Acquisitions Anonymous - #1 for business buying, selling and operating - The Seller Bolted After a Week! War Stories with guest Reg Zeller - Acquisitions Anonymous e74

Episode Date: March 4, 2022

Bill D’Alessandro (@BillDA) is joined by Reg Zeller (@RegZeller) to discuss his journey from the corporate world into entrepreneurship, where he shares early experiences as a SMB owner, how a seller bailed out on him after a week on the job for the Bahamas, early wins & losses, his take on SMB ownership, and more.-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Show Notes:(0:49) Intro(2:58) Previous deals(3:18) What kind of funding do you used?(5:04) Story nr. 1: Second generation SMB Foundry(7:27) Seller wanted to close early, cash wasn't there yet(9:45) Seller bailed out to the Bahamas, 1 week into the job(10:44) Communicating to the customers the ownership change(13:07) No experience, 4 days of training... Early wins & losses?(14:37) How to freak your customers out(15:10) 38,000 reasons to do proper maintenance(16:39) King of the hill CEO status requires hard work(19:55) Cloudbookkeeping.com(21:03) Due diligence has to be done on assets as well(22:18) Story nr. 2: Getting burned by a deshonest deal(24:55) Pre LOI trust everything, Post LOI and due dilligence trust nothing(26:01) Don't buy against your gut!(28:10) Learn from screw ups(30:48) Handling customer concentration(33:28) The importance of customer relationship management(34:46) 10xing the profits takes an obscene amount of work and industry know-how(39:09) HR side stories(45:28) Reg's credentials, check the description to find him on Twitter!-----Links:* Twitter @regzeller / canekast.com-----Thanks to our sponsors!CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth, with a “client service first” approach. They offer a full suite of accounting services that include sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----Additional episodes you might enjoy:#64 How to find the expected benchmarks and KPIs for your industry?#67 I bought a business. Now what? Learn with us from an expert - Dzmitry Miranovich joins us once more#Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right, welcome back to another episode of Acquisitions Anonymous. I am your host, Bill Dallisandro, flying solo today. But I'm really excited to have on the podcast, a friend of the pod, CEO of Cancast, a veteran of multiple M&A deals, and all around really fun guy. Reg Zeller, thanks for being here, man. Hey, thanks, Bill. I really appreciate it. It's a good time.

I'm surprised after the Girdley interview the last time that we had, done unusual profits that you guys let me come back. So I appreciate that. Great. Well, you know, I wasn't involved in that. So this is virgin here this time for me. Well, this will be the last time I talked to you guys. So hey, it was good talking to you. All right. Well, let's see how this one goes. So if you guys are on Twitter, you've probably seen Reg or went to S&Bash. Red has been around the small business acquisition circuit. Has a lot of expertise to share. Reg, can you just kind of tell people what you do, like where you came from, what you're doing now, you know, what is Cancast? Sure. We are essentially a roll-up company, a holdco company for small aluminum, technically non-ferrous foundries, but people don't know what non-farous is. So just assume aluminum at this point in time. And really, we started a little over five years ago by purchasing small locally owned foundries and we're now continuing to grow. We've done six of these in the last five years. And so our entire goal is to be roughly every,

500 miles a non-ferrous or aluminum foundry. So we're within and kind of coast to coast. So probably get 10, 12 overall geographical location is probably going to take us about 30 acquisitions total to do all that. But ultimately, nothing more than heating up metal, putting in it some sort of a form, letting the metal cool. And you get a product at the end. I was talking to Josh at S.M. Bash. And he said that it's like those metal things on playgrounds. like the horses with the spring on the bottom or the ducks, things like that. Exactly. We are the last domestic manufacturer of those things. So what Bill's referring to, if anyone has ever been in a playground with a giant spring at the bottom,

that horse you ride or any kinds of different items, for the first time ever, we're actually making a unicorn version of that. Our customer somehow got that past their lawyers, because, as you can probably guess, a giant horn on the front of something that rocks back and forth, maybe not the wisest choice ever to have with kids, but somehow this worked. I don't know how I can only imagine the amount of indemnification and other clauses that were in that contract to allow us to make a unicorn out of metal for them. But here we are. I hope your lawyers papered that one pretty well.

It'll be in a playground very soon. Awesome. Can't wait. My daughter will love it. So you guys, you said you've done six deals so far? Correct. Yep. And so that can give you six locations, all in the United States, I assume.

Yeah, we've actually, so two of them we've put together. So we actually have four locations, Minneapolis, Kansas City, Cincinnati is the deal we just did a few weeks ago. And then kind of a southern part of New Hampshire, just northwest of Concord. How have you funded all this? Do you guys raise money? Yeah, all myself. Nope, 100% debt that I personally owe and own. You want to think about it that way?

