This content details the messy, often overlooked reality of growing a business through acquisition, emphasizing that success hinges on managing people and culture, not just financial metrics. It highlights the journey of Cory Mitchell, who navigated the complexities of buying blue-collar businesses, dealing with founder dynamics, and overcoming near-disasters to achieve significant growth and eventual exit.
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If it seems too good to be true, it is.
>> The deals that went sideways.
>> I've had businesses where I had to fire
all of the owners post transaction
because they all wanted to kill each
other, stabbing each other's backs.
>> Founders at war.
>> I found myself on a plane every week,
convincing someone not to quit.
>> The hidden tax of scale. You know, I
I've had a guy that we bought at a huge
purchase price who started his own
company after we closed with one of his
key guys. He made sure the guy didn't
sign a non-compete. He secretly funded
the business and became our main
competitor and took that business we
acquired effectively down to zero.
>> If trust breaks, everything breaks.
>> So, you got to be careful not to kind of
believe their That's good
advice. Cory learned that the hard way.
But I'm getting ahead of myself, so
we'll start at the beginning. In this
episode of Moneywise, Cory Mitchell is
going to show you what growing through
acquisition actually looks like. Not the
glossy LinkedIn version, but the messy
reality of buying bluecollar businesses,
managing founders who've already made
their money, and nearly losing
everything through a $200 million exit.
Even if you're never planning on doing
M&A yourself, this is for anyone
building something that they want to
scale and eventually sell. Because the
lessons here about integration, about
culture, people over numbers, those
matter whether you're buying a business
or running one. My name is Harry Morton
and this is Moneywise. This is not a
podcast about starting up. It's about
what comes next, the money, the
strategy, the identity crises that
happen along the way. It's made for the
community of founders over at Hampton.
We'll talk more about it in a little
bit, but if you're curious now and
you're a founder doing at least 3
million in annual revenue, check it out
at join hampton.com. Cory Mitchell grew
up taking asbestos out of schools and
hospitals in smalltown Iowa. Unglamorous
bluecollar work where cash was king and
debt, well, debt was risky, but it was
profitable and it was overlooked.
>> You know, you talk about a bluecollar
business, it literally we we took
asbestous out of schools and hospitals.
There's incredible businesses out there
in in bizarre things like asbestous
abatement that you'd never think could
be a good business,
>> but you know, I have a really nice house
that Asbestous built
>> for three decades. It ran exactly like
that. Conservative, cash focused, and a
really good living for his family.
>> I grew up in this very conservative
family business where, you know, it was
all about preserving cash, not taking on
risk. It was a fantastic lifestyle
business. It didn't really grow for a
long time. It was 78 $9 million for
many, many years, but it always threw
off a couple million dollars in cash.
So, you imagine you're in a small town
in the middle of the country. A couple
million dollar lifestyle business is an
unbelievable lifestyle business for my
family. And so, it had just grown
really, really slowly organically. And
uh my brother and I bought the business
now 20 years ago.
>> It was working. Low risk, high margin,
millions in cash every year. but they
wanted to grow and in 2015 they were
finally willing to take on what they'd
always avoided debt. Tens of millions of
it actually
>> we knew there were a whole bunch of
adjacent services we could offer. And so
the the model we we started building out
was okay let's maybe buy a small
business in one of the towns where we
want to work and then add service lines
to it. That became the model. And so
what was that urge to then go, okay,
we're growing organically presumably?
Well, you tell me like you kind of saw
promise in it. You thought, okay, like
we're we're doing well here already. We
should really go super hard at that. But
like given your uh kind of slightly
conservative nature, what was it that
would made you just decide, hey, screw
it, we're going to we're going to go for this?
this?
>> I always wanted to grow. I sort of had
had this innate desire to to to want to
continue to grow the business. You know,
you look back in hindsight and it was
definitely a risky move, but at the time
we just we were sort of compelled to
grow. We had a great team. We were
building out this business development
model. We had a lot of capacity
um to to service these clients we were
building out. Yeah.
>> And you know, the the the next natural
move was for us to add geographies. Our
industry is is very like bluecollar, so
it doesn't have sales folks in general.
So we were like the only ones that are
out there with a business development
team. We were buying little little
businesses originally in cash, you know,
with whatever cash we we made that year,
we reinvest it and we bought a de a
demolition business in Iowa. It was a $3
million revenue business. We added
environmental service lines to it. Gave
that team confidence. We gave them a
little bit of a balance sheet and that
business grew to 24 million organically
over the next 3 years. The challenge
that we had was cash. When you're doing
it yourself, you're limited. And we were
very riskaverse. And so, we didn't
really want to take on debt. We were
essentially funding it with our own capital.
capital. >> Mhm.
>> Mhm.
