In this episode of the M&A Launchpad Podcast, hosts Feras Moussa and Casey Minshew sit down with Ryder Fyrwald, co-owner of a thriving label manufacturing company based in Los Angeles. Ryder shares his journey of acquiring a small business with four employees and growing it into a multi-million-dollar operation—while also strategically leveraging real estate to fuel that expansion.
This episode offers valuable insights into creative deal structures, SBA financing, seller carrybacks, and the benefits of owning the real estate behind your operating business. Ryder’s background in tech and real estate finance equipped him with the acumen to navigate complex acquisitions, and he pulls back the curtain on the lessons learned through years of hands-on entrepreneurship.
Whether you’re thinking about acquiring your first business or looking to add strategic real estate to an existing portfolio, this conversation is full of practical strategies and inspiration.
In this podcast episode, we discuss:
- Ryder’s journey from tech and real estate to small business ownership
- How to finance an acquisition using friends, family, and seller carry
- Why owning the real estate can make or break your deal
- Leveraging equipment leases and capital structures for growth
- Ryder’s approach to finding off-market acquisition opportunities
- The importance of segmentation between partners in operations vs. finance
- What to know about seller psychology and deal creativity in today’s market
Connect with Ryder Fyrwald:
Website: coverlabel.com
Email: ryder@coverlabel.com
Additional Resources:
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Transcript
00:00 Hey, are you thinking about buying or
00:02 selling a business? Join us May 3rd for
00:05 the M&A Launchpad Conference. This is
00:07 the premier conference for
00:08 entrepreneurs, investors navigating
00:10 mergers and acquisitions in the lower
00:12 middle market. You’re going to connect
00:14 with top dealmakers, gain insight
00:16 strategies to take your business search
00:18 and your business acquisitions to the
00:20 next level. So, get your tickets now at
00:24 malaunchpad.com and use the code launch
00:26 for $200 off your ticket. We’re looking
00:28 forward to seeing you. All right, on
00:30 today’s episode, we interviewed Ryder
00:32 Fairwald where we talked about
00:34 basically, you know, what it looks like
00:35 to go buy a label manufacturing company,
00:37 what does label manufacturing company
00:38 do, and more importantly really start to
00:40 focus in on how do you start to marry
00:42 the business with the real estate along
00:44 with basically seller financing
00:46 strategies to help you go accomplish the
00:47 goal of what you’re trying to
00:48 accomplish. So, Casey, what were some of
00:50 your takeaways? Yeah, I think that, you
00:51 know, one of the things that as a
00:53 business buyer, you know, I’m not always
00:56 thinking let’s buy the real estate as
00:57 well if it makes sense. Yes. Um, but it
00:60 does give you some availability, right?
01:01 Because, you know, there’s different uh
01:03 products out there. If you’re if the
01:04 real estate’s more than the business,
01:05 you get a bigger amateurization. I mean,
01:07 there’s all these things. So, what I
01:08 realized from Ryder, you know, he
01:10 understands the financial world. He
01:11 understands how to structure the deals.
01:13 He knows how to talk to the the B the
01:15 people that he’s uh that he’s buying
01:16 from and talked to them a lot about how
01:19 why and why the benefits of an owner
01:21 finance works and what it is. And and I
01:23 think having that confidence and that
01:25 ability allows you to get into deals and
01:26 make deals happen. That’s what they’ve
01:28 done over the last Yeah. And and I’m a
01:29 big believer you should always try to
01:31 get the real estate because again with
01:32 real estate, what are people looking
01:33 for? They’re looking for motivated
01:34 sellers. Well, if a person’s selling
01:36 their business and you basically take
01:38 the position of, hey, we need to figure
01:39 out the real estate. Also, they’re going
01:41 to be more motivated on the real estate
01:43 and maybe cut you a deal or cut you
01:44 favorable terms to help you accomplish
01:46 it. And this is exactly what we’re
01:47 experiencing right now on a transaction,
01:49 right, where we did go after the real
01:50 estate, got a pretty attractive deal,
01:52 and it’s a win-win. And so, it’s another
01:53 way to kind of juice a deal and sweeten
01:55 it up. So definitely things to consider
01:57 in this one.
02:01 Welcome to the M&A Launchpad podcast
02:03 with your hosts Casey and Ferris with
02:04 Equity Launchpad. On this podcast you
02:06 will gain insights on acquiring,
02:08 investing in, and selling profitable
02:09 businesses in the lower to middle
02:10 market. Whether you’re a business owner,
02:12 investor, or spying entrepreneur, at
02:14 Equity Launchpad, we will provide you
02:15 with the knowledge, guidance, and
02:16 capital to navigate the world of mergers
02:18 and
02:19 acquisitions. All right, guys. Just take
02:21 one second here real quick. When you’re
02:23 buying a business, ensuring the
02:24 financial health of the company is
02:25 critical, and that’s where a quality of
02:27 earnings partner comes in. Quality of
02:29 earnings gives you confidence in the
02:30 financials of the company that you’re
02:32 purchasing. It aims to protect your
02:33 investment and ensure that you’re
02:35 stepping into a profitable business on
02:36 day one. Patrick of Okonnell Advisory
02:39 Group is your dynamic quality of
02:40 earnings partner. He’s here to help you
02:42 buy the right business on your timeline.
02:43 Patrick’s entire practice is focused on
02:45 business acquisitions. Your niche is his
02:48 niche. And over the past decade,
02:49 Patrick’s helped more than 200 buyers
02:51 like yourself successfully purchase and
02:53 operate enduring, profitable businesses.
02:55 In fact, Patrick’s helped some listeners
02:57 of this show. So, if you’re buying,
02:59 looking for help with the quality of
03:00 earnings, financial due diligence,
03:02 network capital, and more, head to
03:04 okconelladvisor.com or just click the
03:06 link in the show notes. Hey, Ryder.
