Brent Beshore | Investing in Small Family-Owned Businesses for the Long Term

Brent Beshore 10:41

Yeah, so we, we own a portfolio of 11 companies today, that are really pretty diversified in terms of sector, we own aerospace, a couple of businesses in the aerospace, we want to the nation’s largest swimming pool builder, we own a couple manufacturers in the kind of backyard space, we own a couple construction firms otherwise, and then we don’t actually own the highest end matchmaking firm in the world, called Selective Search is a fascinating business. I was not at all familiar when we first got to know it. And it’s a wonderful thing they do. To pair people up who are looking for love and long term committed monogamous relationships, not a dating service. It’s a very high end matchmaking service. So very diversified. You know, really, across the country, we’ve got offices coast to coast. So it’s fun.

John Corcoran 11:31

Give me an example from any acquisitions you’ve done so far, of a big challenge that you uncovered after acquisition, that you didn’t expect and how you overcame it?

Brent Beshore 11:44

Yeah, that’s a great question. So I would say no acquisition goes how you think it will. That’s one of the things that that figured out over the years. I mean, we’ve lost the dominant major customer right after closing, we’ve had major issues with leadership teams, we’ve had issues with, I mean, gosh, everything from addiction issues to, you know, people having, you know, health issues for them, for their families, for the children. It’s been tough. And especially with young COVID, and obviously, we battled that heart, across the portfolio. I mean, it’s really, every company. I mean, I joked this before, is a loosely functioning disaster that happens to make money. And so, you know, when you look at these companies that, you know, we buy him at a price, and we assume that there’s gonna be a lot that’s already going wrong, and there’s gonna be probably more that goes wrong. You know, the sales process is a very disruptive time. There’s a lot of distrust that’s naturally built into the process. And by the way, for very good reason. I mean, you know, there are horror stories after horror stories of acquiring a business and, and, you know, butchering it after, you know, downsizing and firing. Yeah, cutting benefits, all that stuff.

John Corcoran 12:58

So here’s a story about company acquisitions. I don’t know if this applies to the PE space, maybe it’s more a company acquiring another company, but a lot of times, those acquisitions don’t go well. I’ve heard statistics like 80% of the time, it’s like a failed acquisition.

Brent Beshore 13:15

Yeah, it doesn’t surprise me at all. I mean, it is brutally difficult to create effective change. And I mean, these organizations have such momentum. And, you know, they’re, they’re fragile, a lot of times. And so, you know, that’s one of the things that we really work hard to do is to try to establish trust, treat people super well. You know, tribe, your people like how we want to be treated ourselves. Like we always think about it, you know, if we were then what would we want? How do we want to be communicated with? How do we want to be treated? And so we try to go down that down that route, which, at least so far has, has turned out pretty well, despite the despite the bumps,

John Corcoran 13:52

Right now, it’s interesting, I’ve interviewed a number of VCs, venture capitalists, and other types of investors. And a lot of them ask them what they look for in a company, they will focus on the founder, they’ll say, I’m looking for, you know, amazing founder, and it’s almost like you’re looking at the opposite. You don’t want a dynamic founder, what’s more important is looking at the rest of the team.

Brent Beshore 14:15

Yeah, I mean, we do. So like anything else, a dynamic founder can be fantastic if they’re gonna stick around or terrible if they’re not. So we always look at replaceability and there’s some people we’ve met that are absolutely, like generational talent, like unbelievably talented, and how do you replace them? You can and so how much of the business is tied to them as the question and that ends up becoming, you know, a major source of due diligence for us is, you know, what does it look like to replace them? You know, our favorite founders are dynamic and fantastic, but I’ve taken significant steps out of the business and are not working very many hours in the business and maybe just kind of sprinkling their expertise on it depending on what their goals are. I mean, we do both, you know, 100% accuracy. where the seller and the CEO walks out, you know, two weeks in or even on, you know, on closing day, and we have to, you know, replace them as a CEO. And we’ve done deals where we partner with people for a very long time, and they stick around and we love working with them, right? And we help, you know, resource them and help take the company to the next level. So we can do both. It just depends on the situation. And we just try to be upfront and honest about what we are actually looking at, and kind of CO design the plan with the seller. So there’s no surprises,

John Corcoran 15:29

I want to ask you about how you make these acquisitions, a win win all around. Because you know, with your first company, it sounds like, you know, you’ve mentioned that the seller was left at the altar a couple of times, so he really wanted to sell it and came back to you all that kind of stuff. And you ended up getting a good deal for that. But I know that that can’t be the sales pitch for every company, that we’re going to get a great deal. And in some cases, you even hear that that backfires, because then there’s some resentment maybe built in. So how do you either structure these arrangements, these acquisitions? Or how do you handle it so that it is a win win, so that you won, you get deal flow, you get businesses coming to want to sell to you not thinking that they’re going to have to sell for a song, but but also so that you incentivize the sellers so that they’re not resentful afterwards?

