Bryan Benak: You can't be trying to boil the ocean. You got to pick those 3 to 5 things that are going to impact the business the greatest that you can work on every week, every month, every quarter, and every year.
Patrick Baldwin: Paul, it's a busy week. Thank you for making a few minutes for me. You got a lot of stuff going on there.
Paul Giannamore: The show must go on, Patrick.
Patrick Baldwin: We have an exciting and awesome interview with Bryan Benak and we’re about to get into it. Before we do though, we speak about interest rates in the direct effect on M&A in the interview. There's a little tease here. Right now, current events, FOMC, 25 basis points. You said there's no such thing as a dovish hike. Paul, give me some commentary.
Paul Giannamore: Prior to the FOMC meeting, the Fed’s fund futures curve was all over the map as far as forecasted rate increases. People were anticipating 50 basis points and then we had a bank blowout bonanza and then it went to, “Maybe this is a pause or the Fed should cut.” We ultimately got 25 basis points.
After the FOMC came out and said 25 basis points, we were recording the interview with Bryan while this was all going on. The market took off. It wasn't until Yellen started speaking about banks and the fact that all bank deposits wouldn't be insured, the market rolled over. I do think this banking situation is quite serious and that will further restrict financial conditions in and of itself. We're in a situation where, if you're an American, why would you not put your money in a SIFI bank?
Patrick Baldwin: Paul, what's a SIFI bank?
Paul Giannamore: A SIFI bank is a Systematically Important Financial Institution, that's a finance term for banks that are too big to fail. If you're an American, you'd have zero logical reasons to have any money in a regional bank whatsoever.
Patrick Baldwin: It makes sense.
Paul Giannamore: Federal Reserve Board puts out statistics on which banks out there are the ones that are creating credit and loaning money into the real economy. 57% of commercial loans came from regional or non-SIFI institutions. If you think about that, you've got depositors pulling money out of regional non-SIFI banks and putting them into SIFI institutions like JP Morgan and Citibank.
It's the regional and rather relatively insignificant banks that are providing credit to the real economy. I do think that this situation is going to have a dramatic impact on financial conditions. I do tend to agree with Jerome Powell to a certain degree that this bank situation will act like an interest rate increase from a monetary tightening perspective.
Patrick Baldwin: Were you saying half of the money held in banks is in the SIFI banks, roughly?
Paul Giannamore: I don't know what the percentage of depositors in SIFI banks versus non but I do know that a lot of the non-SIFI banks are the ones that are extending the simple majority of credit out in the market in terms of loans, particularly commercial loans.
Patrick Baldwin: You're stressing me out, Paul. Thank you. I appreciate it.
Paul Giannamore: I like to do that, Patrick.
Patrick Baldwin: You're just a messenger. We have a few episodes already lined up here in a sequence that is pest-control-centric. I thought the best way to even dip our toe in the waters was with Bryan Benak. Years ago, he was with Terminix.
Paul Giannamore: That's right.
Patrick Baldwin: Service Master.
Paul Giannamore: That's right. He started at Terminix because Albert Cantu recruited him.
Patrick Baldwin: 1989 branch manager.
Paul Giannamore: He was at Merry Maids for a while. He was at ServiceMaster for quite some time. Right now, he's the CEO of Southern Home Services, which is an HVAC business based down in Florida. We talk about this a little bit in the interview, he was also a senior executive at Service Experts for quite some time, 7 or 8 years. I met Bryan over a decade ago and that's when we first started doing HVAC deals. I needed to get smart on HVAC. My old American Capital buddies had invested in Service Experts. I bought that business.
I remembered Bryan's name and it was Steve Good who introduced me to him a long time ago. I gave him a jingle. He’s super friendly and helped get me up to speed on the space over a decade ago and here we are. He'd be a great guy to have on the show because he comes from Service Master and Terminix so he's got that pest control background but he's also gotten into other home services. In addition to that, he's a CEO. They have a thousand employees or so at Southern Home Services. He's an interesting guy to talk to.
Patrick Baldwin: When guests come in, I learn a lot. Bryan did not disappoint. We're going to cover a lot of topics in this one but they're all super meaningful and they're all of substance if you know what I mean, Paul.
Paul Giannamore: I do know exactly what you mean.
Patrick Baldwin: Paul, let's step into The Boardroom with Bryan Benak.
Paul Giannamore: Let's do this, Patrick.
Patrick Baldwin: Bryan, welcome to The Boardroom.
Bryan Benak: I'm happy to be here.
Patrick Baldwin: We'll see about that. He's like, “What have I signed up for?”
Paul Giannamore: Bryan, it's been a long time since you and I chatted. Steve Good introduced us over ten years ago and I do remember, at the time, you were with Service Experts, and I had left American Capital and that was American Capital Portfolio Company. I left ACAS back in 2003. I remember you and I chatted about all things HVAC back in those days. You've come a long way from your history at ServiceMaster. Now, you are the CEO of Southern Home Services, is that right?
Bryan Benak: That is correct, yes, Southern Home Services. We’re based out of Maitland, Florida.
Paul Giannamore: You're living in Dallas. Are you going back and forth between Florida?
Bryan Benak: Yeah, I commute back and forth between here and Upstate New York.
Paul Giannamore: Back in your ServiceMaster days, you were around in the Albert Cantu days. Those were the glory days. It’s probably the Carlos Cantu days that were everyone's favorite era. You worked closely with Albert and you guys are still buddies to this day.
Bryan Benak: That's correct. This a joke between my wife and my ex-wife combined, I've known Albert longer than the two of them. He hired me out of college back in 1989 when Terminix had a management training program. That was for people coming out of college. That's how I met Albert. He was my first interview and first contact at Terminix.
Like most people that end up in the service industry, I was like, “I'll go to the interview for practice because there's no way I'll go to work for a bug company.” He opened the door to allow me to see the opportunity there and, at the time, I never thought about it, be on the front edge of being in the consumer services industry, which has taken off in this country since that point in time.
Paul Giannamore: Your story is pretty consistent with some other folks that I've heard from Terminix with Albert going out and recruiting guys and getting them excited to go to a pest control company. “What are you talking about?” You were at ServiceMaster for many years. This is going back some time. Did you leave ServiceMaster when they spun out ARS, is that right?
Bryan Benak: No. In my scenario, I was there for almost seventeen years, and about twelve of those were with Terminex. I then did go work at ARS for about two years and that was before they spun it off. I went to Merry Maids for about two years. During that timeframe was when they spun ARS off and sold it to private equity. When I left Merry Maids, it was even about a year and a half or two years before ServiceMaster, in general, explored going public to a private equity business.
Paul Giannamore: That was back in the Katrina era. She was around back then.
Bryan Benak: She was. I was at Merry Maids during that point in time.
Patrick Baldwin: Katrina was a hurricane. Who is Katrina?