03:08 Welcome to the show. Hey guys, thanks
03:10 for having me. You bet man. So, go
03:12 ahead. You want to share with the
03:13 audience a little bit about kind of what
03:15 you do and then we’ll dive into how you
03:16 got there?
03:17 Yeah. So, we have a a manufacturing
03:20 business. We make labels and stickers.
03:22 Um, kind of anything that you would see
03:24 in your fridge or medicine cabinet or
03:26 shower, all the, you know, food
03:28 products, ketchup, mustard, hot sauce,
03:31 uh, bathroom products like cosmetics,
03:33 you know, hair products, hair gels,
03:36 um, pharmaceuticals, kind of anything
03:39 you can think of that has an adhesive
03:42 label on it. Was that something that you
03:44 acquired? Was it something that you guys
03:46 started? We bought the business. So
03:49 almost 7 years ago, we bought a small
03:52 manufacturing business in in Los
03:54 Angeles. Uh we bought the business and
03:56 the real estate with it, operating out
03:58 of a small 5,000 foot warehouse in LA.
04:01 Uh had four employees at the time when
04:03 we bought it. We were looking around for
04:05 a business to buy. Kind of got into this
04:07 whole world of of entrepreneurship
04:09 through acquisition. Spent probably six
04:11 months looking at a ton of different
04:13 businesses. is we were we were fairly
04:15 agnostic. We knew we knew we wanted to
04:17 be in B2B. That was my partner and I’s
04:20 background. We knew we wanted to be have
04:22 a real estate component to it if we
04:24 could. Um and then we knew, you know,
04:26 more or less how much money we had
04:27 access to. And so we kind of backed into
04:30 a couple of different industries that
04:31 that we were looking at. Manufacturing,
04:34 you know, packaging kind of ended up
04:36 being where we ended up targeting. But
04:38 we looked at HVAC businesses. We looked
04:41 at flooring businesses. We looked at,
04:43 you know, other box businesses. We we
04:45 were pretty broad in terms of what we’re
04:47 looking at. Yeah. So, like most
04:48 entrepreneurs, you didn’t know exactly
04:50 what you wanted and ultimately you ended
04:51 up finding a niche and you’re like,
04:52 “Hey, this felt good.” But help us maybe
04:54 understand the business a little bit.
04:56 So, any, you know, any p any I guess I
05:00 say any product that has a label on it,
05:02 right? You guys are printing it. Are you
05:03 guys also designing it or customers
05:05 usually doing all the design work and
05:07 you guys are just the printing and then
05:10 packaging it onto the the product itself
05:12 or are you guys just the printing? It
05:13 depends on the size of the company. You
05:15 know, we we definitely try to work with
05:18 mid medium to largesiz businesses. So,
05:20 the majority of the time companies are
05:22 coming in with their designs and we’re
05:23 just doing formatting things, changing
05:25 font sizes, moving things around. But we
05:28 also do work with a lot of small
05:29 companies that that come in and they
05:31 they maybe don’t have their designs
05:32 fully locked in and they need design
05:35 support. So we do have design
05:36 capabilities. We’ve got graphic
05:38 designers on staff. We can certainly do
05:40 the design work. Um but we’re not a
05:42 design shop. So we don’t, you know,
05:44 we’re not like outsourced design really.
05:46 We’re more focused on the the printing
05:48 and the manufacturing side of the
05:50 labels. Got it. So Ryder, what was what
05:52 was your what were you doing before
05:54 searching? Right. What what got you in
05:56 the space? Got you thinking about it?
05:57 Did you read a book? Did you read an
05:59 article? And then y’all were like, “Oh
05:60 my god, this is amazing.” Or did you
06:01 guys know some people that had done this
06:03 and you wanted to just kind of follow
06:04 their footsteps? Yeah. Uh I’ve just been
06:07 I’ve just been labeling people my whole
06:08 life. So um No pun intended. Yeah. Yeah.
06:12 No, I’m joking. I I it was I worked in I
06:15 had worked in tech. Um, I worked for a
06:18 couple of high- growth venture-backed
06:19 tech companies, mostly in New York City.
06:22 And then I spent two years doing debt
06:25 and equity financing in real estate. And
06:28 through those experiences, I I realized
06:31 I really liked working in B2B. I I like
06:34 the tech world, but I had come from a
06:38 family background of entrepreneurship
06:40 and being in business for yourself and
06:42 didn’t have this idea of a business that
06:45 I wanted to start. So, I just started
06:47 looking at are there existing businesses
06:50 that we might be able to buy that are
06:52 run by, you know, somebody who’s looking
06:54 to retire, maybe, you know, kind of like
06:56 my parents’ generation of of
06:58 entrepreneurs who were looking to get
07:00 out where we could come and we could
07:02 apply some of the new modern age
07:04 technology things that we’ve learned in
07:06 our business careers to kind of an older
07:09 antiquated business. Um, so we just
07:13 started looking around at like what
07:14 kinds of businesses were for sale. We
07:16 went and scoured all the different
07:17 websites online. We talked to, you know,
07:20 M&A consultants. We talked to lawyers.
