Using Leveraged Buyouts to Scale and Secure 9-Figure Exits with C.L. Turner – EP 106

Interview with C.L. Turner


C.L. Turner

Using Leveraged Buyouts to Scale and Secure 9-Figure Exits with C.L. Turner

C.L. Turner is the Founder and Managing Partner of Crescendo Capital. He has invested in 50+ companies and closed 13 platform acquisitions with multiple eight and nine-figure exits.

Through Crescendo, C.L. primarily focuses on low-to-middle-market businesses valued from $20M to $150M, and takes them to the next level by providing capital, operational expertise, and a hands-on collaborative approach to enable their organic and acquisitive growth.

What differentiates C.L.’s approach with Crescendo from that of countless other companies is that when they invest and acquire companies, they prioritize the cultural and personal fit of the acquisition with the founders and key employees in the company.

In our conversation, we dig into using leveraged buyouts for scaling and exiting, the importance of collaborating with founders and employees when acquiring companies, and C.L’s strategy for investing that he used to land 8 and 9-figure exits for his clients.

Featured on This Episode: C.L. Turner

✅ What he does: C.L. Turner is the Founder and Managing Partner of Crescendo Capital. He has invested in 50+ companies and earlier in his career, CL raised capital for a similar number of companies. Prior to Crescendo, CL led the Western US investment team for Houlihan Lokey/Orix. Previously, he led the investment efforts of a family office, serving as CEO and Head of the Investment Committee. He was one of four members of a hybrid investment and consulting firm focused on operationally-challenged firms. Earlier in his career, he founded Bank One Healthcare Partners. Before BOHP, Turner had various investment banking roles for Bank of America. CL holds a BA, MBA, and MS from Texas Tech University, Southern Methodist University, and Rice University. CL is an active father to a more-active teenage daughter, sharing a passion for music.

💬 Words of wisdom:Wealth is created in private equity while income is created in investment banking.” – C.L. Turner

🔎 Where to find C.L. Turner: LinkedIn

Key Takeaways with C.L. Turner

  • His five-year journey as an investment banker and how that led to working in private equity and landing his first billionaire client.
  • The ONE decision that C.L. made that enabled him boundless personal growth and professional success.
  • How to use leveraged buy-outs collaboratively to 10x the growth of companies.
  • When you don’t have an established reputation, rely on that of partners to gain a foothold in the market. Find out how C.L. implemented this tactic early on in his career to secure lucrative deals for his company and clients.
  • The strategy he used to acquire companies with a 30x return.
  • The 12 highest-growing, highest-profile US markets C.L. does the most business in and for what reasons.

C.L. Turner on M&A Growth Strategy for 9-Figure Exits

C.L. Turner Tweetables

“We don't run businesses. We don't swing a hammer to turn riches. But with your expertise that we're acquiring the best-in-class operator and our M&A skills, together we can build a much more valuable platform.” - C.L. Turner Click To Tweet “We only make money from the growth. And if we grow, that means more activity and more opportunity for others.” - C.L. Turner Click To Tweet

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Read the Full Transcript with C.L. Turner

Justin Donald: What’s up, CL? So glad to have you on the show. 

 

C.L. Turner: Happy to be on. Good to see you, JD. 

 

Justin Donald: This is awesome. So, we’ve been talking a little bit about having you on the show for a little bit. And I love so much about what you do and who you are. I had the privilege of learning more about you. You know, you and I are in the same Tiger 21 chapter here in Austin. And so, I had the privilege of hearing your story and kind of how you got to where you are today and just felt like what a cool experience and a cool message that I would love for more people to learn from. 

 

C.L. Turner: I think someone said it before. It’s a long and winding road. 

 

Justin Donald: Now, one thing I really appreciate about you, before we dig into any details, is you are a music lover. Your depth of knowledge in lyrics, in song titles, in bands goes beyond anyone that I know. I feel like you would just crush it in Music Jeopardy. 

 

C.L. Turner: Yeah. 

 

Justin Donald: Where did this appreciation for music come from? 

 

C.L. Turner: Didn’t start with my parents but I remember my sister taking piano lessons and she had to play boring stuff. I first started by two-fingering on the piano to certain songs on the radio, to where I could get a rudimentary version and just sort of went from there. But it’s always been a passion, and crescendo’s a musical term, not by accident. 