Brent Beshore 16:25

Yeah, well, so one thing that I would say is we’ve never we’ve never bought something for a song we’ve ever owned, actually save, gotten a great deal, even media across, I mean, we’ve paid a very fair multiple, that was kind of in the ballpark of what others were willing to pay. Now, the prices look a lot lower, because of how difficult the transition is, and how fragile the businesses are. But, you know, from a ballpark standpoint, we’re in the same ballpark as other people. And we try to not win on price, right. So we don’t expect people to take a big discount to do business with us, we’re not trying to get a great deal, as you said, it doesn’t create a win-win relationship. And the way we think about that more broadly, is, you know, we only want to create a win-win for us and for the seller. But we also want to create a win for the leadership team that we’re going to work with, for the employee base that we’re going to be responsible for, for the vendors, for the customers, for the local communities, and maybe even the regulators, depending on the industry. So we think about it, as you know, everyone’s sitting around the table, and everyone’s got slightly different interests. And, you know, we know that if we serve all of those stakeholders, well, that ultimately will create a very durable and sustainable company. Because if it’s not a win win for all those people, you’re just gonna have major problems you’re gonna be battling. And so we want to, you know, we joke often that we want to buy boring businesses, because all they do is make money and they get along, right. You know, the companies that don’t create sustainable wins, don’t just make money and don’t just have a nice, peaceful life. So, you know, how do we do that? It depends on the situation, you know, what we’re trying to do is we’re trying to pay fair value, and that’s gonna differ by industry is going to differ by the stability of the company, the major of the revenue, customer concentration, how staff, the leadership team is how much capacity they have the growth, I mean, all those things, right. But we’re trying to pay a fair price. And we’re trying to really make our money, not on the purchase, per se, but on what we think we can do with the company over a long period of time and being a good steward with it. So yeah, and obviously, it just depends on the situation, how that’s kind of effectuated.

John Corcoran 18:27

Now, you raise money from investors to invest in your private equity company, you then turn around and take that money invested in these businesses, and you require a three decade lock. So that means that they invest their money, they’re not getting it back for 30 years. Is that right? How does that sales pitch work? How do you sell an investor on that idea?

Brent Beshore 18:50

Yeah, well, it’s interesting that you say that because we intentionally didn’t try to sell any investor on it. What we said to them was, we think this is a feature, not a bug. And you know, it’s intentional. The reason why we have that long dated capital is because it allows us to do something which almost no one else can do in our business, which is buy with no intention of selling the business. So if you think about how most people operate in the private equity world, it is buy something levered to the moon, put as much debt as you possibly can on it, strip it of cost structure, which is going to make the earnings of the business go up short term, right, and then try to sell it again to somebody else within a fairly short period of time. I mean, really the max hold period, you know, maybe it’s five, six years at most, and oftentimes, private equity firms are trying to turn assets within, you know, three or four years. So if you think about that, every three to four years, you’re gonna have a new owner of the business that has new preferences, it’s an all new team, all new rules. It’s highly disruptive right? So for us, what we said was weak. You know, if I designed this again, and all from first principles of what would I want if as an entrepreneur what would I want as an operator, and I certainly wouldn’t want my my ownership to change completely turned over every three to four years, and be forced to basically go through that sort of rat race over and over and over again. And so what allows us to do is buy with no intention of selling the business. And there’s a lot of investors that said that that’s ridiculous, and that we would never do that. And we found a great group of people who selected it and said, No, we get it. A lot of them were owners themselves of businesses and ran family owned businesses.

John Corcoran 20:26

So they understand the importance of a longer term timeline and why that’s valuable.

Brent Beshore 20:33

Yeah, absolutely. Yeah. They get it and we talk about it often. I mean, one thing we say often is that it’s impossible to make good long term decisions with short term capital. And I think that’s just obvious. If you run a business, if you’re making decisions to optimize for the short term, there’s absolutely no way that you can make investments that may not pay off for five or 10 years if your time horizon is shorter than that.

