The Wise Exit

Cashing Out Podcast | Episode 15 | Creating a “Second Bite of the Apple” in M&A

Todd: [00:00:00] Welcome to the Cashing Out Podcast, where our fellow founders share real stories and offer honest advice around selling their companies to some of the top acquirers in the world. My name is Todd Sullivan, CEO of Exitwise, where we help business owners create the exits they deserve. Today I have a special guest, friend, and forward-thinking entrepreneur, Chris Meso, in 1989 while still in his twenties, Chris founded Mobile Air.

Which after more than 30 years of growth has become the largest private, portable HVAC specialty services business in North America. What's special about Chris's story is that not only did he know the right time to sell the business, but Chris also helped the private equity firm who acquired his business envision a strategy to roll up his competitors.

Chris believed so much in this roll up strategy that he negotiated significant equity in the overall business platform, which created a substantial second bite of the apple for him when the private equity firm sold the platform just two [00:01:00] years later. On today's episode, Chris and I talk about the importance of preparing to sell a business and choosing the right buyer with the right strategy to maximize your ultimate outcome.

I hope you enjoy my conversation with Chris. So Chris, thank you for being here. I really, really appreciate you taking the time to chat with usI know that your insight is gonna be invaluable. Your advice is gonna be invaluable to, um, our fellow founders who may be thinking about selling a business.
But also going and working for the acquirer and potentially being part of a second sale. So I think we're gonna hear some amazing things. But at first I want to tell you when you agreed to take this time slot today, I had no problem bumping Mark Cuban. From this spot. So thank you again for being here,

Chris: We’ll have to reach out and thank them.

Todd: So, uh, I typically like to start with how we met, right? [00:02:00] And what's interesting is I'm relatively new to Detroit. I moved in, I think 2013, built a business, sold a business here, and got thrust into that entrepreneurial e. and I would say throughout the years, probably in the last two years, maybe more, your name has come up multiple times based on, you know, if you are building companies, if you're part of the growth of companies, selling companies, you need to meet Chris Meso.
And I think maybe we traded an email here, there, and then we were at kind of similar gatherings where people are like, you two have to. and I was always like, yeah, I'm always open to meeting other entrepreneurs. But when we finally did get to meet and kind of understand, not just backgrounds and what we've done, but how we think about entrepreneurship and how we think about our responsibility to give back and help people get better, maybe make fewer mistakes, the mistakes that we've made, anything that we can give back to that community I know is [00:03:00] incredibly fulfilling to you.
In fact, you've launched another company to do just. and it is for me as well, it's a big part of this podcast. So, you know, we haven't known each other long, but I think, you know, there are lots of ways for us to work together, collaborate, and become friends. So this is a, a great first step. I appreciate you doing this. Thank you.

Chris: Yeah. Back at you. I agree with all of what you just said. So I, you know, I look forward to this conversation.

Todd: So typically we jump to the exit, right? But in your case, it's a fascinating. and then a long history. And I thought maybe you take us through it, how you thought of this idea, how you developed it, and then, you know, when it started getting interesting that you should be thinking about liquidity event or you know, a sale of the business.

Chris: Sure. So if we're talking about Mobile Air, so I started that in my twenties and really out of the back of a garage, almost literal. And over the years, [00:04:00] um, probably within five years into it, um, I, I really understood. So we did portable equipment, so portable heating, portable cooling, commercial, industrial.

So by example, when they built Little Caesars Arena, which is, you know, that's a, that's a building that's, you know, a lot of people will go to. So we designed and built equipment to, uh, heat or acclim. that building during construction. Yep. So colleges, universities, hospitals, multi big buildings, we would acclimate.

So, but within five years into that company, so go back in time, you know, on my kitchen table, I was, I was figuring out that, um, we were not gonna make it so my costs were escalating. So products, equipment, motors, I mean, just replacement stuff, new products, so CapEx, [00:05:00] um, wages, trucks, buildings.

Um, my costs were increasing and my revenue, uh, per product, what I was getting for my rental or. Was, um, going down.

