into the building because that's, that's not a common thing in all warehousing space and everything.

So, uh, yeah, I could see where moving this stuff is. The, um, to find locations for that, it cuts down to the industrial parks into the, custom build. It's almost easier if you have a facility, find a facility that has some land on it or whatever, and either the owner, or either you buy the land with the building, with the facility, or the owner's a lot going to allow you to expand, right? 

[00:42:48] Mark Moodley: And even after the cost of, uh, I mean, electricians installing three phase, it's not, it's not cheap.

[00:42:57] Ronald Skelton: No.

[00:42:58] Mark Moodley: They have to bring in their cherry pickers and pull things from the roof and just moving. We moved our CNC machine from one side of the factory to the other. We'll be doing that every week.

[00:43:10] Ronald Skelton: I bet not. The, um, is the equipment similar or the same, like you have the same manufacturers there in Australia as we will here in the United States, or is it totally different?

[00:43:21] Walid Costandi: Actually, yes, I've seen a lot of similarity. Yeah, we've seen a lot of similarity. Yeah, there's an Italian manufacturer that, they supply all over the world. They're very popular cabinetmakers.

[00:43:32] Ronald Skelton: So, uh, we, we've had a lot of conversations about what you've already acquired, the Australian market, a little bit on what we're doing here in the United States. Let's focus for a few minutes here. What is our vision? What are we looking to accomplish? And the overall, you know, especially here in the United States, what markets were you focused on all that type of stuff?

I'll let Walid, kind of go over that with us.

[00:43:53] Walid Costandi: The States, we are, the first step was, uh, Mark was helping us with the research to identify how the market is structured. We did some initial research. We found that the market is a bit fragmented. There are a lot of, older people that may want to start retiring. So in the U. S. it's a, it's one of those typical industries where there's like two or three, one or two huge players.

And there is a wide market of middle level players and many, many, many small players. So that kind of fragmentation is good because the middle sized player is going to accumulate companies and move up into that, into that area, that sphere, that layer, the middle market. What we're focusing on geographically, we decided is that it's, it is very much on the ground.

It is local. People like talking to local people. So we're focusing on the area around where I am, Central Florida, and the area where Gia is around Detroit, Detroit Metro. And we're contacting these owners to find out,if they're ready to exit. And, you know, we really, really, really, really want to take care of the employees and keep them situated.

And give the owner a legacy and as well as a payout.So that, that is our overall strategy.

[00:45:13] Ronald Skelton: And is it just these cabinet making companies or is it all the kitchen and bath space or what's the kind of criteria?

[00:45:20] Walid Costandi: Well, the only time, the only times that I've, had problems in business is when and with investments is when I try to grow too fast and when I didn't look at the downside risk. When I failed to do those things, it just didn't work out. So expanding too fast is, is not good. So I want us to stay focused on the core business of cabinetry, accumulate a few companies, and then start going laterally into the supporting services.

And so, like Mark and Gia are very creative at coming up with things that support the businesses. And so those are all things that we're going to bring into the mix a few, you know, two years down the road, but it's important that we collect the first two, three companies first, and then enhance and support that, right?

We need to base to upper trump. And then with the downside risk, we have to analyze them and make sure like, what is the downside? What, you know, what can go wrong with these companies? So, uh, but we like, we like everything home and remodeling kitchen, bath, appliances. Yeah, things like services like door painting. You know, like we came across that.

I was like, it's like a lot of these people, nobody does specifically door painting that have done in a special way. So definitely want to expand those. And we, we're also thinking about going into a retail. Mark have proposed this to online retail sales. So what if we do online design that cuts the sales process in half?

So that's, and bring in money that way, spare parts.

[00:46:56] Mark Moodley: It's, it's very, very specific there. We've looked at acquiring paint companies. The process over here, they call it two pack. That it's, it's from what I've understood. It's aligned to a certain number of different materials and levels that they put onto the, onto the cover doors. And I said, well, like what's the deal?

