Dr. Jeremy Weisz: 15:43
That was the janitor’s side hustle.
Adam Coffey: 15:45
Yeah. It was. But as soon as you got done, you know, with a major crotonville type course, all of a sudden your phone starts ringing and recruiters are trying to pick you up because the entire world wants GE’s top talent. Who’s at Crotonville the top 5%, you know, and the people that GE wants to invest time and money in. And and so I remember going to Mike, you know, my mentor who was not at GE at the time. He had left to go be president of a of a of a company. But you know kind of like YPO your group, your, your mentor group never really falls apart. You know, it’s together forever for life. And so he, he, you know, I went to him. Hey, Mike, you know, it’s like I’m one of a thousand general managers at GE or go be a president and CEO for the first time in a in a smaller company.
And I remember his words of advice. You know, Adam, once a president, always a president. Go be a president. GE will never appreciate you as a president till you go be one somewhere else, you know. And amazingly enough, you know, when Jack left, a lot of the GE leaders left and they went on to run other companies. You know Bob Nardelli went to Home Depot and John Trani went to run Stanley. And so people were landing in other places and they were calling GE folks and like, hey, I Adam, I got a service company, you know, that I’m building that, you know, would love to have you, you know, come and run because once I went and became a president, no one saw me as any other role other than than president. And that that held true the rest of my career. So I think, you know, a lot of good lessons learned, a lot of great times.
I could tell you stories, you know, that are like, you know, just Charlie Sheen, you know, type stories in the movie. You know, Wall Street, you know, with Michael Douglas. It’s like all kinds of just, you know, great stories from back in that era. But it was a great place to learn how to run a company. So military taught me how to take care of people, how to lead. GE taught me how to run a business.
You put those two experiences together and then set me off in a bunch of PE backed adventures. I didn’t know what private equity was. When my phone rang and I got recruited for the first time, I was just chasing titles and money, and I didn’t even, you know, think about stock and ownership and companies could be a wealth generator for me. I kind of discounted the, you know, the long term incentive equity until I got paid the first time. But, you know, but that was you know, it was I learned about PE pretty much like everybody else has, which is I stumbled into it and I, you know, I got into the ecosystem. And then I learned by stepping in potholes and, you know, and and constantly learning.
Dr. Jeremy Weisz: 18:29
What are some of those potholes that even you stepped in early on?
Adam Coffey: 18:33
Well, so I would say when you’re young and you’re a rising star or a founder, you know, who’s found some success. I call it the accidental arrogance of success. You think you’re God’s gift to everything. You think no one in the world can teach you anything? Because by God, I built a company. Or by God, I’m an xge, you know, code one, you know, rising star. Nobody can teach me anything, you know. And so I think humility is probably one of the first big lessons of an entrepreneur or founder selling a business and partnering, you know, with a PE sponsor.
Hey, this is the world’s most sophisticated asset class that’s gone from hundreds of billions of dollars when I first started working with them to over $7 trillion, you know, today. And to an. An industry that was nascent to an industry that now buys 50% of all companies bought and sold on the planet. I mean, so the growth has been spectacular. And I learned somewhere along the way that humility and and being collaborative with, you know, the folks and the people and the operating partners and learning how to work in a different kind of an environment, you know, GE you know, it’s not that we weren’t team players because we all built teams, but we were also very competitive.
And you know you’re seeking to stay on top. Be that code one performer crush it. And it’s like you know that’s you. That’s you and your team. It’s not you and your team collaborating with other teams, you know. And so it was it was business as a professional sport. You know, sometimes in the heyday of GE, I think. So humility was the first big lesson. And then, you know, when his team loses a team there’s some merit to that. You know the the world can throw you curve balls. I was a CEO when planes flew into buildings during the Great Recession, during the pandemic. And you know what? When when there’s trouble, you know, in the world of PE, you need to communicate.