 

Justin Donald: So, Crescendo is a musical term. We’re going to get to this later because you have been so inspired by music, you named your company, Crescendo. 

 

C.L. Turner: Exactly. 

 

Justin Donald: So, let’s put a pause there because I don’t want to get into the company, into your entrepreneurial journey quite yet. I went to a party. We had our friend who, by the way, had a podcast episode on the show, Chris Taylor, Chris and Rob Taylor, the Brothers Taylor. Check it out. It’s the bootstrap versus VC episode. It’s really cool. Which one’s better? When do you do it? But Chris held a party in his epic home, one of the most fun entertainment homes out there. And all of a sudden, I hear this unbelievable piano playing. And just the room erupts. Everyone comes over. The party, this is like getting more into the late night and you are ripping it up on the piano and I had no clue that your skills were this. And as I understand, you’re creating a music album right now, which is a passion. It’s like a passion project, I guess. 

 

C.L. Turner: A vanity project is what… 

 

Justin Donald: Yeah. Talk about that. 

 

C.L. Turner: I call it, but it has real musicians, real people working on it. So, they will do they’ll turn my ten least bad songs into something good. The producer has worked with Coldplay. The keyboardist tours for Crosby, Stills, and Nash. The lead singer had four or five hits with the band called Click Five a few years ago. And the mixer who’s engaged to a friend of mine has done work for Jay-Z and Beyonce. So, if the songs aren’t any good, you can only blame the songwriter. It’s a lot of fun though. 

 

Justin Donald: I like it. That’s just incredible. And nice job lining up some epic groups to work with. I think that’s so fun and you’re really good, so I’m glad that you’re getting this out in the world. It was so fun watching you play and seeing you in your element. You recently moved to Austin. You’re from L.A. or at least have lived in L.A. for a long time. What brought you to Austin? 

 

C.L. Turner: Well, I’m a native Texan and had lived in Dallas and Houston. And I thought I was in L.A. temporarily but I got divorced when my daughter was four. My ex-wife wanted to return to New York. I wanted to come back to the great state of Texas. So, we had an uneasy truce. And I moved when my daughter graduated from high school, which was about a year and a half ago. 

 

Justin Donald: Very cool. 

 

C.L. Turner: But my sister lives here in Austin. My best friend is here in Austin. And my wife, despite being from Xinjiang, China, her mentor is also here in Austin, who she originally met in Shanghai. 

 

Justin Donald: Well, that’s perfect. Great coincidence. Maybe beyond a coincidence. So, I am curious, when you figured out that you were an entrepreneur, like how did that manifest? Like, where did this passion, knowledge, experience? Because I feel like you’re always a few steps ahead of the game, a few steps ahead of whatever it is that you’re doing. When did you know that you were an entrepreneur? 

 

C.L. Turner: Well, I would say there were two inflection points. One, at about age 35, after a fun and busy career as an investment banker, I got to see firsthand how wealth is created in private equity while income is created in investment banking. And I needed to get to the other side of the table as an investor, the variety of ways I was able to do that over a five-year rebranding period, but I’m an accidental or coincidental entrepreneur. For me, it was about trying to own a couple of businesses and then needing some talent around me to accomplish that and manage them. And then a few more deals and a few more guys and we’ll be ten people soon. And it was not any grand design, but just as I said, more incremental. 

 

Justin Donald: And when did you start? Like, at what age were you when you were going down this path? Because, you were in the banking industry, right? And then how old were you? Like, when did you get into banking? And then when did you start Crescendo, which I think that’s your baby? Is that the first business you started once you went into the entrepreneurial space? 

 

C.L. Turner: Yes. I was hired after B-school on campus as an investment banker for Bank of America, ran around a lot, made a little money. One of my clients was Motel 6, and that was really the seminal event for me. I learned that KKR had purchased Motel 6 for a billion plus with only 100 million of equity, and they sold it 18 months later for 2 billion-plus, and they turned 100 of equity into a billion plus of equity and share a fair amount of those spoils. And I said, “I’m in the wrong gang.” And as I said, it took a few years to rebrand and I did, it was first a principal with a big bank-associated or bank-affiliated investor. But yeah, I formed Crescendo. Initially, I worked for a billionaire out of Nevada who had a private equity portfolio in a couple of areas where I knew a little bit and we had a common friend I didn’t know. And fortuitously, the billionaire needed some help and I was all too willing to help, and I formed Crescendo. At that time, I had a few small stubs in the deals in which he had already invested, and then I got slightly larger stubs in the new deals and formed Crescendo at that time to house those equity positions.

