I am a Partner at a private equity firm and my job is to find the parts of your life you cannot opt out of.
The whole thesis fits on one slide. Identify demand that does not respond to price. Own the supply. Hold it through the cycle.
People assume we hunt for growth. We do not. Growth is a market that can walk away from you. What we want is the opposite of choice. We want the call you make when the house is already burning.
Take the fire truck.
Two dozen-plus companies used to build fire apparatus in this country. Family shops. County contracts. A pumper here, an aerial there. Then we ran the roll-up. Three firms now make eighty percent of them, and one of the three is ours.
Margins when we did the LBO were four, maybe five percent. That is the number you get when a business is run by people who think the product is a fire truck. We took EBITDA to thirteen. The four sits next to the thirteen on a slide, and when I show investors that slide they make a small noise I have learned to wait for.
Quality did not get us there. The wait did. A custom truck is four years out now. Backlog stands at four and a half billion dollars. We do not write "backlog" in the deck. We write "revenue visibility." A town that ordered a ladder this year is revenue we already booked. Their property-tax receipts are our annuity. The mayor files it under public safety. I file it under Tab 4.
Tab 4 is the dividend recap, and I will be honest, it is the work I am proudest of. We borrow against the company we just bought and route the proceeds to ourselves. Five hundred and thirty million out the door. A hundred and eighty of it the quarter before the IPO. The borrowed money rides on the fire truck company. The wire comes to the GP. We do not call it borrowing against a public-safety vendor. We call it unlocking trapped value.
Let me be exact about who is left holding what. We hold the dividend. The town holds the four-year wait. The company holds the debt.
Then I move to nursing homes.
Identical playbook, fresh captive. Five billion in the sector back in 2000. A hundred and four billion now. Fifteen hundred facilities. Demand here also ignores price, because the customer is somebody's mother and the alternative is her daughter quitting her job to do the lifting herself.
So we thin the staffing. Labor is the largest controllable line, and a woman named Dolores, eighty-one, who likes the crossword and rings the call button at two in the morning, cannot take her business elsewhere at two in the morning. Surgical patients at the hospitals we bought die inside ninety days at a rate seventeen percent above the ones we left alone. That figure is not in the model. The model stops at the distribution. What happens past the distribution is, and I am choosing the word carefully, out of scope.
A senator reviewed the whole arrangement and reached for the word heist. Professionally, I have to correct him. A heist is illegal and finished by morning. Ours is quarterly. Audited. We carry a compliance officer and a clean opinion.
One figure used to keep me up. The companies we buy go bankrupt roughly ten times as often as the ones we never touch. For an afternoon that felt like a defect in the model.
Then I found the row. The distribution clears before the bankruptcy. Every single time. The sequence is not a side effect of the product. The sequence is the product.
The company dies. The town keeps paying on a truck still four years out. Dolores keeps paying for the bed. And the loss, the real loss, settles onto the creditor, the nurse, the patient, the kid dialing 911 while the aerial sits in a queue in Wisconsin.
Years ago I typed one word into the addressable-market cell, and the firm has run on it ever since.
Essential.
It means you cannot leave. We modeled that part first.
I GOT THE DOMAIN! I FINALLY GOT IT!!!!!!!!!!1 🥳🎉
Paint.NET is now at https://t.co/ZJTUII4bVG!
Well, it will be just as soon as I push all the buttons to migrate content and set up redirects from getpaint.net etc. For now it's just a "hey go here" redirect page.