Todd: Is that because a competition was driving it down? Yeah.

Chris: And we're, we all really had the same products really. So, you know, no one really had a moat. and literally that's what it came down to.

How can we be different? And, and I quite literally just went back to, some of the people that I really knew and trusted and I was very open with them and I just asked. , uh, hey, you know, we say we have the best service. I don't know. We say we have the best products. You know, we all have the same products, and so all these things that we've been saying, I'm just gonna say, you know, uh, it comes down to the product. You know, service is huge, but it really does come down [00:06:00] to what is the differentiator? What is the mote that we can. and it be, and it was, the product and I just asked them, could it be a different color?

I'm just trying to, you know, just get a conversation to start. Right. Uh, how can it operate better? Uh, you know, the, the performance, what are you looking for? What do you need? And I was amazed. I, you know, we're talking about, you know, I'm in 911 switch gear rooms. I'm in, um, hospital buildouts on existing hospitals.

Yeah. I'm in some major, major, opportunities and I got permission to just prototype equipment and I had some, it wasn't just me. There are some really good, smart people that, inside my company that I immediately engaged with and said, Hey, this is an opportunity for us to, build something that no one else has.

Give us an opportunity to raise. Our prices, and at the same time, if, if it worked out, I have increased value to the client. And so fast forward years later, uh, we startedfrom a prototype shop to a small manufacturing shop. And, uh, we just started building 10 of these, or 50 of those, or a hundred of those.
And pretty soon we, we had our…

Todd: So Chris, so you, you are seeing the business declining, right? The unit economics maybe aren't working right? You're seeing that, right? And now you gotta invest in this moat, which may or may not work. So there had to be a bunch of risk around that. For you, was it just do or die?
Is that how you made the decision to dive in like that?

Chris: Yeah. It's amazing how people are wired and you know, maybe some people are misfired and I'll be part of that. Camp . my house was [00:08:00] completely over leveraged and that's, you know, back in the early nineties you could do all that crazy stuff.

Yeah. I had borrowed as much as I could possibly borrow and I was maxed out and I actually felt very comfortable doing it back in those. I really believed in what we had was good.

Todd: It was solid. Yeah, it's incredible that kind of commonality that founders have to have. Right? Almost that irrational, positive outlook on what's gonna happen in order to make it when a lot of other people would say, no, no, I'm not.

I'm never taking that risk in my life. You're probably early thirties at that point, right? You started around 29. You're facing the realities the next couple years, right? You're relatively young at that point. I guess we're all young still, hopefully, but maybe less risk in, in that we have in kind of later life.
Yeah. Or, or risk tolerance, uh, changes certainly as we get older. All right, so you turn the corner, you're building the moat, right? You've got the competitive advantage and, and customers got to see you do this along the way, [00:09:00] and so is it smooth sailing for the next few years? , it's never smooth. .
Chris: It's, it is never smooth sailing.

And I don't, well, it's, you know, probably some people do a better job than I do. But there was, there was always whatever we planned, and we were very, diligent planners. Mm-hmm. , but whatever. We did plan on a one year, five year, 10 year, we had a lot of different segments of time going and what we wanted to do, but there's always an obstacle.

Mm-hmm. and, um, You know, the people who survive, learn how to, you know, dig under the wall, go around the wall, go over the wall, you know, whatever you need to do. You just gotta, you gotta hunker down, you gotta think it through, and you gotta have an action.

Todd: Okay.

So, you know, you, you figured out it's not smooth sailing, but you are building a real company that's [00:10:00] growing and growing to the point where third parties are now taking notice and they're seeing something that they may want to purchase. Right. So you have multiple companies interested along the way.

Chris: Yeah. So, you know, you know this probably better than I do. Um, and I really enjoy macroeconomics. Um, I was in Houston and they had a huge hurricane. And this isSeptember, October of, is it 2008 maybe? Where, you know, Lehman Brothers, uh, fell? Yep.

Todd: I think it's eight. Yeah. 2008. Yeah.

