My Guests
Royce Yudkoff & Rick Ruback are both professors at the Harvard Business School, and co-teach two wildly popular courses called The Financial Management of Smaller Firms and Entrepreneurship through Acquisition, both of which focus on how to acquire, finance and operate your own smaller firm. In 2017 they also co-published the widely read book, The HBR Guide to Buying a Small Business, published by Harvard Business Review Press, which acts as the definitive source of wisdom and guidance for a countless number of acquisition entrepreneurs across the world.
Prior to teaching at HBS, Royce served as a General Partner and co-founder of ABRY Partners, a middle-market private equity firm headquartered in Boston that has completed over $90 billion of investments since its founding in 1989, and today manages ~$5.4 billion of active capital across four investment strategies.
Rick Ruback is the Willard Prescott Smith Professor of Corporate Finance at the Harvard Business School, who focused on applied corporate finance, corporate-control transactions and valuation. He joined HBS in 1987, after having previously taught at MIT’s Sloan School of Management.
Listen in Your Browser
Royce Yudkoff & Rick Ruback: Educators, Mentors, and Leaders Within the SMB Community – In The Trenches
Listen on Other Platforms:
Apple | Spotify | Breaker | Pocket Casts | RadioPublic
Questions Asked
Introductions
- Tell us a bit more about yourselves and your career trajectories, including what led you to what you’re doing today
Career Trajectories
- Royce, what compelled you to start ABRY in 1989? How did you think about taking the entrepreneurial leap?
- What was the reaction of your family and friends, especially given the compensation and prestige you likely left behind at Bain?
- What are the major similarities & differences between investing in larger middle-market businesses at ABRY versus “microcap” business often targeted by search funds?
- What are some “good” reasons why businesses stay small, and what are some “bad” reasons?
- Is having a small TAM an acceptable trade-off for investing in a company operating in a very specific niche?
- Royce, what are some of your more memorable failures or disappointments from your days at ABRY?
- Can you still buy a recurring revenue business at 3-5x EBITDA?
- As a community, how should we think about the importance of growth in our acquisition targets?
- Royce, how did you know that it was time to step back from your day-to-day role at ABRY?
Characteristics of a Successful Transaction
- What are the top 3 business or transaction characteristics that tend to be most predictive of good outcomes in search fund transactions?
- What forms of concentration are “acceptable” when investing in a SMB, and what forms are not?
- How do you determine just how much key-person risk resides with the seller when evaluating a SMB acquisition opportunity?
- At what point does a first-time buyer risk becoming “blinded” by a good purchase price, and as a result is willing to accept company & industry challenges that they would otherwise not be willing to accept?
- How small is too small for a company to be a suitable acquisition candidate?
Conclusion
- What areas of your professional lives do you still feel like you have yet to master? Where do you still feel less sure of yourselves?
- Why do you think your partnership works so well? What might prospective partners learn as a result?
- Do you have any practices or rituals that you follow regularly to keep the partnership healthy?
- How do you avoid the natural human tendency to “score keep”, or engage in that 50/50 thinking, that often serves as the downfall for many partnerships?
Download a Written Transcript of Our Conversation
Access a text-based version of our discussion to highlight, copy or take notes by clicking on the button below
Thanks to our Sponsors
This episode is brought to you by The Profit Line. The Profit Line is a boutique finance and accounting firm that provides a wide range of accounting services to small and medium businesses generating anywhere between $5M to $50M in revenue. On a fractional, outsourced basis, they do day-to-day bookkeeping, bank reconciliations, month-end accruals, tax compliance, and financial statement preparation, among countless other things. I was a customer of theirs for 7 consecutive years while running my own company, and am speaking as a happy customer. Book a call with Founder and CEO, Fern Gordon (Ferngordon@theprofitline.com) or visit their LinkedIn page to learn how they might be able to help you exactly as they helped me.
This episode is brought to you by Oberle Risk Strategies, the leading insurance brokerage and insurance diligence provider for the search fund community. The company is led by August Felker (himself a 2-time successful searcher), and has been trusted by search investors, lenders, searchers and CEOs for over a decade now. Their due diligence offering (which is 100% free of charge) will assess the pros and cons of your target company’s insurance program, including any potential coverage gaps, the pro-forma insurance pricing, and the program structure changes needed for closing. At or shortly after closing, they then execute on all of those findings on your behalf. Oberle has serviced over 900 customers across a decade of operation, including countless searchers and CEOs within the ETA community.
Discover more from
Subscribe to get the latest posts sent to your email.