How do you go from paragliding to private equity employee, and then transition to being an independent sponsor who successfully acquires four businesses?
For Ben Mackay, it all started during a summer MBA internship for an outdoor clothing company in Jackson Hole, Wyoming. Mornings and evenings, he escaped the monotony of spreadsheets and data by paragliding. Soon he met a fellow paraglider who also happened to be a partner with Dallas-based Evolve Capital Partners, and who wound up offering Ben a job doing business development, aka sourcing deals.
Even today, as an experienced private equity professional, Ben says he’s not so much in the financial space as the people space. At Evolve he flew around the country while participating in five to seven meetings a day, building a large personal network of investment bankers and business brokers who represented companies looking for buyers. Consistent outreach to these people soon got Evolve’s deal pipeline flowing.
Life with Evolve was good, but by 2014, having seen a lot of impressive opportunities being passed over, Ben had the desire to go out on his own. He formed a firm, Long Trail Holdings, to find and acquire businesses, focusing with EBITDA ranging between $1 million and $3 million. This can be an attractive space for an independent sponsor to play in because the companies are small enough to be below the radar of most private equity firms.
Missing the mountain lifestyle, Ben also decided to move back to Jackson Hole. Conscious of the inherent risk of being a self-funded searcher, he bought a log cabin and began renovating it as a place to live—a safety net in wood.
“If it all blew up and I lost my personal savings,” Ben says, “I’d be happy living in a mountain town and skiing and being a bartender or whatever.”
It didn’t work out quite that way, as Ben forged a path to success through seller fraud, an industry downturn, and management challenges in the businesses he acquired. The story of how it happened offers valuable lessons to anyone interested in becoming a successful independent sponsor.
The Acquisitions Begin
Thanks to the strong network he had already built while at Evolve, Ben acquired three companies in the space of just eighteen months. This is very atypical. Most new independent searchers would be happy with one acquisition in that timeframe.
And while the firms below—which Ben acquired in chronological order—may seem quite diverse, niching down does not have to mean sticking to a single industry. Ben’s unifying theme was first and foremost the aforementioned one of firm size ($1-$3M EBITDA), which allowed him to develop expertise at that scale while also letting him explore various favored spaces, one of which was light manufacturing of specialty parts that served a “mission-critical” function in the operation of their final products.
1. Compounding Pharmacy: This was a promising acquisition that quickly went south due to the seller misrepresenting their customer base and inflating earnings before the sale. It resulted in a massive EBITDA drop and an eventual loss of equity and carry. To Ben’s credit, he didn’t cut and run, but stayed involved for two years to make the bad situation as good as possible for the creditors. In private equity, you often work the hardest when you’re paid the least. On such things reputation is built, even (or especially) amid adversity.
Lesson: Remember that if a seller wants to fool you, they will. Your defense as a searcher is deep diligence combined with extensive personal reference checks. Trust your instincts regarding not only the numbers but the people involved. And if something feels off, dig deeper before signing.
2. Structural Steel Components for Cell Phone Towers: This was initially a strong deal. But soon after closing, a 5G spectrum auction led to an industry-wide downturn, which required raising additional capital to cover operating losses. But as everyone in the industry “pulled in their horns,” Ben’s team went to work with an increased focus on sales and marketing, positioning themselves with the relationships needed to capture market share when the upturn eventually came. Revenue then doubled for two years straight, leading to a profitable sale.
Lesson: Industry shifts and cycles, in particular, can be difficult or impossible to predict, so be prepared for worst-case scenarios. Having access to additional capital can be a lifesaver during a temporary crisis.
3. Dental Lab: This deal came through a dental consultant Ben had a relationship with and initially had a lot to recommend it. But personal friction developed between the consultant, the seller, and lenders. Once again, work and perseverance made the difference. Despite the challenges, the business was successfully turned around and sold at a decent multiple.
Lesson: Alignment is critical. Everyone at least has to be willing to work together through rough patches. Ensure that key personnel are truly on board and that relationships are solid enough to weather storms before finalizing a deal.
Experience Accumulated and Lessons Learned
In the private equity deals above, Ben had to absorb multiple unexpected blows over a fairly short timespan. Through this, he told me he put into practice valuable guidance from a mentor: “You just have to keep going,” which reminded me of a René Descartes quote that boils down the recipe for success to its essence: “You just keep pushing. I made every mistake that could be made. But I just kept pushing.”
It’s a matter of mindset and perseverance. Ben had the grit to manage tough circumstances, staying on his feet to convert those difficulties into experience that left him better equipped for each new deal.
Another lesson from Ben’s experience is how he minimized exposure to dead deal costs, which are the bane of self-funded searchers everywhere. These costs carry two dangers:
- They can make losing a deal very hard to recover from.
- They can create such a negative incentive that the searcher goes ahead with a deal they ought to avoid.
Early on, Ben convinced sellers to front $10-$15 thousand to bring in a third-party financial firm to do the Q of E report. Though this practice is becoming more common, sellers are still very likely to push back against it. In those cases, Ben emphasized that he only wanted the seller to back up the veracity of what they were claiming, while assuring them they would be reimbursed upon a successful close.
After the Q of E report is done and financing sources are identified, the next big expense is usually legal fees. These can easily run into the low-six figures. Ben pre-negotiated with law firms to agree to reduce their charge by as much as half if a deal fell through. He also tried to structure deals to include a closing fee for himself, as a way to stay afloat as he positioned the acquired target for growth.
Amid all this tough negotiating, Ben emphasizes the importance of not trying to beat every penny you can out of an owner on price. In many cases, these same people will be continuing in the business post-acquisition, through a share of retained equity or a consulting agreement. A deal that is designed to be good for everyone helps keep the relationship from going sour.
Ben’s Next Stage
Having sourced deals for a private equity firm, and then for himself, Ben’s next move was to combine the best of both worlds. In 2018 he returned to business development for Evolve, but with an agreement that he could pursue any deals he found that Evolve turned down. That led Ben to acquire his current company, Brown and Miller Racing Solutions (BMRS), a specialty manufacturer of hoses and fittings for race cars.
With a great reputation in the industry, control of its supply chain, and a dedicated customer base, it’s a promising acquisition that I am excited to watch in the coming years. And with customers like Singer Porsche, and plans to pursue organic expansion into parts for rockets and spacecraft, it’s also a pretty fun space to be in. For his part, Ben is now in the enviable position of overseeing a successful company that he is passionate about, while being equipped with the experience to know where he wants to take it and how to get there.
“I’m just built for this now,” he says. “The cool thing about [private equity] is that as you get older you just get better.”
If you haven’t watched the interview yet, take a look. Ben’s journey from outdoor adventurer to private equity entrepreneur shows the unavoidable (and sometimes unexpected) ups and downs of the private equity world, while being a testament to the eventual triumph of resilience and adaptability. And for those looking to buy a business, his experiences offer a roadmap on both what to do and things to avoid. Whether you’re considering jumping into your first search or just want to refine your approach to deal sourcing, there’s a huge amount to learn here. I even hope to structure some future posts around some of the topics Ben and I covered, such as typical and atypical paths into private equity, so stay tuned.
Additional Content: The ASM+ PRO tier covers the working capital adjustment in detail. The Private Equity Training curriculum will walk you through a detailed example of the working capital adjustment process. There is also a mini course titled Stock Purchase Agreement that contains hypothetical language detailing how the working capital adjustment might appear in a stock purchase agreement.