Paul Giannamore: Katrina was the CEO of ServiceMaster back in the middle 2000s, 2005, or 2006, somewhere in that zone.
Patrick Baldwin: It’s Katrina time.
Paul Giannamore: The same year.
Bryan Benak: It was during Katrina.
Paul Giannamore: As a matter of fact, they named the hurricane after her. I know you were at Service Experts for what, 6 or 7 years? Does that sound about right?
Bryan Benak: Almost nine.
Paul Giannamore: What brought you over to Southern now?
Bryan Benak: My first venture into private equity was during the Service Experts days. When I first started at Service Experts, they were owned by Lennox, which was publicly traded, the manufacturer of heating air conditioning systems. During that timeframe, we were a proverbial stepchild of the Lennox brands. All their divisions were OEM with the exception of Service Experts. It was always a tough scenario there.
We got into a situation where somebody was put into the Chief Operating Officer that came from a background, that smart individual, but made some poor decisions on where the business should go, and it was because, from my perspective, of not understanding the service industry. They’d make me the CEO or in charge of a manufacturing business. It all looks easy from the outside. All you're doing is putting raw material in and outcomes a final product. There's a lot more that goes on to that. The company got into a tough situation. As a result, we went from being profitable to unprofitable. American Capital came in and it's their special situation. Paul, it’s based on your background.
Paul Giannamore: That's a never-good situation.
Bryan Benak: It's not a nice way to say this could be a problem so they brought it inexpensively. A little bit unheard of with private equity, they also had no debt when they bought it, and they sold us with no debt, which made it a positive situation for the management team. We looked at it as we put Humpty Dumpty back together again. That was my first experience. We were sold to Enercare, which is a Canadian company.
At that time, they were on the Toronto Stock Exchange. After that experience in private equity, I spent about 6 or 7 months there. I can't say anything negative about Enercare but the difference was running a $330 million business and generating $30 million EBITDA numbers, you look back, and you have to go before four different groups to give a PowerPoint presentation to get a $25,000 expenditure approved. At that time, I said, “This is not for me anymore.”
I was fortunate, I was able to take some time. My kids were getting into high school. My youngest was two at the time and I have two older ones as well. I said, “I'm going to take some time off and figure out what I'm going to do.” I spent about a year and a half working more as a contract CEO for a niche business, unrelated to anything else I ever did, but it was close to my home in Texas so it worked out well.
The private equity firm MSouth, I'd gotten to know them in 2016 around the time I left Service Experts. We had talked about some different opportunities and things that they had that didn't work out at the time but we kept in touch. At the end of 2018, they called me up and said, “We want to do some things differently with Southern.” They were finishing up a tough year and they were candid and transparent about what was going on. I started missing the home services and consumer services business so I joined.
At the time, we were doing probably $70 million top-line, under that. in 2022, we finished shy OF $250 million and profitable. We've grown both through organic growth as well as through acquisitions. we're private equity backed. MSouth sold us to Gryphon Investors back in October of 2021. We've had a nice ride with them as well. I’m there for 18 or 19 months into their investment period so there are a few more years. It's been an enjoyable ride.
Everybody is wired differently but, for me, private equity is a much more enjoyable environment. There's nothing wrong with being publicly traded. Everybody's got their style and their personality. Everybody fits in different places differently. For me, this has been a much more enjoyable venture spending time working for private equity portfolio companies. People can say what they want about private equity. It's like anything, it's good, bad, and indifferent.
There are two things and I've seen this three different times, three different PE firms. They have a longer-term view than most publicly traded companies because they are looking at it for the hold period. As long as you're doing well, they want you to be able to build the business over that hold period. They could sell it earlier or they could sell it later but ultimately, that's what they want you to do. Where it becomes a challenge for some people is that publicly traded companies are worried about the next three months. No matter what they say, that's what they're worried about.
If they get beyond that, it's no more than the next twelve months. There's nothing wrong, it's just a different environment. I'll use a phrase my father used to use, people have the intestinal fortitude to deal with stress. You are held much more accountable in a private equity environment. You work for big, huge, publicly traded companies, which I spent a lot of time at earlier in my career and got great experience. People can hide there. There's no hiding in private equity. There isn't a lack of accountability and not everybody can handle that type of environment. Not everybody's made the same way.
Paul Giannamore: As you know, in pest control, HVAC, and lawn care, over the years, private equity has gotten more and more into resi and home services in a big way. You're extremely interesting to talk to because you were at a big publicly traded company and you've also now worked with a variety of private equity firms. You worked with American Capital Special Situations, not a fun group, back at Service Experts. Now, at Southern, you've been part of a portfolio company of two different private equity firms. What are their personalities like because everyone's different?
Bryan Benak: I've worked for a smaller firm that was a predominantly lower middle market, as in MSouth moving in the middle market. I've worked at Gryphon, which is a middle market starting to move up to upper middle market type size, and American Capital, which was large. They were publicly traded when we were part of them. They each view things differently.
This is not a knock on anyone because they're all successful. There's different levels of bureaucracy as you move up the food chain and there's a lot less when it's smaller. If you work for a family-owned business in the pest control or HVAC space, when it's 10 employees, there are a lot less rules of bureaucracy than when there are 100 employees at that same company. The same thing works that way.
Ultimately, with private equity, what I have found is, for the most part, they want the business to be successful and they have a longer-term view. They're willing to make the investment. The key is any investment they make, they want to see a return on that investment. If you think it out from a basic business perspective, there's nothing wrong with that, but not everybody can deal with the accountability levels. The expectations to get those results are much greater in a private equity world than in a publicly traded world.
Going back over the years, in publicly traded companies, the expectations are a little less because they get caught up on more of the external environment than they do what's going on internally. When I say internally, not just within the company, within their space, or their industry as a whole. I'll go back and say one thing, and we talked about this at the beginning of my career, Terminix set you up as a manager and a manager trainee to treat that like it was your own business. They provided some guidelines. If it was my own business, I would've been independent and probably less structure and stuff.
23 years old, at that time, I thought it was big. Having almost a $1 million P&L, that was pretty significant. That's not a lot of opportunities that 23-year-olds get. We were always taught there to treat it like it was your own business and treat it like your own money. I don't know if it's like that today because my time at Terminix has been over twenty years ago now. In private equity, I treat it like it's my money, whether it's the debt side and equity side, it's all mine, and I'm going to make decisions as if it's my money because that's what they want from people in the organization.
Paul Giannamore: When you talk about American Capital and Gryphon, it is a small world because when I went to American Capital, I was choosing between Gryphon Investors and Acast, those are the two offers that I had. I liked both of those firms and I decided to go to the American Capital route. You've now done both. As the CEO of a private equity portfolio company, how much time do you spend with the other board members that are part of the private equity firm as well as other folks that work at the PE firm on things like operations and strategies? Is it a monthly thing? Is it quarterly? How often are you interfacing with these guys?