So we started SBA deals, I think, like everybody has to. The first one, we grew substantially, and I, let's just say, did not go well with the exceptionally large national bank that the sellers had used. It was one of those classic, this deal is pre-qualified through this, which means that, you know, the broker and banker were getting kickback somewhere, as everybody's learned. And we've now, so we refinanced out of that deal in 18, months into traditional debt, and then we've done that twice, actually once since on another deal, but now we're just into mainly traditional financing because of the nature of our deals with

a lot of assets, both real estate and equipment, we're able to typically get 80 or 90% financing because we've done numerous of these and then the other cash flow and the rest of it, we just write out a check for whatever else they want, and then we sell fund working capital. Okay. We actually just had Heather from Live Oak Bank, earlier today. Yeah. She was educating us on the difference

between kind of collateral lenders and cash flow lenders. It seems like you are in the enviable position of actually having collateral. I get the, yes, this is a, I will not use the colorful words

that John Wilson and Kelsey Lerich and Rich Jordan use about my business that actually has assets as they're begging to try and find debt. And I'm just like, I don't know, just put it against the real estate and the assets. And they're like,

we don't have those. I was like, I don't have that problem. Here we are. Good for you, man. All right. So the theme of this episode is war stories. And Reg, I know you've got a lot of them.

Now that people have kind of heard where you came from, you've been through six deals, you know, SBA finance, self-financed, traditionally financed. Yep. And I assume that these are all relatively small companies. So you probably have some very colorful sellers on the other end of them, which has left you probably with some great stories. You mentioned a couple in the pre-referral.

read. So you told me once that the very first story about the very first deal you did and kind of what happened after you bought it. Yeah. So let's start with that deal. Let's just get a little bit of color of what those owners were, as you say, small business. It was a second generation. His dad had started it. He purchased it. His siblings weren't interested. So he purchased it from his dad. They put multiple places together. There was a small machine. shop and then a larger machine shop and then there was a foundry and they actually put all of that under one roof. Well, interestingly enough, this seller, it was a husband and wife, 68 and 65, he loved three things in the entire world, technically four, I guess. So he loved the foundry.

He loved boats and fishing. He loved more than anything else in the world, though, worldwide wrestling. he would literally, while we were doing things, we're like, okay, let's meet on Monday and get this. She's like, ah, sorry, can't meet Monday after work. That's raw or whatever the, you know, random. Like, we couldn't meet on a Sunday right before we're supposed to close because that was some sort of a pay-per-view wrestling thing that he had to be home for. So anyway, 68 years old.

I love this to death. So that's teeing up how this story is going to work. It'll be fun. So I bought the first deal I was in corporate. it and I was leaving. And we had a conversation that most likely we were going to close sometime in February or March. The brokers had assumed, as did my lawyers and bankers, that almost no way we were going to get through a clean phase one. And that's why they said, even though we're pretty much at agreement on this deal in roughly Thanksgiving, kind of got everything finalized

through Christmas, but either way, everything had been ordered before then. So phase one came back clean and everybody was shocked and they were like wow this is unbelievable everything else came back clean so the all the ocean inspections everything else we did my due diligence uh everything was good and the sellers came to me in the second week of jr or second week yeah second week of january they said hey listen because everything is good sounds like you would be good to close early i was like well one minor detail i haven't mentioned to you guys i can't really close because i'm I may or may not really have all the cash because I'm hoping for a substantial annual bonus that doesn't get paid out until typically the last week in February 1st week in March.

So wait, time out. So you were expect, did you know for sure that the bonus was going to be large enough? Oh, yeah. Yeah, yeah, yeah, yeah. I knew what that was going to be. That wasn't going to be the problem. It was just a timing. But I hadn't mentioned, I mean, my bank knew it.

They understood exactly what's going on. There was the commitment letter from commitment letter from. my company saying, hey, here's your annual bonus, here's what it is. And I just told them, I have all these things. If I have to go take, you know, actual assets out of the market or something I can, but, you know, pretty liquid assets. I prefer not to, though. And so they knew it, but that was not something that we'd shared completely. So anyway, I was like, ah, and so I talked to them, they're like, all right, well, we have a solution immediately while I sat down there. They said, no, no, this is no problem. When do you think you'll get it? And I was like, you know, last, every year we've

had it, seven years has been last week of February, first week in March. And like, all right, cool. Then we will plan on closing January 31st. You can technically own it, but you won't do anything. You'll have commitments. Like, I was literally flying back and forth to Atlanta, North Carolina, the Philippines. I was all over the first six weeks of this thing. So it wasn't like I was sitting in the foundry working.

And so they said, but that'll be a good idea that you will get that most likely, March 14th. you will be able to be done. March 17th, you know, you'll give them a two-week notice end of February, but more or less planned on March 14th last day, March 17th, first day. Cool, awesome. You know, I just paid them. And so March 17th, March 18th, I get there.

Everything is going really well. They're like, you know, you're really taken to this well. We're really impressed. Everything's no problem. Think, oh, yeah, that's great, no problem. You know, I'm happy, you're happy, really happy. This is going well. So we go have lunch on Wednesday.

Another little weird quirk is that they, absolutely loved McDonald's and Subway. So I don't eat either of those, by the way, just to clarify. But we would go down and get a salad at Subway and then pick up like a burger on the way back. And on the way back, they were like, oh, yeah. So, you mentioned you were doing really well and you were really happy yesterday. So yeah, I did. And they're like, well, that's good because we've been talking about it.