Chris: August. Okay, so August. Yeah. So I was down there for a couple months and I was experimenting, right? So I'm still doing that. I'm still experimenting and we're about to release a, uh, new product to the market, which. Just awesome. And what I actually was watching on live on TV in, in this just rundown hotel [00:11:00] room. I was experimenting with buildings. So no one in the right mind would give me a building a, I mean like a Walmart size building or, or bigger, yeah. Flood it and let me experiment with it. There's no way. But in a hurricane, Katie bared the door.

You know, all you have to do is knock on a few doors and they'll let you, you know, go in and try to help them. And we really crushed it. We did a great job of experimenting with our equipment to the point where our next series of equipment, uh, came from those experiments and we really did an awesome job for those owners that.

But in that time period when watching Lehman Brothers and, you know, a lot of the other conversations that went down, I had almost a, um, I don't know, like a small panic attack of, I was personally had seven [00:12:00] figure cap acts every year. And what was I doing cuz I did not understand the creator macro environment.

So, fast forward 2015, you know, so several years later I'm on my kitchen table and, and I'm looking at what I think is a crude evaluat. and, and I thought, well, if this is right, which I, I, there's no way it can be.
Right. Um, my company has worked twice I think, of what it would've been worth maybe five to seven years prior. Wow. And I'm thinking, well, I just, I just can't be correct. So I went and searched, uh, and I did a lot of business [00:13:00] with Merrill Lynch during those days, and I finally got to the guy I needed to get.

And we spent a lot of time together. And when it was done, I was not, you know, exactly spot on. I was close, close enough. I went and talked to my um, partner and I just said, Hey, listen, here's how I'm thinking about it.

We can, you know, we're still in our 50. We can graduate from high school all over again and do anything we want in life. And I mean, like anything cuz we're done. Um, do you wanna do that or do you want to keep working? And we both made the choice to graduate from high school all over again.

Todd: Chris. That's awesome.

There's a lot there. Right. So your sense of valuation, you were doing that yourself, you had a decent idea of how to [00:14:00] value it and then verified it with, uh, investment banker at Merrill Lynch?

Chris: I’m gonna say they, uh, if they would chuckle Yeah. To know how I got to, uh, how I got to the end result.

Yeah. But I was close enough that I could have a conversation. Yes. That to me and with them made sense.

Todd: Well, you started with that you don't love macroeconomics and assumed that maybe I did, and, and that is certainly not true, but I can certainly appreciate macroeconomic factors affecting businesses, companies that go to sell.

Right? And a new external event like covid, right. Can change the world, change the game, right? So being aware that that can happen, I guess, is good to have that awareness. But yeah, I'm, I'm certainly no expert, but then you followed up with hitting valuation pretty close to on the nose. That's impressive. But selling a business is so completely dynamically different than running a business for sure. And, and there were, there were discoveries by the day.

Todd: And not only are they just fundamentally different, you have to do them at the same.
Run a business and sell a business. Right. Very difficult to do, but you put together a, a great team, obviously to get this done for you and then you take it to market, right?

Chris: Yeah. So today I'm a strategic business coach and I work with, business owners.
Yeah. Privately helped business owners. We had these conversations quite a bit, Todd., if you think that you're gonna travel down this particular road that you've never been down before, you don't know what the speed limits are, you don't know where the gas stations are, you don't know where the restrooms are, the hotels, right?

There's, you have, you don't even have headlights and you're gonna be driving at night, half the time. It, you know, not to not go through this with a profess. Is hubris.

Todd: I love that. I mean, what great analogies there? We're always using sports analogies, but boy, you hit it on the nose and I always follow up with, and you have to keep your business growing, right?
The worst thing you can do in that situation of selling a [00:17:00] business is let your business slide. and so yeah, T-Rex Advisory is what you're doing, right? To help founders kind of graduate to that moment of when they consider can consider exiting, right? So you're putting them through the paces, testing that model, testing every part of that business, improving every part of that business, so they're truly maximizing their outcome when they decide to do this.
Is that what T-Rex is?