Bryan Benak: Do you know what's interesting? The interface between the two is similar between MSouth and Gryphon. We've gone to a biweekly but we do a biweekly M&A type call and update. We do a monthly financial review and then we do a quarterly board meeting and then we meet as needed on other items. That was consistent with MSouth as well.
The only difference is there are a few more people in the room on the Gryuphon side when we meet today versus when we were with MSouth. There's an operating partner involved and this was even at American Capital because it was a much larger private equity firm with operating partners. This gets back to the accountability side. So far, I've been fortunate I haven't had to have close friends that I didn't know I had yet.
Patrick Baldwin: There are all sorts of terms, friends, and special services. I'm learning. Bryan, you talk about the management training program at Terminix and treating it like, “My money.” On the other hand, what I'm hearing you say about private equity, the culture previously of, “I need to do four PowerPoint presentations for a $25,000 investment.” How do you balance that? That seems like a foot on the brake and a foot on the gas at the same.
Bryan Benak: A couple of things and one is you have decks and things you have to present. I'm also fortunate, I've got a couple of younger guys that came up through investment banking and things like that on my side, and one of them is on the executive team so he's helpful as well as our CFO at putting the decks together. Paul knows this. If you worked in investment banking, as an associate, you've churned out some PowerPoint presentations.
Paul Giannamore: You've mastered Excel and PowerPoint, for sure.
Bryan Benak: I'm fortunate to have a couple of them with that skillset. A couple of them even know how to use Excel with a keyboard and they won't even use their mouses.
Paul Giannamore: That’s like us over here.
Bryan Benak: That's been helpful. I'm not big on formalities. We're a bigger company now than a market company but I would rather somebody come in with a bunch of handwritten notes and focus on the substance than it looked pretty. I don't like things that are surface pretty without a lot of substance on them.
I'd rather have the substance and it can be ugly in the presentation because, at the end of the day, it's what you go do with what you're presenting and not what the presentation itself looks like. That's a message that I send. As we did in all the private equity firms and even public trading, we have to give presentations, and we have to meet with the board and give a formal and prettier presentation. That's part of the job in the business world.
Internally, we try to minimize that type of stuff. I will specifically before meetings say, “I don't want a PowerPoint presentation. Bring your notes and let's talk about that.” I don't want people spending hours working on a presentation to impress anybody. Let's talk about what we need to talk about and make a plan. That's one of the ways technology has hurt the world. Technology benefits most businesses but people get worried about the appearance of things versus the substance behind them.
Patrick Baldwin: I think about that. I walk out of a meeting or a phone call or even a church sermon. I'm not knocking on my pastor right now. Sometimes you hear a message and you feel good. You heard all the buzzwords, you walk out, and you were like, “What substance was there?” Where do you draw the line? Where's that smell test? How do you know someone's trying to pile it on?
Bryan Benak: It varies by individual and by subject and topic. If you deal with people all day long in the service business, you get a knack to start hearing and listening because it's all about people whether it's the customer or the employees. You start getting a sense and resonate with reading people well. If you're going to have success in the service industry, you do pick up a way to read people and figure out who knows what they're doing and who does it, or who's full of it and who's not.
Patrick Baldwin: You have varied industries from pest control and ARS, that's heating and air, Merry Maids, cleaning time, and service experts. You've got experts with HVAC, plumbing, and electrical to mechanical trades. I'm wondering what differences you see between the different verticals you've worked between or are they similar at the end of the day?
Bryan Benak: Let me start with the similarities. It's about people, processes, execution, and technology, that's what it comes down to me when you look at a business. In the service businesses, whether it's pest control at Terminix, Merry maids, cleaning houses, or whether it was ARS, Southern, or Service Experts, you've got to connect people, which are the customers, with the employees, and with the company.
How do you balance that? You got to look at how you support, as a company, the employees, and customers. If you win with those two, the company is going to win. You have to balance those two as well because the service industry is made up of people. The comment we were talking about a minute ago about reading people, understanding people, or being around them, in the service industry, is what most of America is.
If you want to understand what America is about, go work in a service business or go to a factory or something like that. You'll understand people and you'll understand what most of this country is about because that's what makes up the majority of this country. People get focused too much on the 1%, 2%, and 3% of the world versus understanding the everyday American and what they're about. You've got to understand people.
You then get into the little nuances that make each industry different. There are a lot more similarities than there are differences. The difference is you have to understand them because coming into these roles, if you understand the customer and the employee, it's then figuring out those nuances. It’s realizing that not everything is going to be exactly the same as where you did it before because of those nuances.
Patrick Baldwin: I like it. It's helpful, understand people. When you're talking about people, you mentioned the field worker, that frontline employee, are you instilling in your culture, “We have to hold up our frontline employees whether that's frontline technicians or cleaners or whatever it is.”
Bryan Benak: It is. The employees are the ones doing service with the customer. I have a motto around here and I always preach this to us. You could say this about any service business. You're going in and out of homes. As a corporate team, we are here to support those field businesses and help make their lives easier and not make their lives more difficult.
When you think about that, if we disappeared tomorrow, our locations would figure out how to do their accounting. They might not do it according to gap but they'd figure out how to do their accounting. They'd figure out how to do HR. Maybe it might not all be quite legal but they'd figure it out. They'd probably do their marketing. Yes, somebody might want to be the marquee sponsor at the local Little League field, which might not be the greatest return on investment, but they would figure it out. They'd also service the customer.
If our locations disappear tomorrow, we would have a lot of problems because nobody here is going to be able to service all those customers. We've got to focus on that. The challenge for any organization if you become bigger, and I've worked for some large ones and I have a lot of positive things to say about them, for me, it's about how you find that balance about still feeling like you're a small and local company with our locations. Also, provide them with resources that a big company can provide so they can be more successful. A lot of people forget that.
Today, what you see, and I don't have all the answers, service companies sometimes get to a size where they become scalable still because of their marketing and their brand. They then try to cookie-cutter the jobs because it makes it simpler for somebody in corporate to manage them and roll out processes. When you cookie-cutter the jobs, you end up getting mediocre managers, and mediocre leadership at the local level because they're getting everybody to try to fit in this peg specifically, and therefore you end up with mediocre service.
You keep out-running the shot because of the marketing and sales machine each year versus providing great service and that local feel to both the employees and the customer. That's a challenge to all service companies and all service industries as they grow. How do you prevent that and be more successful about it than somebody else?
If you think about most of these industries, there's nothing anybody has, the secret sauce, or the secret formula. There's more than one way to go about doing it. There are multiple strategies that come down to how they execute on the strategies. There are no secrets in any of these businesses, it's just coming down to executing whatever your strategy is and different strategies can be successful.
Patrick Baldwin: That's impactful. You're killing mediocre managers, not literally. I love it.
