Summary 

Ryan Sullivan isn’t trying to be the next PE shark.

In just 3 years, he’s acquired 6 small, family-run manufacturing businesses through his firm, North Park Group… and here’s the twist:

He’s not flipping them.

He’s holding them for 50 years.

Why? Because Ryan’s playing a different game. One built on long-term ownership, consistent cash flow, and treating people like human beings—not just line items on a balance sheet.

In this interview, Ryan breaks down:

✅ Why most rookie buyers underestimate the emotional weight of acquisitions
✅ How he builds trust with retiring founders (and why that unlocks better deals)
✅ Why North Park only targets businesses with 30+ employees
✅ What makes a deal feel right—and why numbers alone won’t cut it
✅ The real risk of customer concentration—and how to handle it
✅ How SBA debt can work with you (not against you)

Watch the video:

Listen to the audio:

 

Transcript:

Jon Stoddard (00:01.02)
Welcome to Top &A Entrepreneurs. Today, my guest is Ryan Sullivan from North Park Companies. Welcome to the show. How are you?

Ryan Sullivan (00:09.122)
Thank you. Thanks for having me, John. I'm good.

Jon Stoddard (00:10.856)
So you and I talked on LinkedIn, told me that you've done six acquisitions in the last three years. But I see like seven companies on there. So tell me about

Ryan Sullivan (00:23.246)
Uh, yeah. Well, we also got Sable. Sable is a brand that we kind of created, you know, U S manufacturing is a little interesting. We buy small, typically family run manufacturing businesses and we do a lot of things after we buy them, you know, first and foremost, we try to take care of the legacy of that family business. But after we buy it, we're looking for ways to expand the security of that business, grow that business.

And a lot of small US based manufacturing businesses should also kind of be distributors. And then at the same time, if you're making a widget and you're selling a part, a lot of times you can sell your core capabilities. So we have a lot of plastic making capability across our portfolio, but very few people call us just to make a plastic part. They call us to buy our products.

So we created the Sable brand to try to generate some inbound traffic for people just looking for plastic parts, because we have a lot of access capacity. So that's why you see seven companies on our website. And it's been pretty successful. At the end of the day, we're really good at making plastic parts. 80 % of the time, we're doing it to make the products that we sell. And 20 % of the time now, we're doing it to make plastic parts for other people.

Jon Stoddard (01:33.054)
All right, let's go back to your origin story. How did North Park group come to be? What's the original vision of it? And how did you carve out your space in the M &A? Everybody has these starts, false starts, failures, then all of a sudden you get your groove and you're tweaking it in. And why is it, it's a family office instead of the traditional PE, because you make that really clear on your website. We are not PE.

Ryan Sullivan (01:48.738)
Yeah.

Ryan Sullivan (01:53.84)
And

Ryan Sullivan (01:59.438)
That's right. That's right. Yeah, it was interesting. I was running a public company. It started out as a public company. That was a portfolio of US based manufacturing businesses. We did really well there. The family gave me a lot of leeway to run the business. ended up buying some businesses, selling one business unit, turning around a number of the businesses that they had and was pretty successful running that portfolio.

parted ways with that portfolio and decided to kind of go out and say, hey, let's follow this similar strategy of buying these small US based manufacturing businesses, but do it for ourselves instead of doing it for somebody else. And so that was really the formation of North Park Group. My partner, Greg Topol, is kind of the one that kind of convinced me to do it. He had the vision and the belief that we could actually go create a portfolio of companies. And we had a good bit of money that we wanted to put to work.

ourselves, but not enough to buy 10 or 15 companies. We had enough to buy one or two. And so that idea of bringing in investors and kind of the structure of North Park Group really kind of came out of that. So we formed in December 2021. And like you said, we've done six acquisitions here in the last three plus years. So it's been pretty successful. And North Park Group was formed a lot based on our

personal desires and also based on our philosophy of business. And it's, there's an awful lot that's co-mingled there. We like small companies. We've spent our whole careers in manufacturing and industrial distribution. So we stick with what we're good at and what we know. I've been in manufacturing since I got out of college, which was sadly a few decades ago, let's say. And we like small family businesses. We like long-term ownership.

Right. So unlike kind of private equity, which I do a lot of work in private equity, it's a, it's a great way to make money. But when we're, when we're acting like owners and we're participating in a business, we like the idea of owning a business for 20, 30, 40 years. Right. We like the idea of long-term ownership. think it's better for companies, investors, employees, suppliers, communities. Like we think long-term ownership is a good thing for everybody involved.

Ryan Sullivan (04:10.453)
And so we wanted to create a portfolio that we could hold the business for 50 years, just like a lot of private business owners do. And that created an awful lot of interesting conversations with investors. How do you bring in investor money? How do you get returns to them if you're going to hold the business for 50 years? But it's made us very good buyers of US family owned businesses because we're good operators and a lot of families when they're finally looking for liquidity event.

They really care about what happens to the company for the 20 years after they sell it. They're not really just looking for a financial exit. And that's where we get a good partnership with sellers.

Jon Stoddard (04:49.789)
Let me just make some clarification when you're talking about small family businesses, are we do size are we talking?

Ryan Sullivan (04:55.883)
Yeah, we're typically buying in the 500,000 to 3 million of EBITDA range. So kind of lower, lower middle market. Yeah.

Jon Stoddard (05:01.149)
Okay. 500,000 is pretty small and they don't sometimes don't have a lot of processes in place yet.

Ryan Sullivan (05:07.179)
Yeah, a lot of our businesses are pretty interesting, you know, I would say, you know, a lot of them are kind of aged out, maybe lifestyle family businesses, a lot of them haven't had a ton of investment, maybe in the last 10 years, you know, but 500,000 of EBITDA, you're really kind of 700,000 of SDE. So it is on kind of the lower, lower side, but we see a lot of opportunity in businesses like that. And we see a lot of great people in companies like that.

And a lot of these companies we've bought have been around for 80 to 90 years, and they're going to continue to be around. If you have a good steward of the business, I think there's no reason they can't be around for another 80 years.

Jon Stoddard (05:46.237)
I gotta go question about your partner. Did you work with your partner, find him, how did you guys...

Ryan Sullivan (05:51.938)
Yeah, no, Greg was actually working as my, buy side broker when I was at my previous firm. And so he was the one actually out looking for companies to buy. And, through that, through that relationship, we had bought, I think five companies under that under other portfolio. And so we had worked together for a while. And so when I spun out of there, he was like, Hey, let's, let's go do this. This thing works. Yeah.

Jon Stoddard (06:00.701)
Jon Stoddard (06:13.371)
I know how to go find deals. You know to operate and finance them. That's, yeah.

Ryan Sullivan (06:18.049)
And then the funny thing is, was like, I was like, yeah, but like, I had enough money to buy like one or two, right? Like not, not by eight. And I said, yeah, but who's going to give us money? He's like, we can fundraise. And like, he just believed, right? He believed we could get investors and, know, I suffer from a lot of inferiority complex, right? Like I always think, think I'm just kind of faking it till I'm going to make it. And I have a lot of self doubt. And I was like, I don't know, man, who's going to give us money. And Greg, at one point,

did a fundraise of, I think of like $5 million for a startup, so didn't have a product, didn't have any revenue. It was just like an idea, right? Like VC type stuff. And I was like, well, if you can get 5 million for something that doesn't even exist, I'm gonna guess we could find some money for a company that's been around for 85 years, always made money and has been making products and has lots of customers, right? I was like, I'll believe you. I'll believe you and we'll give it a try for a little while. And we bought two companies the first year and I was like, okay, he's right. And now we've got,

Jon Stoddard (06:52.433)
Yeah, yeah.

Ryan Sullivan (07:15.373)
40 to 50 investors that follow us from deal to deal. So we're fully funded, even though we didn't raise a fund. And we've got a wait list now of like 30 investors that are just kind of waiting to get into one of our deals.

Jon Stoddard (07:27.601)
Yeah. How did you solve for that? You know, they want an exit in five years returns for those.