Chris: It is so, you know, it's really strategic business coaching and if, if it's done properly, right in the, you know, through the eyes of the owner, right? You gotta use their lens. And if you could help drive a better, uh, future enterprise value, if you can help these people, , uh, through this process of tools and concepts of living like a, a better personal life inside that company, which many have not for years.
Yep. Um, you've got a winner.

Todd: Yeah, I think that was one of the things I took from [00:18:00] one of your talks in, in your office, um, and maybe even you elaborated on it, that the person that you are today is very different than the person you were when you were running that business. And now the rest, rest of life.
Right? The rest of life is and family available. Uh, much more available to you now. Okay. So just kind of back to the exit. You go in, you've got the team. They're gonna assist you, but you're, you're running two jobs here, you know? What, what did you learn along the way and, and what, surprised you?
What buyers came to the table?

Chris: So, you know, you can imagine, and I'm sure a lot of owners who might even be listening to this in the future, um, they might be getting calls from.

Um, certain investment bankers or they might be getting calls from their competitors or they may [00:19:00] getting calls from other people in the industry that they know. whatintrigued me as when we got to our investment banker, was, the fact that we could get some of these players to the table together in a competitive.

uh, what I would've not have been able to do while on my own at all. Yep. And during that process, um, the thing that was most intriguing to me is that we potentially, there's no guarantee, but we potentially really had a good shot at, bolting on a larger manufacturer than we. we played in manufacturing.
The folks that were gonna be bolted on were true manufacturers. [00:20:00] So they could do a lot of things in engineering and build that we couldn't do. And then to top that off and to feed that, entity, uh, we could buy our largest competi. Got it. Which was so sweet, you can imagine if you've competed, I mean, you are a competitor.

I know you are. Yeah. to, uh, compete with somebody for 20 some years, decades, yeah. Head to head. And what you want to do is crush that entity mm-hmm. that you're competing with. Um, you know, to me it was, I'm eating. , or I'm eating mac and cheese, you know, what am I having today?
You know, so what are my efforts, you know, what am I rewarded for? And I, I'd rather have the, uh, protein, I'd rather have the steak . So it was so sweet [00:21:00] to shake hands with my competitor and say goodbye. And so we bolted those three entities together, you know, to include my company. Yep. Uh, new leadership team.

And, um, we stayed. It took about two years to, get all this to, get to start to gel together. It's not something that, you know, you're taking, you're taking, uh, some key players that used to be your competitor also. Okay. Right. Okay. And you're asking everybodyto play better in the sandbox together.
Todd: So you go to run a process cuz you understand that where your valuation is and the time of your life, this is something that you want to do and the investment bank takes you to market. And you're in identifying private equity firms that view you as a platform to potentially roll up a market, right?
Bolt on others who are, are your competitors. That was the strategy. And was it all in one [00:22:00] transaction or did you get purchased as the platform first and then initiate the purchases of your competitors?

Chris: So there was already an established manufacturer in the background Okay. That we got bolted onto. Okay.

Um, so, but that, I mean that alone when that was explained to me in terms of the concept. Yeah. Because again, you know, I'm running a company, I'm. Really interested in buying other companies and bolting on and going for, you know, a larger epat, a draw for, you know, by other players.
Yeah. So that wasn't part of my strategy running a business. So this was so fascinating to me. and timing wise, it worked for me, physically. So, um, and that really trumped, um, all the other players in the. So all the other players who wanted to participate in, seeing if they could, uh, obtain the company, [00:23:00] it didn't make, didn't make any sense for me to.

Todd: This had too much going for it. That's great. So kind of step back, you made a comment about kind of bringing multiple potential buyers to the table at the same time, something that you wouldn't have been able to do yourself. Yep. And so the team is able to do that.
They're able to balance that and I think a lot of people think, oh yeah, I've got approached by one group. I will do my best to maximize my uh, sale. With one buyer. It's just really difficult to do unless you can force competition, right? Not only can you force price, but you can force timeline and professionals really know how to do that, right?