Bryan Benak: That's what happens. The company does it, “I want to recruit exactly this type of person only this way because I can stick them in. I don't want 'em to think, I just want them to do what we tell them.” The customer in Seattle is going to be the same as the customer in Miami but there are different expectations because of the market and what's important to them. If you don't allow them to have some creativity and ability to think outside the box, you get a bunch of mediocrity. Good people aren't going to stand in an environment where they can't be creative.
Patrick Baldwin: I wonder if that manager maybe fits better in manufacturing. Put him in a box or put them in a manufacturing facility. In service, there are a lot more variables. You know better than I do.
Bryan Benak: It varies by business. Since I was in high school or college, I worked in a restaurant environment so you have a somewhat captive workforce. I can't speak to that because that's been too many years that I want to count that I was in that environment. In these industries, it's distributed. By that, I mean you got all your locations and then those employees aren't even coming to the office and hanging out all day.
It's not like you can go put your arm on their shoulder and talk to them about it. They're going out to customers’ homes. It's two layers of distribution and people are going to have to think on their feet even at that level because things are going to come up that they can't turn or walk down the hall to the person next to them and say, “How do I solve this?”
Patrick Baldwin: They need a manager that can be creative and think on their feet too and show them that pattern. I love it. Speaking of distributed, at least to the first level, you're in ten different states. When you think about designing that branch, does each of those branches within those states offer all your services?
Bryan Benak: Today, we offer HVAC in every location. We're 90% plumbing. By the end of 2023, if we're not 100%, we'll be pretty close. In electrical, we're about maybe 60%. By the end of 2023, we'll be closer to 75%. By the end of ‘24, we'll be 100% in electrical as well.
Paul Giannamore: What's your end user? Is it primarily commercial?
Bryan Benak: No. We are 95% residential. Except for one location, we do existing homes. We do new construction in one location. It was one of the original two locations that were part of Southern back in 2015. We do it well but it's a different business and it's a different market but it is residential new construction as well. That's important to us not only when we look at acquisitions but as we decide where to grow. We feel that it's more important to be able to excel with the customers we have and not try to be everything to everyone.
We have our advertising, you'll see it, it's one call, one company. We feel that's more important to promote with the individual brand names than promoting Southern. You probably won't see Southern on a lot of our local brands but what you will see is the one call, one company. We want a homeowner to feel comfortable picking up the phone and calling us for their HVAC, plumbing, and electrical needs today, and we want to excel in that space.
Paul Giannamore: How do you deal with the one-time service versus recurring service conundrum in the trades that you're in? As you know, HVAC has gone through a lot of consolidation in recent years. The financial sponsors always zero in, “What's on maintenance? What's not?” Being primarily residential, I would imagine your recurring services are probably relatively low.
Bryan Benak: It's lower compared to pest control, which was probably 80% other than your new termite work. I don't know how much that industry changed but then it became reoccurring customer. Merry Maids was probably 95%. This is probably the opposite, it's probably 20%. That's a big challenge in this space compared to others.
One of the nuances that you have to understand coming into this industry that's different than other service industries is that you've got to wake up each day looking for that opportunity to excel with the customer and provide additional services because you don't have your bills paid by this huge reoccurring customer base each month, each quarter, and each year as you do in other spaces. I do think that's an opportunity to improve the business and improve the industry.
60% of your utility needs are driven by your HVAC and your plumbing, specifically your water heater in the house. Yet most people don't have ongoing maintenance but they'll have a maid service, they'll have a pest control service, and they'll have a lawn service. You got this big utility bill and big cost to replace and warranty on all these other systems in the home and yet people don't do it. The industry has done that to themselves over the years, which is interesting for a skilled trade. It's changing but like anything, it didn't get that way overnight and it's not going to change overnight either.
Paul Giannamore: The difference between what you do now versus pest control is you're selling a more high-octane pain killer. When somebody's got an air conditioning going out or the plumbing goes kaput, it's a lot more high priority than, “There are crickets in my kitchen.”
Bryan Benak: This is when termites swarmed. That would cause panic in a lot of homes. When your air conditioners are out and you live in Florida and it's 95 degrees in July or your pipes freeze in Texas as they did back in February years ago and you don't have any water, that's an emergency. How do you get there now and differentiate yourself?
It's all about response time and it's about delivering on the service because the way you're going to get the reoccurring services is by responding quickly and taking care of the problem the first time. You then can get into the maintenance agreements or you can get into the other service lines that you offer because those are the things that are going to resonate with the customer, getting there and doing it right the first time.
Patrick Baldwin: What things are you doing to increase the adoption rate of the service agreements?
Bryan Benak: When we now go and we'll sell something, it's included in the first year so like a termite renewal. I'm going to use that analogy since I know a lot of your readers come from that side of the world. How do I partner the two? Like anything, how do I make sure the customer understands the importance of the maintenance on that system? Maintenance is what's going to extend life.
You're talking $10,000 plus for one system a lot of times for an HVAC system today and that's a big investment and most people don't have $10,000 or are ready to shell out to somebody as well. How do you differentiate that? Customers will resonate with what they feel as a local brand if you can provide guarantees and service levels that are at a national brand-type level. It ties to what we were saying at the end, that the local manager is what makes the difference. That's the one that makes the difference with the customer there.
We can all think of even my own organization and we can think about organizations we've all worked in. Somebody in one city might say, “I've had a great experience.” Somebody else might say, “I have a horrible experience with that same company.” Do you know what the difference is? It's that local manager.
Patrick Baldwin: I understand that, the reputation across different regions. You were talking about all branches doing HVAC, we're almost all plumbing, and we're going to have a target for electrical. What goes into making those decisions? When do you roll those different services out?
Bryan Benak: The key for us is we want to be good. You're never going to be perfect. We want to be good at one service level before we go into another service level. If we acquire a company, which we do a lot of M&A, we will look for companies that provide multiple trades and make sure they do it well when we're purchasing it. That sometimes helps. Sometimes it's by default because when we bought the company, they were already doing multiple trades.
Patrick Baldwin: As you're looking at doing the acquisitions, how are you judging their quality before you acquire them?
Bryan Benak: One of the first things we look at is, what's their Google score?
Patrick Baldwin: You are looking at Google.
Bryan Benak: That's not the only thing we do but that's the first thing we do.
Patrick Baldwin: If it's bad, you're like, “Next.” You don't even consider them.
Bryan Benak: It has changed our mind before.
Patrick Baldwin: Does that go into special services?
Paul Giannamore: Special situations.
Bryan Benak: Special situations, we don't do a lot of that.
Paul Giannamore: One of your first passes is at Google Reviews, what you’re seeing online. Provided they make the cut, what are some of the next steps that you take when you're assessing an opportunity?