>> And that that makes your growth just
naturally much slower. We were buying
some small really small regional
businesses, adding service lines, and
growing them organically from there for
a few years. And we built the business
to about I think was around 36 million
in revenue. It was throwing off great
cash. It was it's a nice high margin
industry. You know, the pivot for us, we
found another business that was doing a
similar thing in a different part of the
country. They were adding uh small
offices in small towns and in Texas and
Louisiana. And so we merged our business
with theirs. The merger actually brought
something more valuable than revenue and
that was it brought education. A small
private equity backer taught them how to
use leverage, how to think bigger and
how to actually scale. They merged at 36
million then doubled to 70 million and
then they did three more acquisitions
all on debt and for the first time ever.
And you said that like you know taking
on that first debt was scary and I
imagine it was like you're you were like
$70 million in debt, right? Like that's
that's a lot uh at least to me. Um, so
like what were the internal
conversations I between you and your
brother, between you and like the senior
leadership team that kind of like made
you comfortable with that?
>> You know what I didn't really understand
with something that I've learned a ton
over the last several years is there's
this magical arbitrage that happens when
you you you buy a smaller business at
five or six times profit or IBIDA
uh and you grow it to a certain size and
you can sell it for 10 11 12 times
IBIDA. So, you know, this magical little
thing happens when you just you get to a
certain critical size. Every time you
add a business for five times, it
instantly turns overnight to being worth
10 times. And so, we just had a
tremendous education over those years of
working with, you know, with a more
sophisticated team than we were. And it
was incred incredible learning
experience certainly for me. Um, and
it's part of what um, has inspired me to
do some of the work I'm doing today
with, you know, with other blueco collar founders.
founders.
>> Between 2017 and 2021, they did five
acquisitions. Culture, fit, safety,
record, financial performance. These
were the main factors that they were
looking at. The business spread across
the Mid-Atlantic, Texas, Louisiana, and
the Midwest. But here's what Cory
discovered about himself in the process.
>> I always was the business development
guy of our business. I love talking to
customers. I love the chase. I love
winning clients and contracts and I felt
the same way about doing deals. It's
building a relationship, convincing them
that we should be the right partner for them.
them. >> Mhm.
>> Mhm.
>> What I didn't love and I think I
realized about myself over time is we
got bigger and bigger and bigger.
>> I didn't love running a business that
big. It turned into a slog.
>> And what about it specifically?
>> All the people problems. We had 35 or 37
offices or something like that. And
our business is really relationship
driven. So if you have a say a top
founder that wants to leave the
business, it it can be really damaging
to our company in terms of like the
revenue loss because there there are all
these personalized relationships. It's a
very very small niche industry.
So, I found myself on a plane every week
convincing someone not to quit. >> Sure.
>> Sure.
>> You know, which is which is a drag. You
don't you can't focus on the fun stuff
of chasing deals and chasing clients,
which is what I like doing.
>> If you've bought a business from a
founder, they've made a bunch of money,
they've done really well, and you want
them to stick around and continue to
operate that business as well as they
have done in the past, but they're like,
"Dude, I've made my money. Like, I don't
want to be here anymore." Like how do
you how do you incentivize people like that?
that?
>> Super hard. I mean, first of all, we
always want the founder to stay. Almost
always. You know, they built this great
business. They have the client relationships.
relationships.
They've like you said, they they know
how to make it run profitably.
And so our approach and this is the
approach of many many private equity
funds as well is they they typically
have a rollover equity component of the
deal. Right? So you buy X% of the
business 70 80% could be 60%.
>> And they have a rollover component where
they would roll equity into our holding
company. So one, you know, they're
incentivized to help us grow for a
future, you know, bite at the apple, the
second bite at the apple.
And two, we throw an earnout on top. So
you've got uh an earnout that says,
"Hey, if you can continue to grow at x
percent, 10%, 15%, whatever it is,
there's an a meaningful additional cash
compensation over the next 2 3 years."
But to your point, I mean, these guys
often have made money for 20, 30 years.
>> So they might be sitting on 30, $40
million in their bank account, and they
don't need us very badly. And so
managing people like that is incredibly
complicated. You know, we were extremely
fortunate to bring in really highquality
businesses with great people
and almost everyone is still in the
business today. Amazingly, now fast
forward several years later, but it's
tough. You know, you've got to convince
them that our culture is like their
culture. You've got to convince them
that they can still have meaning and
value uh working with us. So, it's it's
one of the harder things that you can do
when you're buying businesses of people
that have made a lot of money.
>> Any like M&A cautionary tales from your
experience? Any kind of like near misses
or uh you know, things like that?
>> One thing I would say is, you know, I'
I've done some doozies.
Um we bought some businesses that if it
seems too good to be true, it is.