You know, a lot, but you need to communicate not just good. You need to be Johnny on the spot with, hey, my crystal ball says we’re in trouble. You know, this pandemic hit, we’re going to get slammed, you know, in six months. Looks pretty good right now. But I can already tell from my metrics, you know, that that we’re going to get slammed. You know, I learned how to be data driven at GE. So that wasn’t a big stretch for me a lot a lot of entrepreneurs are are CEO whisperers. They’re they’re like reading the tea leaves.
They’re they’re like I think it’s Bill Paxton in the movie Twister. You know, he bends down and he gets a handful of dirt and it’s running through his fingers and he’s like, there’s the tornadoes go that way, you know? And it’s like a lot of entrepreneurs are cowboys. They’re not team players. They also want to win, but they want to win. As a solopreneur, you know, as a as a you know, as it’s it’s it’s their victory, not their team’s victory, you know, and so I’d say there’s a lot, a lot of early lessons that up and coming executives learn, you know, and they all relate to humility.
Dr. Jeremy Weisz: 21:41
Adam, you know you mentioned the pandemic and recession. And I know one of the reasons you updated The Private Equity Playbook is because a lot happened since you published the first one. So what’s different in in the second one, what did you have to include in the in the second edition? I’ll pull it up here so people can see. They can also check it out on anywhere you buy books. Audible Amazon. Well, you know it’s different.
Adam Coffey: 22:07
You know so so The Private Equity Playbook that first edition which still hits number one on the charts all the time, you know, and pretty much has never really left the top ten in some version format, you know, on, on, on Amazon. And I, I researched it in 17, wrote it in 2018, came out in January or February of 2019, and at the time, I remember, you know, one number in particular at the time of the research, private equity was at 2.8 trillion, 2.83 trillion in assets under management. Five short years later, over 7 trillion in assets under management. I think in the second edition I quote six, but it’s over seven today. So it’s like the asset class has grown tremendously.
The volume of activity in companies bought has doubled. You know, in that same five year period because of enhanced competition, there’s more and more companies being bought and more industries being permeated by private equity than there were five years ago. And so some of the plays have, you know, have been, you know, I’ll call it, you know, re reimagined just simply because of this growth. You know, companies generally are trading for slightly higher multiples than historical averages. But at the same time, you’ve got interest rates that have gone up, you know. And so how private equity acts and makes money has come under a lot of pressure in recent years.
You know, and so I just felt that I needed to go back through that book. It was my first book, you know, the first one. And it still sells better than the second edition. But I actually like the second edition much better. It contains the first edition, but there’s probably 20 plus percent more content in that in that second book. And so, you know, I felt the need to go back and redo it. And of course, I shot myself in the foot by doing it and I saw it coming. I told I told my publisher, it’s like if I put out the second edition, I can’t retire the first edition because outlets like Amazon won’t take the thousands of of star ratings and associate it from the old book to the new book because the content changes. It’s a different ISBN. So they have to both coexist.
And I said, here’s what’s going to happen. The first book is going to fall from being number one permanently, because the second edition is going to siphon some volume off. And so now you routinely find both editions in the top ten, but neither one of them, number one, you know, on occasion the first edition still hits number one. But when people are buying both editions, it’s like my volume is being, you know, constantly coming under pressure. And so, you know, I saw it coming. I knew that would happen. But I can’t pull one because I can’t associate that volume. It’s not just, you know, a second printing. It’s a true different edition. There’s a lot of similarity to it.
But there’s there, there, there, there is like 25 different content. So it has to be done the way it’s done. But but really what what I saw coming. To be honest with you is just entrepreneurs, even to this day, still don’t know what the heck private equity is or how it works and how it functions. You know, if I teach a seminar today, you put a thousand business owners in a room and I give them a ten question, multiple choice basic quiz on private equity. 90% of the room fails it. I know I’ve done it. You know, it’s like they just fail. We’ve heard the term. We see bad news stories on TV. We hear the hero stories.
I sold my company for 20 times. Well, that’s because you had no earnings. And 20 times nothing is still nothing, right? You know, but you know and you know, but but it’s like all these hero stories, all these, you know, social media, you know, the news always puts out bad stories, you know, about private equity. You know, I’m God’s gift to business. I built a $10 million company. I, you know, no private equity weenies going to tell me how to how to do something better. You know, it’s like I there’s people out there, you know, God bless them, who have sold companies for, you know, relatively small numbers and I collect them at that size, put them together and I build giant empires.