And, you know, we've owned this place for almost 40 years. And so we've decided that we are leaving for the Bahamas. on Friday. Good luck. We have a sat phone. It's $5 an hour. Please don't call. And I got one week, literally, and we don't work on Fridays. So I got four days with the sellers of how to run this business and then just, peace, I'm out. And basically never came back from the house. Yeah, I mean, they were back by the time they got back in, there's a great other part in the story, It got back in June, and it was told, like, oh, by the way, I forgot to tell you guys this. We were still getting emails.

We didn't ever check it. And I went back. We had emails from customers from like the third and fourth weeks of March that were just sitting there. Open questions. They're like, they're used to us leaving for a couple months at a time. This is total. I'm like, I'd like to pay the bank with the money. Those customers are trying to give me.

So yeah. Wow. So these guys. Jump in, half at her. They own the business for 40 years and not one day longer. They won it 40 years. It would have been like, it was just short of 40 years when they finally went. Yeah, but they got paid for, you know, extra six weeks of work.

Whatever it was, we worked it out to be. It was like 10, 12 grand a week or something like that or a month. So, you know, here's an extra 30 grand and have a better. Do you guys still own that business? We do. Yeah, that's our, that's our one in Chaska, the one that we've taken. almost three-xed in size in a little less than five years. But yeah, it's absolutely great.

We've literally touched every single thing in that facility. It hadn't been probably touched since 1978 from the equipment standpoint. We've pretty much touched. I bet you we've touched 95% of everything in that building since then. But, needless to say, it wasn't because all the training I got. So you got parachuted in with no training coming straight from, I assume that you weren't working at a foundry. No, I'd never stepped foot in a foundry before.

I didn't even know what one was when I actually, so I walked into there in October of 2016. We bought it January of 2017. In September of 2016, I'd quite literally never been in a foundry. I couldn't tell you what a foundry was, you know, four or five months before I bought it. And then I got four days essentially worth of training. And you've grown this into what kind of has now become, you know, the core of cane cast. It is absolutely. Yeah, it is the largest.

And everything else is being modeled after that facility. And it was one of those things where I talked with all kinds of people during that. And they just said, foundries are dying. Don't buy foundries. It's a terrible idea. And me being stubborn and stupid even when people tell me that the stove is hot, I still have to touch it myself. And so I did it anyway.

And here we are. So you got parachuted in with no foundry experience, four days of training. Yep. What were some of kind of your early wins? ends or losses. What were some of the things you realized pretty quickly that kind of rocked your boat? Well, one, the easy wins were just calling customers back. And it was quite literally where I would give them my cell phone number because I would have done anything. The business was starting to go down. And I'm talking, it had gone down for five to 10 percent a year for two

or three years before I bought it. And I baked in another 10, but thought, I get it. They were quite literally turning away work. They didn't want it. They said, hey, we're making plenty of money. we don't want to have to work hard, just collect the checks and go home. And I was like, well, the bank doesn't agree with that, so I'm going to have to do something else. And so they literally would get phone calls. And when I would call back within hours, they would be shocked. If I'd call back within a week, they thought it was amazing customer service. So just us being, listening to customers, like, okay, they put a date down of April 12th,

we're going to deliver on or before April 12th, was shocked. Like just delivering a quality product on time and making sure they were taken care of to them was, it was best customer. I mean, we became, you know, 99th percentile customer service of all of their vendors, not just their foundry vendors. So that's kind of small business in a nutshell. I think that's why I tell everybody, it's not that big of a deal, just jump in. There's a lot of ways typically that you can make these things a lot better. So it was the easy wins. A lot of the early losses, though, is I quite literally did everything wrong. And when I say everything wrong, I mean, I, I, told our customers that we were going to take two weeks off, which they did every year. And then customers freaked out because they didn't realize that they didn't work the first two weeks of July all the time. So I got every order essentially from July and beginning of August pushed into June. So I paid 50 or $100,000 in overtime in June and then essentially had no work in July. So that was fun. I had a piece of equipment break that I was told, hey, you're going to need to make this repair. and so I called them in and I said, well, hey, they said this needs to be repaired.

I'm guessing it's relatively inexpensive. Shouldn't be that big deal. They said, yeah, you're right. It's about $38,000. And I was like, what? And I said, that got inspected all the time. And they said, yeah, that hasn't actually had any maintenance done to it in six years. I was like, there's a sheet attached to the side of it that says there's maintenance done on it monthly.

They're like, yeah, we just put our initials on that. It's not a big. Oh, no. Just like, all right, great. So I am now like, you think. think of $38,000. Like right now, okay, fine, it's just a cost of doing business. Things have to be upgraded. We're really hard on stuff in foundries. Even if we done preventive maintenance, it may not have mattered at all. But you write out a $38,000 check within four or five months of buying a

place that's going down 10%. I was quite literally, this is why I make this joke on Twitter all the time. Like, I was literally one night curled up on the bathroom floor, which was attached to the bedroom, my wife and I was in a fetal position thinking I've literally just cost us everything. Like, I have a personal guarantee. I owe a couple million dollars. I've burned everything that we just worked the last 20 years of our corporate lives for putting through hell in there. But yeah, it was, it was something else. And then, you know, as you get used to it after 18 or 24 months of being in these, there's ups, there's downs. Things are good. Things are bad. Doesn't really matter. But yeah, it was a rough, rough six months, first six months for me.