 

Ultimately, he had made his money in real estate and he was also aged, and neither of those makes for a perfect private equity LP. And so, I went out on my own and kept the Crescendo flag. And that was about eight years ago when we bought our first business out of Los Angeles, a Los Angeles-based business, and I think it would have been around 2015 or so. So, investment banking from 25 to 35, rebranding from 35 to 40, from 40 to 45 working as an investor under others in different formats, and then from 45 currently on my own. 

 

Justin Donald: Yeah. That’s incredible how much success you’ve had in the past eight years and I’m excited to dissect that. One of the things I learned about you that is one of the most inspiring things is a story that you shared with me, you know, a question that your daughter made or a comment when she was really young. So, back in the day, I think you had a lot of fun and you had your fair share of partying. 

 

C.L. Turner: That was a pivotal moment and I am picturing it in my mind’s eye. She’ll be 19 soon, and I’m picturing it 15 years ago like it was yesterday. I drank to extreme excess from about age 18 to age 40, 45. And when my daughter was four, I had her in the grocery cart with her legs dangling, facing me, as young kids do, speeding down the aisle to get some milk. And my daughter asked me or mentioned, “Hey, Dad, you forgot the rum and the beer,” and I thought, “I won’t live long with this kind of alcohol consumption and I sure don’t want my daughter to grow up thinking of her dad as a drunk.” And I haven’t had a drink since then. And for me, that journey has been easy because there is an unseen four-year-old girl on my shoulder that would scream dramatically if I were ever to drink again. So, that was a pivotal moment. I have a great relationship with my daughter. My professional career has taken off significantly since then, but that was a life-changing moment. And so, our kids talk often about how we help them. My four-year-old little girl helped me. 

 

Justin Donald: That is such a beautiful story and that is just something that always echoes in the back of my mind. And I love that you were able to make that decision knowing that this isn’t necessarily easy. It’s not what you necessarily probably wanted in that moment but you made a decision based on someone else and a bigger picture decision that ultimately helped you with your health, with relationships. And then, I believe, was pivotal for you in being able to have the clarity to do the really cool acquisitions and building Crescendo just the way that you have. 

 

C.L. Turner: We all have our demons and I feel fortunate and blessed that, again, I had my daughter in my ear while there was still enough time to take a different turn in life. And for whatever reason, and I empathize with people who struggle with addictions, but it has not been a challenge for me. I’d be untruthful. It was easy once I made the decision to do that. But we all have different paths in that regard. That’s only been mine. So, I’ve got now soon-to-be 19-year-old girl whose comment I can thank. 

 

Justin Donald: That’s fantastic. And what a great tribute that you can pay to her, a great thank you that just you can continue to share with her, the influence that she’s had on you. 

 

C.L. Turner: There’s another influence that you may not be aware of. I had never written. So, I played in bands and played around, but I’d never written a song. And at age four or five when I divorced, my daughter as kids do, took a crayon on a yellow piece of manila paper and drew two houses with boxes and smokestacks, it’s as if they have smokestacks in Los Angeles, but with a mom coming out of one, a dad coming out of the other, and a girl in the middle trying unsuccessfully to grasp both hands. And what I can remember what happened was a song just came out. “I saw what you drew. That’s your reality. Two parents, two houses, two families. I got on my knees and I said a prayer. So, help me God, let me get it right from here.” And that song just welled from within. And there were some other chaotic life events at that time, some family deaths. What surprised me was when my wife stabilized, the songwriting font never stopped. So, she was also responsible for turning for accessing something in me.

 

Half the songs on my album, it directly or indirectly related to her but she ignited something I didn’t know that I had, and I was halfway through my life at that point. I just thought I had a good ear, pretty good keyboardist. You’ve got a song, I probably bang around with a little bit. I never thought of myself as a songwriter, but that changed and music is a big bond we have. 