And it’s like, you know, you can learn, you can constantly be learning from from people. And so I think there’s tons of opportunity. But I think PE as an asset class is still highly misunderstood only now because it’s even more prevalent than it was five, six years ago. It’s more important for business owners to understand what it is and how it works, even if they don’t plan to sell to it. PE has created the market that lets you build a company and sell it to somebody and make a ton of money, and so we need to understand it. And I tell people, you know, we are tools. I’m an operator, I’m a founder, I’m a builder. You know, I PE is a tool, a tool that helps me accelerate growth and generate wealth for my family, you know, and my employees.
But for them, their capital. Looking for a tool. I’m their tool. You know, I have to be the right tool for the job. I have to fit the profile of what they’re trying to accomplish. But it’s a relationship that, when properly aligned, works really, really well. Is it easy? No. You know, are the stats pretty? Pretty rough? Yeah. 73% of all transitioning founders don’t survive the first five year hold period in private equity. And there’s a number of reasons why that is. But one of the big ones is they’re completely unprepared to play business as a professional sport at the highest level.
And they just made a bunch of money and they don’t want to be told what to do, and they don’t want to work hard anymore, you know, and I’m God’s gift and I, I read the dirt, you know, in my hand. And it’s like in these data driven and, you know, and is looking for you to develop a crystal ball based on numbers and, and to work harder than you’ve ever worked before. And so that’s why I call it business as a professional sport. It’s played at the highest level. It’s intense. It ages you in dog years. But when it works, it’s magical.
Dr. Jeremy Weisz: 28:22
What are the other reasons, Adam? People don’t stay.
Adam Coffey: 28:26
So 73% fail. Some portion was elderly. They were in their 60s 70s, and they were just looking to get out. So there’s a portion of that population that includes those people who plan to exit. And then there’s a portion of people who just made a bunch of money and they get lazy. And then there’s a portion of people who don’t play well with others, you know, who don’t, you know, they’re that lone wolf that doesn’t take well to team. You know, the concept of team business as a team sport. You know, there’s a lot of people who haven’t never had accountability before in their lives.
They spent decades, you know, building a business. And if they didn’t do well, they didn’t care. You know, they did well enough, you know, for this year. And then they went back at it next year. In the world of PE, you got a boss, you got a board of directors, you know, you’ve got other people. You might. You know, I’m on the board of several companies today. You got people like me, you know, going in and telling you what I think about how you run your business or how I think that we might attack growth differently. And so it’s like some people just can’t play team team sport. They’re a lone wolf. And some people do make that transition.
And they stay and they thrive. And then other people are willing to make the transition, but they just don’t perform. The business doesn’t perform at the next level. Part of what I teach, especially in books like Empire Builder, is how to play at that level before you actually become that level. So learn how to be, think and act. And by the way, you’ll accelerate growth tremendously. Learn how to be a private equity backed portfolio company before you actually sell and become one. And so my focus now at my age, I made a ton of money. So I’m less driven by the monetary side, more driven by hey, I want to help people.
I want to help you beat the odds. I want to help you succeed. I want to help you succeed at a higher level. That’s why I write books. I donate my royalties to charity. I don’t even keep my royalties. There’s six figures a year, you know, and I donate them, you know, to charity. I’m here to help people succeed. Do I get paid for coaching and mentoring? Of course I do. You know, it’s I’m not free. I’m not a charity. You know, I do give to charity. But, you know, this is how I generate my cash flow.
You know, I joke with people and say, if I was homeless, standing on a corner, my cardboard sign would say, works for jet fuel. You know, I have an expensive lifestyle and I work to generate cash flow. I don’t live off a portfolio. I’m not a trust fund baby of my own, you know, and I’m not going to be dependent on one for, you know, until I got a drool bucket, you know, so I’m, you know, I work, I get paid because my time is valuable. But at the same time, my true goal and objective is to help people succeed.