Bryan Benak: Location, size of the company, the market's importance, the quality of the service, and the reputation of the brand. You can find out a lot when you start doing due diligence about how they treated their employees and things like that through a lot of different metrics and data. We take a look at a wholesome view and make sure it's going to fit with what we want to do in that market and somewhat a cultural fit. When you're doing M&A, merging cultures is always the toughest part of it. If you can find things that are more similar versus more different, it makes that transition for the employee much easier.
Paul Giannamore: You guys are still a relatively young company, especially in the new phase of growth. It's been over the last 8 or 8 years that there have been institutional investors, and there's been a lot of money pumped into the acquisition program. You guys are in ten states but what is your brand makeup? I'm thinking about this from an M&A perspective. You've got individual brands operating autonomously so you guys are buying platforms in new regions but you're also doing tuck-in acquisitions to your current footprint. Where are you spending most of your time as CEO, looking at platforms or looking at tuck-ins?
Bryan Benak: I spend more time on the platforms. We love doing tuck-ins but we will push that down to a lower level and task others to work on that versus tying up myself and the M&A team. They're a critical part of anybody that's doing M&A. We did lots and lots of those back in the day at Terminix so I could see how they would bolster. Even back in the heyday at Terminix when we did those, the tuck-ins were driven down at the region and local level because that's where those relationships were with those owners and being able to make that happen.
Paul Giannamore: HVAC has experienced tremendous consolidation over the last decade. Now, there are no less than a dozen private equity-backed platforms out there.
Bryan Benak: The rumor is it's 80 consolidators. Let's put it there.
Paul Giannamore: There's got to be. There are tons. A decade ago, it was more difficult. Before, you had that duopoly, you had Scotts Lawn Service and TruGreen and they were the only buyers of a lawn care business. Of course, in November 2015, TruGreen acquired Scotts Lawn Service. Then there were effectively not a whole lot of deals but now we're starting to see private equity firms buy platforms and there's a lot more in the lawn space similar to pest.
Of course, I feel like HVAC was ahead of pest and lawn in terms of private equity consolidation. I flew back into Puerto Rico and I was out on the circuit with some of the large investment banks and there were some of the private equity investors, no one there from your firm, Gryphon, but there were some other private equity investors there that owned platforms in HVAC.
We got to talking about how it's becoming more and more of a challenging environment now because acquisition target prices have been bid up so high that it almost makes more sense for them to deploy internal capital on internal initiatives, sales, and marketing programs, and other types of things that they can do without putting capital into M&A. What's your thought on where the market has been and where it is now and where it's likely to go from an M&A perspective?
Bryan Benak: The one tough piece to answer right now is one that we would all love to know the answer to, the interest rate environment because that's going to impact M&A. That being said, I still think if you look at the space, it depends on the number you look at. You get all sorts of numbers in the space but if you combine them all, it could be $130 million in each of the different trades we were talking about. It's probably even greater than that.
If you added up all the private equity firms and all the consolidators no matter how their ownership is structured, I'm probably guessing but I bet it's 15% of the market. When you still look at a highly fragmented industry compared to other service industries, you're going to still continue to see M&A activity. The interest rate environments, which can drive it down and it can also drive it up if they go down, is going to cause some cooling not necessarily the space on the M&A activity.
There'll still be it but maybe not at the levels and volume there were before because there are always going to be people that need to sell. A lot of the sellers in the past couple of years were more opportunistic because they felt like, “I got to get the money while I can get it.” There'll be people that are like, “I'm ready to retire. I don't have a parent in the business. I don't want to do this another 2, 3, or 5 years.” Whatever it takes for the market to come back around, they're going to sell.
People are going to have personal issues that come up that are going to cause them to sell and some of them will be realistic. I could have made three times a life-changing event a year and a half ago. Maybe I only get a one-time life-changing event now and it's still enough to retire and live comfortably. It will cause an adjustment period too because if you even look at this industry through some consolidation during the ‘90s and then it took almost 10 to 12 years later to cycle through and that was because a lot of the consolidators were extremely unsuccessful in the ‘90s.
The success you see today is there were a lot of learnings from that experience. When you look at it today, there'll be some cooling but it won't take a long time, it's too fragmented. The interest rates will drive and interest rates drop, it'll probably jump back up for a while. If they go back up a little bit, it'll drop back down but I don't think it'll stop as it did. There's about a ten-year period. There was little M&A activity in the space.
Paul Giannamore: As we’re recording this, Chairman Powell is probably giving his presser. It's FOMC decision day. I would imagine one of the things he's probably telling us all is that the recent banking crisis in Europe and the United States will continue to tighten financial conditions, which I believe that'll be the case, especially when I was on the road meeting with a variety of different private equity firms. If you look at the financial models, Bryan, that they used in Q4 of ‘21 versus now fast forward to Q4 of ‘22 and then even into the present, these guys were levering these businesses up 7.5 times at the end of ’21. It then dropped down to 4.5 in ‘22.
I have to imagine that it'll be far more constrained here in the coming months here in 2023. We'll ultimately see where that goes. From a pipeline perspective, I would imagine at the end of 2021 when Gryphne recapped that business, things were crazy back then from an M&A perspective. Is your pipeline of potential cell site targets the same as it was in ‘21 or has it gotten smaller or bigger?
Bryan Benak: It's about the same. It's not up but it's not down significantly. There's still enough activity out there. It comes down to the deal because the cash side is different now because of the debt service on it. The businesses have to be generating a certain profit now to service the debt. The reality is private equity uses debt to do the deal.
One of them told me one time years ago in a different firm, “You wouldn't buy your house without putting a mortgage on it, would you?” That was a simplistic term to think about private equity, it is like buying real estate. Rarely are you going to pay cash for everything. You're going to finance it as most people do for their homes.
Paul Giannamore: Outside of the capital markets in your role as CEO over there, what things have gone in and out of your mind about the broader economy and the health of the consumer, and the potential impacts on your business?
Bryan Benak: We've talked about that a lot. Because of the size of the ticket we have to charge somebody for some of the more significant work that you have to do around the home, we offer financing because a lot of people need to utilize that to take care of these services. Although the world's changed, you’re buying a small car twenty years ago for an HVAC system if you think about it. People finance that.
We have not seen a real change in the ability to get financing. I don't think it's impacted the consumer in the markets that we predominantly service today. Like anything, new construction, we have seen a little bit because people did slow down. They're buying habits because that is interest rate sensitive and there's an adjustment. I remember when I bought my first house back in the early mid-90s, I had some friends say, “You better do it now. The interest rate is 7% and it's never going to get any lower than this.”
You have not only a general consumer that had to readjust but there's a large portion of the home buyers today that always thought 3% was always going to be the going mortgage rate. When I was a younger kid, I’m not even in the home-buying mood, I remember when they were 14% and my parents were trying to buy a house when we moved back to Georgia from Philadelphia. I remember that being a hot topic around the table when I was probably in eighth grade about the interest rates and everything going on.