So for all the listeners out there who dream of being the glorious CEO, you know, and the, executive dining room and, you know, being king of the hill, actually, you will probably end up in the fetal position in a hotel bathroom. Yeah, that's what I tell me. Like, yeah, it's all fun in games. So you quit your W to sign a personal guarantee and realize that you have no idea what you're doing, you know, enjoy crippling anxiety. And if you do, by all means sign up, you'll love it.

Yep. Buy a business. Yeah, exactly. We love the way of the world. We hired a new guy to run our facility in Kansas City. we just got introduced to him like two hours before I talked to you guys. And I said, hey, it's really cool, Derek. He just got to get used to and learn to enjoy getting punched in the face every single day.

And you'll learn to love it. It's not a big deal. He's like, what? He's like, yeah, my dad owned a business. I kind of got it. So he's aware. And true stories. All kinds of fun.

Yeah, I mean, that place is, that's the thing, though. Once you get through that now, everything, we've probably had bigger issues in our other ones. You're just like, yeah, well, I mean, I got to be a janitor because we decided to plug up a sewer one time. And so I would literally have to go in all hours of the day and night or else the sewer would back up into our building. So I'd hire a, or I'd have to buy one of those 150 foot snakes. I'd have to go in there and clean that out until, because they had to cut a 10 foot square hole in our floor and excavate down 12 feet in order to remove the problem. Or we'd have to snake it out until then. So I laugh at John Wilson all the time. I was like, hey, you

needed to be over there. I would have been like a greatest customer ever for you guys because it would have preferred it wasn't me, but I was deathly afraid of again, everything that was costing, you know, everything was costing me money. So I was like, well, don't, don't call the plumber anymore. Don't call the rotor router, dude. I'll go out there and do it myself. Dude, rotor rudder is expensive. Yeah, it was like, it was like seven or eight hundred bucks the first time. And it was like, well, I bought this thing at Home Depot for like 300 bucks. I'll just or whatever it was, we got the plumbing supply store. I'm going to go snake our place all the time.

So, yeah, many, many old Twitter stories for me. Like 2017 were pictures of me and a snake talking about how lucrative and, you know, really, really great work small business owner is. I had a similar short plumbing story, not to digress too much, but we have our warehouse on a hill. So there's a third-party tenant in like the ground floor,

and then we are technically the second store and the warehouse goes back, you know, at grade. Someone took a huge crap in one of the toilets in the warehouse, washed it, clogged it, didn't say anything. I get the call that not only is our bathroom full of brown water, it is raining through the ceiling tiles of the gymnasium that is on the ground floor. So, of course, within minutes,

I am in the gymnasium, groundwater coming down on my head, mopping his floor, you know, because, I mean, you ever paid for remediation? Like, it's expensive. No. So I am remediating the brown water rain and the ground floor of the third party. So, yeah. The glamour of SMB small ownership.

Great. All right. So, Reg, before we get into a store number two, we're going to take a quick break for a sponsor. Hey, guys, Michael here. I want to talk to you about one of our sponsors in our never-ending quest. to make Acquisitions Anonymous break even. And that sponsor is cloudbookkeeping.com. It's actually run by my neighbor, Charlie, who's a great guy,

and he has been our longest tenured sponsor, and we're super grateful for him to support the podcast. So what Cloud Bookkeeping does, it is a set of cloud bookkeepers that if you're a small business person, help you get out of the business of doing your books and let you focus on the business of taking care of your customers. So they do all the complexities, bookkeeping, payroll, and they come across in our very client service first. That's their phrase, but I know that's true because I've spent time with Charlie and dug into their

business. So full suite of accounting services, sophisticated reporting quickbook software solutions, and full service payroll options. So definitely talk to Charlie if you want to get out of doing bookkeeping and outsource that to a trusted third party, and you can find them at cloudbookkeeping.com. So thanks again for sponsoring today, cloudbookkeeping.com. All right. We're back. So Reg, in the pre-show, that was, we kind of already talked about deal number one and dropped in with no prep.

You said deal number two was equally eventful in a different way. Yeah. Yeah, so this was our second big deal we did. We technically had a tuck-in in the middle of there that we actually put into our first deal. The only good, real story about that first tucking, so the second deal we did, is the first time they said there was a little bit of a roof problem and we bought it. It wasn't a big deal. We knew we weren't going to stay in it. And I walked through there. We bought it during the winter so I didn't see it. We walked through there during the summer the first time it rained. And there was more water inside the building than outside the building. And they, you know, when you have a thousand pound pots of aluminum, you really don't want water. If you guys have ever seen what happens like with a frozen turkey when you drop that into the boiling water, you see that on Thanksgiving. Yeah, it's about a thousand times worse, legitimately.