Ryan Sullivan (07:32.95)
Yeah, it's interesting. mean, it's very much about philosophical belief. There are a lot of people out there that want to put money to work and care about how they put money to work, right? Obviously, everyone's looking for a financial return. But if you can pick, a lot of people would like a good financial return in aligning with a philosophy. So a lot of our investors work in manufacturing companies, have worked in manufacturing companies, have run manufacturing companies. A lot of them own their own businesses, so they understand the idea of long-term ownership.

And, you know, we've utilized SBA loans, which are great loans for 10 different reasons. One of which is you can pay distributions while the loan's outstanding, which a lot of normal commercial debt, you can't pay distributions. And so we pay distributions from our companies, you know, once, twice, three times a year, back to investors. And we wanted to do that because we wanted a

an instant proof point that investing in our portfolio was a good idea, right? I didn't want to buy a company and say, Hey, trust me, I'm going to send you check in seven years. It's going to be good. Right? I wanted to buy a company and yeah, yeah, like I bought a company and we signed up a check in six months and they're like, hey, this is great. Like do it again. You know what I mean? And so we were able to return a good bit of capital to investors.

Jon Stoddard (08:32.209)
Yeah, trust, yeah, that doesn't make sound like that. There's opportunities for them. Yeah.

Jon Stoddard (08:43.794)
Yeah.

Ryan Sullivan (08:50.305)
we're still able to take cash and reinvest in our companies. We spend a lot on CapEx and facilities and improving these companies at the same time, because we're going to own them for 50 years, right? If you're going to own something for 50 years, you got to buy new equipment, you got to fix the building, you got to put a new roof on. And so we're able to balance that and do both and give them good short-term cash returns while at the same time we're growing EBITDA, we're paying down our debt, we're doing all the things you'd want to see a business do.

Jon Stoddard (09:19.505)
Yeah. And do you do those SBA loans? You're taking on the personal guarantee for them? Yeah.

Ryan Sullivan (09:23.691)
Yeah, yeah, we've taken me and my other partners now have done, I guess, five SBA loans, and we've got four of us that have taken personal guarantees. Yeah, it's a North Park group is a very interesting partnership, right? I didn't want to create something where I was the center of the universe, right? I didn't want to end up with 15 companies and 15 business presidents that I had to manage.

And I knew to scale with SBA, we had to have people that were willing to take the personal guarantees and come in and kind of operate as a partnership. So all of our acquisitions are separate legal entities. We're not a true holding company legally. But when a partner comes in or we do a new acquisition, that partner's deciding to acquire that business through North Park, when a lot of times, let's be honest, they could go do this by themselves, right? I could have bought two by myself. Greg could have bought one by himself.

Brian and Scott or other partners could have each bought their business by themselves. They could have passed the hat. They could have raised enough money. They could have put more debt on the business. They could have figured it out, right? And so the reason they come to North Park is because now they get to own and operate that small business, but they've de-risked the transaction. And I'll talk more about that in a little bit, but they've also joined this partnership. So now they're actually one company inside of the kind of five operating companies that we have.

Jon Stoddard (10:26.065)
Yeah, yeah.

Ryan Sullivan (10:44.941)
and they get to act like a much bigger company. If they have a problem, there's someone they can call. They're not on an island running their small business by themselves. Now we're 250 people in the portfolio. If something happens, there is someone in our portfolio that has probably faced that problem before or solved that problem before. So we share a lot of resources across the companies, even though they're different legal entities. You know, just last week, we had a guy from our Mississippi business in Wichita troubleshooting a new machine that we bought.

Jon Stoddard (11:03.26)
Yeah.

Ryan Sullivan (11:14.579)
And we just build a Wichita company for his time and his travel. And he's a great engineer. He's out there helping the other engineer that's helping there. And then now he's back in Mississippi. We do stuff like that all the time. And so if you're going to run a business and operate a business, it's, it's isolating, right? Like, let's be honest, being like CEO or president, especially if like, especially if you're signed in the front of the check, not the back, right? Like it's, it's a scary place to be and be alone and be by yourself. Right. So.

Jon Stoddard (11:32.317)
What am I called to talk about this?

Ryan Sullivan (11:42.786)
We wanted to create this partnership where we can own and operate companies, but we weren't alone. We're part of this larger network that gives us more resources, gives us more knowledge, gives us someone to call and just complain to, right? I mean, like sometimes a business day is a hard day and you don't want to bitch at your spouse. call and you you complain to your workmate, right? Somebody else who's going through a similar thing. So inside of North Park Group,

Jon Stoddard (12:06.556)
Yeah, yeah.

Ryan Sullivan (12:09.517)
all of the, whatever you want to call them, independent sponsors, ETA people, business operators, someone who's acquiring a business that decides to do it on a North Park Group is actually joining the North Park Group partnership. And that gives them an awful lot of stuff. One is we're able to bring more equity to the table than typically a solo acquirer would be able to bring that de-risk the transaction. We're typically 50 % debt, 50 % equity in our deals. So we're not over-levering these things. We're not doing a 1090 SBA

We're not putting a ton of debt on these businesses. That's good. It's good to get a return but

Jon Stoddard (12:42.779)
Yeah, but when it's 90 % that's a chokehold.

Ryan Sullivan (12:46.797)
Yeah, if you picked up a loan in 2021 and you had a flexible rate, you you thought you were great until 2024 and all of sudden your debt payments way up. If your business went back a little bit, right, the J curve is a real thing. If your business goes down a little bit and interest rates go up, there's a lot of businesses in trouble right now, a lot of SBA loans in trouble right now compared to historical norms. And that's really because they put too much leverage on a small business that they were getting into that, let's be honest, when you acquire a business,

you know very little about it. When you've run it for five years, you know a lot about it, right? And so we de-risk our acquisitions, which is good for investors. It's good for operators by bringing more equity to the table. And then we're able to run it kind of like a holding company, even though legally they're separate legal entities. We do some stuff like we consolidate a ARAP. We do some shared service stuff where we operate out with the same partners for health insurance and

Jon Stoddard (13:19.111)
Yeah, you know what I mean.

Ryan Sullivan (13:44.014)
you know, corporate insurance and 401k. So we're able to take some stuff off of the business operator. Well, let's be honest, most people don't want to do. Most people want to make parts and sell parts. They don't really want to do a 401k fiduciary meeting, right? This is not what people get excited about in the morning. SRP is gonna be mad at me. Like, like our, our 401k people are gonna be mad at me. They get all excited about it, right? But like a business president who's running a manufacturing business, this is not where they want to spend their time, right?

Jon Stoddard (13:56.199)
Yeah. Yeah.

I gotta do it though, yeah.

Ryan Sullivan (14:11.265)
So we're able to centralize a lot of that stuff, which just frees them up. Like running a small business is hard. Now, if somebody can take 25 % of the stuff that has nothing to do with making stuff and selling stuff off your plate, that's a lot of value, right? Because now that person that's leading that business can put more effort into actually running and growing the company. So we do a lot of things like that. It saves us money, saves our operators time, and makes it more enjoyable to operate a small company.

So there's a lot of benefits to being inside of the North Park Group portfolio instead of just buying a business on your own. Right. And our operators have control. I mean, I was trying to work on a graphic. I'm going to do a LinkedIn post. But when we were looking to form a North Park Group, we looked at private equity and said, OK, we could raise a fund. We could BP, guys. I like running machines still. And I like getting dirty. I like being an operator. There's very few places you can be an operator and be in the fund. Right.

And so you typically have this finance organization that sits there and they charge a management fee and they get a lot of the upside on the carry and they get a lot of the upside because they brought all the equity. And then you have this operator who's all at risk in one company. That's where they put their money. That's where their incentive equity is. But you have this fund that owns, you know, 15, 20, 30 companies. So the fund's diversified, but the operator is just in one company. And I was like,

Man, the guy who's like losing sleep at Saturday night and working 60 hours a week is the person who's least diversified and probably has the least amount of upside in a standard P E deal. Right. And I was like, well, why don't we just be the fund and the operators? Let's be both. And so North park group, that's what we are. All the partners are sharing in the management fee.