07:22 We talked to CPAs. Really, anybody who
07:24 would hear us out, we went and talked
07:26 to. And we ended up landing on this
07:29 small packaging business. Um, but it was
07:32 it really stemmed from just an interest
07:34 to be in business for myself, you know,
07:36 wanting to to kind of go off and and and
07:38 do something on my own, but not really
07:39 having the idea that I felt like I
07:42 wanted to start from scratch. Yeah. And
07:45 it’s funny, so you know, I used to work
07:46 at Microsoft and I left Microsoft with
07:48 the thesis of let me go apply tech to
07:50 boring old industries, right? Like real
07:52 estate and that’s ultimately where I
07:53 ended up going. So similar mindset as
07:55 you. And you know the other thing you
07:57 kind of you kind of almost glossed over,
07:59 right? But I think it’s really important
08:00 for the listeners which is you had the
08:03 financial acumen, right? You kind of
08:06 grew up you did debt and equity
08:08 structuring. I mean that’s there’s
08:09 complexities there that a lot of people
08:11 get behind the idea of hey I want to go
08:12 buy a business but they don’t really
08:14 understand the mechanics of where money
08:16 comes from how money moves right and how
08:18 pertinent it is to the business and you
08:19 at least had that background to help you
08:21 because most people don’t go buy a
08:22 manufacturing company as a first
08:24 business right those are usually cash
08:26 intensive businesses right high capex
08:28 businesses and it’s easy to look at
08:30 IBIDA and ignore everything else that
08:32 happens below the line right and having
08:34 that experience I think helped gave you
08:36 a little bit more confidence to be able
08:38 to do something like a manufacturing
08:39 business. And so I guess with that said,
08:42 I think the question I have is just how
08:44 did you find that business? You know,
08:46 what were the multiples? You know, what
08:47 was the purchase price and h how did you
08:48 structure the actual acquisition itself?
08:51 So we we were just sitting around at at
08:54 our at our place in in Marina del Rey
08:57 cold calling basically businesses for
08:60 three or four months. Um, mostly we were
09:02 going on bis by sell, dealt stream,
09:06 bisben, all these websites that exist.
09:08 You know, if you’re selling your
09:09 business, you want to get the most eyes
09:11 on it, right? Y and so you’re going to
09:13 go and you’re going to post it in as
09:15 many places as as possible. One thing
09:17 that was important to us buying our
09:18 first business was we didn’t want to buy
09:20 a business with a bunch of skeletons in
09:21 the closet. So, we were trying to look
09:23 for well-run businesses without a bunch
09:27 of adbacks. If you get into this
09:29 business of buying small businesses,
09:30 you’ll see that people are running a lot
09:33 of personal things through the business.
09:35 We had a company that we were looking at
09:37 where the owner was running his Botox
09:39 treatments and his hair treatments like
09:41 through the business. And it’s it’s hard
09:43 to kind of sift through the noise and
09:45 figure out how much does this business
09:47 really make. So for us, it was really
09:50 important to find one that didn’t have
09:52 all those adbacks and was pretty clean.
09:54 it was, you know, here’s the ibida and
09:56 maybe there’s they’re adding back a this
09:59 the seller owner’s salary and a couple
10:01 of things, but it’s not, you know, half
10:03 a million dollars worth of adbacks. It
10:04 was it was a small portion of it. So, we
10:08 knew we were comfortable borrowing
10:11 somewhere between about a million and a
10:13 million half dollars. We were going to
10:15 do this pretty much all debt. We had a
10:17 little bit of our own money to put into
10:19 it, but we weren’t going to go and take,
10:21 you know, two, three, four million
10:23 dollars worth of of debt. We wanted to
10:25 do it, you know, kind of smaller
10:27 contained business that we felt like we
10:29 could come in and operate and grow. So,
10:32 we found this business, we actually
10:34 found it on BIS by Buy Sell, believe it
10:36 or not. Um, we found it there and this
10:38 was this was seven years ago, so people
10:40 were were doing this, but not, I think,
10:41 as many people as are doing it today.
10:43 So, there was a decent amount of
10:45 competition. Um we ended up our LOI got
10:47 accepted and we ended up getting into
10:49 due diligence. Uh the business we ended
10:52 up paying like one a
10:55 million450,000 for the business and it
10:58 was doing like just under 500,000 in
11:02 seller discretionary earnings which is
11:05 you know 3x about a 3x multiple and this
11:08 was when this was in 2018 when rates
11:12 were next to nothing. So our our
11:15 financing costs were were a lot cheaper
11:17 than they are today. It’s a big
11:19 challenge I think today is is that your
11:21 carry costs are going to be so much
11:22 higher with where rates are. Yeah. And
11:25 how much debt did you take on and I mean
11:26 did you was it a SBA note or how did you
11:28 structure that? We were able to get some
11:31 friends and family to lend us the money
11:33 with pretty like with with promisatory
11:37 notes that we have stuck to and paid
11:39 off. This was not like take some money
11:41 and you never have to pay it back. it
11:43 was, you know, 6% interest loans that we
11:47 took. Um, we we
11:50 borrowed 90% of the money. So, we
11:52 borrowed about a million 350 somewhere
11:55 around there and we we funded the rest
11:58 with our own capital. Um, sorry, 80% was
12:01 debt, 10% seller carry note, 10% we
12:04 funded. So, you structured it like an
12:06 SBA in a way, right? You used the
12:08 friends and family. So, you know, you
12:10 kind of basically went out and fund
12:12 raise soft debt, not not vulture debt.
12:14 Yeah, I love it. Yeah, basically. Exact.
12:17 Yeah, it’s essentially soft debt where
12:18 if we missed a month of payments, which
12:21 we’ve missed very few, but it it’s not
12:24 like the SBA where, you know, they’re
12:26 going to start coming after you or
12:28 there’s leans on everything. It was it
12:29 was a little more friendly. Um, since
12:32 buying the business, we’ve actually
12:34 taken on some SBA financing. So there’s
12:36 been a couple of like slugs of SBA debt
12:39 that we’ve taken to actually replace
12:41 some of the existing debt. So we’ve been
12:43 able to buy down most of that initial
12:45 debt that we took on and replace it with
12:47 cheaper debt that we feel now that we’re
12:50 a little bit more established, we were
12:52 able to take on, you know, other debt
12:54 through the SBA and kind of other debt
12:56 instruments that we’ve used. Got it. And
12:58 so then you said you bought it was five
13:00 employees, 500ish thousand of IDA or SD.