 

Justin Donald: Oh, that’s incredible. Thanks for sharing that. I love the influence that our children can have. And like you, I’m a dad with a daughter and I’m learning lessons all the time. A lot of the lessons that I, you know, like in my head I want to say like, “Hey, I feel like I’m not a very selfish person,” but what comes out sometimes in relationships, in parenting, it’s like, “Whoa, I may be a little more selfish than I thought I was.” You really get tested. I feel like you get to see through a different lens and you can’t sugarcoat it, right? 

 

C.L. Turner: No. 

 

Justin Donald: Children are incredible teachers. And I’m glad that you’ve been able to learn some valuable lessons, as I have, and I plan to learn plenty more. 

 

C.L. Turner: You will. It’s not voluntary. It will happen on its own accord. 

 

Justin Donald: Yeah. Well, it’s neat seeing this is kind of the foundation for you and the directions that you’ve moved. I’d love to explore with you since you’re in this space of mergers, acquisitions, leveraged buyouts. So, a lot of times you hear people say an LBO. What is a leveraged buyout? 

 

C.L. Turner: Leveraged buyout is when you buy a business using a decent proportion of borrowed money to complete the purchase price. In our world, a template might be we pay 4 times earnings for a business, and if that’s 5 million earnings, we will pay 20 and we’ll borrow anywhere from 10 to 15 depending on the circumstances. And the leverage is a great determinant of the equity returns, depending on how the business performs. But that is the L in the LBO. 

 

Justin Donald: Very good. 

 

C.L. Turner: Interestingly, my wife is a real estate investor from China and they only invest in real estate and they only use cash. And if you ask my wife, May, what she’s learned from me and I have six years together, she’ll cite one word, leverage. 

 

Justin Donald: That’s interesting. And by the way, I think sometimes when you hear about leveraged buyouts, there can be this misunderstanding or this negative connotation to the word. A stigma, a negative stigma of like, “Oh, you’re a corporate raider,” but that’s not the case. It can be the case but more times than not… 

 

C.L. Turner: Well, I’m from Texas. I’m not Boone Pickens. But that is a well, maybe a couple of comments on that. We use a phrase often. I wish I could claim it but someone else made this great comment kind of mine and Robert Frost said, “The road to humility in private equity is far less traveled.” We spend all of our time on that particular road and try to work very collaboratively and almost intimately with the business founders that own the companies in which we invest. What’s always true, though, is the people around them, maybe even the owner himself, will see boogeymen that don’t exist and we can say the right things. But what will happen is they always look for six months and they’ll look for the boogeyman behind the door and they won’t see it. And then six months later, they’ll see there’s actually new activity, new investment, maybe some promotions. And a year later we’re good. We get the owner over that hurdle by giving him references with the10 or 15 other folks who have been in issues before and will say, “Are we good guys and we do what we say? Were we helpful to the business but in an unobtrusive way?”

 

Hopefully, the answer is yes to all of that. So, usually, we have the owner as an ally, but the key employees are reluctant participants in that process. We try to tell them that we only make money from the grow. And if we grow, that means more activity and more opportunity for others. 

 

Justin Donald: Yeah. That’s fantastic. And I want to create the proper image and I guess imagery and understanding around what a leveraged buyout is because they don’t have to be adversarial. And more often than not, they’re collaborative, right? 

 

C.L. Turner: They are in our case. We typically, unlike most people who most firms which acquire businesses, we don’t get most of our deals from other investment bankers who are writing books and we’re 1 of 200 recipients of those books. We have particular sectors where we are somewhat well known and we have folks that do outbound initiatives on our behalf. So, it’s one-on-one and we lead with culture. Before we discuss valuation, we’ll say, “Both you and us need to believe that this is a good cultural fit, good personality fit because if it isn’t, it doesn’t matter if the math makes sense. We won’t make any money. We won’t have any fun. We like to do both.” 

 

Justin Donald: Yeah. Well, and here’s an interesting thing because, CL, you don’t have to work. You are incredibly successful. You’ve built an unbelievable business. The portfolio of businesses that Crescendo owns is very attractive. You know, if you wanted, you could completely sell your positions. You could step away. You could build a team. I know you love it. But what I would love to do is figure out like how did you get started? So, for the person that’s listening, that’s like, “How do I acquire a business? How do I take that first step?” what would you recommend? 