Right? So we still charge a management fee because that's part of how we grow the portfolio and pay for things. But all the operators share the management fee for all the companies, not just their company, but the whole portfolio. And they all get incentive equity in every. Yeah, basically, right. They all get incentive equity in every company, not just the company they run. So now, you know, my partner, Brian or Scott, these guys that we've partnered with to buy businesses, they're instantly diversified.

Jon Stoddard (16:11.229)
Kind of like a revenue share from the NFL then, yeah.

Ryan Sullivan (16:27.615)
Right? If EBITDA, if another company goes up, their management fee goes up. If, you know, they're getting incentive equity in five companies instead of just the one company they're running. So instantly we're all able to kind of spread our personal money around, but we're also spreading around our incentive equity and our upside across multiple companies. And that's good from an operator perspective, because now they're de-risked. And it's great because they care about what's happening in the company to the left of them, to the right of them.

These guys like really care. Like when somebody has a bad month, everyone's talking to them. Somebody's having a good month, everyone's talking to them because their upside is dependent on the portfolio, not just their company. And that's a model that I think is very unique in this &A space. Right?

Jon Stoddard (17:12.711)
Yeah, is it, you know, if anybody else doing that, that's...

Ryan Sullivan (17:16.277)
Not, not to the level I'm doing. A lot of people have told me I'm, I'm an idiot. People tell me that a lot. You know, people tell me I gave away too much. I'm sharing too much to the upside. I could keep more of the carry for myself. I could keep the management fee for myself. But I'm like, that's not the environment that I wanted to operate in. I want to do, I wanted to operate with 10 partners, not 10 employees. I wanted to operate with the sheer, this view of like family business. We're all in the same boat together.

Jon Stoddard (17:19.901)
No.

Ryan Sullivan (17:44.928)
we're all going have a good day together, and we're all going to have a bad day together, right? Not where Company A is killing it, Company D is dying, and this guy's upset, and this guy's happy, and I wanted to bring everyone together and truly try to operate it as a team. And so far, we've been very successful doing that over last three years, but it's, it's what makes us very, very different. You know, I know a lot of guys that are on ETA, they buy a company, all their stuff's in that one company.

They don't, they don't have control anymore. have a buddy out in Ohio. He's tried to sell the one he's been running for six years, like three times now. And the people that have control and run the fund won't sell it. So he's like, he can't get out, right? Cause he doesn't have control anymore. so there's, there's a million models out there and they all have pluses and minuses. This is the one that we created because it really worked for us and it seems to be working for a lot of our partners, you know, and now we're getting good inbound from people who.

have a deal that they want to buy, they're just trying to figure out what's the right way to buy it or what's the best way for them to buy it. And North Park Group's looking like a good place for an ETA or a solo acquirer to buy a company instead of doing it on their own. It's lower risk, good upside with diversification, and then you're part of a family. It's pretty nice.

Jon Stoddard (19:02.709)
Let me ask you about this. You answered the question about your partner's a business broker, so he knows how to go out and hunt. But what do these deals look like? Can you tell somebody that's a pass or pursue in five minutes and, know, are they off market, on market or what?

Ryan Sullivan (19:18.849)
Yeah, mean, all the above. mean, we source deals like everybody else on the planet, right? We're on Axial. I know Peter, he's great, right? We're in generational equity and Woodbridge and all the big services. We have a lot of bankers that send us books every week. I've probably bought an hour, participated in buying 20 companies in the last 10 years. So I have a big network as well. And then we do a lot of proprietary deals, right? We're probably a third proprietary.

third off of big databases and a third off of books that we get sent. but like I said, we're US based manufacturing, industrial distribution. That's where all of our expertise is. That's kind of where we stay on too old to learn new things. And 500,000 to 3 million of EBITDA. I mean, obviously if we found a great deal at a good multiple, it was four and a half million, we could fund it and we could do it. It's just, there's a lot more competition when you get up to that space and the multiples move up, right?

And anywhere in the 48 states, I don't feel the need to go to Hawaii or Alaska for a manufacturing business, but if it's in the 48 states, we're good. And then, you know, it just has to be a business we like. We do a lot of plastic work. We do a lot of metal work, know, machining, stamping, forming. We do a lot of assembly work and we tend to make products. You know, we don't, we don't have a lot of businesses that are pure service businesses, meaning like a straight up machine shop. Most of ours are making a product that they're selling, B2B sales.

Jon Stoddard (20:43.537)
Yeah, that's like Neverleague, like Dicky Manufacture, Arcadia Glasshouse, yeah.

Ryan Sullivan (20:47.915)
Yep. Yeah. Roof flashings. Yeah. Dickie's making security seals. Yeah. Spill stop that we bought makes alcohol pours. Right. I mean, it's all same type of manufacturing, just very different widgets going into different industries. And I wanted to be diversified. Right. So I was putting a lot of my own money to work. I didn't want to buy five of the same company in the same industry, selling to the same people. It just feels risky. It's like, yeah, it's like, it's like, if you're going to put a whole bunch of money into the stock market, you're to put it all into Tesla. I mean,

Jon Stoddard (21:10.909)
Too much risk? Yeah.

Ryan Sullivan (21:17.677)
You know, it's been really good for a lot of years, but like that's very few people would put, you know, 50 % of their net worth into one stock, right? And I didn't want to put 50 % of my net worth into one group of companies and one industry and one sector making one type of product. So didn't want to do just a straight roll up. I wanted to get diversified in US based manufacturing. So we have Arcadia that makes greenhouses that they're selling to homeowners and industrial greenhouse applications.

all the way down to like electron making terminal blocks that are power connection things that are in your HVAC unit in your house, right? So we're pretty diversified as to the types of products we're making and who we're selling to.

Jon Stoddard (21:59.742)
Do you have any rules like seller stays on, family stays in the business? Cause I gotta imagine these 80 year old businesses, lots of family works.

Ryan Sullivan (22:07.809)
We're, I mean, I mean, first and foremost, we're pretty flexible, right? We've done deals from kind of A to Z, right? Arcadia, we bought, was father, son, son stayed in the business, son did a rollover, son still owns part of the business, but you know, we have control. We put an operator in to replace the father. we've bought other ones where people want a hundred percent liquidity. They're moving to Florida. They want to retire. You know, I get it. They give us six months, maybe 12 months for a transition.

We're typically buying the building and the real estate, so we're giving people full liquidity. I a lot of family businesses own their building. Makes sense. If we're going to own a business for 30, 40 years, we want to own the building too. It's a good risk reduction. It's a good asset. Yeah, that's right, right? It's a great asset. It's our building's cash flow. We're going to own them. Like, why buy it three times and rent? Right? It reduces the risk on a transaction when you can buy the real estate. And so,

Jon Stoddard (22:48.727)
advantages to the SBA too.

Ryan Sullivan (23:05.547)
You know, and so we're, pretty flexible. We've done seller notes. We've done no seller notes. we've done, you know, seller stay on, which with the SBA now is harder and harder by the day. depends on what day the rules come out. Yeah. Right. Yeah. I mean, like, luckily we did one that was like in the good window for the stock, stock deal and rollover rules were, and now, now it would be pretty tough, but,

Jon Stoddard (23:18.267)
No equity rolls, yeah, by June 1st, yeah.

Ryan Sullivan (23:32.558)
So we're pretty flexible and we try to spend a lot of time working through our deals. mean, one is I tell everybody like, if I sign an LOI, we'll close it and we'll close it in the exact terms in the LOI. I never retrade and I won't be retraded out. That's not how we do business. Like we wanna sign an LOI and then we're just doing work to get to close. We're not really doing diligence anymore. We've done our diligence before we get to an LOI, right?

Jon Stoddard (23:58.694)
And are you verbally agreeing to all the LOI terms and then write it, spend a lot of time writing it? Yeah.

