Buying a $200m Franchisor (Not Units, the Whole System)

But we looked at a pretty diverse set of industries, geographies, you name it. If somebody in ETA has thought about a certain angle, we probably lifted up that rock and sprinted down for some period of time.

I would say one thing that we ultimately really decided was that the more you can have conviction in a given industry or in the case of franchising business model, it can help you not just uncover opportunities and build credibility with potential sellers, but it also gives you a lot of conviction as you underwrite the business.

Took us about two years. And so certainly know all the trials and tribulations associated.

I will say, Tyler, that... you guys were basically looking to develop a thesis first and then go out around a thesis, which is, of course, that's classic private equity, big boy private equity style, right? But I don't actually think most searchers do it that way.

Some do, and probably some with a private equity background and private equity orientation do it that way. But many searchers...

are more reactive to the industry and they look at the sims that come across the the deals that come across and then they then they look at the industry um so just double click a little bit on your industry analysis process again to people who have private equity backgrounds this will probably feel like yeah that's what every private equity shops does to those who don't have pe backgrounds it…

I actually think that being reactive is totally fine. There are pluses and minuses to both approaches. The first, let's say in the first three months that Tyler and I were in business together, we did this top-down exercise where we evaluated something like 150 industries looking for ones that had really strong fundamentals.

So an already sizable industry with an interesting growth rate, defensible characteristics, hey, this industry isn't going anywhere. All the kind of, yeah, private equity style attributes that you would look for in industries. And we whittled down that list of industries from, call it 150 to 10, I think it was.

And we had seven that were gold medal and three that were silver medal. So we got really creative with the jargon. And it turned out that all 10 of them were uninvestable, to use that word.

Why was that? It's because that exercise is what every single private equity fund, basically to your point, is already doing. And so pick one of those 10. You'd probably have five private equity platform companies already active in that space, just gobbling up everything in sight.

Anything with $200,000 of SDE or EBITDA or greater, you're going to be competing against a private equity portfolio company that can you know, reduce the cost basis of that asset by 50% on day two. So just not actually a fruitful exercise. I would say that like pure top-down industry evaluation.