Dr. Jeremy Weisz: 31:08
What’s some key advice you’ve given some of these companies when you’ve been on the board? Do you remember anything in particular that you know? I’m sure people give advice and not everyone listens to that advice or executes on that advice, but one where you gave some advice and they actually listened and executed on it.
Adam Coffey: 31:28
So I see it all the time because remember, I work with PE still today and I work with founders. So I’m working with about 71 founder led companies right now, and I work with them in different ways, different levels. Some are in a cohort, a peer group, others I work one, you know, 1 to 1. And I was just telling a large independently owned company yesterday, I just joined, you know, at the board level, they’re paying me a lot of money and they’re big, hundreds of millions of dollars in revenue. And, you know, they’re they’re sizable in earnings. And they, you know, they’re giant and they’re still privately held, which is rare. And I was explaining to them as I explained to many.
Look, you know, there’s three things that I do, I teach. I help you plan, and then I ride shotgun on tactical execution. A lot of founders, because of that arrogance, don’t want to learn. They don’t think there’s anything to learn. And I was telling these guys very successful people, they’re all worth nine figures. You know, the primary shareholders. And I was telling them my best outcomes happen when leadership teams, you know, founders and their teams learn the tools, you know, they learn. Go back to my boot camp for a couple of days, you know, and learn all the different ways that you run a company, grow a company.
I’ve developed this toolkit that I’ve used in multiple industries, multiple companies, success every time, you know, billions in exits. I can teach you something. You just have to have an open mind. I’ll never be an expert in their industry. I don’t have to be. I’m an expert in troubleshooting, growing, scaling, M&A, exiting. So we take their knowledge plus my tools. And then we craft the vision. You know the strategy for the future. When people do that my outcomes are just infinitely better than when they don’t. I’ve had founders with about 500 billion or, I’m sorry, $500 million in exits just in the past 18 to 24 months. And so, you know, the people I’m working with are building to scale building to get, you know, to get to an exit positioning for private equity ownership.
And, you know, when they listen to advice, good things happen. You know, we were talking off, you know, off mic about one of the companies, one of the first companies I started working with after I peeled out of the CEO seat and said, I’m done. I’m done being a CEO. Hang up my cleats. I want to help people. I want to teach. I want to write. I want to get on stages, I want to I want to explain to people how business works, give back, you know, to the next generation of business leaders. And, you know, and the first company I started working with, small under 2 million in earnings at the time, you know, if I’m remembering correctly.
Dr. Jeremy Weisz: 34:15
This is an IT company.
Adam Coffey: 34:16
Yeah. Three, three short years later, you know, 12 million top flight investment banks are now taking them out to market sell this year for 150. You know, 150 plus million. Matter of fact there could be 15 million by the time we actually get to market. Could be 225 million. Here’s a guy in a company that was worth about 15 million when I started working with them. Three years later, you know, they’re worth mid nine figures, you know. Well, 150 to 225 depending on where we go to market. And you know, this kind of wealth creation is possible. You have to believe in it.
And you have to be willing to just make a small investment in learning and learning how to play this kind of a game. And when you take the time to actually go through the steps, the three steps learn, plan, execute. When you go through that, then great things happen and they happen much quicker than people ever dreamed. You know that they could happen. So in this case it was a buy and build. We started buying other companies, putting them together, growing organically, you know, investing in systems and processes, doing all of that other stuff that we needed to do, growing organically. But M&A was the growth accelerator.
That was the real playbook. And you know, arbitrage and multiple expansion, you know, it is the levers that we’re pulling to make it happen. Learning how to do M&A. Well you know I’ve been doing it for decades. You know. So I teach people how to use M&A as a growth accelerator. They were willing to learn. They were a great leadership team. They were open to new ideas. They embraced them and they executed. And the end result is there, I don’t know, six times the size in three years. You look at my last company that I ran that was bought for around 125 million, you know, round numbers, 50% debt, 50% equity, PE sponsor, you know, PE bought it and I come in and run it. I buy eight companies and three years later we sold that company for 550 million.