Ryan Sullivan (24:06.317)
Yep. A lot of time writing it and we have like 98 % of our terms in the LOI. So literally the lawyers are just trying to take the LOI and turn it into an APA or yeah. Right. Like we're putting in, you know, deductibles on claims and we put everything in there. I'm like, after I sent an LOI, I do not want to be negotiating with a seller. When I signed an LOI, I just want to be working on getting to close. It's too emotional. It's too much work.

Jon Stoddard (24:15.239)
to an asset purchase agreement.

Ryan Sullivan (24:34.553)
It's too scary for everybody, right? Like, I just want to close per the terms on the LOI and try to close quick. So most of our deals, we're closing in a little under 90 days, which for SBA with real estate means like we move quick. Yeah.

Jon Stoddard (24:47.527)
Yeah, yeah. So who's the most impressive operator that you've backed or acquired and what jumped out at due diligence?

Ryan Sullivan (24:56.997)
man, can't pick between the five guys that got running businesses. That's like saying, which is your favorite child? Yeah, no. I think we spend a lot of time trying to make sure that all the stars align, right? Like when you find the right business and the right geography, the operator likes that geography and they have industry experience with that acquisition.

Jon Stoddard (25:01.565)
You don't even have to name them. Just like, what was it? Was it? Yeah.

Ryan Sullivan (25:21.965)
And there is a vibe between them and the seller. Like you can see that personal relationship when they're talking to each other, even pre-LOI. You're like, these two people are going to get along. They're going to get through this process together. When all those stars align, it's really beautiful. I mean, we had that at Neverleak. We had that at Arcadia. mean, Arcadia is a great example. mean, Brian, we worked together in a previous portfolio. So we've known each other for, I don't know, six, seven years now.

And he wanted to, he had a kid, he wanted to raise his kid where he grew up, Chagrin Falls, Ohio. And so he called me and says, Hey, I need something that's like a 45 minute radius around Chagrin Falls, Ohio. I'm like, that's a narrow search. You know, like give me 48 states. I can find you a good company. Give me Chagrin Falls, Ohio. It's going to take a while. It took us maybe a year, year and a half. And, you know, he, he was doing a lot of the searching. I was just trying to help him and kind of consulting with him. And,

Jon Stoddard (25:59.996)
Yeah, yeah, yeah.

Ryan Sullivan (26:15.253)
we finally found one that he really liked and it matches his industry experience. He hit it off with the family that was selling the business. It's, I think, maybe 50 minutes from Chagrin Falls, Ohio, right? So it's a little bit longer commute than he wanted, but it's a great business. And when you see all those, all those stars come into line, it's just so clear that it's a good deal, right? Which it might be a bad deal for somebody else, but it was a great deal for us because it was a great deal for Brian, location, industry, everything, everything lined up.

Jon Stoddard (26:44.317)
Yeah. And when it's not, you, you guys pass on it pretty quick. mean, a couple of things stick out and you go, this taken long or normal it's, they're,

Ryan Sullivan (26:44.497)
And there was a lot of trust.

Ryan Sullivan (26:48.889)
yeah. Yeah, pretty quick. Yeah. I mean, in a lot of ways, we're kind of like private equity, we're out doing &A. Anyone out doing &A, who's really trying to do it is probably seeing, you know, 20 deals a week. You got to be really quick at going like, not for us, not for us, not for us, because you can't go down the path on 20 deals every week and get anywhere. And part of our benefit at this point is now we have

Jon Stoddard (27:07.773)
Yeah, for us. Yeah, yeah.

Ryan Sullivan (27:15.925)
You know, we have probably 10 guys in our portfolio searching, right? We have a few operators in our portfolio that haven't taken personal guarantees. know, Brian searching, Scott searching, Greg searching, like, so it's not just me as like a business development guy looking for companies. There's 10 of us out there looking for companies, you know.

Jon Stoddard (27:34.331)
Yeah. And who does the deal review for your business? know, reading the financial report cards. You know, I, I'm a Warren Buffett backer and he goes, you've got to know the language of business, which is accounting. Yeah.

Ryan Sullivan (27:47.682)
Yep. Yeah, for sure. mean, we have three accountants and staff in our portfolio at this point. I do a lot of it, right? So I'm the one that's probably participated in the most deals and negotiate negotiated the most deals. So, you know, like it or not, I'm probably spending 50 % of my time working new deals and all aspects of the deal from

diligence all the way through closing through the cap table, debt structure with the banks. You know, I'm kind of doing a lot of that from A to Z. But there's a lot of other people in the portfolio helping out on different aspects of it.

Jon Stoddard (28:23.483)
Yeah. And tell me kind of like a deals you walk away from that just alarm you. it, you know, too much debt on it or what, too much reliance on customers, the same kind of deal. Yeah.

Ryan Sullivan (28:33.805)
Yeah. mean, yeah. Yeah. I mean, obviously customer concentration scares everybody. I mean, I was at a company this week and it's really kind of sad. Actually we called them, I think three, four years ago, trying to buy their business. And they're like, you know, we're not for sale. not for sale. And, they had two large customers, both maybe 40%, uh, of their revenue across two customers. And they lost both those customers in the last four months.

Jon Stoddard (29:02.109)
Ooh, what was the changes, what was the narrative or story around?

Ryan Sullivan (29:03.576)
And so it was a

different reasons for the two customers. One's just consolidating back in because they have capacity. One's moving everything to Mexico as part of some commercial deal that they did. But you're talking about a five and a half million revenue business that now is a 750,000 revenue business and it's in trouble. So I met with them this week to figure out like, hey, what can we do? What jobs can we save? Can we onboard your book of business? It's no longer about.

Jon Stoddard (29:26.449)
Yeah.

Ryan Sullivan (29:35.457)
buying the business as a standalone entity, it's about trying to save jobs, you know? And so it's scary, right? Running small companies is a scary thing and they've done it successfully for like 40 or 50 years, right? This is not their first year on the block.

Jon Stoddard (29:49.945)
It's probably not the first time they've experienced a big drop either at some point, yeah.

Ryan Sullivan (29:53.43)
No, that's right. And, and they're, trying to work through it and figure out what to do. And obviously that, know, this time they're a lot older than they were the last time. So it's, it's tough, right? Yeah, both that and, and cash, right? So it's, you know, customer concentration, we're always worried about, you know, I tend to shy away from companies that only have like eight employees.

Jon Stoddard (30:01.671)
Do they have gas in the tank to do it? Yeah.

Ryan Sullivan (30:16.939)
Right. Cause then you're like, wow, the seller is a lot of what's probably keeping this thing going. We tend to like companies that have more than 30 employees. That means there's a certain inertia in the business to get stuff done. There is an exception to every rule never leak that I passed on. And then Scott said, Hey, I like this business had something like 12 employees in Mississippi. And I was like, I don't know, man. You know, turns out it's like 20 minutes from the Memphis airport. So it's not, you know,

middle of nowhere Mississippi and it's a amazing business. just have a lot of automation, very few guys on the shop floor, absolute great business. So there is an exception to every filter, but we typically look for more than 30 employees. We like a business where the sellers are maybe a little less active, right? Where they're not doing 10 things. I've bought lots of companies that have three or four family members in it. That doesn't bother me. You know, you just gotta have a good relationship with each one of the family members.

Yeah.

Jon Stoddard (31:11.477)
I got a question about that. How do you uncover the real truth about that? Because some people say, I only work four hours a day. Really? Yeah.

Ryan Sullivan (31:19.821)
Yeah. Yeah. I mean, you can, what's the, what's the phrase? You can't bullshit a bullshitter type of thing. Right. So, uh, I think that's maybe where we have an advantage because we've spent our whole careers operating in and running small businesses or manufacturing businesses. So if I sit at the table and I talked to somebody for an hour, I know exactly how much they're working or not working. Right. Like I just understand it at this point, you know, um,

Jon Stoddard (31:37.117)
Yeah.