John Corcoran 20:54

Yeah, I have to ask you about so and this is maybe more of an observation than it is a question. But you know, so often when there’s big money at stake, doing it with a 300 plus million dollar fund here, people get very serious, quickly, right? They, they’re worried about letting their personality come out. And that’s something that I kind of struggled with earlier in my career, and kind of struggled with the idea of like, letting my sense of humor come out, you know, and you were a very humble kind of down to earth very self effacing. Guy, and you’re running this very expensive, firm, lot of dollars at stake. How do you reconcile those two? And how do you, you know, manage to be self effacing? While working in these worlds of private equity? The military is not really one that’s known for embracing a crazy sense of humor. How do you reconcile those two and make it work? Yeah,

Brent Beshore 21:50

I mean, well, first of all, I think, maybe I come across as temporarily more humble than I am, which is to say, I’ve got plenty of pride issues. But I would just say, I mean, look, life’s too short to be somebody you’re not. And I just want to enjoy what I do. And so one of the prerequisites for you know, building the firm was just that I want to work with people that I enjoy being around I want to, and that includes investors, right? I mean, there’s those of your partners in the business. And so we try to be ourselves. I mean, we, I laugh, because during fundraising, I mean, we wore blue jeans and polos for the most part, you know, everyone else is dressed up in suits. And we were just awesome. People would be shocked, right? We’d walk into, you know, some foundation or endowment. And they would say, you know, our thanks for dressing up day guys and say, hey, look, this is us, right? This is how we dress. Whenever we’re working with sellers, we always want to be respectful. We’re not trying to be disrespectful, but we want you to get to know us as us. And I think that, you know, one of the things our investors appreciated was that we were told multiple times by them that we were the most transparent organization they’ve ever been diligent. I mean, I told all of our investors, like, you can talk to whoever you want on staff, you can ask them anything you want, you can have as much time as you want with them. I mean, really just get to know us and see if we’re a good fit, because we are asking them to sign up for a very long time horizon, and really a lack of control. And so if you’re going to do that, I mean, I don’t, you know, I just don’t know how else do you do it? Yeah.

John Corcoran 23:17

And, you know, I think letting your personality shine through one, I agree with you. 100%. I think you should be authentic, you should be who you are. Whether it’s on a podcast in a video, you know, in a speech, or face to face. And I love that I asked Nathaniel to tell me some stories about you beforehand. And he told me about this time. I don’t know if you can remember this. 10 years ago, you had to fly to New York to meet with some investors. It was snowing in St. Louis, also in New York. Nathaniel almost missed the flight. And you somehow convinced the pilot, not the flight crew, or the flight attendant but the pilot to hold the plane for him?

Brent Beshore 23:57

Yeah, yeah. I almost got arrested. That was an interesting trip. I got into hold of the plane and then we flew to New York. And we were on final arrival and the plane had to make an emergency maneuver and get out of there because the airplane, the landing got shut down. And so we had to, I think we were flown to Buffalo we had to rent a car. I think it was in Buffalo and we actually got into a car accident and Time Square around midnight, and got hit and run. The guy who hit us drove away and anyway it was a crazy trip. It was a really fun trip. It’s one that I look back on fondly obviously it’s funny

John Corcoran 24:34

when you have those stories back in the beginning days of your business that you can look back on fondly.

Brent Beshore 24:40

Stuff still happens today. So I mean, we’re no Yeah, it’s

John Corcoran 24:44

true. I also want to ask you about acquiring talent. You know, a lot of the talk in the media these days is about the shortage of labor, getting good people. You know, you do a lot of things deliberately with your fund To, you know, do things differently. Everyone’s going this way. There’s zigging and zagging. So talk a little bit about how that works for attracting, you know, talent to come work for you in Colombia. Well, that you said you have other offices out around the country, but but at least initially in Columbia, Missouri, not a typical location of you know, it’s not Silicon Valley, right?