So you've got that playbook down, you understand it. And then the most strategic offer, Comes to you where you get bolted on, but you know you're gonna be part of growing and bolting on your competitors, Can you talk to me a little bit about the financial incentive for you [00:24:00] to go be part of a platform?

Cuz typically they don't buy a hundred percent of you, right? They want you working to grow. And what was your role when you originally sold onto that platform?

Chris: So I stayed on as president for a very short period of time. Yep, my head was not gonna stay in that game..

Yeah. And I'm just going through the, playbook of, you know, mentally, emotionally, physically, all those things going on at my house, right? Yeah. Uh, talking to my wife. Yeah. Uh, talking to my partner, talking to, you know, these new partners. and knowing now and understanding more that, you know, you're, if you stay in specific spots inside this new entity and we roll it fairly quickly in two years to me, is fairly quickly Oh yeah. [00:25:00] Um, you're gonna end up staying right. The, the odds are that you're gonna end up, uh, keeping a seat for even longer. Okay. And, um, I absolutely. , um, wanted to a, enjoy the graduation. Okay. And not delay.

Todd: And not delay it. Got it. But you know, you, you sold once, but then you sold again, so, correct. How did the Correct, how did the second time happen?

Chris: Yeah, so on the second time, I didn't have a seat at the leadership table at the end. So there's no reason for me, uh, to be asked to stay, uh, I'm gonna call it the Kumbaya dinner. where, you know, you know that the funds are gonna be transferred the next day. You know, so everybody's gonna get wired their money.

Yep. Um, and we are at Morton Steakhouse, and the, the buyer, which was equity one, said, listen, you're not gonna participate and come, come over physically. [00:26:00] why don't you stay? And I asked him, I said, well, what would I. , um, cuz I, you know, people who are in those positions currently.
Yeah. Uh, were good people and you know, why would I displace anybody? Right. And I wanted out. Yeah. And he said to me, he goes, listen, he said you opened up nine offices in six states. And he said, we're gonna wanna open up the west coast, the east coast in, in the, uh, Florida, Georgia region. and uh, and I said, does that mean I'm, I'm gonna be on, on a plane like four or five days a week,
And he said, yeah. I said, well, you know, I just made my wife a promise that I'm not gonna travel because I traveled, you know, all the, I was never home. Yep. And I said, I just made her a promise I'm not gonna travel, and now you're offering me a chance to travel . I'm gonna give you her number and you can call her.

He said, no. [00:27:00] And I said, I'm not gonna call her either. So , but he was, he was nice about it. He said, listen, he goes, would you wanna carve out? And uh, and I knew what they're gonna do, right? They're gonna bolt on some other companies that we had talked about, and they're gonna go back out to market, which they did.

Yep. In 2019. So, um, I gave them a number. Would I'd be comfortable with, uh, they took, they took that number. and, um, it was, it worked out very well.

Todd: That's great. So we would call that the second bite of the apple, right. On their sales. Correct. So you had equity in the overall platform. They're bolting it on presumably EBITDA revenue going up, value the company's going up, and that was, I think if I read it right, that was 2017 and then they sold again in 2019.

Right. So you get that, that second check, right. Yep. That's that's fantastic. I love hearing those stories. Now, was there a third sale?

Chris: Well, you know, there's my initial sale. Yep. And then, you know, then there are bolting on, and then we sold again.

Todd: So that's the second transaction and then the final transaction.[00:28:00]
It's fantastic. Right. I have a couple of friends that have been through that and stuck it out with the private equity firm, but we're working there. Right. But I think you recognized. You get to graduate from high school again and, uh, and do what you want.

And at the same time, you know, you've got equity in something that's working for you that cashes out in just two years. That's, that's phenomenal. Yeah.

Chris: Who has that opportunity? I just feel fortunate.

Todd: That’s great. Yeah, you're right. It, it is rare air. We've had a few guests on that, and they all come to the same realization like, wow, they're just sitting on cloud nine, that this was able to happen for them. So Chris, what advice, right? I think along the way you've certainly picked out [00:29:00] and you've pointed out some things to do to create the right exit.