It could level buildings. But yeah, it was great. So that was the fun of that. We moved out of there in six months, obviously. But that was fun putting little like lean twos and sheds over top of your furnaces. So it didn't blow up the building. Anyway, so again, I told you guys, you want to talk about war stories. Hey, I'm here.

So my second big deal we did, I found it. And it was a deal that for us made a lot of sense. but it was different than what we'd done. And I thought, like most people, you know, especially three years in, you think you know nothing, then you think you know everything, and then you actually really get punched in the face, and this is this deal in a nutshell. So the numbers didn't look great. I pulled out of it from a gut feel perspective, I just couldn't make sense.

But at the same time, we'd really only done two deals. I'd only seen those two. I'd talked with a lot of other foundries. I didn't know the real level. of detail of their financials and their equipment and how things worked. You know, I saw the big picture, but didn't really understand the true level of detail. So I tried to walk away from this deal, said, hey, by the way, guys, during due diligence, this just didn't play out.

I cannot, for some reason, I can't get comfortable with this. I don't quite understand. And I laid out why. And I just said, hey, here's kind of all the reasons based on this. I don't think you guys are going to anywhere close to your numbers next year. And I just don't think this is going to work for me. My apologies. Two days later, three days later, something like that.

I get a call from the broker, and he says, hey, by the way, I went and talked with the sellers, and they said that, oh, you obviously misunderstood or they misunderstood what they were doing in their forecast. They only gave you the first nine months of the year of data. Here's the actual foliar forecast, and here's what this thing looks like. And I was like, all right, well, hold on one second. I looked at the numbers magically.

you know, now I would have run a difference at the time is, they said, if you look at the numbers, magically it hit almost the exact same number that I was looking for. And I talked to him, I was like, guys, I ought to be honest with you. Like, this was exactly the number you guys knew I was trying to get to. And I just, you know, this just feels totally made up. I don't think the bank is going to even approve this. There's no way. And so they said, oh, well, hold on.

We'll get the sellers on the phone. And we talked to them, like, I don't even understand. understand what you mean. You had a higher number. I just gave you the numbers. I had no idea what number you were looking for. So anyway, I went on and on and he explained, hey, here's why bigger projects. They're growing. They're moving more of the stuff that we sell overseas. There's all these other opportunities. All the things. I mean, made this into a perfect story, kind of bulletproof, minus that one deal that you have to trust that he's telling the truth. Well, as we say, pre-LOI, trust everything post-LOI in due diligence trust nothing and boy did I get burned on this one so we

bought the business everything got done kind of some weird things here and there i mean leading up to this i had a little bit of a bad feeling once we started running it day to day because one of the key guys completely lost his mind he was so mad that they were selling the business even though wait so so reg hang on stop so you closed basically based on this updated information, you believe them, trusted them, and bought the business. Yeah, yeah. I mean, that was the only, everything else was great. It was, everything else seemed perfect. It fit on what we wanted to do. Everything was fine. It was just, I couldn't make the numbers work in what they wanted. And what I told them was, hey, I'm going to literally, this is like a half a million

at a minimum, maybe a million dollars less in my offer if I were to buy this. And they said, there's no way, no chance. And then they went back and did this. And yeah, and they gave me a ton of information. Here's why. I mean, And they literally went through bullet point by bullet point, all the details. And so, yeah, I bought it based on that against my gut, as I will continue to say once in a while. But then once we got going with it, there's some things we found. Like, we'd say, you know, first, like, the first week, their key employee was very upset. Even though he didn't like the seller was pissed off that we bought it and had problems with it.

And then, like, a few weeks later, we had another issue where, like, the piece of equipment were like, why isn't that thing running? And they said, what do you mean? Like, wow, we're here. That thing he said was running. They're like, that piece of equipment has never run. As a matter of fact, like, I think he might have taken the saran wrap off the damn thing before you guys got here. It was like, so I was like, great, this could be fun. And then like three or four months in with their key customer, this one, the one that had the big number that we had to get back to, I was in there visiting the customer.

And I mentioned like, hey, you guys are really down this year. You know, is there something we're doing wrong? Is it just an off year? Is this a COVID thing? I had no idea what was happening. And they said, oh, no, no, no, it's totally fine. This is just our regular run rate. And I was like, wait, what?

Like the last two years, you guys were like double the size of this. And they said, well, yeah, you know, it's a funny story about that. You know, we grew and I, you know, we were talking with him about how we were growing, but it was only going to be a two-year thing because we had a big capital project we had to go. And he called us last October. and asked us, normally we talked to him in December about our plans, but he called us last October and we chatted about this and said, hey, is this something that, you know, you really want to do? And he was like, well, yeah, just, you know, you just don't need to say anything else.

