Building a relationship with business services companies, so when the time comes for transition, your business - your legacy - can have a trusted, locally managed home.
Northeast Business Services
In a World With Plenty of Buyers, How Are We Different?
Local Business, Local Ownership
Weekenders beginning in 2011, we have called Ulster County home since 2020. (fell in love with the community & culture) While there is a small town feel across most of the county, consolidation is a reality. Several of the largest HVAC companies are owned by private equity firms. There is nothing wrong with that and it validates the value we see in these businesses. However, that type of ownership often carries a different orientation. It comes with faster moving capital with a focus on the bottom line not culture. That can be very powerful particularly over the short term but it may destroy the culture and legacy you built over decades. We keep it locally owned and operated where your brand and legacy endure.
Building a Big Tent for All Stakeholders
While the financial risk managing small businesses is high, if well executed the rewards can be as well. These rewards, “the pie,” should be growing—hopefully! We believe they should be shared with the people that make the business go. Whether it’s a top-line revenue split for a key manager, adding an affordable insurance plan for younger workers with growing families, or retirement plans that support long term wealth creation, we want to build a big tent generating value for all stakeholders. We think this is a distinction that not all owners tend to make.
Long Term Experience Across the Housing Value Chain
As home prices bottomed in 2011, I began what became a parallel career in home renovation and land development. In Tampa, taking advantage of a massive home price decline, I established MP Holdings in 2012. This LLC bought, gut renovated and rented 100-year old Florida bungalow homes and was my first exposure also to the building trades. Since 2011 in the Hudson Valley my wife and I developed land for home construction in conjunction with my wife’s residential architecture firm, Studio MM. Meanwhile, my work at Nomura and UBS Securities included emphasis on housing finance. After leaving UBS in Summer 2022, I founded Reprise Homes, which buys and renovates entry-level homes from Ellenville to Kingston. Now, acquisition of select home services businesses is a natural and organic step.
Perhaps A Seller’s Biggest Concern, Can We Close?
We get it. No seller wants to feel their transaction is a science project surrounded by inexperience or worse. While NBS may not win a footrace with a private equity firm with hundreds of transactions under the belt and a dedicated deal team, we can assure you of several things.
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As a financial analyst by training, the analytical phase determining whether a transaction is worth pursuing—the go/no-go decision is fast, several days at most.
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While we can’t promise closing in four months after issuing an LOI, our intent is to complete all major steps toward closing in this timeframe.
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Data requests are stressful and time intensive. We make single batch data requests to construct a data set on a company rather than a disjointed series of incremental requests.
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We assess and balance resources required for diligence vs transaction size. We are trying not to answer every question but answer those questions relevant to what makes the business go—big distinction.
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Starting with a conference call to cover terms of the LOI, we try to over-communicate. This means fewer one yard line surprises that could jeopardize a transaction.
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We prefer to partner with the SBA and commercial banks to fund transactions. While these sources have their own timelines and data requirements, they are well known.
Our initial analytical phase determining whether a transaction is worth pursuing, in other words the go/no-go decision, is expeditious - several days at most. Assuming we move forward, we issue a comprehensive letter of intent (LOI) covering the obvious points, i.e. price and structure, as well as quite a few that are less straightforward. This document serves as a transaction roadmap. Once in hand, we like to schedule a call or in-person meeting to review it. While not required, we prefer it. Sometimes a plain language discussion of the points including concise explanation of “the why” is critical. It also helps establish a rapport, a pattern of communication that is often critical later in the process.
Second, having operated businesses and sometimes struggled with financial reporting to both investors and tax authorities, we understand the challenge and stress data requests can add. However, they are part of the diligence process. We pledge we will not exhaust sellers with repeated requests. We captain the transaction process, not our advisors. To state the obvious, we don’t expect to know every fact about a business prior to acquisition. Some acquirers do and it makes for an exhausting diligence process that also can test virtually any level of trust. We are also aware that diligence resources including a full quality of earnings (QofE) report are best applied based on the transaction, not universally. Diligence is very different for a single product company with under $500k of EBITDA we fund internally versus a multiple product company with 3x the EBITDA we may fund with a mix of internal and external capital. Our job is to size up the diligence requirement early, pre-LOI, so that we can communicate our requirements at the starting line.