There's never a deal that's too good to
be true. Uh there's so you usually if
you get a valuation that is just like
wow this is just I just can't believe
we're buying this business for this
price there's always a story. I've had
businesses where I had to fire all of
the owners posttransaction because they
all wanted to kill each other. They all
were, you know, stabbing each other's
backs. I've had a a a a guy that we
bought at a huge for us a huge purchase
price who started his own company after
we closed with one of his key guys. He
made sure the guy didn't sign a
non-compete. He secretly funded the
business and became our main competitor
and took took that business we acquired
effectively down to zero.
>> So how do you avoid buying a disaster? I
think one of the biggest mistakes that
private equity does today
is they come in and buy companies
without diligencing the people, right?
They come in, they'll do all kinds of
risk analysis on the financials, the
legal, but they don't go visit the people.
people.
>> Talk to me about trust. Like, how do you
how do you build trust during the
process? How do you trust the founder?
Because again, like you're there in
Denver, they've got an office in Dallas
or whatever. How do you build that trust
and maintain that trust?
>> The first thing I do with any prospect
is go and and have a meal together. I
always like to have a meal before we do
a business meeting so that you can, you
know, really connect on the human level
to figure out,
>> you know, what they really value and
stand for, things they care about. If if
they if they if they really are worried
about their team
and their customers and things like
that, it's usually a really good sign.
It's got to be in person. You need to
spend real time with them. You know, for
us, like each of these deals was a was a
big thing. We we couldn't take it
lightly because if we had a miss, it
hurt a lot.
>> Look, from the outside, this whole thing
sounds incredible. Buy a bunch of
businesses, build a portfolio, hold them
long term. But the reality, two, three
years in, you're on a plane every week
convincing someone not to quit. There's
always a cost.
>> There were a lot of parts of it that
were really
um really tough. I'm sure it's it's so
different by industry because our
industry was so personality dependent.
you had these regional folks that had
awesome relationships and they were sort
of the business. So, it's really hard to
transition that to being our business
over time and it takes a lot a lot of
work and you need really really good
leadership but takes it takes a ton of
time and energy.
>> Yeah. So, talk to me about integration.
How does one successfully integrate a
business? Where are the kind of common
pitfalls that you've experienced there?
And yeah, any words of wisdom on that front?
front?
>> Yeah, look, integration is probably the
hardest thing. What I'll tell you, by
the way, is when we transacted,
we were not a fully integrated business.
We essentially were a group of guys that
had regional companies, right? And
literally on Friday, we would do a call
and say, "Hey, how's business?" You
know, it wasn't it wasn't like a there
was no centralized
ERP or CRM. These were essentially still
unintegrated companies that were on
different accounting platforms.
And what I'll say is that hurt us on our
valuation. There is no doubt about it.
We probably could have would have gotten
an additional one to two times EVA
transaction had we been integrated. >> Interesting.
>> Interesting.
>> And so post-transaction that became like
you know mission mission number one.
It's an enormous effort and we had to
bring in outside resources to to help
us. Um, and it's just now, you know,
years later just getting completed. It's
definitely one of the things I would
recommend to do early.
>> Um, because the bigger you get, the
harder it is to undo all of the broken
stuff that you inevitably have in your company.
company.
>> We were a business that we thought was
pretty wellrun.
We were just sort of making it up as we
went. So, you know, systems are are
huge. Um, but also communication.
One of the things I see people do now is
is
they really fail at at rolling out
internal communication with their teams
after they've bought businesses. What it
hurts is building kind of a a common
unified culture of the company or the
business. getting really good aligned,
you know, an aligned vision of where the
company's headed. Even if it ends up
wrong, you want people to know where
you're headed and
you want everyone on the same page and,
you know, marching in the same
direction. And then the other piece is
aligned incentive programs. We had 12
different incentive plans across the country
country
and until we started putting everyone on
the same program, it it created a
possibility for friction. You had, you
know, guys that talked to each other on
a conference call and were paid in a
completely different way. Uh, and you
want to have incentives where, you know,
when you win, they win.
>> Sure. And so those are all like pieces
that we had to start redoing. We were 13
or,400 people by the time we started
kind of redoing a lot of those programs.
And let me tell you, it's just it's a
lot harder to do it that way. So,
>> you know, I tell people all the time,
you know,
>> you do it when you're still a really
small business. I'm doing right now. I'm
building out a business now and I'm I'm
trying to put a big boy ERP in place now
while we have six people. Um cuz it's
like I know where we're headed. I'd
rather start now.
>> Why is culture important especially in a
business like yours when you're
acquiring all these different companies
that exist in their own right and also
when like you're sitting there in Denver
and you're buying you know another
asbestos removal company in Dallas like
why is that cohesive culture important?