The eight companies we bought, not a penny of equity, required 100% debt. So other than writing the first check for 62 million, you know the path. You know the original purchase price. Everything else we did in three years was debt. The cash flow in the companies we bought put together, and the turnaround and the organic growth and the things that we were doing in that time period fueled and serviced the debt until the exit. And then we sold it for 550 in cash, you know, A4X multiple of invested capital in three years. And, you know, really it was 27 months for me. But they you know, that’s a that’s a 50 plus percent IRR. And you know, it’s like it does not take long to find success when you know what the levers are and how to pull them, you know, and how to adjust them for different industries.
You can do great things and accomplish great things in a very short period of time. And so what I do with when I’m working with founders today, I just teach people how to do it on a smaller, you know, smaller level. It’s it’s it’s a it’s not quite the magnitude, but the results are the same. So a guy goes from 15 million to 150 million in value, ten times the value in three years where I went from 60 to 550, you know, or 125 to 200 50 in 3 years. You know, when I’ve got institutional capital, I can buy bigger things. I can buy more of them, I can slam it together. I don’t have to worry about how to manage a capital stack. When I’m a small company.
I got to navigate SBA, I got to navigate commercial loans. I got to potentially find some investors I have to do. It’s harder. It’s harder when I’m smaller, but I’m buying smaller stuff and I can do the same magnitude of return or better. I’m just playing it at a slightly smaller level. And so, you know, the concepts of arbitrage and multiple expansion work, and they work whether you’re small or you’re big. And so, you know, the tools, again, are the same people who embrace them and execute, get good outcomes. People who already know everything there is to know they get mediocre outcomes.
Dr. Jeremy Weisz: 38:28
So Adam in the MSP, the IT example, can you talk about some of the examples you mentioned, the toolkit, some examples of the tools they use to to grow.
Adam Coffey: 38:39
So I’ve helped multiple MSPs build and exit, you know, over the last few years. And you know when you when I, when I think of any company doesn’t have to be an MSP, you know, if I want to grow a business. So first of all, there’s three things I want to do when I’m building a company, I want to grow top line revenue. I want to improve margins, and I want to use mergers and acquisitions to accelerate growth and to harness multiple expansion and arbitrage so that what I ultimately sell sells for a higher multiple. And and I get the difference between the low multiple. I pay for a small company and the large multiple I get when I sell a bigger company. So those are the three things I want to do well. I don’t care what industry, what company.
If I’m going to grow top line revenue, I go to the same levers every time. Price, volume, pivot, tearing. Those are the four ways I drive top line organic growth price. Most under-utilized lever there is. If I’m a company with a 10% EBITDA margin or 10% profit margin, and I have a 30% gross profit, you know, and you know, and I’m at 20% or less SG&A or back office expense. If I raise price 5% and maintain volume, then I’ve increased profits by 50%. That nickel, you know, that extra nickel just falls all the way to the bottom. And I go from a 10% profitability company to 15 by just raising price 5%. Well, in the last five years, if you check the government statistics, you know, inflation has averaged about 22%. But they’re lying to us. You know, it’s 22% over five years, but they don’t include energy or food.
The two things that have gone up the most. You know, now Trump has come back and you know energy’s come back down. And but if you take those two components, if you look at true inflation, it’s been over 30% in the last 5 or 6 years. So how many companies out there have raised their prices? 30%. I get letters every week. You know, from Adam Netflix, you know, thank you. We love you. And we’re raising your price 30%. Well I don’t care. They could double my price. And I’m still going to keep Netflix Shh. Don’t tell them. But you know, it’s so. Price. Volume. Pivot. Tearing. What’s a pivot? Volume. We all know sell more. You know price get more for what you’re selling. What about pivot? Well I’ve got customers.
What else can I sell them. You know and making strategic pivots sets up cross sells. So if I’ve got a new thing I can sell that to my old customers. And if I bought a company that does something different, I can go to all their customers and sell them my old core products. And so I love setting up cross Sells by making strategic pivots, by widening the products and services that my core company I started with is actually selling one of my most important levers price and pivot tearing, you know, Mercedes-Benz S-Class, A-Class, C-Class. You know, I buy the S-Class once I get in, you know, they have three options, You know, to get more wallets into a showroom. You know, virtual or otherwise, to buy a Mercedes.
