Jamie Van Buren estimates he’s bought about 20 businesses over the course of his career, but today he truly enjoys mentoring young presidents and CEOs.
Not only does Van Buren help experienced operators find and buy privately held businesses through the private investment firm GT Entrepreneurs — which includes his son, Brenden, who co-founded the firm with him — he works with them on strategic initiatives to help the acquired company grow.
“It’s pretty easy as a new president and CEO to get mired down in the weeds, and a year later not really have pulled out the playbook and start looking at, ‘What strategically should I be doing?’” he says.
Van Buren, who worked for New Enterprise Stone and Lime Co. Inc. for 20 years, went out on his own in 2013. Since then, he’s been buying, managing and running businesses either directly or through other people. Smart Business Dealmakers spoke with GTE’s managing director about his key buying principles.
What is your primary principle when buying businesses?
I try to make sure that we don’t overpay. We need to make sure that all of our modeling and capital structure works well in a somewhat down market.
Our structure at GTE is putting men and women at the helm of companies that haven’t been at the top spot before. They’re very capable operators, but they haven’t been there by themselves before. The last thing we want to do is put them in a position where, 12 or 24 months in, they’re having problems just because the structure wasn’t a good structure, relative to the value that we paid.
Your model had better work without being overly aggressive. If you’re going to pay some big multiple because you think you can grow the company and you’re going to grow out of your debt, I would suggest being careful. There are always projections that support a big multiple, but it doesn’t mean that you can actually achieve them.
What else are you looking for?
The other piece that I require is they must have three to five well-vetted-out growth strategies for the company. We’re not acquiring a company that we believe will just continue to do what it’s been doing.
Those strategies have to have executable tasks around them. It’s not, sell more by selling more. We need to know, here’s how we plan on selling more and this is why. One strategy might be that we’re going to acquire some tuck-ins, or we’re going to try a new product.
Most of the ideas for these come from the owners that are selling. We just have to make sure that we listen to the owners, as to what would they do if they were going to continue running it and wanted to take off from a growth perspective.
Everybody always has their reasons why they didn’t do something, and we, then, try to drive that to ground and figure out, is it doable? And if it is, what’s that going to cost versus, what’s the upside?
Why are these growth strategies so important?
From our standpoint, it’s a matter of making sure that the entrepreneur that’s acquiring it is not going to be sitting there bored to tears because they bought something and the strategy was, sit on this and make exactly what the old owner had been making. I just don’t see that as a good strategy for somebody that wants to get engaged with a business.
It’s not all about how much money can we possibly make. We do have to pay debt off, but it has more to do with the practicality of being an operator and being a president and CEO and what’s going to keep you excited to want to go to work every day?
We have abilities to exit, but there’s not a prescribed exit like you’d see from a private equity company. These individuals who are going to go become president and CEO are going there hopefully because they’re looking at something that they’re going to enjoy doing.
If somebody brings me a deal that they’re very excited about, one of my first questions is, ‘Can you see yourself living there for five years, and does this seem to be something that’s exciting to you?’ And if the answer is no to either one of those, I say move on.
How have you been using debt and equity in recent GTE deals?
We try to make sure that that balance is struck with how we think the financials are going to run for the next five years.
We might take on a little more debt on a deal that we feel very comfortable that we’ll be able to implement one or two strategies that are going to have some nice growth.
If we have our three to five strategies, but we’re not super comfortable that the first one, two or three are going to hit, then we might have a little less debt. Or, the strategies might be good, but they might just take a little bit more time. You don’t want to be burdened with debt if it’s going to take you two or three years to implement and get completely wound up with new EBIDTA levels.