Certainly how difficult it's gonna be, but you know, what overall advice would you give to our fellow founders who would dream of being in your shoes? And that might make it a little easier for them.

Chris: Yeah, That's a great question. The um, just. Um, that you don't know what you don't know, and you, and you're gonna need to know some things that you don't know.

Uh, and that's just a matter of fact, you know, selling a business, even preparing the business is different than running the business. And the more time you give yourself to understand and to assess and to discover, And to implement actionable items over a period of time will only benefit you.

Todd: Yeah, I couldn't agree more and I think I've learned that over time.

And you know, one of the questions I [00:30:00] asked you kind of off air was how long before an exit do you want to have some impact? On these founders and their businesses, how they can prepare their business, prepare themselves, prepare their teams for that optimal outcome. I appreciate you, uh, mentioning this and Oh yeah. Even, uh, being with us, but we started. Another company for this, uh, exact subject called, uh, the Q five experience. And for this to work really well, you'd have to have someone's attention, uh, for about three years.

Okay? And it doesn't mean that in three years you go to market, you could say, Hey, I want to do an esop, or, Hey, I want my two sons and my young niece to run this company. , uh, you know, however that works out. Uh, and that could [00:31:00] not, that could be in seven years, that could be in, in 18 years from now. But you just have, uh, a plan that's better than most to get there.

Todd: What I appreciate about the service that you're doing now is you don't run that whole thing. You might quarterback, but you're bringing experts in each level of the business at the appropriate time to. , these businesses grow and get the footing underneath them. Get prepared is such an undertaking to, to sell a business.

And buyers are gonna be looking under those covers. And if you have not looked under those covers first and made everything the way it should be, right, you're, you're not gonna have the same outcome, right?

Chris: Those buyers don't just check under the hood. Those buyers have your car on a rotisserie, and they're just turning that thing round and round.

They're looking at every crevice. That you've not paid attention to in 20 years.

Todd: Sometimes they'll view that as opportunity and sometimes it's negotiation to knock your price down. So yeah, what [00:32:00] you're doing for business owners is really invaluable. It's a step that people should not be, um, overlooking if they're thinking about this business, like you said, esop, going to family members or, you know, outright sale to a strategic or financial buyer.

This is a must have, um, for really any serious business. So, um, look, I really appreciate you coming. and sharing your story. Um, you said, you know the competition. I love when you're, when you're talking about, you know, am I gonna have steak or mac and cheese? And how sweet it was to essentially eat the competition in a deal.

I love that as, as part of the motivation, but just strategically understanding that this exit did a lot to build something that you started in six states and then were able to grow across the country. That's gotta be an unbelievable. A legacy, right. In a, in a business that you created out of, out ofa storage area in your [00:33:00] garage, or however it was.

Chris: Right, it's the American dream. It really is. like I tell our kids a lot. Uh, you know, we're all gonna play on, on whatever field you're gonna play on, but if you have a sports analogy, what you like. Yeah. Um, I would rather look back in.

And know that my uniform is dirty, that it's ripped, it's torn. Uh, I've got some bruises. I, I know that I was on the field and I know that I played as hard as I could play. I have left nothing on the field. Hopefully I'm smart enough to know that I got off the field when the game came to its logical. and I enjoyed like the fifth quarter of life, Chris.

Todd: I love it. I got goosebumps. That was awesome. . That was awesome. Yeah, it's hard to do . [00:34:00] Yeah, it's really hard to do. Really hard to do. But man, thank you. This is fantastic. I really appreciate you taking the time. I think people are gonna get a lot out of this. Um, hopefully they're listening. There's a lot in there, so, uh, I hope so.

Thank you. Thank you, my friend.

Chris: Yep.

Todd: Thanks Todd. Thanks again for listening to the Cashing Out podcast. For more Founder Exit stories, please subscribe to the Cashing Out podcast on Apple, iTunes, Spotify, or wherever you listen to your favorite podcasts. And please remember, exitwise.com and the Cashing Out podcast are for entertainment purposes only.

This should not be relied upon as the basis for investment decisions.