We're a long way from 14 but that 5 to 7 range is probably going to be there for a while. We're going to see some up and down a little bit but I don't think they're going to go back for the consumer where the Fed's loaning at 0 and everybody else is paying 3 on their mortgage. Those days are long gone. You see that adjustment going on. Because we're in good markets, I don't think the consumer has been impacted or has seen an impact and they're still buying. The inflation environment is where you get this.
Now I'm going to try to play economists, which is probably a bad idea. To get this dynamic going on is you got the inflation environment so people still have disposable spending. If you look at tech versus other industries, tech has done layoffs. It's horrible for anybody to have to lose their job. When Amazon says, “I'm laying off 20,000 people,” and you have 400,000 people, the news doesn't say that's 1% or 2% of the employment rate. I get worried if Amazon came and said, “We're laying off 100,000 people.” That moves the needle in the world, not 5 or 10 here or there at a company of that size.
Patrick Baldwin: What does it look like as far as where you spend your time on a day-to-day basis?
Bryan Benak: My team would, when they do hear this, are going to roll their eyes. The ocean phrase that I use all the time is, “You can't be trying to boil the ocean.” You got to pick those 3 to 5 things that are going to impact the business the greatest that you can work on every week, every month, every quarter, and every year. You, as a manager in these businesses, have a lot of things that come at you each day.
There are always going to be fires to put out but how do you stay focused on those 2, 3, 4, or 5 things that are going to remake the difference? How do you make sure you spend your time on those things because you can easily get distracted? The day will come to an end and you will say, “What did I accomplish today?” The challenge is to have the discipline to make sure you're working on those things that are going to make a difference.
Patrick Baldwin: I didn't roll my eyes when you said that. I agreed. I thought that was good substance.
Bryan Benak: They hear it so much that my CFO will roll his eyes, “Here we go on the boil the ocean speech.”
Paul Giannamore: The old boil the ocean speech.
Patrick Baldwin: I've never worked for private equity. I’ve not been at your level talking on a daily or biweekly basis or anything like that with private equity. What are those conversations like? You've dealt with a few different PE firms so they might vary. What is that like? Are they looking for results and numbers or what?
Bryan Benak: They would’ve to build value. I hate to use the example, KKR, in the late ‘80s, with private equity, it was all about cutting costs. They want to create a value proposition because if they can create value in an organization, and that can be defined in a lot of different ways and that's maybe where the difference is, they create value that's better for the next ownership group. If you have a strategy and a plan, they will be supportive of it.
Because a lot of them are financial where they came from in their mindset and their education, they always want to see a return on that investment. They're open to doing investments and investing in whether it's concepts or people as long as you can back-of-the-napkin that return on investment. You usually can do that and make them feel comfortable doing it. They have a longer-term view. I found more ways of trying to structure deals working with them. In corporate M&A, I hate to use the same phrase we were talking about earlier, it's cookie-cutter.
Paul Giannamore: It's plain vanilla.
Bryan Benak: They're going to do it one way and that's the only way. You learn a lot both ways in this environment. They also will be more open to exposing you to different ideas and concepts in private equity because they have other portfolio companies or they've looked at other companies that maybe they weren't the winner in buying and they'd say, “Have you guys ever thought about this? We saw this at another consumer services business we were looking at. Before we bought you, we looked at these five, and here was something they did that was interesting and neat too.” They can over-consult if you let them. You got to Heisman them every once in a while.
Paul Giannamore: How many employees do you have now at Southern, Bryan?
Bryan Benak: Right around 1,000.
Paul Giannamore: You've got 1,000 employees. You've done all sorts of cool stuff over the course of your career. What are some of the things that you do and have done over the years for personal and professional growth? The bigger the organization, the more chaotic it gets, and the more complex, for sure. How do you educate yourself and stay ahead of the pack so to speak?
Bryan Benak: I enjoy reading whether it's business news, business books, or business journals. I enjoyed going to school. I know not everybody has that mindset. We have a phrase around here, the acronym is GSD, Get Shit Done, and we believe strongly in that around here. How do you take that theory and put it into a practical user form? You can read a lot and it all sounds nice and sometimes they're written by people that have talked about it but never done it.
There's also stuff written about stuff. You take those different nuggets of information. How do you apply or look at how to improve the business or the people within it? It's been the way I've always looked at life. Although I probably wouldn't do it today at this point in my life because I don't know if I would want to do it for three years but I always joke around going back and saying, “Maybe when I'm done with all this, I'll go get a doctorate business and teach.” I like learning but I don't know if I want to go back to school for three years.
Paul Giannamore: Do you think you can get a doctorate done in three years?
Bryan Benak: I've looked at it. You can do certain degrees now because of the experience levels that you have. They'll let you do it. Whether I would get accepted or not, my transcripts probably are still on paper, and that would also create a problem.
Paul Giannamore: That doesn't sound fun to me, three years of grad school.
Patrick Baldwin: I'm thinking of initiatives that are on or off the table the next 1, 3, or 5 years, “We're going to expand five states. We're going to add two service lines. We're going to stay where we are and get density.” What's the future look like?
Bryan Benak: Short term, we're focused on the South, and it's clear for anybody that goes to our website and sees where our footprint is. When I say short term, probably over the next two years, and then beyond that, even looking in the South, there's a lot of markets that we're in and then there are a lot of markets we're not in. There's still a lot to be had here.
Longer term, going to different markets. We'll be selective. We aren't going to just open it up and say, “There's three-fourths of the rest of the country we can chase.” We're going to chase the ones that we think make sense and where we think we'll have the best opportunity to succeed. That's probably a couple of more years down the road.
Patrick Baldwin: Maybe some geographic expansion. What about expanding outside of HVAC, and electrical plumbing, or is that it?
Bryan Benak: I would never say never. I want to make sure first and foremost, as a company, we're good or great at the HVAC, plumbing, and electrical. Within that, there are a lot of things that we could do more of, especially in electrical and plumbing, even on the residential side. HVAC, we're very at, and some locations we're great at. How do we build off of that?
If we expand other services, which we're not opposed to doing, it's got to make sense and it's got to fit certain criteria to make sure it makes sense. We're not running a completely separate business that's a one-off. If we can't leverage certain things, then it makes it tougher to do that service. There are things out there we've talked about but today is not the right time for us. Down the road, it absolutely would be.
Patrick Baldwin: I've only been around pest control technicians, that's the last fifteen years. A little isolated and a little closed-minded. This question comes from going and having a conversation with a service manager of a dealership in which he said, “It's getting harder and harder to find the right technicians that you can trust.” A lot of these auto techs are coming in and overselling. They're 100% production commission based on the hourly rate of what the dealership says. He says, “1 out of every 150 I can trust the guy.” He feels one out of all the techs right now he can trust, he's going to give a good, “Here's the health of your car. Here's a good recommendation.” He’s not trying to oversell anything.