I get it why you're going to drop back. So literally, like, he went through this process and said, more or less, just flat lied to us that they was going to continue, all their growth, everything else. And so we've had to, I mean, we've literally had to recover since then. It's been, you know, multiple years now that we've been. we've been trying to figure how this is all going to work out because, I mean, we would have walked away from the deal had I known what I know now. At the minimum, we would have probably offered him a half a million or a million dollars less. I mean, it literally just took money

directly out of my pocket. And here's the great part of, and, you know, good, bad. I can't honestly even tell you whether or not he did it on purpose or they did it on purpose. I'm not sure. It is what it is. Because, again, if you just extrapolate forward, it worked. I don't know whether it was as bad as it was. I mean, it still ends up being the same for me. But the great part is upside of this is we've learned everything because of that. We are substantially better buyers. We've probably made our money back and then some. And we will continuing going forward because we took that. It was a great lesson. Hey, now we understand. Now we know exactly what we're looking for. We know exactly how to way to figure this thing out. But I think that's as a small business owner,

you're going to take that. It doesn't matter. Half a million dollars or a million dollars on multiple deals isn't going to hurt it. If I've had one bad buy and six, I'll take that every time. from a winning percentage in the world of M&A. I've got a lot worse stories that other people have had. So I don't think of it as a negative. I still get along with them totally fine. You know, it's one of those things where there'd be no point in bringing this thing to court or anything else. Either everybody I tell the story.

She was like, oh, I didn't go to court. Why? I mean, maybe they did it on purpose. Maybe they didn't either way. It's, you know, it's some really weird. You're litigating it anyway. Yeah, exactly. Like there's, and then it's a, I mean, it's a toss up.

I couldn't tell you. Everything on my side sure looks like it kind of points to that. Like, this probably is not what I think is copacetic. But yeah, who knows? It's either way. Yeah. So they, so that business was 40% smaller the first year we owned it than they were the prior year and made. And you had expected it to grow.

Yeah. Yeah. Yeah. Yeah. We were, I mean, that thing was probably off by, and there was other factors in there, many other things. But that business was legitimately $600,000 less in profit our first year or last year than what we would have expected it to be. But again, Reg, I imagine foundries kind of inherently have a little bit of customer concentration like there was, you know, in this one, you get tooled up, you learn how to make something. People want to keep buying it from them.

Exactly. And I know you've done lots of deals since. As you said, you learn from your screw-ups. How do you now diligence customers? Like what have you changed in the process to make sure you don't get burned like this again? So this last time, I quite literally talked to, so the last deal we did, their top two customers were 80%. Now, most people, this is why I buy businesses that are virtually unbuiable. But this business, we went and talked to them.

So for them, massive customers, massive customers. massive customer concentration really wasn't that big of a deal for us. I mean, in the grand scheme for us, they just fit in. They're like, they're not even the top three customers probably. So we actually went in and we said, hey, listen, we're, we're interested in still doing this deal. There's a few things. One, I have to talk to those two customers.

Like, that is a, without that, and I put it in the LOI, that we will get access to these two customers. Everything else can be anonymized, but I want to talk to those two customers. And I did. and I talked to them, and actually it was funny, both customers came to me during that and said, we're really happy that you're buying it, because if not,

we would have left. And my favorite part that's ever happened, they told us during this deal, and the broker is on the phone, they told them, yeah, we are not going to stay unless they sell to somebody that has knowledge of the foundries.

Like not just someone random buying, but someone has to know and grow. And then the next thing, which is my favorite comment I've ever had, in due diligence, they said, and we're willing to pay you more money to do this because we know we're paying like 30% under market price.

And you could see the brokers over there, like, what the hell is going on right now? Yeah, so we, and that thing worked out. So that deal right now, we would have never done that had I not done, you know, the deal a couple of years ago. And so now that one on the other hand, we bought that for one times earnings.

and we'll literally have made an extra, call it million dollars a year in profit on that one deal from a one-time's earnings thing. But yeah, it's just purely about to your point, got to learn from it, and then you go figure out. And so if we see, and that happens a lot to your, you know, you find one really good customer they grow. What we see is they actually grow and we see kind of a, they kind of fall off, come and go as they, you know, want to grow and all of a sudden become the number one. and then they'll be the number four, but there's a number seven that becomes the number one. And that's very, very typical in our line of work.

And so that's been our big thing is the more diversified we get, the more we're willing to do it. But we were able to take that hit from the deal where, you know, we had just some bad year over a year, right? And again, this story sounds a lot better if I say that it's the prior owner and the seller's fault. But in reality, that's more my fault.

I didn't do a good job of customer concentration on that to this point. Now that I know it, I talked to them. Then I got a bunch of upside for it. I should have done that on that deal. I mean, that's not the seller's fault. That's my fault, to be honest with you, right? I mean, it is what it is. It's funny that your big customers said, actually, we don't want to go anywhere.

We just want you guys to suck less, really. Yeah, and we're willing to pay more if you guys stop sucking. And so, yeah, let's see, I can do the math quick. We grew the business 60% two days. Within two days of owning it, we grew the business 60% on the top line and 900% on the bottom line. Because it was a price increase,

so it was straight to the bottom line. Yeah, so big upside. And so everything got big price increases and we got a bunch of new work in the door. So yeah, it was, I mean, it's crazy. If you think without doing the math, I mean, you think we're buying at one, we could probably sell today on a, you know, 7x multiple. I don't know, maybe 10. Yeah, you're like, all right, well, going from one, a 1x to a 7x is always good.