Ryan Sullivan (31:49.474)
You know, we shy away from anything from a manufacturing perspective that's really high tech or complex or that scares us, right? Again, I'm too old to learn new things. If I don't believe I can make all the parts myself, I probably don't want to buy it. Like if somebody needs a PhD or you need a master's electrical engineer on staff for like stuff to work, I'm probably like, scares me. You know, I like, yeah. Yeah, that's right. You know, and,

Jon Stoddard (32:09.327)
It's hard to replace that. It's like trying to replace a doctor. They don't make enough of them. Yeah.

Ryan Sullivan (32:16.461)
You know, it's all about risk versus reward. You can make good money buying those. A lot of those are great companies and you can learn, you can figure it out. just like, well, you know, I operate with a, the world's going to end tomorrow kind of mentality for some reason. Probably a lot of reasons in my personal history as to why I operate that way. like I was in, was in telecoms during the telecom bust, right. I happened a long time ago, but like I was there. I went through seven rounds of layoffs working for a telecom company. I was like,

Jon Stoddard (32:44.391)
You mean like Worldcom and those set deals? Yes, yeah.

Ryan Sullivan (32:45.633)
This is painful. yeah. Yeah. All right. And then I was in building products during the housing market crash. So there I am. I'm in building products. Yeah. Housing market crash like 50 % of its size. Right. I'm like, wow, this is painful. So like, you know, good days are good days and there's bad days coming. Right. And so whenever I'm looking at a deal, I'm like, well, if I buy this and let's assume three quarters of people just quit the next day, they're just like, Hey, forget this. I'm out. I'm like,

Jon Stoddard (32:52.79)
It's just like, you got a knack for picking the industries, Yeah.

Jon Stoddard (33:13.597)
Yeah.

Ryan Sullivan (33:14.667)
I gotta be able to make parts between me, my kids, my wife. Like we gotta be able to make parts and keep this thing alive. Like that's how we look at it. And so if I walk a shop floor and I'm like, I can run that, I can run that, I can run that, I could figure this out. Then I'm comfortable buying it. If I walk out and I'm like, I don't know what that is. Like I'm probably out of the deal. You know, like.

Jon Stoddard (33:33.831)
Yeah. And we're talking about like CNC machines and Lays and yeah.

Ryan Sullivan (33:37.099)
Yeah, CNC machines, metal stamping, plastic injection, these are things I know. But when you get into like wave soldering or you're like making circuit boards and stuff, like, I got a master's in EE, but I haven't used it in a long, long time. You know, like I'm not sure if I could figure that stuff out.

Jon Stoddard (33:50.129)
Yeah, that's it. I've got to BS in engineering and I can't do any of the programming that they're, yeah.

Ryan Sullivan (33:56.366)
Yeah, like, like, sadly, I gave up being an engineer a long time ago. I was never a very good engineer. It's why I moved into management, right? Those who can't do teach, right? Like, like, I'm not very good at playing. I should coach, you know, like, so, yeah, I mean, you need to have a lot of comfort when you're going to buy a business because it's risky. And, I love podcasts like this because, you know, like I went through the ones that you've done and like you've done a few where like, Hey, this deal went bad.

Jon Stoddard (34:02.887)
You sound like me. Yeah. Yeah.

Ryan Sullivan (34:24.673)
Like bad things do happen when you go out and buy a company. It's not always rosy. It's not always easy. You know, the J curve is a real thing. People get into trouble. They go through lean years. Like that's what you're getting into when you're buying a business. And if you're going to try to hold the business for 40 years, you're going to have a lot of really good markets and a lot of really bad markets. And so you better be ready to like ride the wave and be, and yeah, and, and, be stable. Right. I mean, at end of the day, like,

Jon Stoddard (34:44.999)
You gotta have a good boat. I mean, this ship's gotta be really solid.

Ryan Sullivan (34:51.949)
If we have 250 people working for us, that's 250 souls add their families. That's probably what 500, maybe 700 souls that are depending on our companies to run and to run well and to keep them employed. Like if that doesn't keep you up at night, you should probably find a new career, you know? So, so we do a lot to protect our companies, everything from how much debt we take to how aggressive we are with making changes. We tend to be pretty conservative, like

Jon Stoddard (35:08.252)
Yeah.

Ryan Sullivan (35:20.813)
We're not the smartest people in the room. This company has been around for 80 years. Let's actually learn it before we start going and start turning knobs, right? Like we do not walk in day one and be like, here's our playbook. Like, let's go change 50 things. I walk in day one and say, thank you. And please teach me, you know, because I've been in business a long time, but I haven't been in that business.

Jon Stoddard (35:41.234)
Let me ask you about the valuation and you find a company, it looks great. And how do you handle something that's a little bit too high valuation? It's just creative financing, maybe some earnouts or seller, or do you just try to go, look, we're getting this at a fair price. This is what we come up.

Ryan Sullivan (36:00.834)
Yeah. I mean, I probably put in, you know, 30 legit offers for every one that I win. Right. So it's a, it's a cut. Yeah. Yeah. It's probably a cut between indication of interest, right. It's probably maybe like 10 LOIs to one win, but maybe 30 indications of interest. you know, a lot of times when we don't win, I'd say half the time, the person is just not selling.

Jon Stoddard (36:08.541)
Yeah, 30 to 1. Yeah.

Ryan Sullivan (36:27.467)
Right? So they have a number in their head as to what they'd like to get for their business. We give them an offer. We're too far apart to try to massage the thing and get close, but they, we didn't lose to somebody else bidding. They just didn't get the number they wanted. And so, you know, if you want a private business and you don't want a hundred percent of it, your number one option is just keep running it. You know, that's, that's, that's great. And, know, until you're 105 and at some point you're like, Hey, you gotta, you gotta sell this thing. Right.

Jon Stoddard (36:47.719)
Yeah.

Jon Stoddard (36:53.999)
or you lose a couple of customers and...

Ryan Sullivan (36:57.437)
Yeah, I I felt so bad this week. He's like, he's like, I should have sold you three years ago when you call this. You know, then it would be my problem. And I told him, says, Hey, maybe maybe you should have, you know, and maybe I'd be there with the exact same problem he had today, or maybe we would have done something different over the last three years and ended up in a different place. I mean, who knows, right? You're your Monday quarterbacking. So, but sadly, it happens a lot. I know a lot of people that didn't sell.

Jon Stoddard (37:03.908)
What do you say to that?

Ryan Sullivan (37:27.693)
In spill stop, we tried to buy spill stop in 2023 lost. He, picked somebody else transaction fell apart, tried to buy it again in 2023. We lost again. He picked somebody else fell apart. We bought it in 2024 for less than we offered the first time and we closed it. Right. And so, Oh yeah. I mean, yeah. I mean, you know, when, when, when a seller doesn't like your number.

Jon Stoddard (37:45.863)
Yeah. What do you call those? Come back around? I don't know what the, yeah.

Ryan Sullivan (37:55.79)
You got to hold your model. You got to hold to your thesis and your belief on the financials and just assume it just doesn't work. And then there's no reason to be mad about it. You just shake hands, you smile, you wish them best. I I've referred people that I lost to, you know, new customers. Like, you know, why not? Like it's a small world. All I want them to do is when they finally really get to the point where they're looking again to sell or get liquidity, I want to be on the list of people that they call.

Cause you know, Phoenix electric that we bought, I think we first talked to them four or five years ago in a different portfolio. And they're like, no. And then all of sudden we, we formed North park group. They call luckily our cell phone numbers were the same and they're like, Hey, now we're for sale. You guys approached us four years ago. Now we're for sale. And so even Phoenix electric was a comeback, you know, we just reached out cold calling and they weren't interested in selling. And when they finally were.

We were in their Rolodex, they called us, we got into the process, bought the business. So a lot of times...

Jon Stoddard (38:56.029)
That sounds like discipline. You've got discipline. Yeah. Yeah.

Ryan Sullivan (39:00.288)
Patience, patience, right? Like you just got to, I mean, think of it, we bought two businesses in 2022, zero businesses in 2023. So by the end of 2023, I'm kind of freaking out, right? I'm like, Hey, I didn't want to buy two small companies. I wanted to get to eight. And now like we bought two and we thought we were doing great. And then just nothing for 16 months. Right. And then like that, I signed two LOIs back to back and we ended up buying Vicky and Everly.