Those auto techs are going to school before they get to work in a dealership. It‘s similar to what you've got with HVAC, electrical, and plumbing. If they go to trade school, they come in, they have good licensing, and they have their own equipment. It’s similar to the car dealership. When you're looking at these technicians, are they different between the three HVAC, electrical, and plumbing? Do they act differently? Do they think differently?
Bryan Benak: They do. It's hard to describe how they're different and it is tougher. We could spend all day talking about people going into the trades. One of the things I've come to the conclusion goes to the earlier conversation about people and understanding people. Too many kids are forced, for lack of better words, that college is the only route that they have. College isn't for everybody and neither are trades aren't for everybody.
There are too many people being forced to go on to college and take on a lot of debt. They could go into the trades because they prefer working with their hands and they prefer working independently like that. They can not only build great careers for themselves but they can also build great businesses. Philosophically, from my perspective, part of the wealth gap problem in this country is we've created this, “You've got to go to college.”
We've taken trades out of the schools. When I was in high school, there was somebody on my team, and there was an age gap between the two of us. We went to school in the same high school district. When I was in high school, in that same district, there were trades. There aren't trades in any of those schools today. You're creating an environment where people could be better prepared to earn a good living when they get out of school without having to go to college and do something that they don't want to do. That is part of the issue in the country right now.
If I was doing it all over again or if I had somebody coming out of high school that didn't want to go into college, if they wanted to go on the trades, especially being a plumber, they could name their price if they were good. The opportunity is tremendous. From that, they could grow with a company, they could start their own company, or they could be happy and content, and there’s nothing wrong with this. They’re making a good living for themselves working in a trade every day going in and out of houses or out of businesses, whatever you prefer, commercial, or residential.
Patrick Baldwin: I appreciate that and I agree. It's interesting also, our high school added a whole career technology wing with the trades in it.
Bryan Benak: That's good.
Patrick Baldwin: The Big6 school, 30 minutes south of us, did it maybe over three years ago. I got a tour of that maybe over two years ago. It was incredible. I was glad to see that. Going back, do these different departments have conflicts because they are different? It's like, “Plumbing is better?” “No. Electrical is better.”
Bryan Benak: It's like anything, it gets competitive and they'll criticize each other but they'll also work together. There's a belief that if you teach one to do one, it's not that easy. They'll help out on the other side and you'll see some people switch. Usually, once they get into one, they feel comfortable in one trade versus the other. There are sharing of resources and things that they do. They all work hard and they all mean well.
To your example, it's finding people that want to do that are different. Tied to the trade thing, if you look at this country, people don't want to work the way they used to want to work. They want to sit behind a desk or they sit in an air conditioning. We have call centers and we have tremendously great call center employees. I would rather be in a van driving around all day than sitting at the same desk looking at spreadsheets.
In fact, when I was in college, I started as an accounting major. I always joke with the team, “Yes, I did pass the classes but I switched majors because I could not imagine sitting and looking at green bar pieces of paper on a desk versus a spreadsheet.” I couldn't see myself doing that all day long. Everybody's different in how they tick and what makes them want to do certain things. If you want to be independent and you want to be able to move around, there are a lot of things you can do in the trades that provide you not only a great career but also a great source of income.
Patrick Baldwin: There are things to learn. I haven't cracked it yet but pest control technicians can come in with no licensing and don't have to own their own equipment. They're hired, trained, and within 2 to 4 months, they could be out on their own running their own technicians and have the license to go produce income.
On the mechanical side of things where you are, that employee that has made an investment in him or herself is invested in time and equipment and coming in with that credibility and licensing. I keep wondering where is it, in the pest control industry, there's a training score where they can invest in their own license and even equipment. That plumber owns his own equipment, that's it, and they take great pride in it. They take great care of their equipment
Bryan Benak: And their tools.
Patrick Baldwin: I don't know where the balance is or where there are answers or even where my question is.
Bryan Benak: I joke around with the guys when I'm in our businesses and the plumbers and the HVAC techs and electricians. The difference is, to your point, you can teach somebody in pest control. Those guys work hard too in the pest control industry. Most of what they know, they can figure out in four months. Four months, in a skilled trade, you're barely scratching the surface of what you're ever going to know. You're still a newbie and you'll be a newbie for 3 to 5 years.
Even then, because the technology changes, a lot of it today is more controls and computer chips and things like that that they've got to know that, fifteen years ago, was not part of the industry as well. You have to keep your skills up on the technology side as well because it is truly impacted. It's like that in every industry but the equipment you're working on is more technology-driven than it was 10 or 15 years.
Patrick Baldwin: Those tradesmen have skin in the game. That goes a long way. I wonder if there's something to learn from that to apply to other industries such as past control.
Bryan Benak: All of them work hard but each one has differences. By the way, it's different skill sets too. If people take their career seriously though, they'll go find the additional training and resources regardless of what they do whether it's pest control, HVAC, or lawn care. They're going to want to improve because if you improve, you're usually going to build a better life for yourself.
Patrick Baldwin: In pest control, we see a lot of how they get the licensing. They're there a couple of years, certified applicator or certified operator. They go after 3 or four years of selling or servicing and now they start their own business. Do you see that a lot where a lot of your employees or the industry's employees leave to start their own?
Bryan Benak: We see some of it. The industry is highly fragmented and there are a lot of people out there. The short answer is, yeah, we do see it. I don't know if that's good or bad. It is probably good because you help somebody get somewhere else in their life and career even though you don't want to see them go. My bigger issue is, do they start trying to solicit employees? If they stay away from all that, then I do think it's good and it's healthy for the industry.
Patrick Baldwin: I like it.
Bryan Benak: Regardless of the industry you're in, specifically consumer services, make sure you remember where the dots connect and it all comes down to people. You're going to be influencing people's lives. Nobody's perfect so, unfortunately, you're going to influence them negatively sometimes too. How do you influence people more positively and make sure that they feel like they're part of the success? Ultimately, they are. It's very much like being part of a sports team, everybody's got their role, we all got to row together, and we ultimately all want to win together. How do you make everybody feel that they've contributed and their contributions are recognized?
Paul Giannamore: Thank you, Bryan.
Patrick Baldwin: Bryan, this has been tremendous. I appreciate you coming to The Boardroom Buzz with us.
Bryan Benak: I appreciate it. Thank you, guys.
Patrick Baldwin: Paul, it's funny. Private equity versus public timeline is something I never slowed down enough to think about. That business is getting measured or that CEO is getting measured almost to the minute, maybe to the quarter. If he can keep his job for a few quarters, that's great if he does a good job. Private equity is a longer term. I think a lot about private equity being a 5, 6, or 7-year hold fund. To me, that's short-lived. What Bryan said about comparing that to publicly traded, I didn't even think about it.
