Courage to Pause
4 min read
A client recently characterized Relay’s storytelling as a series of cautionary tales. While Aesop certainly made a case for this method, the example below spotlights the opposite.
Here is a path worth following, where curiosity and market awareness drove immense value.
In 2018, Peter’s staffing business was out of money. To be clear, the company was able to meet all their obligations, but they were capital constrained for growth.
He’d built a repeatable process for acquiring boutique staffing firms. In the past 3 years, he’d completed 5 successful acquisitions, adding considerable scale and specialty verticals into his core technology staffing business. Total revenue had grown from $35 to $85MM alongside a healthy base of organic growth.
The company funded these deals with a mix of rollover seller equity and debt, largely cobbled together through SBA-backed loans to finance the upfront portion of each deal. Eventually, as many middle-market acquirers experience, the company hit the government’s SBA borrowing ceiling.
To complete the next round of identified deals, the company needed $25MM. They were left with a choice: stop acquiring or recapitalize the business.
The urgent energy at this inflection point is often where founder-led organizations rush into irreversible capital decisions.
For Peter, halting M&A with a healthy deal pipeline and a track record of recent wins would have been a mistake. So, he started exploring the next logical funding source: outside equity investments.
Peter pulled on his network and began talking with a handful of private equity firms. The findings were surprising. Though the company was only $8MM in EBITDA, they received offers valuing the business at more than $110MM, well above their initial expectations.
They weren’t eager to sell ownership, but the terms were attractive. If they sold 40% of the company, they could build a $35MM+ war chest, allowing them to further accelerate growth through M&A.
This was the point where I met Peter.
In the 5th inning of negotiating with investors, he described the situation, including his consternation with selling equity. At risk of overpromising, I told Peter they likely had a handful of better options. Based on their EBITDA, they could refinance their existing debt and provide an additional $18MM+ for acquisitions. No equity give-up.
Peter was skeptical.
He’d already wasted a lot of time with his current capital providers scrimping for additional borrowing capacity. Pivoting now presented a risk. But the potential upside was worth it.
Peter gave us 4 weeks to work.
In that time, we engaged a sector-experienced lender to underwrite a better debt facility, committing a total of $24MM in capital through a vehicle designed for M&A. The company didn’t have to sell a single share, and it opened the path for another 3 acquisitions.
Debt was an unknown intermediate alternative to the halt-growth-or-sell paradigm Peter had considered.
Just 18 months later, we expanded the credit facility to $45MM. Still, Peter retained 100% ownership, overseeing the company’s growth from $8MM to $20MM in EBITDA.
To be clear: this decision wasn’t a success because of the specific capital structure. Debt can just as easily destroy value as create it. Instead, this decision created lasting success because it matched well with the owner’s long-term goals.
Peter’s patience and curiosity created space to understand the available alternatives, evaluate them fairly, and choose deliberately.
More than anything structural, the company bought itself time — time to learn, integrate, and grow before locking in an irreversible ownership decision.
Eventually, 3 years after our initial debt transaction, the company decided to bring on an equity partner. This time, they ran a competitive auction process with an investment bank and sold 30%.
Instead of a $110MM valuation in 2018, the company was then worth $350MM in 2021. And the trends continued.
Today, Peter still controls the business. After further considerable growth, including more than 50 acquisitions last year, his shares are now worth more than $1B.
Peter’s story is a standout success, but it’s not singular. Most founders have more options than they realize. The trick that makes stories like this so rare is they require the uncommon courage to pause and explore.
Note: Relay Strategy Partners is a good steward of confidential data. Case studies are a composite of multiple clients and identifying details have been masked to protect confidentiality.
Continue Reading