Third, with a financial services career spent as an expert on the banking industry, we are very comfortable dealing with lenders and often seek commercial bank financing. We are big fans of the SBA 7a and 504 loan programs. The programs offer a low cost of capital with an application process we are familiar with. Although bank timelines may be longer and more multi-layered than faced by an all-cash fund, they are well known to us. Unlike many buyers, we pledge to keep you abreast of the type of financing we plan to use and the timeline for application and closing. This open dialogue mitigates stress and eliminates surprises that can kill a deal. What’s the benefit of type of funding? Well for us these sources are known quantities versus not knowing how a new equity or debt partner may behave during and after the closing phase. This type of capital structure and moderate leverage allows us to be a patient and stable captain of your business. We hope that’s worth a few extra days for closing!
What About Me and Why Home Services?
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Management experience from military and entrepreneurial pursuits. Founder of multiple housing-related and financial sector businesses.
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Invested in & analyzed financial institutions since the late 1990’s, working at a number of leading investment banks & hedge funds
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Raised outside capital for MP Holdings and Reprise Homes, two home renovation ventures & Hill Road Development, which specialized in luxury home construction.
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Committed substantial personal capital in home construction, renovation and land development for 13 years.
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Broad family business knowledge & relationships thru Studio MM and Reprise Homes make assembling a home services platform a natural step.
Growing up in Canton, Connecticut, a small town west of Hartford, I attended Dickinson College on a four-year Army ROTC Scholarship. Trained as a M1 tank platoon leader at Ft Knox, Kentucky, I unfortunately never saw an M1 again after Armor School but served in the US Army Reserve from 1990-98. Those roots are relevant today as the military offered a much richer management and interpersonal experience as a young officer than a professional life on Wall Street might suggest. Following graduate school at the University of Maryland I enjoyed a long finance career which included stints at Keefe Bruyette & Woods, Lehman Brothers, Salomon Smith Barney, Nomura and UBS plus investment roles at two hedge funds.
The global financial crisis was a volatile and unforgettable period for me both personally and professionally. This crucible also began a new entrepreneurial dimension to my career. As homes prices plunged and mainstream housing finance deteriorated, it created great opportunity. I explored ways to purchase homes and raw land and with my residential architect wife, we purchased a five lot, 40-acre, shovel-ready parcel in Ulster County. In collaboration my wife, we began developing spec homes in 2011. This was an aggressive move in the wake of the crisis, particularly in an area that historically saw little luxury home construction. Since that time, Studio MM offers an important lens on the area’s housing economy and produced deep relationships with area craftsmen. It also provided me a certain comfort level with businesses that are often heavily skewed toward new construction.
Taking advantage of a 50% peak to trough decline in home prices, I founded MP Holdings in 2012 which bought, renovated and rented fifteen homes in the Seminole Heights and Ybor City sections of Tampa. Captaining these complete renovations was a first introduction to the building trades and ultimately developing a cohesive team of sub-contractors to totally rebuild and reimagine these homes. This was great business from all angles, providing quality, affordable housing and strong returns for my investors during its ten-year holding period.
In the Hudson Valley, my wife and I pursued several land and home development projects pre-COVID to leverage Studio MM’s growing reputation for contemporary home design. More recently, we completed site work on Catskill Terraces, a 90-acre, 10-lot residential development in Saugerties, and after leaving UBS in 2022, I founded Reprise Homes. Like MP Holdings a decade earlier, Reprise focuses on entry-level home renovation. Reprise also provides a current perspective on area home services companies which work on our projects. This offers a creative way to verify pricing on real projects and “mystery shop” trades and firms we want to learn more about.
Our Interest in the Greater Hudson Valley
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While easily reached on a weekend drive from Manhattan, the Hudson Valley is still evolving unlike other more established weekend destinations.
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The Hudson Valley region is often more diverse with full-time, hybrid and weekend residents. Importantly, it has also not priced out middle class residents.
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We define a broader area for acquisition from four counties in northern NJ, northward including eight counties astride the Hudson River to the Massachusetts border. This area consists of both rural counties as well as densely populated affluent bedroom suburbs.
In 2010 as we considered various weekend destinations, we drew a 2.5 hour driving circle from mid-town Manhattan. The goal, find a location easily weekend commutable for City people (like us at the time) but one offering some upside, an area that was therefore, still becoming. Long Island’s North Fork, western Connecticut, the Berkshires and the New Hope/Delaware River areas are beautiful but more well established destinations. Much changed in the last 15 years with new hotels, restaurants and art galleries supporting interest in the area beyond outdoor activities it was long known for. Today the region has a dynamic mix of full time residents, weekenders and hybrid workers, post COVID.