I'm really fascinated by that. For us,
we were trying to build a a national
brand and an identity of what, you know,
what the business is. And for us, it
represented a lot of things. It was like integrity,
integrity,
you know, high quality workmanship,
safety, compliance. Our industry is one
of those things where if you do it
wrong, you know, it's it's bad for a lot
of people. So we were trying to build
this image of ourselves as you know the
best in the best in the industry and you
know the national leader in the space
and in order to order to do that you
have to communicate
the vision to your teams and they also
want to know you know people are afraid
they're terrified of hey you know they
watch TV and they they see downsizing
and they see cost cutting measures and
things like that the reality is is in
most cases is when you buy a business,
you're actually trying to grow it and
you're adding people to it, not
shrinking it. And so that messaging of
who we are and where we're headed, it's
like super important to the team on
having confidence that they this is a
place they want to be and they want to,
you know, run through walls for us.
building out a really good communication
strategy internally
uh is so so important
to you know just to have a shared vision
of where we're all headed together.
>> Let's talk about why this podcast exists
at all. Conversations like this where
people that have built incredible
companies are literally giving you their
entire playbook, what worked and what
didn't to build their business. These
conversations are happening all of the
time inside of Hampton. Hampton is a
private, highly vetted community of
founders and high- netw worth
individuals. And there's stuff that you
just hear only behind closed doors.
Those closed doors, they're Hampton. If
you want access, you can. If your
business is doing 3 million in revenue
or more annually, you should apply at
join hampton.com and get access to
amazing people just like Corey. By the
way, Hampton just launched a channel
called I'm That's exactly
what it sounds like. It's a place where
people are sharing all of the stuff that
just went wrong inside their business.
It's both entertaining, educational, and
frankly pretty cathartic. Uh, and it's
fast becoming or has already become
pretty much the most popular channel
inside of the uh the Slack community.
Community is invaluable, and I recommend
you check it out. Go to join hampton.com
to learn more. Talking of I'm
Let's find out what happened
after Cory sold. By 2021, they had it
all figured out. Five successful
acquisitions, 120 million in revenue, 21
million in EBITDAR. They sold for 200
million and Corey stepped away from the
CEO role to be able to focus on what he
really loved, which was chasing deals.
Then everything went to hell. So you
sold in 2021, but you didn't leave until
2024. So what happened in those three years?
years?
>> A lot.
I was planning on leaving the business
probably two years post close and my
plan was not to run the company. My plan
was to do like really focus on organic
and M&A growth which is what I love
doing still what I love doing today. >> Yep.
>> Yep.
>> So I didn't take the CEO role and we
brought in an outside CEO to run the business
business
and right
>> it did not go well.
>> Really not well. How not? Well,
>> let me put some numbers in context for
you. So, when we transacted, we were
about 21 million in in Ibbitita. We did
a couple of transactions postlose adding
about six or so million in Ibit. So,
took it to 27 with with the new acquisitions
acquisitions
and 9 months later we were at around 12
million in Ibita. Now, when you're
thinking about the purchase price plus
the added debt for those new acquisitions,
acquisitions,
you know, you're now running at, you
know, a a massive massive deficit. And
so, what what went wrong? A couple of
things. We brought in a a CEO that was
more of a hired gun from outside the
industry, and he was used to doing
really large industrial projects, and we
weren't. We were a commercial business
and so one he pursued five or six really
large projects. Our business was lots of
small you know repeat and recurring
customers small at high margins. He said
well we got to go after these
multi-million dollar projects you know
and that was sort of his background was
industrial. So he um he wanted us to
pursue some large projects which we did.
We won them and they were an unmitigated
disaster. So, these five or six projects
were only about 20 million in revenue,
but lost somewhere in the neighborhood
of 12 million in net loss.
>> Wow. Okay. Yeah. Let me put that in
perspective. They took on $20 million
worth of work and somehow managed to
lose $12 million doing it. That's not
just unprofitable. That's paying clients
to let you work for them.
>> And on top of that, we way overhired.
So, you know, the idea is, okay, we're
going to grow to a $450 million revenue
business and 75 in Ebida. So, we need to
be ready for it. Let's build this big
management team. >> Y
>> Y
>> So, we added $7 million roughly in
>> in overhead while also having massive
losing projects. That math is really
bad. And so nine months into this tenure,
tenure, um,
um,
he left the business and I took over as
CEO and we had to do a full turnaround
of the company. So you go from having
this business that's like kind of story
book, you know, we we were up and to the
right for a long long time, printing
cash, have a great transaction,
um, leader in the industry in our
business. Uh B we we need to do bonding.
Um so you for like a large public
projects you have to bond the work. We
lost our ability to do bonding.
We um we were cash strapped you know we
had um there was there was debt on the
financials because of um you know the
the it was a PE back deal. So they put
some debt on the balance sheet. So now
we're in lender covenant issues.
So essentially, we had to go into crisis mode
mode
and it was the hardest period of my
entire working life by far.
We, you know, we couldn't do any
transactions, of course, you know,
there's no way we could afford them. And
what we did is not rocket science. All
we did is get back to the basics. So we essentially