Paul Giannamore: When I was in London sitting at the pub with Andy Ransom, we talked about that short-term versus long-term thinking. When the investing public is looking at your performance every quarter, how do you forego the present in order to invest in the future? It comes down to time preference. Unfortunately, sometimes incentives are misaligned in a public company versus a privately held business.
On the background pages that went out with the interview that I talk about is that Ransom was able to do that. He was able to, in 2017, by VDA, which is a $50 million business, and said, “This won't move the needle today. This is ultimately going to be a multi-billion dollar business, this Vector Disease Control. It might take a decade or it might take twenty years but that's fine. I'm the one that's going to buy this now because I'm going to own this capability.” He did that with Lake Management.
Even Ronin's business in Israel that they bought in the fall, he looked at it and said, “This is where the future is. This is going to be expensive now and it's going to be expensive to invest in it but I am going to be able to edge out my competition here over a longer term duration.” There are clearly CEOs that are able to plan for the future.
The other thing about Rentokil is I've done deals with these guys in countries that I look around and I'm like, “Why on earth would you want to be here?” It's like, “The trajectory of the country over the next ten years or so is going in the right direction so we want to buy something now and plant a flag so we become the brand name here in the country.” Whereas there's nothing short-termism about that. We've also seen a lot of short-term decisions make. I do think that's a great point and I do think that Bryan is 100% correct that in private equity, there's more incentive. There's more incentive to be long-term focused because they don't have to report on a quarter-by-quarter basis.
Patrick Baldwin: Does private equity at the end of the day come down to ROI? It always seems that it's always about what makes sense, dollars, and cents. Public has a lot of distractions. Private equity probably doesn't have to do with ESG. The external environment is putting pressure on public companies to do the extra stuff.
Paul Giannamore: Clearly, it's a different regulatory regime, for sure. You do have funds that are ESG-focused but you don't have nearly the same emphasis on that stuff that you do in public arena, for sure.
Patrick Baldwin: This one probably hit a little too close to home with Bryan, the substance versus what's pretty because I do get caught up sometimes. I’m not saying that I can make PowerPoint pretty. I'm definitely not an artist by any means but I do get caught up in the weed sometimes. Do you have a good smell test, if you will, if someone's putting something by you that is of no substance but looks pretty?
Paul Giannamore: That was an interesting discussion because, at the end of the day, sometimes there's the heuristic, the halo effect, which is a cognitive bias. Sometimes there is style over substance. Sometimes if it's in the pretty package, the human mind says, “It's in a pretty package, it must be good.” If you put it in a box that looks like garbage, maybe not so much. All of us are like Bryan, we don't need all sorts of pretty diagrams and pictures and all that jazz. Give us the straight facts. I can also appreciate that the human mind is wired somewhat wonky. Sometimes that halo effect does impact things. I always have to keep that in mind.
Patrick Baldwin: From now on, I'm going to make things ugly and make sure that they have substance.
Paul Giannamore: If you make things ugly and hard to read, people spend more time on it. If you read Kahneman, if it's ugly and more difficult to decipher, you have to activate more systems too to understand it so you're putting more conscious thought into something.
Patrick Baldwin: I'm not taking a shortcut to the book. I picked it up. It's a slow read but I'm making my way through it.
Paul Giannamore: We talked about this.
Patrick Baldwin: Yeah.
Paul Giannamore: You just picked it up?
Patrick Baldwin: No, I picked it up again. I've read more. Paul, don't judge me.
Paul Giannamore: That's a slow read.
Patrick Baldwin: Fat Pat is a person of substance, not of prettiness.
Paul Giannamore: I got you.
Patrick Baldwin: Think about that.
Paul Giannamore: We knew that.
Patrick Baldwin: Now has been interesting. I know we have a few more episodes lined up here in the near future that is going to get explored these other non-pest control businesses and the similarities of the recurring business and the business models and the sales and the marketing and all that stuff. I enjoyed this one. I've got one for you though that comes back to you, Mr. Special Situations. What is that?
Paul Giannamore: Special Situation is a turnaround group. Whenever that private equity or consulting firm or an investment bank has special situations, that's typically what it means, underperforming assets. Special Situations is a polite way of saying it's a shit show.
Patrick Baldwin: That's very polite.
Paul Giannamore: You can't have a shit show group, although people respect that more. That's what it is, Special Situations.
Patrick Baldwin: Is there a model to be had there where you're going and buying bottom-dollar underperforming businesses? Is someone doing that right now that I don't know?
Paul Giannamore: There's a myriad of people that do that. You have it from all the way on the capital market side. You've got Oaktree by Howard Marks who buys distressed debt and then you've got companies that make a business out of buying underperforming assets in an attempt to turn them around. Yes, that's certainly not an easy business but there are turnaround artists, so to speak, that do quite well with this although it's risky.
Patrick Baldwin: Bryan is out there buying all the five-star Google Review businesses and then he is turning down all the one-star reviews for them to pick up and turn around.
Paul Giannamore: You got to make choices in life. If you're going to focus on making an acquisition, it's probably way better to focus on the quality. Guys who try to buy a dumpster fire on the cheap because they can get it cheap sometimes creates more work and more hassle than it needs to be.
Patrick Baldwin: You've experienced that, I'm sure, in the years of doing M&A where companies come to you want to sell and it's “almost not sellable.” Maybe it's not sellable.
Paul Giannamore: There are certain circumstances where it isn't, that's correct.
Patrick Baldwin: Those are called Special Situations.
Paul Giannamore: Yes, they are special situations, that's for sure.
Patrick Baldwin: Bryan, thank you so much. This one was awesome.
Paul Giannamore: Bryan is a friendly guy, an accomplished guy, and I appreciated him spending time with us because it was a fun conversation.
Patrick Baldwin: If someone is reading this and they have not watched the Andy Ransom interview on POTOMAC TV, they're missing out. Paul, have a great weekend. I'll see you here in a few days.
Paul Giannamore: It sounds good, Fat Pat.
Dylan Seals: Thank you so much as always for supporting us at The Boardroom Buzz. We know your time is valuable and the fact that you spend 45 minutes or an hour with us means the world. All the media that we put out from Potomac is meant to honor and celebrate you, the service industry owner. As Paul would say, “Yee who toil in the pest control vineyards.”
As part of giving back, we have this podcast, but more than that, Paul and I have been working our tails off over at POTOMAC TV. We've spent a tremendous amount of time, energy, and resources to build out that platform to bring you market updates, to bring you visual breakdowns of the merger acquisition process, and to tell stories and present information in ways that, frankly, it's not possible for us to do on The Boardroom Buzz.
Adding the visual element takes it to the next level. I want to invite you to go to YouTube and find us, it's POTOMAC TV. Potomac.tv will get you there. Go there and subscribe. Check out some videos and leave some comments. Let us know what you like and let us know what you don't like. Let us know what you want to see more of and we'll see you over there.