13:05 what you know where’s the business today
13:06 and then I want to talk about kind of
13:07 transition right of what it took to get
13:09 from where you are you know kind of day
13:11 one buying it to where you’ve gotten it
13:12 to. Yeah. So we did just over 5 million
13:16 in revenue last year. Congrats. So
13:19 that’s been Thank you. Um compounded you
13:22 know 30 to 35% annual topline growth in
13:26 the business and we’ve invested heavily
13:28 in the business. So we haven’t kept
13:30 those those same margins. Um our our E I
13:33 E I E I E I E I E I E I E I E I E I ETA
13:34 was like just under a million last year.
13:36 So our you’re you know as you grow you
13:39 kind of have
13:39 to especially when you’re you know
13:42 keeping you’re accumulating debt and all
13:44 these different things like you’re you
13:45 know you’re having to kind of keep up
13:47 with this growth. The other thing we did
13:49 was we also we outgrew the space and we
13:51 bought a a much larger warehouse than we
13:54 probably had any business buying and um
13:57 we you know we ended up putting some
13:60 tenants into the space and and growing
14:02 into now we we occupy most of it but our
14:05 initial warehouse was $5,000. We were
14:08 paying like six grand or in in rent a
14:12 month. Now our warehouse is 25,000
14:15 square feet. We pay, you know, 35,000 in
14:18 rent and we pay we because we own both
14:21 entities, the real estate and the
14:22 business. It’s a really nice like
14:25 ability to kind of, you know, move, you
14:29 know, the money between the two
14:30 companies. Like our rent, we have a
14:32 lease, we have everything. It’s all like
14:33 legit how it’s done. But if we need a
14:35 couple days of cash flow in the
14:37 operating business, I can, you know,
14:39 push my rent out a few days if I need
14:41 it. Um, we’ve got a a substantial like
14:44 loan on on the building. So, we got that
14:46 loan also prior to interest rates going
14:50 up. So, we got a really good deal on on
14:52 buying the building. And that’s probably
14:54 been
14:56 one of the best things that we did, I
14:57 think, in this whole process so far as
14:60 making sure that we were buying the real
15:01 estate. uh the first warehouse that we
15:03 bought, we ended up selling and did
15:06 pretty well on that and then basically
15:08 used that to move into the the new
15:11 facility that we bought. And and you
15:12 didn’t get the warehouse as part of the
15:14 transaction, right, initially, right? It
15:15 was not that the seller sold you the
15:17 real estate also or did you? We did. He
15:19 did. Okay. So then so that 1.4 included
15:22 the real estate or that was just the
15:24 business. Okay. separately did another
15:26 transaction for the real estate at which
15:28 you felt like you got a pretty fair
15:30 price that then just kind of appreciated
15:32 in value over time. Yes. So this is in
15:37 LA great appreciation from those times.
15:39 Yeah. The cheapest way to cut your your
15:41 cost is just move it to Texas. Man, you
15:42 can get like three times the space. I
15:44 promise. So Well, I’m we’re actually
15:46 considering uh opening up a facility
15:49 potentially down in in Texas. Um so I’m
15:51 exploring doing that. Uh, it’s we we
15:54 need to have the operation in California
15:56 because we have a ton of customers
15:57 there. We have, you know, 25 employees
15:60 now that that run that facility, but
16:03 longer term, there’s a ton of reasons
16:06 why it makes sense for us to have a
16:08 facility somewhere like Texas.
16:11 Yeah, that’s awesome. So, yeah. So, I I
16:13 love the concept of buying the real
16:14 estate. So, as a business guy, you know,
16:16 I’ve always looked at when I look at the
16:18 the valuations and I look at the
16:20 numbers, I’ve always said, “Hey, look, I
16:22 want an option to buy the real estate.
16:23 I’d rather just rent it from the owner,
16:25 you know, I’ve always kind of played
16:27 that piece because, you know, really
16:28 when you start looking at the SDE and
16:30 and all the numbers, you know, you go,
16:32 man, if I’ve now got to buy the real
16:34 estate, I now have a bigger note and now
16:36 I’ve got these other obligations that
16:37 I’ve got to take care of.” So, I’ve kind
16:39 of always kind of put that real estate
16:40 to the side and said, “Hey, I would
16:41 rather have an option.” Uh, but it’s
16:43 nice to see that you guys came in and
16:44 said, “Hey, we can kind of see this as a
16:46 real estate business slash using the
16:48 business to get the great real estate
16:50 financing, right?” Because I I do
16:52 believe owner occupied real estate,
16:53 you’re probably getting 85 to 90%
16:55 leverage on the real estate purchase.
16:58 So, the first the first the first
16:60 warehouse that we bought, we actually
17:02 found some investors to buy the the
17:04 warehouse. So, we found some investors,
17:06 we participated, but mostly it was it
17:08 was an investor group that bought the
17:10 warehouse. We didn’t take out any
17:11 additional debt financing on the
17:13 warehouse which was which helped from a
17:17 like you know a leverage standpoint like
17:19 not having to also be satisfying this
17:21 note. In hindsight I wish we would have
17:24 bought both ourselves. There’s an SBA
17:27 program where you can buy the business
17:30 and the real estate and it would have
17:31 been a combined probably like $3 million
17:34 transaction. And I wish we had done that
17:36 ourselves because of how much the real
17:38 estate appreciated. At the time, I was I
17:41 was hesitant to take on that much debt,
17:43 right? Um, in a market like Los Angeles
17:46 where real estate, you know, tends to
17:48 appreciate like we should have we should
17:51 have known that it was going to
17:52 appreciate, but I had no idea it would
17:53 appreciate the way that it did. I we
17:54 bought it for like a million six. No,
17:56 life is much easier in hindsight. It’s a
17:59 lot harder whenever you’re at the
18:00 closing table. You need to commit,
18:02 right? Trust me. It’s a lot of money.
18:04 Every time, you know, there’s always
18:05 regrets and it’s you made the best
18:07 decision at the time you were there. So,
18:08 yeah. But the second warehouse we did,
18:11 so the the warehouse we’re in now, my
18:13 partner and I bought the warehouse. We
18:15 took out uh it’s it’s it was very
18:18 similar to an owner it’s an owner
18:19 operator loan. So, our terms are really
18:23 favorable. Our interest rates super low.