Jon Stoddard (39:25.661)
But you were signing sending out IOIs and LOIs. Yeah, yeah. None of that slowed down. Yeah.

Ryan Sullivan (39:28.397)
Oh, we were looking. Oh, yeah, I was, I was bidding, searching, visiting. Like, I just, I just lost. I lost every single time I bid in 2023. And all of sudden, we signed two LOIs and boom, early in 24, we're up to four companies and then SpillStop comes back. We buy SpillStop in September. Right. And so it's like, yeah, you just got to be patient and keep grinding. You know, it's,

Jon Stoddard (39:51.643)
And you visit the, how you visit everybody you buy in LOI or IOI or LOI.

Ryan Sullivan (39:56.175)
yeah.

indication of interest. Yeah, I wouldn't do an LOI without having visited a company and spent a lot of time with them. Yeah. I mean, we, yeah, sure. Go ahead. No, you go.

Jon Stoddard (40:00.518)
Indicated, yeah.

Jon Stoddard (40:05.511)
Yeah, I got a question. This is a new question. Yeah, go ahead. Was there any business that you kind of passed on, didn't like, but you heard the story about, kind of hooked you on it or?

Ryan Sullivan (40:20.094)
and what went back and tried to buy it or regretted that I passed on it.

Jon Stoddard (40:22.229)
You were just the story going, Hey, you got to hear the founder story and here's why we build it. got a unique advantage compared to everybody else. It's been essentially a moat. Yeah.

Ryan Sullivan (40:33.515)
Yeah, I mean, everybody has their story. Everybody has a good origin story. You know, we buy businesses that we're looking for consistency. We're looking for people that have been around a long time, right? We don't do startups. We don't, we tend not to do distressed assets. We're not doing turnarounds. We're doing, you know, good solid companies that have been making 750,000 in EBITDA for the last 10 years. And like, I'm like, Hey, that's really attractive. If I can buy that well, I can get in there.

A lot of times I feel like I'm taking it from like the year 2000 into the year 2020, you know, like not 2025, but just 2020. And then when you do that, like the place starts to accelerate, they start to generate new sales, they get more profitable. It's a lot of blocking and tackling. And you can do that while taking care of the legacy and taking care of the employees that have been there for a lot of times, you know, 30, 40 years. And we have some employees that have worked at these companies for over 40 years, and then we buy them.

You got to know how to take care of those people because one, they have a ton of knowledge, but two, they're kind of legacy of the company. That's why we're buying these companies. We're buying them because these companies have enabled people to pay their mortgage and put their kids through school and, you know, take a family vacation for the last 40 years. And, you know, we want to be the kind of owners that enable that for the workforce, even after the sellers decide to retire. Right. So.

Jon Stoddard (41:54.334)
I got a question about this. Now that you purchased a number of these companies, you know, that are 40, 50, 80 years old, do you see patterns in their behavior, their characteristics that you go, well, you know, like he's owned, he's lived in the same house for 30 years that he bought for $30,000 in the middle of, you know, Sandusky. Yeah.

Ryan Sullivan (42:16.235)
Yeah, lot of these people are salt of the earth people. You know, they got into that business in a few different ways, right? They were a salesperson and they knew the industry and then they bought a company in the industry and ran it. They worked in the business and the last seller retired and they bought the business from last seller and they were the office manager or the salesperson had already been in the business 10 years and now they've owned it for 40 years and now they're selling it again, right? There's, there's a lot of common themes. And

It is a private business. So I think it's natural for a lot of people when they own a hundred percent of a company or 50 50, it's all internal. They run the business to get to a point where their risk versus reward is balanced for them as individuals and their effort versus reward is balanced for them as individuals. Right? So a lot of people call them lifestyle businesses and they're just like, Hey, I could have sold more. I could have grown the business, but I didn't want to do the work.

I didn't want to put a second shift off and have to manage it. I wanted to be able to go golfing on Friday, right? Like, hey, I get it, right? It provided a great business for all those employees. was a good business for them as owners and they ran it to align with their lifestyle. A lot of these people are doing a lot for charity or church groups. know, they're not, yeah, through college and...

Jon Stoddard (43:36.369)
their kids through college and

Ryan Sullivan (43:39.832)
They got to spend time with their kids and their home every night at five o'clock. mean, there's, there's a lot of reasons people run private businesses, right? And it's not all about like private equity. Like I have to triple EBITDA and sell it at a, you know, two X more multiple. A lot of these people are running these businesses to align with their family values and their life values and balance all that out. And so that's very common in the companies that we buy, you know, and then we go in there and we're not.

private equity, we'd like to grow it, because I think a growing business is more stable than a flat business, right? mean, markets go up and down, bad things happen. And we don't own 100 % of it, so we do have outside investors, so we have a fiduciary responsibility to our outside investors. We can't run this thing like it's our own, you private club. And so we do take a little bit of a different approach to continually trying to grow and move the business forward, and we're willing to do a lot of things that are hard that a lot of these sellers didn't want to do. And it's not because they're

bad business people, they're great business people. It's because they understood the trade-offs of the value versus what they were going to have to give up personally to do some of those things, or the risk they were going to take personally to do some of those things. And so we just have a slightly different balance than they had. And that enables us to go in and actually start growing a business or accepting business that they were turning away, different things like

Jon Stoddard (44:45.533)
Yeah.

Jon Stoddard (44:58.701)
For instance, like if they were at 95 % capacity and to go to the next level would double their cap X. Do you say no to that or do you do that for them? I mean, yeah, you're going to do that.

Ryan Sullivan (45:09.121)
No, we do that. Yeah, we reinvest. yeah. Like, we're all about growing our companies, because like I said, growing companies are stable companies. You know, can have customer concentration as long as you've got new customer acquisition, right? There's a lot of things you can do in business to de-risk a business and make sure it's going to be healthy for 50 years, develop new products, bring in new manufacturing capabilities. So we're constantly reinvesting in businesses where a lot of times...

somebody who's owned a business for 40 years, so like, I'm not interested in putting a million dollars into a new piece of equipment. that's a lot of risk. I don't want to have debt anymore, right? Like, I don't want to have the likelihood that the bank could call me and say, I got to write a big check. And while I have the personal guarantee, I don't want to have 40 % leverage on my business anymore, right?

Jon Stoddard (45:42.001)
Yeah, yeah. And CNC machines are huge expensive. Yeah.

Ryan Sullivan (46:00.218)
For us, we're like, hey, that's the job. That's what we do, right? So we'll keep data in our business. We'll make CapEx reinvestments in our businesses. So from that perspective, we're running it a bit more like whatever you want to call it, professional operators or financial operators. But we do it under the culture of a long-term family ownership structure.

Jon Stoddard (46:14.769)
Yeah, yeah.

Jon Stoddard (46:21.489)
Yeah. So tell me a little bit about the financing and managing investors and finding them and what does that look like?

Ryan Sullivan (46:31.684)
Yeah, I never I never thought it was possible. I mean, I do a lot of calls of people now trying to pay it pay it forward. Yeah, investors come to us now, which is which is kind of cool. But I mean, when we started out, we started out passing the hat, right? We called family, friends, college buddies, people we knew in industry and said, this is what we're trying to do. Are you interested? We structured our deals like a typical private equity deal, because that's what our investors understood.

Jon Stoddard (46:38.631)
Are they coming to you now versus you're still reaching out or what?

Ryan Sullivan (46:58.989)
So investors get an 8 % preferred return. We're charging a management fee. We get a carry incentive equity once investors get their money back with their preferred return. And so the deals from a financial perspective look a lot like PE deals. You can structure deals a thousand different ways. We chose that because our investors are like, we get that. We also invest in private equity. We understand that model. We're okay, right? And the first deal we did, we raised,

1.8 million in equity. There's obviously a good chunk of that was from us, but we raised a lot outside money. The second deal, we had 5.3 million of equity. So obviously a much, bigger fundraise. And we're lucky now we have investors that are in all five of our deals, right? So they literally followed us deal to deal. They're diversified, just like we're diversified. They believe in our philosophical mission as much as our financial returns. And it's been great, you know, and yeah, not

Jon Stoddard (47:52.323)
And the cap stack is 50-50, right? 50 equity, 50 debt. Yeah. Yeah.

