Episode Transcript
[00:00:00] Speaker A: You.
[00:00:05] Speaker B: Hi everyone, it's Anthony Caparino here.
Welcome back to another session of conversations with Anthony. Today I have my close friend and fellow YPO member Damien Style here with me.
Damien is a founder owner who recently sold his business to private equity and we'll get into that in a little bit.
Given his background and his story, I thought it'd be relevant to have a dialogue with him and really talk about his experience with private equity. And while A and M and myself have not had any interaction in that transaction, what he experienced and what he prepared for and what he's now doing is very relevant to what we do here in the transaction Advisory group. So I thought it'd be interesting to everyone and Damian, happy to have you here.
Before we get into the crux of the conversation, why don't I turn it over to you to talk about your background and your formation and time with your company, Alba Wheels Up.
[00:01:06] Speaker A: Anthony, thank you so much for having me on the podcast. I've been really looking forward to this. So my name is Damian Style. I'm the co founder and co chairman of Alba Wheels Up International.
We founded the company roughly 27 years ago.
And what we are is we are a trade sensitive customs house broker. So think about that as a CPA for freight. So with everything that's happening in the logistics environment as it relates to tariffs and all these new government regulations, we really help guide midsize enterprise clients throughout that process. So it's been an amazing journey. When I started, my brother and I, it was just two people at a corner desk and as of today, we're one of the largest privately held customs house brokers in the United States.
[00:01:48] Speaker B: We're.
You know, Damian, every time I hear that story it resonates with me because while it's not exactly similar, but having been around at the onset of our transaction advisory group and having five people to start and seeing where we are today, took a similar path as far as growth, obviously different industries. But your story has been amazing and it's great to hear. And I think what is is equally as impressive and interesting is just how you thought about interacting with private equity, why you thought it was important to sell to private equity.
So maybe give us a viewpoint from your standpoint as a founder owner, when was the right time to seek an investor and how did you go about thinking about that?
[00:02:39] Speaker A: So for Sami in particular, I was 47 when we partnered with our private equity company. So this wasn't about a exit to a retirement scenario at all.
They have a whole second half to come up. But really about 10 years ago we wanted to know what's Alba going to be when it grows up. We didn't view this as a generational business because we have relatively young children at the time.
We knew we built something special. We knew there was massive consolidation happening in the logistics space. A lot of tier one players coming in, a lot of companies that traditionally weren't logistics coming in, such as the Amazons of the world.
So really to navigate that, we were one of the larger family owned businesses at the time. But to continue that type of growth, we knew not only we would need a capital partner, but really a partner that would help us with that growth. So we really want to have the foresight to continue ownership and leadership at Alba. And with that, one of our pillars was to be the platform. So we really designed and built the company during that time to be a choice where if we did partner with private equity, we would be a platform and not a roll up.
[00:03:46] Speaker B: And speaking of roll ups, you've done a number of deals since you brought on an investor. And while Alba and you are the platform, tell us a little bit about the roll up and the acquisition of some of the smaller competitors in the landscape. I know you've been pretty involved in that part of the business.
[00:04:07] Speaker A: Yeah. So the ethos has been as again, a trade sensitive customs house broker. We work in specific verticals with deeper expertise. So the companies that we're join us obviously have to fit the strategy. They're healthy companies, these are positive EBITDA companies, they're not distressed. But it really comes down and this is not a cliche about the culture that you're bringing in. So it's almost akin to building a super team.
We bought in some larger sized clients equal to the size of Alba along this journey. But really looking at that, I've probably spoken with at least 300 customs house brokers in the United States during this hold period and we partnered with seven of them. And again, it's been that combination of how does it fit. Obviously the math has to be there, that's the table stake in the economics. But getting that culture right. And when I speak about culture, Anthony, it's not that you close a deal and you pop the champagne. What happens after, what happens when you're operationally excellent companies and the changes have to happen to integrate into scale and how do you keep everyone excited and engaged and really respect the histories that are coming in? Right. Some of these are companies that we've acquired. They've been around for 100 years themselves. So it's really striking that balance.
I think we've been very selective and successful in that as well.
[00:05:21] Speaker B: That's interesting. I know culture and values is a big part of A and M strategy and what we talk about, what we live by every day.
And I know sometimes even if there's a good fit, whether it's in your case a company or in our case individuals, you know, sometimes the technical expertise or the professional background is trumped by the fit and the culture, particularly in a transaction setting. So that's, that's interesting and I know I've heard about that from you and it's very interesting to hear a different point of view on the same subject that that is quite important to both of our businesses.
Tell us a little bit about how you conducted due diligence and not only from your viewpoint to get your company ready, which I know was not an overnight thing, but also what was your experience with your, your ultimate buyer's due diligence and how are you involved in the entire process?