18:25 It requires us to operate a business out
18:27 of there. You know, at least 51% of the
18:29 space. Um, so when we moved in, we were
18:32 occupied like 51% on the nose because it
18:35 was all we could really afford to do.
18:37 And now we occupy, I don’t know,
18:39 probably 80% of the warehouse. We still
18:40 have one tenant. Traditional bank
18:42 financing or was it an SBA 504? What
18:45 which program did you go with? It’s it’s
18:46 basically as it’s the same terms as the
18:49 SBA 504, but it was through a private
18:52 bank that just happened to have this
18:54 program. was very lucky where they were
18:57 doing one loan of the exact size that we
19:00 needed in each of their different
19:02 branches around the western US. So, it’s
19:05 it is I I think they may have purchased
19:07 the SBA504 loan from the SBA and then
19:10 basically just repackaged it up and sold
19:12 it to us, but it’s the same, you know,
19:14 it’s it’s owner operator. We have to
19:16 occupy 51%. This was 2021, so our
19:20 interest rate is like sub 3%. And it’s a
19:24 it’s a 10-year note with a 30-year AM
19:27 schedule. So, we’ll pay off a good
19:28 amount of the note. I’ll have to
19:29 refinance the note in, you know, seven
19:32 years from now. But, it’s just sounds
19:35 like a great position. So, are you So,
19:37 it sounds like you and your partner,
19:39 right? You probably have different roles
19:40 that you guys carry. Are you kind of the
19:42 financial brain around are you looking
19:43 for the the leverage? Are you the one
19:45 talking to the banks kind of using your
19:47 expertise? or is he more of the
19:48 financial, you know, which which one of
19:50 you are are are always sourcing
19:52 financing?
19:53 I typically source the financing and
19:56 handle most of the the the bookkeeping.
19:58 My partner is very smart and he
19:59 understands it all, too. It’s just at
20:01 some point you kind of have to segment
20:02 your responsibilities. He is much more
20:05 mechanically inclined. He’s understands
20:08 the machinery. He likes, you know, being
20:10 in the warehouse and tinkering with all
20:12 the equipment, you know. So he’s he’s
20:15 been the one who’s been leading all of
20:17 our machinery purchases. You know, as
20:19 you guys mentioned at the beginning,
20:20 it’s a very capital intensive business.
20:22 So we’ve made some pretty big capex
20:24 investments. And he’s been the one who
20:26 has more spearheaded those. So he’s
20:28 decided which machines should we be
20:30 buying, why, has been the one, you know,
20:33 overseeing like the electrical
20:35 installation, HVAC, all that different
20:37 stuff. And just to segment the
20:39 responsibilities, I tend to to gravitate
20:41 more towards handling the financing and
20:43 everything. Not that he couldn’t, but at
20:45 some point you’ve got to separate the
20:47 responsibilities. So, so short answer is
20:49 yes. Because I asked because I, you
20:51 know, my background, I’ve spent, you
20:53 know, 20 years putting together
20:54 financing, all different types for real
20:56 estate, business, you know, as a broker,
20:58 and it was always my side hustle while I
20:60 was doing these startups and I’ve built
21:01 a great book. But understanding all
21:04 these different type of structures was
21:06 really something that I feel like gave
21:08 me an advantage when I’m sitting down
21:09 with the seller or I’m thinking through
21:11 like how am I going to put this deal
21:13 together because I’ve done it so many
21:15 times structuring it for other people
21:16 and doing those things. So having that
21:18 financial knowledge of like all of these
21:20 programs like the 504 and different
21:22 leverage that you can get, it allows you
21:24 to get into deals like we’re looking at
21:26 a deal right now that is uh is a is a
21:29 SBA 504 qualifier. It’s a it’s it’s a
21:32 kind of mix between business and real
21:34 estate. And uh because I knew about the
21:37 504 program and disqualified for it, I
21:39 was like, man, this could be a great
21:41 opportunity for us. And so, we’ve made
21:43 it down the road on the due diligence
21:44 for it. We’re waiting for hopefully to
21:45 get it approved, but again, the re
21:48 knowing the loan programs and like
21:50 learning about how do I finance the the
21:52 equipment, what type of line of credits
21:54 are available. I mean, I spend a lot of
21:56 time doing that.
21:57 you can buy any business at any price if
21:59 you can get the the capital structure to
22:02 work the way you need it to. So, um So,
22:04 I imagine all the debt and equity you’ve
22:05 done in your your career kind of helps
22:07 you kind of think about that as you’re
22:08 putting these deals together. Yeah,
22:10 100%. I mean, it’s the the financing is
22:15 a huge part of this whole thing, right?
22:17 You have to you have to really when you
22:19 when you talk about okay 500,000 in
22:22 ibita well that ibita has to go
22:25 somewhere after you make it right so
22:27 it’s either hey if we own this business
22:29 100% then yeah it’s going to be split
22:31 between us and that’s great it’s income
22:33 but majority of the time if you have
22:35 debt right you’ve got interest on your
22:38 debt and then your principal payments
22:40 come after you pay the tax right the the
22:43 the principal is not taxdeductible so
22:45 understanding that and and when you’re
22:47 looking at, you’re modeling out your,
22:49 you know, your debt coverage ratios and
22:51 and how you’re going to be able to
22:52 afford all of this debt, you have to
22:54 think about that. So, we’ve we’ve had,
22:57 you know, by having these bank loans for
23:00 our our real estate now, we’ve had to
23:03 really meet pretty strict covenant
23:05 ratios. So, we’ve done things like we
23:08 bought a machine from a a digital
23:11 printing machine. So, you know, some of
23:13 the printing these days is much is
23:15 moving more digital. There’s still a lot
23:16 of the old school flexographic printing,
23:18 but some of the digital printing.