Just paint it. And they said, well, compare cabinet doors to normal doors and the wear and tear. And it's really, really true. You know, normal doors get a lot of dings and hits and it looks tired and what have you. Whereas the cabinet doors, they got a whole lot more protection. It's a lot harder to damage a cabinet door because of the, the paint process.

[00:47:46] Ronald Skelton: So, let's talk about kind of what's the, what's the opportunity for people to work with us. Are we, would we be open to talk to anybody that wanted to participate in this?Bringing either skills and or money. Or bring us leads in the cabinetry space?

You know, what's our, how open are we to having other people work with us?

[00:48:07] Walid Costandi: I am, so I mean, if someone wants to work with us because they're not someone who wants to sell the business, thendefinitely we can, you know, find a way to compensate them. But of course there are,there's guidelines and that vary from state to state and that's the best part of it.

At least every state has its own rules. So, um, I don't expect that referral fee, but, uh, you know, if we can find a way to compensate you, that's, you know,above the line and we will do that. We just started exploring the potential of bringing on,investment partners. So we're kind of, uh, going through that evaluation process.

And I, I, our thoughts are just to do it by,debt equity type acquisitions, uh, debt financing, I mean. But if it grows enough, I think, you know, we might take on some investment partners.

[00:49:03] Mark Moodley: Very open to lots of conversations, Ron. You know, I mean, this is a big space. There's lots of things to do there. We've realized in our six months, there's lots of things we don't know. Lots of avenues that we can explore. So, yeah, definitely open to conversations. And it's a well known phrase, but like the win win kind of situation. We grow together and that kind of thing.

And I think this is an absolutely amazing opportunity over there. You have so many people. There are so many opportunities. Over here we've got like 12 million houses. I don't know. I mean, in California, you've got like 30 million people. There's more people in California, I think, than in the whole of Australia.

So, yeah, I mean, you know, so the opportunity is enormous there. For the moment, effectively, we're just looking at Florida and a Michigan area. But I know, I mean, was it 25 million people in Florida, already Walid and probably 500, 000 just in Detroit? It's just,

[00:50:01] Walid Costandi: I think Florida's 22 million.

[00:50:03] (Multiple Speakers) 

[00:50:05] Gia Cilento: about 10 million in, in, in Michigan,

[00:50:10] Mark Moodley: I mean, it's,

[00:50:11] Gia Cilento: probably like 5 million in my area.

[00:50:14] Mark Moodley: So, um, so yeah, open to lots of conversations. It's, uh, yeah, let's, let's, let's build this thing and move it forward altogether.

[00:50:22] Ronald Skelton: Awesome. Well, I've asked a bunch of questions and I've covered both the Australian market and the United States market. What am I missing here? What, what kind of, you know, what's out there that you want to make sure people know before we go? I guess, first of all, is how do they reach us? What's the best way to contact us?

[00:50:37] Walid Costandi: Well, the joint friendship project that, uh,Mark and us are doing. I mean, our project is called Are You Ready to Exit? So you can go to Are You Ready to Exit dot com. And that tells us, tells prospective sellers, what we're doing and how our approach is and all the contact information there and how to get all of us. It's just it's very brief.

Not a ton of information just enough to give you an idea and if you like what you see, great. And one thing we didn't, we didn't talk about, I don't know, maybe we don't have time for it. It's like, you know, how our team works together? Like how does someone in Florida and Michigan and Brisbane, Brisbane, Australia. How do you work together and time zone differences?

Like I may be operations and spreadsheet centric, but I don't do, I don't, I don't, I'm not doing that. You know, Mark and G had come through my work and pointed out all my errors. Like, and Gia barely does anything, only marketing. She does so much else.

Like she and I draft the legals together. She goes on a fine tooth comb and documents come back from her, you know, more red than black. And then Mark gets it. And so we collaborate a lot and we discuss and debate a lot. And so I think it's important, you know, that our, people recognize our team, we're not siloed at all.