Ryan Sullivan (47:56.472)
Typically, yep, yeah, yeah, 50 % debt. that's including the building. So we're really kind of underlevering a lot of our businesses, but that's because I'm a big believer in free cash flow, free cash, cash rules the world. Tell everybody that cream is our theme song, right? Cash rules everything around me. Like that's very much our theme song. Cause if you have the cash, then you have optionality. can give it back to investors. You can reinvest it in the business. You can buy equipment. can...

Jon Stoddard (48:09.446)
Yeah.

Jon Stoddard (48:15.026)
Yeah.

Ryan Sullivan (48:25.025)
Give it to your employees. mean, you name it. If you have cash, you have a lot of options in business. If you don't have cash, you have very few options.

Jon Stoddard (48:32.283)
Yeah. And what do you do when your J curve is real? What do you, if that, hits you, mean,

Ryan Sullivan (48:38.541)
I mean, Phoenix Electric is a great example. mean, it's really solid business, great business. We bought it. It was located next to Wrigley Field. Not a great place for a little manufacturing business from a real estate cost perspective. So we did not buy that building. We just knew we had to move the business. Bought the business, ran it for 16 months. Market was great. Customers were great. Returns were great. Bought a building, moved the business into that building, and the whole market just slowed down.

so things got real thin for probably the last 12 months, but because of our debt structure, we were fine. We're paying our bills every month. We're okay. We weren't generating a lot of free cashflow. Yeah. Yeah. We weren't generating a lot of free cashflow outside of our debt service, but we were solid. We were not into our line of credit. We weren't, you know, short paying vendors or pushing vendors out. Like we were just running a stable business. We just weren't generating a lot of free cashflow. And then now the last

Jon Stoddard (49:17.791)
lot of margin of safety in there. Yeah.

Ryan Sullivan (49:36.846)
three, four months or basically 2025, the market's back, we're in our new building, our renovations are done, we've invested in that business a lot, we bought some new pieces of manufacturing equipment, and now the market's back. And so now Phoenix is generating a lot of free cash flow and it's the J curve. And that's probably gonna happen to Phoenix four more times in the next 20 years, you know, but on average, it's a great business with great people in

Jon Stoddard (49:58.172)
Yeah.

Jon Stoddard (50:02.321)
Yeah, that's the, that's, gotta tell you, that's what scares me about, you know, I see some entrepreneurs buying a business with 90 % SBA loan. Like that is, and then when you go the debt, the SBA lender goes, yeah.

Ryan Sullivan (50:12.011)
Yeah. I know people that have done it. I know people have done it they made a killing. I also know people that have done it and they're bankrupt. Right. So like I've met people on both sides of that 1090 spectrum and I get the appeal of it. And I just choose to sleep at night. Right. Like I don't want that much stress. You know, some I'm okay with

Jon Stoddard (50:22.489)
Yeah.

Ryan Sullivan (50:36.685)
pulling down our returns by a few percentage points to really de-risk a transaction and more importantly, make it safe for all the employees. You gotta remember when a business goes out, like it might be bad for me, but I'll be okay. But is really bad for 30 employees or 40 employees for those families, that is decimating for them to lose their jobs. Our investors who invested in five of our companies, if we had one of them go to zero,

Jon Stoddard (50:49.606)
Yeah.

Jon Stoddard (50:57.533)
Yeah.

Ryan Sullivan (51:03.822)
They invested a very small part of their net worth and they lost their investment. Okay, but those employees...

That is life altering. Like we messed it up so bad that we altered the lives of 30 people who by the way, were not in control and didn't get a vote in any of this stuff, right? At least the investor decided to put money in. Yeah. Right. so, so we really de-risk a lot of stuff and, we run good returns, right? Like I'm, I tell everybody, like I calculate our returns by assuming that I could sell whatever we bought for what I bought it for. So if I bought a business for 4 million and a building for 2 million,

Jon Stoddard (51:20.047)
It's because you levered it up too much. Yeah.

Ryan Sullivan (51:39.214)
I'm going assume in the future at some point I can sell it for 6 million. I'm not assuming mark to market and I can, you know, sell it for a higher multiple appreciation, none of that. And so our returns are cash we've given back to our investors, cash in our balance sheet and debt reduction. That's it. And according to that math, we're running north of 25 % annualized returns across our portfolio. Right? Yeah. So like, like we're running really good returns.

Jon Stoddard (51:45.853)
appreciation or sarcoph... yeah, yeah.

Jon Stoddard (52:02.813)
25 % IRR, okay, yeah.

Ryan Sullivan (52:08.267)
And we've de-risked it a lot, right? So you don't have to do 1090 to get like solid returns and all that kind of good stuff. No, granted, we could be running better returns if we put more debt on our business long-term and we could, we could, we could, but.

Jon Stoddard (52:19.805)
Yeah, yeah. But 90 % like, you go, hey, you could get a loan at 1.25 debt service coverage ratio. But do you want to? Yeah.

Ryan Sullivan (52:27.905)
Yeah, like it's, it's pretty tight, right? And, yeah, every, every company goes through a J curve, I think, after you buy it, the seller's leaving, people's moods change. You're not as knowledgeable. You try something and it doesn't work. I mean, a J curve is very, very normal. So now you got these, these big market swings. You know, if you bought an industrial distribution business that was sourcing a lot of stuff from Asia, you know, at end of last year, you've had an interesting start to this year, right? Like,

So things in the market like that happen and they're not unusual. I believe they happen every year. We just call it something different. Housing market crash, COVID, tariff changes, you just go through it. There is a disturbance in the market. Star Wars, like a disturbance in the force every year. Yeah, and these are all external to a business, right? So you just got to assume they're there in our jobs and manage through it.

Jon Stoddard (53:16.741)
You have no control over, like, yeah, yeah.

Ryan Sullivan (53:25.143)
Part of that is by putting the company in a safe position to weather those storms and ideally come out stronger, right? So if you look at Phoenix Electric, it just went through a storm for the last year, but it now has a new building that we've renovated twice with a TIF grant. So the building now is fantastic. We've bought four different pieces of machinery to add to their manufacturing capability. So things they weren't able to do before. And now the market's coming back and now we're doing new things for new customers.

in that business that just weathered a storm. So we're coming out of a storm stronger than when we went in. And that's a good way to run a business.

Jon Stoddard (54:02.301)
So you talked about this and you mentioned a couple of times de-risking the acquisition and is debt, I want to try to find out what your top rules for that are. Is debt to equity the number one or?

Ryan Sullivan (54:14.573)
Yeah, debt equity is a big one because that's dictating your free cash flow. Right now, obviously, it depends on your bank terms. But again, SBA is great. Ten-year amortization on a business loan, better interest rates. You know, there's no Mez debt at 12 or 14%. So you got good interest rates on your debt. Even with the floating rates right now, it's pretty good debt compared to a lot of commercial debt. And we have the buildings typically, right? So again, the buildings...

Jon Stoddard (54:18.076)
Yeah.

Jon Stoddard (54:39.741)
That gives you 25 amortization. Yeah, 25, yeah.

Ryan Sullivan (54:42.189)
Yeah, 25 amortization and then the debt on a building is maybe down in the six and a half, seven range, you know, kind of blended with a 504. So this is good debt to have and we're not over levering the business, long amortization, lots of free cash flow, you know, and then we have to be very careful about our reinvestment and our staffing until we really feel like we understand the business, right? We got to make sure we have a good model. Obviously, if we're putting an operator in, that operator wants to get paid.

Jon Stoddard (55:05.041)
Yeah.