[00:06:24] Speaker A: So early on I viewed it that there's three due diligence I had to go through.
So the first due diligence was on Alba itself. You know, how we're going to prepare and build this company to get to exit. So besides some of the structural improvements of investing in your accounting department and HR information systems, everything to make sure that you're going to be appealing as the platform as we got closer to due diligence, doing it sell side quality of earnings, right. Something that most entrepreneurs don't even, they may not know of that, but something that was extremely beneficial that as we're going to start due diligence and seriously move down that path with our private equity partners starting to prepare the playbook and what's that playbook going to look like? That also included starting to put the team together a year out from any loi, our accountants, legal and the banker, and then really going through what is due diligence going to be day in, day out. Because as you know, that process can be three months to nine months, if not more. So I didn't want to go in naive because as an entrepreneur, it's my first swing at this, right?
It's a one time, maybe some people do it twice, but this is not my profession. So I think the continuous education on building the company and being aware of the due diligence at the process of that happens. The other component was with the private equity company, you know, this is the marriage and this is really for us again about the culture. But these are the people that you're selling a majority of your equity to.
You're really looking to do something special.
You're bringing in institutional money. And I feel a responsibility to that. You feel responsibility to the multiple stakeholders, you know, besides your traditional employees and customers. As an entrepreneur now there's multiple stakeholders involved. So I wanted to know who am I partnering with? So that was speaking to their portfolio company founders, asking around in the industry, seeing that type of reputation and spending a lot of time with them. This was not one or two dinners. I was actually speaking to them for several years.
And with that we were originally supposed to go to LOI before COVID That obviously delayed it a bit, but we built up, I think, a strong business relationship and somewhat friendship over the years before we went to loi, so that was a huge help as well.
[00:08:42] Speaker B: That's interesting. You mentioned timeline.
That's something that we advise clients a lot on.
There may be a decision to go to market, but the real decision comes way before you're ready. And sometimes it's six months, nine months, a year in your case.
And I think the benefit of having that viewpoint like you had, I think hopefully and maybe you would say contributed to the ultimate successful transaction. How long was the actual diligence process? So walk us through a little bit of the timing around.
You mentioned a year and deciding and prepping internally.
At what point did you hire a banker and then how long did the actual diligence process take place? From the time you signed an LOI to. To the time you closed.
[00:09:36] Speaker A: So we signed our LOI in November of 2020 and we closed in March of 21st. Now, now mind you, I knew my private equity firm personally in person before COVID So obviously when Covid hit this was somewhat of a Covid due diligence process, mostly remote, which was interesting.
But with that I think overall the pacing was there also a little bit. At that time there were some changes happening with the elections in Congress. We thought there'd be some tax changes and whatever else. So there's a rush to the doors, so to speak, that everyone wanted to close on December 31st of 2020. But we closed in March. I was happy with the pace.
It was definitely an experience. I do believe without that pre due diligence work and doing that Q of E, it would have been a much more difficult process.
I also believe not having that team in place on our side and making sure they're professional and not the family lawyer really helped out. So when you ever got into a difficult Conversation, they were never contentious. And you had to trust in professionals on both sides to find a way forward. Right. There's always going to be a hurdle in there. But really having competent professionals around on both sides, you have that faith that you'll get through it.
[00:10:53] Speaker B: It's interesting, it's refreshing to hear that viewpoint from a founder owner because we get involved in a lot of situations and sometimes not for necessarily lack of trying, but there's just not a comprehension of all the things that have to go into it. So your points about the lawyers, your points about pacing the transaction, et cetera, are quite important. And things that we deal with all the time and sometimes those are challenging.
[00:11:21] Speaker A: Just to round out that point, we're entrepreneurs, we know how to run our businesses. A financial transaction is obviously a different experience and I think being very aware of that's important, rather than just going on the basis of I'm going to decide to go to market, I'll figure it out on the fly.
I think a lot of complexity comes out of that and I think a lot of entrepreneurs get caught flat footed in that case.
[00:11:47] Speaker B: Tell us a little bit about how the deal was structured. Not to get into particulars, but how did you make sure that the deal was structured so that one, it was sustainable and two, was fair to both sides.
[00:12:02] Speaker A: So I think from really the work that we put into the LOI really helped define that structure.
And then obviously going through the due diligence process, I mean, for my brother and I, it was key that we wanted to continue our leadership.