So we overlap a lot. And I think that's what makes us work. Even though we miss some things in due diligence, that was because,from this information we received. But otherwise, we'll uncover that the information is there.

[00:52:14] Ronald Skelton: Yeah, we spent a lot of time on zoom too, right? So we were, and a lot of people like, okay, you guys bought a business, a year and a half ago. You've been working with the other for two years. All of us have been on other projects together. So we're all, we all have previous history. We've all, some of us own other business.

You know, adventures with each other. Some of us have been on different business ventures with each other. And, probably what, three, three and a half years now we've been,in communication, working on projects together in some form or another.

[00:52:43] Walid Costandi: And 

[00:52:44] Gia Cilento: So we've developed 

[00:52:44] Walid Costandi: might, I'm sorry Gia you go.

[00:52:48] Gia Cilento: Sorry. I'm just saying we've developed a level of trust and also a cadence of how we, how we meet when we, how we work. Sometimes we'll have working sessions. Zoom has become our friend. And it's really, you know, technology has really facilitated everything that we're doing.

And, um,we work individually and we work as a team sometimes in, within the meeting. So, 

[00:53:09] Walid Costandi: I'm going to say like, you know, Ron interviewing us, but Ron isn't just a podcaster. He's one of our partners. So like, Ron's strength is like he can collect information for us about, you know, how to contact the businesses. Ron is very good at talking to people like, I may choke up, you know, and then Ron will be like, Hey, yeah, I did this and that.

Are you ex military? So forth, boom, boom. Then like, suddenly, like, can you be my kid's godfather? Like, so, so, and Ron is talking to so many M& A people that, like, he is now a walking book of knowledge. Just like he, he, from, I was almost taking notes during the meeting when Ron said, like, here's a way that this serial entrepreneur, what they did is to get ideas across and employee buy in on changes.

That's great. So, Ron introduces ideas that he's learned to our team and we adopt them.

[00:54:02] Ronald Skelton: Yeah, we do. And that's one of the reasons I kicked off the show is to,to learn from other people's experiences, right? There are three ways to learn. You can go to college, you can read a book or, or four ways. You can read a book or you can, learn from other people's mistakes, or you can go out and make them on your own.

My goal is to never do the last one. I don't want to go out and lose money, lose time or lose energy discovering I've, I messed up. When I can, you know, look at books, look at education programs, hire mentors and talk to experts and learn from their lessons. So I want to bring all that to the table and I want to to make sure that, and part of that is the database.

We all, because of, you guys' connections, because of my connections from the show, if we have a problem, we usually know who to call. Right? If something pops up, like, you know,I know who we need to call. Let's call this guy and get him in here and let's have a conversation of which way we go.

So, imagine having a company where you have 250 advisors in your Rolodex that are willing to answer a couple of questions before they want you to stroke a check. Right? So that's what that's, the disposal of the company. 

All right. We've covered quite a bit of topics. I think we've, I think we've covered this really well. Before we go though, if you guys are out there, you want to work with us. You want to, we have to watch for the SEC stuff. If you want to invest with us, there's, that might be later on. If you want to bring a deal to us, anything like that.

And you have questions still to figure out if that works. My contact information is on every bit of the show notes. I'm part of this team. You can reach out to me directly. I'd love to, to have conversations with the listeners anyway. So, reach out to me, on LinkedIn, reach out to me on, via email.

It's, uh,it's in the show notes. It's on my LinkedIn profile and I'll answer your questions and we'll work together the best we can. That said, I think, uh, I think we covered this pretty well. You want to call that a show guys?

[00:55:49] Mark Moodley: Thank you very much.

[00:55:50] Gia Cilento: Yeah. Sounds good. 

[00:55:52] Ronald Skelton: Well, thank you for being here and we'll call that a show.