People that got a lot of money buy the S-Class. Well, once I’m an S-Class buyer, I got three versions of the S-Class. I can do the Adam Coffey, 85, 80 or the AMG, you know, and so, you know, learning how to tier products and services, learning how to put out multiple bids rather than one. Your customer wants a new roof. Well, let’s give them three quotes. Good, better. Best. You know, let’s let’s show them three different ways. Some of my clients will will pay more. Other clients will go in the middle. 60% of people go in the middle when they get three choices. And some people that buy the low end, they would have said no to me if I only put one bid out. But because I truly cost reduced and given them a C-Class instead of an S-Class Mercedes that cost me less to produce, I can capture that wallet. So price volume, pivot tiering.
If I want to improve margins, I look for, you know, continuous improvement. A lot of companies out there use EOS. You know, that’s great. US is a good system for continuous improvement. Gino Wickman did a great job. You know, nobody knows who Gino is because he built such a good system. They don’t have to know what, Gino. You know who Gino is, right? It’s not about him. It’s about the system. So, you know, they’re. I’m looking for high volume activity. What do I do the most? And can I incrementally improve the process that drives the outcome? And, you know, if I’ve got 1900 service techs doing a million service calls, if I can make a service call 5%, 10% more efficient times a million iterations, I can really drastically improve.
So I look for high volume. And once I find high, high volume tasks, I try to incrementally improve them. But I also look at what I call high value work. Low value work. You know, if I’ve got a bunch of technicians who are skilled tradesmen, high value work is in front of broken equipment where I can build a customer. Low value work is driving, chasing parts, filling out paperwork. I want to outsource, automate or eliminate low value work. And then I’ve got M&A. I want to grow earnings by 30% a year because that’s what I learned how to do under Jack. And if you didn’t maintain that kind of growth rate for GE to double in size every three years, you weren’t going to you know, stay on that rising star promotable kind of category.
You know you had to find a way to hit that number. I never forgot how to hit that number. Same levers from 35 years ago, you know, still apply. So when I look at all of that stuff, you know, price, volume, pivot, tearing, outsource, automate, eliminate, you know, low value work and attack, high volume tasks. You know, at first, then I’ve got M&A. If I’m short, if I’m not hitting 30% on those first levers, then M&A is the magic that fills the gap. And as I’m growing at 30 plus percent a year in earnings, I’m literally doubling the company every three years, just like GE was doing, you know, when I was there and, you know, in from 1991 to 2001, every three years stock split, doubled and, you know, doubled in price. So that’s what we’re our goal and objective is if I can do that organically.
Well I don’t have to do M&A if I don’t want to because my company’s literally going to quadruple in size its earnings in a five year period. I’m going to get the arbitrage. But I would tell you, if I have unlimited capital and I can hire a team, why not do both? So if I’m growing at 30% organically with margin improvement and all the organic levers, maybe I can grow by 40 or 50% if I include M&A. So I don’t want to limit my success, but my target is minimum 30% growth in earnings every year. If you can do that for four years or five years, you’re quadruple, you quadruple the earnings of the company and your exit is going to be large. And that’s what I did with my last company. I went from, you know, a value of 125 to 550 in in three years.
Dr. Jeremy Weisz: 45:46
And on that point, you know, I know there were eight acquisitions in there. And so I’m wondering some of the obviously, you’ve been very successful doing that, and there’s a lot of mistakes people make on the acquisition front. So I’d love to hear some of the common mistakes there. But I do want to say if you do check out, you know, I know that the IT MSP company, you know, there’s various ways to engage and work with Adam in general. He does consulting.
He’s got does teaching and speaking obviously his books. But if you go to ChairmanGroup.us and you go to the Courses page, he’s got some programs there that include, you know, digital access but also digital plus group calls and digital plus group plus one on one. So you know, if you are a company and this sounds like this is what you want to be doing, then you can check out this page and contact them there. What were some of the mistakes from an acquisition side that you see people make that you’ve learned from?
