Eric Van Dam's wife kept asking who was calling at 10 or 11 o'clock at night.
The caller was Tommy Mello, founder and CEO of A1 Garage Door Service. Mello wanted to learn everything he could before choosing a private equity firm to partner with for the first time and take his business to the next level. In 2019, A1 earned about $4 million in EBITDA, and Mello had questions. Van Dam, a managing director at Piper Sandler & Co., took the calls despite the late hour.
This week at Pantheon, the two shared a stage to talk about where those calls led: two private equity transactions, a company with more than $400 million in revenue and 1,400 employees, and a case for what comes after the first payout.
Build the company to be sold
Van Dam's first piece of advice, Mello said, was to hire a CFO. Audited financials, a quality of earnings report and a data cube followed. The finance team carries a sale, he said, and buyers spend about $5 million on diligence before they commit to a big deal.
"Don't bring a knife to a gunfight," Van Dam said. Private equity firms arrive with top law and accounting firms, so owners need advisors of their own. Mello said a competitive process gets the highest outcome.
Vet the buyer like a spouse
Mello questioned firms as hard as they questioned him. He asked them about the last two or three deals and the multiple on invested capital. He asked for references, including companies where the investment went poorly. He asked what happens if the company misses the budget by 20% in a quarter. He, lightheartedly, compared the conversation to a prenuptial agreement.
“A good partner mostly asks questions,” Mello said. One of his was asking why receivables ran over 5%. A1's installers weren't collecting at every job. After retraining, Mello said, bottom-line margin climbed from 17% to 27%.
Van Dam said A1 reached $27 million in EBITDA over its first 15 years and added more than $75 million in the four years with a private equity partner.
One playbook in every market
Mello said every A1 market runs the same pricebook, truck, uniform and software stack, with one call center and
one dispatch center. Van Dam said buyers now look past shared systems to shared people and processes.
"You gotta deal with people"
Mello talked about prioritizing the team at A1. He started something called the Dream Manager program. It’s part life coaching, part marriage counseling, Mello said. One six-month cohort of 60 employees lost 450 pounds, saved $400,000, paid off $500,000 in debt, welcomed three babies and bought 10 houses.
Plenty of investors are trying to figure out how to Uberize home services, Mello said. His answer is good luck, because "you gotta deal with people."
Two weeks ago, he said, a participant cried and told him he wished he could rejoin. The program, the man said, saved his life.
Mello said he doesn't have to be involved in the company anymore. He is anyway, because "it's so fun watching people win."