Brent Beshore 25:21

Yeah. Yeah. Yeah. Well, so I mean, so the core team at the Permian Acme levels, all but one of us is in Columbia, and we love Columbia, it’s college town, you know, 40,000 students, about 115,000 people 300,000 ish in the immediate area, but it’s, it’s fantastically, a great mute music, food art, writing Miller country. So we got to either coast fairly quickly. We really do. We appreciate it immensely. But most of the people that we’re working with are not located here. Right. So we’ve got, gosh, I think we’re almost pushing 1000 employees now, across the country at the portfolio companies. And, you know, one of the things that we think about when it comes to talent is what we would want, if I was looking for an opportunity, like I would want to be paid fairly, I’d want to have a lot of autonomy, I’d want to be in a great culture. And I want to have upward mobility, the ability to kind of grow as I can grow and add to my skill set. And so really, that’s what we tried to build is just something that we’d want to, we’d want to work for ourselves, right. And that’s really, I think what we can offer, especially to executive level talent is the ability to come in as a chief operating officer, a CFO, then get a shot at running a company. And if you do well, then you actually have the ability to do one step further, which is to back hire the CEO, and become a portfolio manager over a handful of companies that you end up becoming kind of the board of directors in a box for. And so yeah, that’s that’s been a, that’s been a great program for us, which is something called The Orbit, which you go on our website, you can actually sign up for, basically what job you want. And then when that job comes available, you get notified, and the companies that are hiring for that, can connect with you. And so that’s been really successful. In fact, we almost exclusively now hire out of The Orbit. And I don’t know, I mean, it’s fun. It’s fun to connect people with great opportunities and to see them grow into those opportunities.

John Corcoran 27:12

That brand, this has been such a pleasure talking to you. I love what you’re doing. I love that you’re helping, you know, small family-based businesses to get to the next chapter. I want to ask you the gratitude questions I always ask, which is, we’re a big fan of gratitudes over here. So if you look around at your peers and contemporaries, however you want to define that. Who do you respect and who do you admire? That’s doing good work?

Brent Beshore 27:37

Yeah. Well, so So business partner now of mine, his name’s Patrick O’Shaughnessy, actually runs Invest Like the Best Podcast. So I don’t know if you’ve if you’ve ever to go check it out. Yeah, it’s a great, it’s a great podcast, but he was the guy that out of the blue, I met through Twitter. This is probably six or seven years ago now. And he he and I were connecting on something. It was a capital allocation. I think it’s a question he asked, and we got on the phone. He was like, wait, what do you do? He had never heard of what I did. And he said, Okay, that’s fascinating. Can I come to come in and visit you? So we spent the day together? And at the end of that, he comes from a wealthy family in Connecticut? And he said, Hey, my family wants to invest with you. Like, how do we do that? And I said, Well, there’s no opportunity. And he’s like, no, no, no, for real, like, we want to invest. I said, No, for real, like, there’s no opportunity. We’re not taking outside capital. And he said, so you would never take outside capital. I said, well, not in the traditional, you know, two and 20 structure that, you know, most people have to go into and, you know, limited time horizon, all the problems we talked about earlier. And he said, Well, why don’t you just design what you want, and I’ll tell you if we can invest in it or not. And really, that was the impetus for us taking outside capital. I mean, without Patrick, we wouldn’t have certainly had the motivation to or really the courage to probably do what we’ve done and so designed to, you know, back of a napkin and send it to him, and he said, That looks great. We’ll invest and I said, Okay, great, that’s, that’s wonderful. But where’s the rest of money come from? Because we’re just a bunch of people in Columbia, Missouri, operating out of the house. And he said, Well, I’ve got friends and let’s go, let’s go get this thing done. And he and his family we’re just, you know, couldn’t have been kinder. He’s turned into a dear friend and now business partner and a number of things. And so yeah, he knows he cares for him personally and professionally, but I tell you what, so much gratitude that our paths crossed and then he had the desire to come vacation, I think in Missouri in February, which is not exactly a station.

John Corcoran 29:35

I am in such a classic case of just an opportunity presenting itself and taking advantage of it. Yeah, you didn’t expect that maybe you would go that path but that seemed like it was the right path for.

Brent Beshore 29:49

You know, I have no ties to finance. I’ve never taken a finance class in my life. I can barely open up Excel and somehow I found myself running a private equity firm. So I guess Be careful what you wish for.

John Corcoran 30:01

Exactly. Well, Brent, it’s such a pleasure. Where can people go to learn more about you?

Brent Beshore 30:05

Yeah, obviously the website, We’ve got a bunch of writings on there, hopefully a bunch of resources that can be helpful to people and I don’t know, Twitter’s probably a good place. I’m just Brent Beshore on Twitter. DMS are open, so feel free to reach out to me.

John Corcoran 30:18

Excellent. Thanks, Brent. 

Brent Beshore 30:20

Hey, thanks a lot, John.

Outro 30:21

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