We wanted to be the platform, obviously, and with that with our private equity partner, they never wanted to sit in our seat like that's a bad day. They understand we know how to create the value at Alba, but what they bring to the table, again, besides the capital, is really the ability to help us scale. That's where the profession comes in. That's where their brain trust comes in. Having that bench that if we have to look into a new IT capability or if there's something that's happening on the regulatory front, that not only having our network, but having their network really supercharged it. So as far as like the deal structure in itself, it was relatively uncontroversial because I think a lot of the deal terms and the roles were already talked out beforehand. So as far as being equal partners within the deal, that was important as well, and that was taken care of. But overall, I think going into it, a lot of the major points of what would define how this deal would go forward were already discussed.
So I felt good for it. I didn't feel like we had to make a lot of adjustments going through due diligence, which is not always the case. But yeah, it was a good outcome.
[00:13:28] Speaker B: Probably, I'm guessing a lot of it. You know, you knew them for quite a while. There was a, there was a relationship already, a dialogue. And you know, having, having known you now for, for eight or nine years, I think you have a very effective communication style. So the communication point shouldn't be lost because sometimes, sometimes that's where things get held up. But it sounds like it was relatively smooth. And that always doesn't happen in many transactions with private equity and founder owner businesses.
[00:14:02] Speaker A: And to the point I think that's where the preparation, so even going to LOI and the preparation of that LOI and getting the teams to work together really helped smooth the due diligence process.
[00:14:13] Speaker B: So now that you've, now it's been about four or five years under PE ownership, I'm sure you've experienced a lot. You have an interesting viewpoint.
There's, I'm guessing tons of benefits and certainly a lot of changes. But now that you've been in the seat with private equity for almost five years, what are some of the strategic advantages that you've seen for you for your business now that you have a private equity partner?
[00:14:43] Speaker A: I mean it's been an amazing journey as an entrepreneur and it's been an amazing journey going from a CEO of a private equity backed company now to the chairman role. But I mean the strategic benefits is I feel like as an entrepreneur I was a really good AAA baseball team and now we're like the New York Yankees.
So as you institutionalize the company as they say, but you're bringing in that real talent around you that's been incredible. So we have an incredible leadership team here. Again, the outside resources that the private equity partners bring in has been incredible as well.
Obviously when it comes to financial planning, regulatory type of issues, really outlining the strategy, being thoughtful about it, again, keeping the founders and keeping the EOT in the driver's seat, but really saying, okay, this is the plan. If this is the acquisition you want to make, is this the pivot we're going to make? Hey, we're going to support you, right? But we just want to make sure that everyone's rolling the right direction and you deliver on what you say.
[00:15:43] Speaker B: And give us a little insight.
Do you have quarterly board meetings? What's your interaction with your private equity partner? And I'm sure there's both Formal and informal interaction over the last four or five years.
[00:15:59] Speaker A: So I think the overall goal is it's a lot more hands on for me in a very positive way in your first year or two and especially for this type of acquisition in logistics as a platform. So it's the first investment by them in the logistics space you're coming out of COVID then you have a supply chain collapse and then you have an inventory overhang. So they had to become custom house broker experts very quickly. So that was amazing to see their uptake with that. But there's constant communication because again, it's a team. It's not that you're being overlooked and they're looking over what you're doing every day. It's quite the opposite. You have this incredible team around you. So there's constant communication with that.
Quarterly board meetings, but a lot of on sites as well, you know, especially as you bring in talent from throughout the United States, where as an entrepreneurial company, we're based out of New York, so most of the leadership teams there. As you start to expand and acquire the companies, you got talent throughout the United States. So really bringing in everybody, the ELT and your private equity sponsor together and having strategy meetings, there's a lot of value. So there's constant communication. You have four to five meetings a year outside of your board meeting, but you never feel like there's one. There's not the attention that's required to help drive the success without being overreaching.
[00:17:19] Speaker B: Right.
And you mentioned team a few times in those remarks.
In what ways have you been able to strengthen the team? Whether it's new positions that you didn't have prior to ownership or changes to certain personnel, how have you strengthened the team in that regard?
[00:17:37] Speaker A: So the great combination has been creating opportunities for the current team that's been here and that includes companies that we acquire. So giving career pathways for people that have been with your company 5, 10, 15, 20 years, but outside of that, yes, bringing in that institutional expertise. So that could be obviously starting with the cfo, that could be your cio, that could be a pmo. I did not have a PMO as an entrepreneur. I did not have FP and A as an entrepreneur. So really getting those type of people to join the company, it's a lot of fun there, getting a CRO coming in. So I guess you move from wearing many hats as an entrepreneur as you start to really institutionalize the company, become more corporate, get that deep specialization throughout the company. So that's been a lot of fun.
Marketing has been incredible. So we have a great marketing person that's really turned up the volume of the company.
[00:18:33] Speaker B: That's great.
And it's very interesting to hear that perspective both pre and post acquisition.
