Neil Houghton Jr

Seeking acquisitions. Tracking select consumer sectors. Tweet on strategy, value creation, consumer markets, LMM/SMB M&A, economy.

[Neil Houghton Jr @7Whys]

@MikeBotkin_ Why do you think it was hard to get traction?

[Neil Houghton Jr @7Whys]

@buccocapital Spot on, especially in larger companies.

[Neil Houghton Jr @7Whys]

@DinoSawaya Yes sir, I did, and agree.

[Neil Houghton Jr @7Whys]

Ferrellgas buying Bridger was just so colossally bad that it's definitely worth adding. Lessons include: false confidence from being a serial micro-acquirer in your sector and then buying big outside, when to call a MAC, CEO v. Board decision, customer concentration and "contracts", etc.

[Neil Houghton Jr @7Whys]

@DinoSawaya Congratulations!

[Neil Houghton Jr @7Whys]

@DinoSawaya This tweet is for your LPs but not your sellers…

[Neil Houghton Jr @7Whys]

@richthekid1199 @blueprintsmb22 Many restaurants are bad investments but a few are great. So one really needs the context and a nuanced sense of what to look for. Tough for a searcher to pull off but personally I think there are some opportunities in the sector.

[Neil Houghton Jr @7Whys]

@darrenmarble Yes please

[Neil Houghton Jr @7Whys]

The implicit bet was that despite minimal overlap, and everything said above, that one of the most successful teams in retail at the time (DT) could turn around a struggling FD, mostly by bringing a customer-focus obsession and lean philosophies.

Obviously hindsight says no. And it raises all kinds of questions - eg, is a successful team just average people sitting in good businesses, why didn’t they just run a turnaround playbook instead of a combination one, how are big decisions actually made…

[Neil Houghton Jr @7Whys]

@DinoSawaya spot on

[Neil Houghton Jr @7Whys]

Yeah, definitely a gap in the acquisition market for small turnarounds... too small for PE, ETA crowd can't get debt on it, local buyer unlikely to want the hassle.

Depending on sector maybe a strategic would like it (eg in vending strategics pay on revenue).

But I'd argue that 9.5/10 times an unprofitable SMB is never going to be profitable, they exist by sheer will of the owner, and the effort to get it profitable is not worth it.

Maybe every once in a while you bump into a under-managed gem - let us know when you do!

[Neil Houghton Jr @7Whys]

@vrexec How big a company?

[Neil Houghton Jr @7Whys]

Besides the excellent return, it's notable as an example of control language in acquisition documents.

I don't know the inside details here but it's clear control rights became pretty important - w/ Pagliuca lining up a competing bid with the "great majority" of current owners but somehow Grousbeck w/ roughly 30% being able to sell the whole thing to someone else.

Read your acquisition docs folks.

[Neil Houghton Jr @7Whys]

Fun acquisition trivia:
Irv Grousbeck, one of the most well known and prolific search fund investors, and Steve Pagliuca (of Bain Capital), and a few others bought the Celtics in 2003 for a reported $360M, w/ Grousbeck at 30% and Pagliuca at 20%.

[Morning Brew ☕️ @MorningBrew]

THIS AM: The Boston Celtics have been sold to a group led by private-equity director Bill Chisholm (STG) and PE firm Sixth Street for $6.1 billion

It's the largest deal for a professional sports team in North American history

[Neil Houghton Jr @7Whys]

@holistic_pm That's a big number. I have many questions. Mind sharing additional color?
(eg, does that mean actively raising or there are 1300 in total? does that include searchers? source?)

[Neil Houghton Jr @7Whys]

@DinoSawaya @ProfPaulNary @BigJohn043 Another way to look at it is by segmentation around industry, size, deal type/ style and firms firstly differentiate and have edge based on fit in their segment.

[Neil Houghton Jr @7Whys]

One simple framework: valuation vs. natural scale economies.
Ok to roll up some cheap companies w/o much scale (where HVAC started). Ok to roll up some expensive ones with scale (eg, pest control). Obviously cheap w/ scale would be great but not much of that around.
But expensive w/o much scale? not good.

[Neil Houghton Jr @7Whys]

@BigJohn043 It is surprising; I’d want to know more about the methodology, especially given “maximum” earnout size could be theoretically huge and cause some outliers to drive up the average. 15-20% probably the median for small deals.