Ryan Sullivan (55:10.157)
You got a seller who's consulting for a year. They want to get paid for that consulting for a year. You got to make sure you got a good model. And then we run our baseline models are 3 % revenue growth a year. That's how we model our acquisitions. We don't model 10%, 15%. Like again, we're not the smartest people in the room. Okay. And then we do a model that's basically back 30%. We're like, let's assume we lose 30 % of revenue. What would we do to this business? And let's make sure that we're okay covering our debt service.

Jon Stoddard (55:26.301)
Yeah.

Ryan Sullivan (55:40.031)
And if both of those two things look good, then we're in business.

Jon Stoddard (55:44.254)
Yeah, that's the conversation around growth. For instance, Tucson HVAC companies, maybe 15, 20, and they grow at like 5 % a year. And then you come in and try to buy it go, well, it's going to grow at 10 to 20%. Really? Yeah. Yeah.

Ryan Sullivan (55:59.95)
Yeah, like, like why? Yeah, like, like, why for the last 10 years did it grow at five and all of sudden you think you're going to grow at a 10 or 15? I'm like, I'm, I'm not that good. I don't know that much faith in myself, right? I'd rather.

Jon Stoddard (56:10.129)
Yeah, and this is the conversation you have with investors, right? Look, we're, yeah.

Ryan Sullivan (56:13.729)
Well, with investors and with sellers, like I go to a seller and say, listen, I'm going to explain to you why this is my number. Like I'm very transparent. like, I'm like, this is how I ensure I'm to be able to take care of your company after you sell it to me. This is how I know I can re-employ all your employees. This is how I know I'm going to keep this company alive for 20 years, because I'm not going to over-lever it. I'm not going to put too much debt. I'm not going to stretch on the purchase price. This is a fair purchase price.

for the free cash flows coming off your business. And it's a good investment for our investors. Cause if I pay you more, it's a bad investment for my investors. My investors won't fund it. Transaction doesn't happen. Right? Like I literally sit with them and I will share with them why I've ended up where I am. And when we mesh with sellers, they're like, okay. Like, like, because in their top three, yes, everyone cares how much they sell their business for money-wise.

But in their top three, they very much care about the 30, 40, 50 employees that are staying in that business. And when I convince them that, we know how to run their business, we've done this before, we know how to close transactions, we've done it before, and we're structuring it in a way to keep that company safe and keep those employees safe, then we win deals.

Jon Stoddard (57:30.493)
Yeah, and still your 10 to 1 LOIs. Yeah.

Ryan Sullivan (57:34.635)
Yeah, I mean, hey, just a lot of them just don't sell. A lot of them are like, yeah, I need more money for retirement. lot of them sell to somebody else that had a higher number. And maybe that works out great for them and great for the company. Don't know. It just wasn't a fit with us, right? It happens.

Jon Stoddard (57:47.771)
Yeah. Now that you've got like seven in the portfolio, what's the most distasteful part about doing it?

Ryan Sullivan (58:00.93)
I mean, I still, I really don't like acquiring companies. from the time I signed an LOI until it closes, my stomach just hurts, right? Because it's stressful, right? It is, it is a nerve wracking and you can't, you can't make a seller sell, right? Like,

Jon Stoddard (58:09.743)
It is stressful. Yeah.

Ryan Sullivan (58:20.767)
And if they want to retrade, like you can't stop them. All you can say is no, I'm sorry. And then walk away. And you start spending a lot of money right after you sign an LOI, right? You do financial diligence, you get lawyers in, you're doing environmental inspections. Like you're spending a lot of money and our investors aren't on the hook until it closes. So basically I'm on the hook until it closes. Right. you know, we had, had one deal. Yeah. Yeah. It's, it's rough. we had one deal, that didn't close like

Jon Stoddard (58:41.063)
Your admin fees are getting eaten up.

Ryan Sullivan (58:49.257)
this beginning of this year, two weeks before close, the sellers just said, we just can't sell our baby. And I'm like, okay, hold on a second. Like we're done. Like legal agreements done. we're closing per every term in the LOI. We haven't changed anything. We've been up at your business like 15 times. Like we've been walking around talking to the employees and they're like, yeah, we just decided we just don't want to sell. And I'm like,

There's really nothing you can say, right? You can tell them you're going to be a good steward of the business. can, but like you can't force someone to sell the business they've been running for 40 years. And it is a very emotional process. Like this is not a financial transaction. This is you adopting someone's child. Like that's how I think you have to think about it. And, and so it didn't close. They didn't sell, they didn't bring in somebody else.

Jon Stoddard (59:34.3)
Yeah.

Ryan Sullivan (59:42.722)
Hopefully in a year or two, they call me and say, well, now we're actually ready and they want to come back to me. And, you know, so that was heart wrenching. It was a big financial hit for me personally. That was painful. but it, you know, it happens in and a all the time. And so I like,

Jon Stoddard (01:00:02.395)
And that there's any breakup fee in that size? No.

Ryan Sullivan (01:00:05.653)
No, no, I mean, cause you know, if, I want to charge them a breakup fee, then they're going to want to charge me a breakup fee. And even though I know I'm going to close me, it's just, yeah. And it's like, hold on. I like, like, do you want to go into a marriage, you know, thinking about the divorce or yeah. Or do you go into a marriage, assuming that this thing is going to work out and you got to go into a partnership signing an LOI with everyone, assuming that everyone's stacking hands to get this thing done, not that they're trying to negotiate or find a way to not get it done. Right. So.

Jon Stoddard (01:00:11.431)
And that's a kind of a bad taste, right? Like, yeah.

Jon Stoddard (01:00:18.417)
Sonoprena? Well, you're right, right. Yeah.

Ryan Sullivan (01:00:35.821)
yeah, it's, it's, it's tough. I like, I like closing day. I like, I like, you know, announcing to employees and, every time we announced to employees, you know, somebody cries. I think I've done it now like probably 12 times. I would have had to do it personally and every single time somebody's crying, you know, the employees crying or the sellers crying or family members crying. and it's, it's great to see that level of emotion in these businesses. This is not.

business. It's not just P &Ls. It's not just manufacturing parts. Like these are living, breathing organisms, right? I mean, there's a ton of emotion and history in these places. And I love seeing that. And then I know, I love knowing that we're going to be able to take care of that and foster that and do well with it for the next 20 to 30 years, you know. And you see the impact on some of our employees after we buy the business and we're putting new machines in. And we, we bought Neverleak.

Jon Stoddard (01:01:11.676)
Yeah.

Ryan Sullivan (01:01:34.445)
close on a Friday and we go in over the weekend, me, Scott, his wife, my wife, and we cleaned up the whole place. We painted the front entry, we painted the break room all over the weekend. so employees walk in Monday morning and they're like, Whoa. And we did not clean up the offices. We cleaned up all the places that the employees spend their time. We left the offices for later, right? We cleaned up their areas first.

And the impact on those employees, I I like, I've never seen people so happy. And that break room, now, like, every time I go back there, walk in the break room, that place is spotless. Like, those guys value that break room so much, because they also know, like, our wives painted it. Like, I also think they're smart. Like, do not want to piss off the wives, right? They're like, we're going to take care of this place.

Jon Stoddard (01:02:22.183)
Hahaha!

Ryan Sullivan (01:02:25.079)
But we do a lot of stuff for people like that because that's what it means to be a good steward of the business. It's not just about making money. It's not just about making parts. It's not just about double any, but it's not about an exit. It's about taking care of the people that work every day to make a company successful and appreciating them.

Jon Stoddard (01:02:42.429)
Yeah. Ryan, thank you so much for spending time with me. That was fantastic call. Yeah. Yeah.

Ryan Sullivan (01:02:46.968)
Hey man, no worries, no worries. It's interesting. I'm obviously passionate about it. And if I could get back to running machines and not necessarily buying a company all the time, I'd probably love it. But I do what I have to do to make the portfolio successful. So that's great. Thanks, John. I appreciate it.

Jon Stoddard (01:03:02.621)
This is your calling. Yeah.