23:20 There’s a company that we bought it
23:21 from, which is is called Domino
23:23 Printing. They’re owned by Brother
23:25 Printer, which you probably have a
23:27 Brother Printer in your home or you have
23:29 at some point. They have a financing arm
23:31 of their business where they’ll do
23:33 non-reourse financing on these assets
23:36 that you can purchase from them. And as
23:38 a business owner who’s taken on a fair
23:40 amount of debt, having a non-reourse
23:42 loan with an asset that they’ll
23:44 basically, you know, lease to us um is
23:47 really really nice to not have to go and
23:49 and you know take out a full personally
23:52 guaranteed full recourse loan. Being
23:54 able to do that has worked been great.
23:57 We did another machine purchase where we
23:60 couldn’t actually it was about a million
24:02 dollar piece of machinery. So the the
24:03 machinery in our business is is is
24:05 really expensive. we couldn’t put a
24:07 million dollars of debt on our balance
24:10 sheet and continue to meet our our debt
24:12 coverage ratios. So, we did um we did a
24:16 capital lease where it’s it’s basically
24:18 it’s it becomes um an expense item on
24:22 your you know on your P&L and and
24:24 instead of it being uh instead of it
24:26 being something that sits on your
24:27 balance sheet, it goes on as an expense
24:29 item. You don’t get the you don’t get
24:32 the the benefit of of depreciation, but
24:34 you get to take it as an expense. So,
24:36 you still get to take it against your
24:38 income. And ultimately, you buy it out.
24:40 We buy it out at the end. Nice. Yeah. I
24:43 love We did our forklift like that at
24:44 H&M. It was makes a lot of sense.
24:47 Exactly. I mean, it’s it’s for all
24:49 intents and purposes, it’s the same
24:50 thing as buying, you know, buying a
24:51 forklift. Yeah. But it’s understanding
24:53 that mechanism that you’re talking
24:55 about, right? It’s like, yeah, you’ve
24:56 got to, hey, I you can go take that
24:58 loan. they’re not going to the the the
25:00 the printing company, they’re not going
25:02 to look at your debt service
25:04 requirements, but you’re but your bank
25:06 will. And so now all of a sudden, if you
25:07 add that to your balance sheet, you’re
25:09 you’re you’re you’re in trouble. So
25:10 having that understanding is so critical
25:12 when you’re running the business to have
25:13 some of that financial mind. Yeah. And
25:15 question, has all of y’all’s growth been
25:17 just organically or have you guys
25:18 acquired anything to kind of roll in? We
25:21 just acquired our first like tack on
25:24 acquisition about a year and a half ago.
25:26 Okay. What was that? So it we it’s a it
25:28 was a very similar size business to the
25:30 the one we bought originally about a
25:32 million revenue label business. Um I the
25:37 way that I found this business was I
25:40 think it was I think it was kind of
25:42 smart but it’s it’s not like it’s not
25:43 rocket science but I just I had one of
25:45 my suppliers in our warehouse one day
25:48 and he’s like man I just came from this
25:50 other label company and this guy is just
25:53 like miserable. He’s like 65. all he
25:55 wants to do is like retire and and go to
25:58 Italy. And I said to him, I said, “What
26:02 about if we buy his business?” And he
26:05 said, he’s like, “Oh, that might
26:06 actually work.” And so he introduced me
26:08 to this guy. I we didn’t actually end up
26:10 buying his business, but I I started to
26:12 think about this is, hey, let me go to
26:14 the suppliers. So I sent an email to our
26:15 five biggest suppliers and just said,
26:17 “Hey, you guys are in these companies
26:18 every day. Do you have any any people
26:21 that you work with on a daily basis that
26:23 might be interested in selling their
26:24 business? One a couple I got probably
26:27 four or five leads from this and ended
26:30 up finding one of these guys started to
26:34 develop a relationship with him. Took
26:36 about a year to negotiate and get him
26:38 comfortable with us, but eventually we
26:40 were able to buy his business. So, we
26:42 were we did that a year and a half ago
26:44 and um it added about a million dollars
26:47 worth of revenue to to our top line. So,
26:50 beyond that, it’s all been organic,
26:51 though. Awesome. Did you have a nice
26:53 creative structure? Were you able to get
26:54 some good owner financing and all that
26:56 good stuff? Oh, yes. Yep. Very much so.
26:59 We we bought um it was about the same
27:02 size business. There was some more
27:04 customer concentration, so there was a
27:06 little bit more added risk to it and
27:08 than the first one that we bought. And
27:09 also we were coming at it from like a
27:12 position of strength where we already
27:14 had a business and we didn’t really need
27:15 to buy this one. The first business that
27:17 we bought, we had been not working for 6
27:20 months and we like we needed to get into
27:22 business. Um this one we we had a an
27:27 existing operation. We felt confident
27:29 that we could roll it in. So we paid
27:32 like 650 grand for the business and the
27:35 seller financed about 70% of that. Um,
27:38 which is, you know, when you’re when
27:40 you’re talking to these these business
27:42 owners, it’s I I think seller financing
27:44 can be a really good win-win situation
27:48 for an owner if you give him, you know,
27:50 an interest rate on the debt. It’s, you
27:52 know, a lot of times the business owners
27:54 that I talk to, if you’ve been running a
27:56 label manufacturing business and you’re
27:58 65 or 70 years old and you’ve been doing
27:60 it for 40 years, there’s a pretty good
28:02 chance you’re not like super financially
28:05 savvy when it comes to investing your
28:07 own money. you know, you you may you’re
28:09 probably going to get that money and
28:10 maybe you’re going to go invest it in
28:11 treasuries or maybe you have a 401k or
28:14 you you know, you know how to invest in
28:15 the market, but you know, on the high
28:18 end, you’re probably going to make 8 to
28:20 10% yield if if you’re really good at at
28:22 investing that money. You know, um most
28:24 people though don’t don’t really know
28:27 kind of what to do with that money. So,
28:28 if you go to them and you say, “Hey,
28:30 listen. Instead of me giving you like
28:31 just for round numbers, like instead of
28:33 me giving you a million dollar today,
28:36 let me give you $200,000 for each of the
28:39 next five years. You’re going to spread
28:41 out your tax. You’re going to get an
28:44 interest. We’ll pay you interest on top
28:46 of that. So, we’ll pay you six, seven,
28:48 8% interest. It allows me to buy the
28:50 business without having to put down a
28:53 ton of money up front. So, it spreads
28:55 out our risk and it allows the seller to
28:59 make some interest on top of his money
29:01 and it also helps him from from a tax
29:03 perspective. So, that was kind of our
29:05 pitch and I think it’s a good pitch for
29:07 somebody buying a business that Yeah.