Adam Coffey: 46:51
There’s two good, you know, things I can comment on here real quickly. One of them is not knowing what good looks like before they start looking. I’m going to do acquisitions. I don’t know what I’m looking for. You know, I don’t have what I call a buy box. I haven’t, I haven’t determined, you know. So first of all, good M&A starts with strategy. Why am I doing M&A? I’m either extending geographic reach or I’m creating a strategic pivot or I’m building density. You know, why am I? I’m either getting bigger and I’m expanding where I’m doing business, or I’m adding new capability, or I’m building density in my core business and my core markets.
It’s like there’s very few, you know, strategies out there. But I need to define what my strategies are. And then I have to develop a buy box for each strategy that says, what’s the ideal company? What does my perfect acquisition look like? I’m doing multiple roll ups in the accounting space right now. There’s 1.8 million accounting firms in the US. Well, how the hell do I know what good looks like out of 1.8 million? Unless I’ve designed it first. Now, when I go looking at companies, I can quickly ascertain whether. Hey, this company fits. Doesn’t fit. Go on. People waste too much time by going down rabbit holes, looking at companies that aren’t the right fit.
So they don’t put time upfront and strategy. They don’t put time into determining what good looks like. Another common mistake that I see people make is impatience. You know, and you know, M&A is a slow game even for me, you know. So my last empire, I bought 23 companies in five years, but I only bought one the first year, you know, and I bought like three the second year. And like for the next year and seven, eight, you know, it’s like it accelerates. It’s like the pump at grandma’s house, you know, it’s like you gotta work it for a long time before water starts coming out. Here in Texas, wells are 1200 feet deep. That’s a lot of hand pumping before water comes out, but once it comes out, it keeps on coming.
And then a quick pump every once in a while keeps that flow going. M&A same way. So entrepreneurs tend to be impatient. That’s the second you know fatal flaw. Number three another big flaw. They they buy fixer uppers. They’re looking for a good deal. Now I’m a turnaround guy. But I tell you if you’re playing M&A for the first time, you know, and and you only buy good companies, good companies run by good people. If you think you’re creating value by buying a mediocre company that’s underperforming and you’re going to fix it, you don’t understand M&A at all. Because the way money is made using M&A is by buying a bunch of good companies, putting them together and getting bigger and then harnessing multiple arbitrage.
For example, the eight companies I bought on average price, I paid five times. I paid five x earnings for each of those eight companies. When I sold it, I sold it for 14 times earnings. The profit is made naturally. Small companies trade for small multiples because they’re plentiful. Large companies trade for larger multiples because they’re rare. There’s not as many of them. People have to pay more to get them. So if I can get the company to grow bigger, I’m going to get arbitrage. If I if I get bogged down trying to fix someone else’s crap. I waste time that could be directed towards buying more good companies and putting them together.
Pay fair market value. That’s all I have to do because as I get bigger, I’m going to get the return. So those are the kind of three common mistakes. I don’t have a strategy. I don’t know what good looks like. And I think I’m going to make money because I’m buying fixer uppers at a good price. That’s not how the game is played. Those are the three common mistakes and patience. That’s the fourth. You know, I’m not patient. I want to get a deal done. I have deal itis. I call it shiny penny syndrome. I want to do a deal so bad I overlook obvious flaws and I do a deal anyway. Just because I want to do a deal.
Dr. Jeremy Weisz: 50:50
Adam, I know you got to run. So I do want to point out people can check out ChairmanGroup.us to learn more. You could also check out adamecoffey.com. You can check out his books anywhere. They are. Empire Builder. We mentioned the Exit Strategy Playbook and The Private Equity Playbook. Adam, thanks so much.
Adam Coffey: 51:09
Thanks for having me. Good luck to all your listeners out there. Success starts right here. Believe you can it can happen to you. Good luck.
Dr. Jeremy Weisz: 51:17
Love it.