Last point on some of the.
The dynamics of the relationship. And then I want to touch upon maybe your viewpoint on some of the current events. But how do you balance autonomy with accountability?
Obviously, as an entrepreneur, founder, owner, CEO, not that you don't have to answer to certain people, but there's no one above you to really answer to. Now you have a partner. How do you balance that entrepreneurialism, which is so key to the company, with the accountability to an outside investor?
[00:19:19] Speaker A: Well, I think it comes back to first, a team concept, right? So we all have roles and we all have accountability. You can be the star player or you could be on the bench. And with that being said, it is a partnership with our private equity sponsors. So how do you keep the accountability? I think one is they trust us to drive the value in the company and to make those decisions. They do not want to sit in our seat, as I explained earlier. But I think that with that, you, you have to move to a culture of measurement, right? You do have to put in KPIs. We need to have buoys throughout the organization to see how we're doing with that. On the strategic side, you need your key initiatives, right? You need to track those key initiatives. How are we doing? Are there really any type of bottlenecks? Are there pivots? So with that constant communication with your board meetings, with your strategic meetings and really implementing those KPIs and moving to a culture of measurement, I think that's really the best way to formulate the accountability.
It's funny, most of the time when I'm talking to owners that may come into Alba, their concern is, well, what will work be like the next day? Someone will be telling me what to do every day it's like, look, you're a professional.
You've created this company. You just keep doing what you're doing, we'll be fine. Right. But our accountability is to make sure there's visibility to what we're doing and to raise a hand when there's a problem and to make sure we escalate accordingly.
[00:20:35] Speaker B: Well said.
So before we wrap up here, I'd be remiss if I didn't talk about just the current state of the market. I've heard some of your firsthand experiences with the most recent tariff propositions and changes in policy.
Give us a little snapshot as to exactly what that means.
And we read a lot about tariffs and the impact. But. But I've heard your perspective before. In a very simplified example, tell us what that means for a company like yours and what that means for your customers.
[00:21:14] Speaker A: Well, generally the tariffs for a company like ours, we process a lot of pass through payments and duty payments. So with these increased tariffs, you could see tremendous uplift in receivables or really on your, on your customers. Right. Their ability to pay those duties to customs. To give you a great example, you may hear for instance that the general duty rates are up 10%.
Well, if you have a vegetable importer that imports $100 million a year, well, now they're paying $10 million in customs duties. And not only that, they have to have a customs bond. But traditionally if they were duty free, that bond is a $50,000 bond. It's not very expensive because there's no duties attached. But now they need to have a million dollar bond, a $2 million bond. So they have to put up collateral, cash, they have to go through financials. So the sudden implementation of these tariffs do have secondary effects on how companies can prepare for it.
Another thing that's just asked by our customers and it's the topic of conversation is what are happening with the tariffs? Are these tariffs going to increase or decrease in China? What's going to happen with Vietnam, what's going to happen with other parts of the world?
And you know, borrowing from the Atlantic Council, the way to think about tariffs is in three buckets. One is to generate revenues for domestic agenda policies in the United States, hence the flat 10% that's going to be revenue generating. It's probably not going to go anywhere. The second is as a negotiation tool, right? We're going to raise tariffs on Britain, we're going to raise tariffs on India and then use that or South Korea as a negotiation tool to get better fair trade practices. But the third part is almost more of a punitive and a sanction. And really some are saying that the tariffs are being used as rather than an economic sanction which could maybe devalue the dollar as a reserve currency.
So instead of doing that using the tariff, so that's where you're seeing the fentanyl tariff, that's where you're seeing these other tariffs that are going 20 to 50% specifically with China. And then we'll see how the rest of the Asia goes. So those three buckets is the way you have to really view it. As far as the 10%, we view that's a permanent tariff and the rest remain to be seen.
[00:23:27] Speaker B: Interesting. So for those of you out there watching this, Damian has been my inside source for understanding exactly what the news means and what all these changes mean. And I think he gives a great perspective to really crystallize what firsthand companies are dealing with, their representatives are dealing with ultimately the goings on in the overall economy.
Damien, I want to thank you. This has been a great conversation, very insightful. You have given a bird's eye view into what it means to be a founder owner dealing with private equity.
For all of our people who watch many of my videos, I think it's a good education and perspective on the other side of our experience and what we handle. So I want to thank you for joining. I appreciate the insights.
Being in YPO with you has been great for the last nine years and look forward to continuing the overall relationship and we'll talk again soon.
[00:24:31] Speaker A: Anthony, thank you again. It's been a great time and thank you for your friendship. All right, have a good day.
[00:24:36] Speaker B: Thanks. Bye.