But then you take it and, you know, you 10x the profit in two days. Yeah, I'll do that deal. And I would have, and that's why I say, you got to learn from these things and just roll with the punches. And you just got to figure out sometimes how to get to the next day. It's not even thriving. Sometimes it's pure or just surviving. So I'm not going to let you make it sound so easy that you just buy these businesses for 1x cash flow and then you put it together and you sell them for 7x cash flow. Because I know there's a lot that goes into that.

So what gets you that, I imagine, is that you are buying, as you say, these businesses that are not transactable. They're too small. They're not packaged well. The owner wants to leave and there's no one else behind him. you know, so you take basically an ugly business, and I imagine you have a lot of integration and spit shining to get it up to kind of the cane cast SOP, at which point it becomes part of the cane cast whole, which is worth 7X. You're absolutely right on what we have to do with it. For us, substantial work goes into trying to make this a business that works. And yeah, it, you know, the 10xing the profits two days in, that's just on paper. Everything we have to do to execute to make that happen is an obscene amount of work.

And not only is it an obscene amount of work in just getting that to going day to day, but it's also an obscene amount of work for people that we are actually having work for us. So you're going to have to get Josh Schultz on the phone and get him to tell his side of story because what it amounts to is that my job is done within a week or two of buying it. I do all that work and then he actually does the hard work of making this thing correct because all the processes need to be changed, all of the ways that we plan the business that we go through all of our AP and AR, the way we structure pricing, quite literally to your point, these are, and I don't mean that they're

unsellable for us. They work for us from exactly the model we built. We've got a headquarters team. We can handle everything that they couldn't handle. We can go buy a million dollar machine to add capacity. We can go figure out how to helicopter in people.

I was there the two weeks after we bought it. I felt the sand and knew they had a huge problem. And then come to find out two days later, there's a bunch of quality issues that customers that we'd gone to visit were having. I was like, yep, I can tell you why. And it's a sand and it's a metal problem. And we will figure out. And so we've got a quarter of a million dollars being installed in that facility within, you know, a month of us opening it to solve these problems. So yeah, it's certainly not, you don't just get to

buy these things. And, you know, it's not like someone that doesn't have any foundry experience could come in and buy one of these and raise price 35 percent because they wouldn't be able to run it any better than the existing team does. It's not like the existing team bad. It just hasn't been invested in for 20 years. It doesn't have the overhead. It doesn't have the cash flow and the war chest that we do to go put in CAPEX and the people and have the expertise that we form. And especially they don't have the workers to get the job done. And that's become one of the things. John Wilson talks about this a lot about how they started building a pipeline of people coming in three years ago because it's so hard to find plumbers. That's the same

thing we have to do, but we have to train people from day one from nothing. You know, they come in, not only they come in off the street, they may quite literally leave prison, get in a car and come to our front doorstep, and that's what they're doing three days later. And you're smiling, but I'm dead serious about that. This is something that we've done a lot of in that it's a place where, you know, these are hard jobs. So we get, you know, people who have been fighting in the wars overseas, you know, fighting, who knows what, in what they've seen but in desert it's hot.

This is hard work over there. It's hard work what we do. I mean, they can make good money, but they have to know nothing and we'll teach them at all. And that building, that academy, figuring out how to train people

and get them up to speed is every bit as difficult. But that's why I try and warn people. It sounds really great when I say it to your point. Yeah, I can go from 1X to 7 or 10X in two days,

but in reality, it's impossible for anybody else to do right now. I don't know anybody else buying small founders in the country for this exact reason. You can't buy one, you'd have to buy five and you'd also have to have all of this in the background. So it's a

tough road to hope. So before we wrap up, I want to ask you to do one more. And I'd love to kind of zoom in on the people side of it. Because you mentioned you're probably hiring people from all different types of backgrounds. I think you've got, you know, dozens, if not hundreds of people at Cancass across four different locations. I imagine there have been some war stories on the HR side. So I wonder if anything comes to mind when it comes to managing people. Oh, man. Yeah, so where do I start with these? I will run through these really fast because there is just a ton of one.

And I don't remember, I think Gurdley actually started this thread randomly. This would have been months ago. People started jumping in with like, oh, what about this? So here's kind of some of the fun stuff. I had a guy come in like within the, so I told you the, the sellers of my first deal, there was day three that, you know, that Wednesday they came in. The fourth day, the guy who was key and who almost bought the shop came in and threatened to quit. And when I said, hey, I don't have any idea what's going on.

I walked in and I said, I don't know. He said, yeah, I need more money, whatever. You know, everybody now knows this is what we tell people on Twitter. Like, yeah, I fully expect this to happen. And the reason why he came back and then I walked in to his office and I said, hey, you know, I looked into this. Honestly, how much is it going to take? Like, I have no idea. Are you asking for, you know, $1,000 or $100,000?

He was like, oh, I think like $2 an hour would do it. Like, okay, we're literally arguing over $4,000. I'm like, you know what? I won't even need to research this. It's totally fine. And then he started crying. I was like, what is going? Wait, what is happening right now?