Unlike our land development and home construction activity concentrated within Ulster County, we target a much broader area for acquisitions. This area includes four northern New Jersey counties and stretches north up the Hudson River to the Massachusetts border. It includes 5.7 million residents and provides larger numbers of small business opportunities all still easily accessible to us.
General Acquisition Criteria
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Northern New Jersey moving north astride the Hudson River to the Massachusetts border
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—Shift from fossil fuels to alternative forms of power generation
—Shorter winters and hotter summers giving the region nearly a year round need for heating or cooling capacity
—Greater public awareness of alternative power sources for home use
—Recognition drinking water is neither inexhaustible nor automatically free of impurities
—Technology use to develop a one-stop home services product delivery platform
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—Open to cyclical business models
—Given our housing background, no exclusion of business models simply based on a high ratio of new construction or a lack of recurring revenue
Northeast Business Services is discriminant with acquisition parameters. One, established criteria help us explain our activities and goals to investors and lenders. Two, our criteria provide a roadmap to manage finite resources and time. Three, our criteria if there is a match demonstrates interest and conviction with sellers. We don’t want to ever be the acquirer just showing up because a business is for sale!
Size. We focus on companies generating $500k to $1.5mn in earnings. We may evaluate smaller transactions in a compelling sector or where in a sector where we already have exposure and a smaller transaction could be an attractive tuck-in.
Geography: We focus on an area with 5.7mn people comprised of four counties in Northern New Jersey and eight counties astride the Hudson River to the Massachusetts border. The larger the company and the more existing management remaining in place post acquisition, the further afield we are comfortable being.
Main Investment Themes: A handful of active industry themes brings greater clarity in our process, a way of sorting among available opportunities. We seek businesses influenced by the following macro themes including: a gradual shift away from oil and gas power generation with implications across traditional electrical and HVAC to larger infrastructure companies, growing public interest in alternative sources of power generation, public realization that drinking water is neither inexhaustible nor automatically free of impurities, and use of new technology to create a one stop home services product delivery platform.
Contrarian: We try to avoid “group think” and in some cyclical or construction-exposed business models, we have real interest where others may pass. Among the search / independent sponsor community, the list of target company attributes is often the same including: an absence of seasonality and a high ratio of recurring revenue, low revenue concentration, management that remains in place post acquisition, and a motivated, committed work force. Wouldn’t this all be nice? Conviction in these attributes are reinforced by lenders and investors who often seek the same characteristics.
We get it, however, we also realize as with any investment, when investors all value the same characteristics, valuations increase with that higher demand. We try to color outside the lines a bit. For example, many businesses in the northeast have some sort of seasonal overlay. Its inescapable but how extreme is it? Is it mild, like construction framing that slows in January and February or severe in a landscaping business where mowing completely stops November thru March and very little can be done beyond hardscaping for at least two months? Furthermore, given concern about the economic direction, many buyers are allergic to cyclical businesses like home construction especially smaller ones that also layer on high revenue concentration. Given our home building & land development background, we see greater potential than others may. Additionally, with diversification in geography or product, we recognize there are ways these characteristics can be addressed.
Business Analysis 101
Successful investment whether in a public stock or private company depends on a solid foundation, not merely chasing a company that’s for sale. Part of that foundation is a sector thesis. This informs whether the sector is growing, shrinking, why, by how much and how quickly? Furthermore, are there sector-specific or environmental changes on the horizon that could alter or reverse its current attributes? This research determines whether an industry is compelling, now and as critically, years from now.
Why go thru this process? First, its a template that provides us the conviction to commit capital. Second, while potentially “preaching to the choir” it helps show how we got here for sellers who may be considering a number of other offers. That rationale which may become a shared vision can be the deciding factor for a seller in deciding to move forward with us. Third, for all stakeholders it shows this isn’t a “dart throw,” chasing companies simply because one may be for sale. Rather this process provides a roadmap to identify how we can add value and work to realize a common vision. Lastly, to the extent we draw upon outside financing sources, it forms a framework to communicate our vision and provides a foundation for a business plan investors and banks require.