29:09 Um, yeah. No, seller financing is is so
29:12 critical to to making things work and
29:14 done correctly. It’s not a way to take
29:16 advantage of a seller. It’s actually
29:17 creating a win-win where you can maybe
29:19 get them better pricing, get them
29:21 something else, but you’re obviously
29:22 getting, you know, to reduce your your
29:24 exposure and cash in. So, yeah, and for
29:26 and for the listeners, right, this is
29:28 kind of the most important part. I mean,
29:29 I have gotten better in my
29:31 conversations. Every time I talk with a
29:33 seller, it’s I try to get that
29:35 conversation up front. Like, I try to
29:37 get them to think Casey’s put case has
29:39 been putting in the reps, so he’s
29:40 learned. Yeah. I mean, I just I try to
29:41 get it up front and and and if I’m not
29:43 going to get a flexible seller on seller
29:45 carry, I’m in today’s capital markets,
29:47 right? Because shit’s just too
29:48 expensive, right? Everything is like
29:51 from, you know, just buying equipment.
29:53 Equipment costs have gone up. You know,
29:54 your electricity costs have gone up.
29:56 Everything has gone up. And these guys
29:57 know it. They feel it. And that’s the
29:59 thing people need to understand. Don’t
30:00 be timid to talk to the owner. He is
30:03 selling because he is stressed as well.
30:05 you know, he might have owned it for 30
30:06 years, but every day is stressful
30:08 because you you get the electric bill
30:10 and you’re like, especially in a
30:12 manufacturing business, you’re like,
30:13 “Holy we spent a lot of money on
30:14 electricity.” Oh, and guess what? The
30:16 data center conversation’s coming and
30:18 everybody knows electricity costs are
30:19 going to go up. How do I how do I manage
30:21 this? And here’s he’s like, “Dude, I’m
30:23 65. I I’ll just I’ll let you handle it.
30:26 Just put a check in the mail to me every
30:28 month.” And I’m finding this
30:29 conversation more and more now where
30:31 these guys are are more opening. I mean,
30:34 I’ve been I’ve been like you, Ryder.
30:35 You’ve been in you started in 18, I was
30:36 in 19. And I’ve had a lot of
30:38 conversations. And in 19 and 20, people
30:41 weren’t, you know, well, COVID, you
30:42 know, people are like, we don’t know
30:43 what the hell’s going on. But then in
30:44 21, people started, these owners started
30:46 to loosen up a little bit on these
30:48 terms. And tell me if you feel it too,
30:49 you know, it’s like and now when you’re
30:52 having these conversations, they’re I
30:54 feel like these guys are very open and
30:56 they understand that if I get an SBA
30:58 loan and I have to pay 10 12%, you know,
31:01 it’s adjust quarterly adjustable and I
31:03 have these terms. Um, one, I’m I’m at
31:06 risk with the business because there’s
31:07 not a lot of flexibility. Two, if you
31:09 put too much leverage on these business
31:11 and costs continue to go up, the numbers
31:13 don’t work. And I and I think that’s a
31:15 real conversation that we’re having.
31:17 Absolutely. I mean, I I anybody who is
31:21 in business understands that costs are
31:24 going up, you know, across the board on
31:26 on, you know, all your inputs and your
31:27 your material costs are going on going
31:29 up. But also, like you said, interest
31:31 rates have completely changed from where
31:34 they were four years ago. And the cost
31:37 to to carry and support a a you know, a
31:40 bank note or SBA loan is significantly
31:43 higher than what it was. And it’s just
31:44 it’s really really hard to be able to
31:47 make that work. If you want to grow the
31:49 business, you know, if you want to keep
31:50 it kind of status quo, then you know,
31:52 maybe it’s it’s a little bit easier. But
31:54 if you want to grow the business, which
31:56 the majority of people getting into this
31:58 do, you need to be able to structure
32:01 some sort of creative structure with the
32:03 seller. And I’m finding definitely as
32:05 you are, um, Casey, that the sellers are
32:08 are a lot more open to it. And and if
32:10 you can if you can just get them to
32:12 understand that it’s you’re gonna you’re
32:15 gonna still get the same amount of
32:16 money. You’re actually going to get more
32:18 because you’re going to make interest on
32:19 it. And hey, you can go and invest this
32:22 in treasuries and you can make 4%. or
32:24 you can I can pay you 7% for the next,
32:28 you know, five years on that on that
32:31 money and and you’re going to get a
32:32 check in the mail every month and you’re
32:34 not going to go and spend it all at once
32:36 and and spread out your income for the
32:39 next five years, then it’s it’s a
32:41 really, I think, productive way for um
32:45 sellers to to get out of the business
32:47 and and you know, make some money, but
32:49 also for for you to be able to kind of
32:51 spread your cash flow out. Yeah. And I
32:53 think with the internet sellers are
32:54 getting more educated. So before it was
32:57 like oh don’t ever do an earnout right
32:59 versus now they understand I mean
33:01 earnout is a tool right every
33:03 everything’s a different tool for a
33:04 different reason. So I think sellers are
33:06 getting more educated so it’s easier to
33:07 start having some of these conversations
33:09 where you’re not starting at square
33:10 zero. So that’s what makes it a little
33:12 bit kind of more attractive in today’s
33:14 environment. Yeah. Or you can pay a
33:16 little bit more. Yeah. And then and kind
33:18 of in just wrapping up before we get
33:19 into our other questions, I mean this is
33:20 a very important part of this M&A
33:23 journey, right? Is, you know, one, I’ve
33:26 got to find a business. Two, I’ve got to
33:28 be able to structure the business with
33:29 the lender, but I also need to
33:31 understand all of the different ways I
33:33 can put this deal together and put it in
33:36 the advantage of the seller, right?
