Innovative Hold Co Model: How Four Partners Are Building a Multi-Million Dollar Business Empire

In the world of entrepreneurship through acquisition (ETA), innovative models are constantly emerging. One such model that's gaining traction is the multi-partner hold co structure. This approach allows a group of entrepreneurs to collectively acquire and grow multiple businesses, leveraging their combined expertise and resources. In this article, we'll explore how four partners are using this model to build a multi-million dollar business empire.

The Genesis of a Unique Partnership

Obby Shankar, a former partner at BCG and startup executive, found himself at a crossroads in his career. After years in consulting and high-growth startups, he yearned for more flexibility and the opportunity to build something of his own. This led him to explore the world of entrepreneurship through acquisition.

Initially, Obby planned to pursue this path solo. However, when he shared his vision with friends, two of them expressed interest in joining forces. This pivot from a solo venture to a partnership model became the foundation of their innovative hold co structure.

The Hold Co Model Explained

The partners' vision, as sketched out on a Starbucks napkin, was to build a holding company to buy and grow small businesses. Their key principles included:

1. Operating, not just investing
2. Long-term holding strategy (not pursuing quick exits)
3. Valuing cash flow and lifestyle flexibility
4. Avoiding external investor capital initially
5. Sequential acquisition and operation by each partner

The goal was for each partner to eventually leave their W2 jobs and operate their own acquired business under the hold co umbrella. This approach allowed them to share resources, learnings, and build redundancies across their portfolio companies.

Equity Structure and Incentives

The hold co's equity structure was designed to balance collective ownership with individual incentives:

• At the holding company level, the four partners have roughly equal ownership (25% each)
• For each operating company acquired, a "sweat equity" pool (typically around 20%) is allocated to the partner operating that business
• This results in the operating partner owning about 40% of their specific business (20% through the hold co + 20% sweat equity)

This structure incentivizes each partner to perform well in their own business while still benefiting from the success of the entire portfolio.

The First Acquisition: A Swimming Pool Service Company

Obby led the charge with the group's first acquisition: a swimming pool service company in the San Francisco Bay Area. Key details of the deal include:

• $3 million in annual revenue
• 17 employees
• 40-year operating history
• Purchase price around 4x EBITDA (roughly $2.5 million)
• Primarily seller-financed with a 75% seller note at 5-6% interest
• The partners contributed 25% of the purchase price in cash

In the 18 months since acquisition, Obby and his team have:

• Completed four add-on acquisitions
• Grown revenue to $8-9 million annually
• Expanded from 17 to 51 employees

Growth Strategy and Operational Insights

Obby's approach to growing the pool service business involves both organic growth and strategic add-on acquisitions. Key elements of their strategy include:

1. Focusing on acquiring established companies with both customers and quality employees
2. Expanding service offerings to increase customer value and pricing power
3. Investing in leadership and infrastructure ahead of growth
4. Balancing short-term profitability with long-term value creation

Obby emphasizes the importance of building a strong leadership team and implementing systems and processes to support scale.

The Second Hold Co Acquisition: A Franchise Business

The group's second major acquisition was a Shelf Genie franchise in Seattle, operated by another partner. This business:

• Generates $4-5 million in annual revenue
• Offers kitchen cabinet and shelving solutions
• Came with a well-established team and systems

The growth strategy for this business focuses on geographic expansion and adding new product lines like closet systems.

Lessons Learned and Future Plans

Key takeaways from the partners' experience so far include:

1. The importance of having a clear "why" and personal goals beyond just financial metrics
2. The value of a partnership model in providing support, flexibility, and diverse perspectives
3. The benefits of a long-term mindset when making investment and operational decisions
4. The need for adaptability and continuous learning in the acquisition and integration process

Looking ahead, the group (now rebranding as Trust One Partners) is actively searching for their third major acquisition. They aim to have each business reach $10 million in annual revenue within 3-4 years of acquisition.

Conclusion

The multi-partner hold co model demonstrated by Obby and his team offers a compelling alternative to traditional search funds or solo entrepreneurship through acquisition. By combining resources, expertise, and a long-term mindset, this approach can provide entrepreneurs with greater flexibility, support, and potential for success in the small business acquisition space.

As more success stories emerge from this model, it's likely we'll see increased adoption among aspiring entrepreneurs looking to build their own business empires while maintaining work-life balance and personal fulfillment.

For those interested in exploring similar models or connecting with Obby, he can be reached on LinkedIn or Twitter (@abilash).

Whether you're a seasoned investor or an aspiring entrepreneur, the innovative hold co model presented here offers valuable insights into the evolving landscape of entrepreneurship through acquisition. As the business world continues to change, creative approaches like this may well become the new norm for those seeking to build lasting, successful enterprises.

Article created from: https://www.youtube.com/watch?v=mAGe68XqJYQ