Like, why are people crying in blue collar? Like, I didn't think this. I expect this to be big tough. Like, what are we doing? And that's happened to me so. many times that people have come in to talk to me and got teary-eyed. And it could be not just over money. It could be over those guys over there are being mean to me and they won't let me sit at the table that they sit at right now or that guy's parking in my parking spot outside. Like the stuff

like that everybody that gets into blue collar, I'm like, just be prepared. You're going to see some playground drama like you've never thought possible. Some of the more fun ones we've had, My most fun story is a little bit scary at times, spending on how you're going to say it, is this guy, they pulled into work and there was a guy literally doing donuts in the parking lot, perfectly fine day, doing no idea what the hell is going on.

And they're like, hey, what's going on out there? And they're like, I don't know, just like, came in. All of a sudden he just,

so they went and got him, he stopped his car in the middle of the parking lot, walked in, into the locker room, started banging his head against the locker, just screaming. and doing whatever, and then grabbed his PPE, his personal protective equipment, and walked out, and the guy's like, what the hell are you doing?

He's like, I got to go pour metal. They're like, you were just literally losing your mind. And then so anyway, they called him completely methed out, had no idea where he was, and was proceeding to try and go grab, you know, a 50 pound ladle of aluminum and start pouring it all over. So anyway, that, that thankfully, so yeah, they had, they're like literally physically restrained. the guy and drag him outside. This was one of those things where it never none of these things ever happened between

you know, call it 9 a.m. and 3 p.m. Everything that crazy happens make sure that I get a phone call like quarter to four. You know, I feel like the like the agents for professional sports players are like yeah, you always dread the call at the middle of the night.

I'm like, yep, I know that well. Yep. My phone call it's always, it never ever. I've never had a crazy thing happen at noon. They always happen at, you know, Saturday at 3 p.m. or Tuesday at 4.30 a.m. or whatever. But, yeah, it's been, I mean, it's just crazy. You name it. We've gone through it. I assume now you have full-time HR. We don't actually. Really? You just love it that much. No, I don't do it. No, no, no, no, no. We've got a team. We have outsourced people. So technically, they do all the work for us. But, yeah, we just because in it, so here's another, here's a quick version of, a story for you. So last year, so 2020, during, we, no, sorry, 2021, for the first 10 months of the year,

we had a thousand people apply for jobs in our foundries. And we do background checks and drug tests 45 days after they've worked there. We had one person actually go through a background check. So we were one for 1,000 in number of people who applied who actually got a job for us. And it wasn't that we didn't try to hire because if they showed up, which 2021, no one could find people to show up or work. We just say, hey, show up. If you make it great. You know, if you're interested, come on in. They would come in.

Yep, interested. And they would either not show up or they'd work for 10 minutes. You know, this is a hot. It could be 150 degrees on the poor deck in the middle of August. So it's real hot. And it's a little bit scary to see molten aluminum bubbling. But yeah, these guys would, they'd walk in. And we've had numerous people walk in the door say, oh,

sorry, I got to go to the bathroom, walk to the bathroom, walk right out, and never come back. Just nope right out of there. Nope. 10.50? A hard nope. Yep. 10 15 minutes. We've had guys leave at the first break after a few hours.

But now it's kind of a running joke is they all bet on the new. And we're trying to tell it's so hard to find people. Like, guys, we know this is kind of funny to you, but we can't let people leave. Like, we have to keep them in here. And so we do everything we can to coddle them, but I know the guys are still making bets in the background on how long each one's going to last. They used to all the time. It thought it was hilarious.

It was like an over-under. Like they had a little board running about, you know, oh, this guy's going to last a day. But yeah, we've seen a few of them. They're real tough. These guys that come out, they're like, I'm fine. I'm like, man, just grab a broom today. You'll still be, you'll be totally exhausted after an end of a day here. You're like, no, no, we'll start and they'll do the work.

And you'll see them three and a half hours later, just keeled over. They'll just be miserable. Like, well, try to have this conversation with you. So what can I say? Amazing. All right, Reg, thank you for being here, man. This is great. Really entertaining, good stories.

Before we let you go, you know, where can people find you on the internet? How can they help you out? Yeah. I mean, at, at Reg Zeller on Twitter, that's my main thing. I do this a little bit on LinkedIn, but LinkedIn for me is more of a corporate thing that just continues to sit there forever. And then canecast.com with a C, C-N-A-K-A-S-T, you know, I'm interested. Ultimately, my main thing is reach out anybody that needs help, small business.

I love helping people get out of corporate and get into buying one of these things. I don't think everybody should be a small business owner and entrepreneur, but if you're wired for it and you have to do it, I will happily do whatever I can to help you get going. Awesome. Thank you, Reg. So if you are still listening, it probably means you enjoyed this podcast. So we at Acquisitions Anonymous would really appreciate it if you guys would go on your podcast platform, choice and give us a five-star rating, which I'm hoping it will be a five-star rating if you're

still listening after all of this with Reg. So we're trying to build up our rating. So thank you guys for listening. Thank you, Reg for being here. And we will see you next week. Thanks guys for having me. Appreciate it.