33:38 Because at the end of the day, you can
33:39 tell them all day long if they don’t
33:41 agree, good luck. And uh so having these
33:44 kind of conversations and I have also
33:46 been finding that some of these guys a
33:48 lot of them have been wanting to dump
33:49 their real estate and so be being a real
33:52 estate buyer is not a bad thing. There’s
33:54 also sell leasebacks which relatively
33:56 new to my my conversation. You can do a
33:58 sell lease back. There’s all kinds of
33:60 vehicles and things that you can use.
34:02 It’s just getting educated and it’s a
34:04 big part of it.
34:06 Absolutely. Awesome. Well, we’ll go
34:08 ahead and move on to our rocket round
34:09 where we ask the guests the same three
34:11 questions. So, uh, first question,
34:14 Ryder. What do you like to do in your
34:15 free time?
34:17 My favorite thing to do in my free time
34:18 is probably to to to play golf. Um, big
34:21 golfer. Like to play ice hockey as well.
34:23 Um, I’ve got a a wife and a dog and so
34:26 we do a lot of walking. Um, and we’ve
34:29 got a baby on the way due in nine days,
34:33 so Oh, congratulations. Right around the
34:35 corner. You’re about to have a new
34:36 hobby. Yep. Good luck. Say goodbye to
34:38 golf, brother. Yeah, I know. I know. I
34:41 know. So, it’s been fun. But question
34:44 number two, what’s your most memorable
34:46 moment in your business journey?
34:49 Most memorable moment in our business
34:51 journey
34:52 was probably when we moved into this new
34:56 warehouse. Um, I’ll there was a couple
35:00 month span where we ended up moving the
35:02 business from our old warehouse to our
35:05 new one and just going through the
35:07 process of moving a manufacturing
35:08 business and you know, we had
35:11 It was just great. We had, you know,
35:13 trucks and straps attached to things
35:16 that probably shouldn’t have been
35:18 attached where they were attached and,
35:20 you know, had all these employees that
35:23 were moving things with us and trying to
35:24 just coordinate, you know, when machines
35:27 will be up and running again and
35:29 customers. And so I think that was
35:32 probably the most memorable thing for me
35:34 was going through that and now being in
35:36 this facility that we’re in which was
35:38 such a I think a major major upgrade for
35:41 us. So that’s that’s probably when I
35:42 think back on it was probably one of the
35:44 most memorable things was you know going
35:46 through that process. The last question
35:49 favorite tool or resource.
35:52 Favorite tool or resource.
35:55 Um, we use something called
35:59 uh label tracks in our business, which
36:02 is a super productive way to manage um
36:08 like production schedules and and lead
36:11 times and things like that. So, it’s
36:13 kind of a boring ERP tool, but for our
36:17 business, it would be we were we went
36:19 through several years where we didn’t
36:20 didn’t use it. And um you know, now we
36:23 use it pretty much every day. So, beyond
36:25 that, I mean, I would say like I I I’m a
36:27 big Gmail and like Google Docs and and
36:30 you know, kind of Google Suite lover.
36:33 So, I’m I’m always in like Google Sheets
36:35 and Docs. Um but within our business
36:38 specifically at label tracks and then
36:40 more broadly like for the the listeners
36:42 who is label tracks just for label
36:44 manufacturers or is it more just
36:46 manufacturing companies? It’s for kind
36:49 of anything like packaging related. So
36:51 you can also do a lot of flexible
36:52 packaging. I think flexible packaging
36:54 would be like chip bags and granola bars
36:56 and things like that. So it’s it’s kind
36:58 of for anything that has these giant
37:01 roles of input that you’re trying to
37:03 manage schedules and things like that.
37:05 Got it. Cool. Awesome. Well, then I
37:07 guess writer, you know, how can people
37:09 get a hold of you? Uh, you can find our
37:12 our website’s just coverlelabel.com. c
37:14 ov lab-l.com. My uh my email is ryder r
37:21 derverleabel.com. Um, you know, our
37:23 office phone number is listed on the
37:25 website. You can always, but easiest way
37:27 to get a hold of me is is definitely
37:28 email. Beautiful. Awesome. Well, Ryder,
37:31 thanks, man. Incredible story. love what
37:33 you’re doing and really appreciate you
37:35 being here. Yeah. No, thank you very
37:37 much. Thanks a lot, Casey. Thanks,
37:39 Ferris. Appreciate it. Thank you for
37:41 listening to the M&A Launchpad podcast.
37:43 If you’ve enjoyed today’s podcast and
37:44 would like to support us, please leave
37:46 us a rating and a review after you
37:47 listen. If you’re looking for guidance
37:49 on your next business acquisition or
37:51 sale, capital to support your next
37:53 business transaction, or to invest in a
37:55 private equity opportunity, visit
37:57 equityaunchpad.com to learn more and to
37:59 connect with our team. If you know of an
38:01 individual who would be a great guest
38:02 for the show, head over to
38:06 equityaunchpad.com/nominate where you’ll
38:07 have the chance to refer yourself or
38:09 someone else to be a guest on our show.
38:10 I’m Casey Mchu and I look forward to
38:12 talking with you next week.