 

C.L. Turner: I got a great piece of advice which I accepted and followed. When I was working for the billionaire, I was in La Joya. And when that terminated, I decided to move to Los Angeles and had some experience buying businesses that either under a bank flag or under the auspices of this particular billionaire. And now I’m out on my own with no good housekeeping seal. How do I get it? How do I get this done? My nose for deals was unchanged but I didn’t have any kind of reputation associated with Crescendo. Someone told me, and I’ve even forgotten who, that the dean of all – back then, the term independent sponsor was used, guys who put deals together on a deal-by-deal basis. The dean was a fellow by the name of Pat Whelan out of a group called Pegasus, and someone suggested what you should do. Once you get a deal under LOI and uncomfortable in owner’s offices and in getting that done that you should partner with Pat, give him significant upside in your deal to gain that good housekeeping seal. And that was the approach that I took.

 

So, initially, I had to hustle to find deals, to find attractive situations, but I borrowed the track records of a couple of different routes and partnered with them. And by the time the third deal came along, we’ve done 12 now with three more pending. By the time the third deal came along, I already had bonafides. At that point, didn’t need to partner with somebody else. And Pat was a good friend. The world’s biggest Steely Dan fan. Actually, in a sad way, Pat played a prominent role in the development of Crescendo in that I had done four or five deals with a roster of co or collaborators based on geography, bandwidth, as I said, geographic proximity sector expertise. Pat was most prominent among them. Pat died unexpectedly about five or six years ago, and it was at that point I either need to join another fund or form infrastructure around Crescendo. Interestingly, a guy who worked for Pat, also a native Texan, he beat me back to Texas by six months. But Bryan Miller, who I met initially working with Pat Whelan, Bryan Miller formed the Crescendo team in Austin now. So, the two seminal events for me was one moving from an intermediary to a principal. When I saw the vast spoils that KKR received on the Motel 6 deal and then… 

 

Justin Donald: Billion dollars, and then short time on that one too, right? It was a billion-dollar profit of what? 

 

C.L. Turner: In 18 months. 

 

Justin Donald: 18 months. 

 

C.L. Turner: There’s even a story behind that. Later in life, I was in my home state where because it was given anyway. I was in the office of a former KKR partner who had some Motel 6 books. And I told him I later became a Motel 6 investment banker when they were owned by the French transportation conglomerate, Accor. And I said, “Tell me that you knew that the French were coming. So, you just squatted on the only lower price-point asset and you beat them to the punch and you held it to ransom when they decided they needed it?” He said, “We had no idea.” He said some other words, but those are the ones that we can’t have on this telecast. And he was telling me about their value-add. And KKR has obviously got a great name, but I remember the story he said that, “We wanted to improve cleanliness scores and we did so by buying Cadillac vacuums two for each floor for every unit under the Motel 6 name and the scores kept plummeting and the reason was they bought vacuum cleaners that didn’t fit under the beds and didn’t fit under the furniture.

 

And a largely immigrant employee base was unwilling to raise their hand and tell the man that the shiny new vacuum cleaners don’t work. But at any rate, that obviously private equity is no more complex than that but that was an event. And then I had three deals under LOI planning to work with Pat on at least two of them, one of which became our best ever return, where we made almost 30 times our money. 

 

Justin Donald: That’s the plumbing company, right? 

 

C.L. Turner: That’s the plumbing business. And Pat died, and I had to find partners and we’ve sort of added a person or two every year since then. We had a healthy respect, Bryan and I do, for Pat. And not only does Bryan work with me, but Pat’s son will likely intern with us. 

 

Justin Donald: Oh, that’s cool. 

 

C.L. Turner: Pat’s a great guy. 

 

Justin Donald: Full circle. That’s amazing. 

 

C.L. Turner: We owe Pat. 

 

Justin Donald: Oh, it’s great that you could borrow his reputation. What a great lesson. When you don’t have a reputation, borrow someone else’s. 

 

C.L. Turner: Don’t be greedy. But I knew I was trading economics for a track record and an ability to get deals done, and it’s temporary. Later, when we agreed to collaborate on deals, the economic splits were different than those that I had to offer early on. But it was good advice and I took it. It worked for two, three other groups that I partnered with and it worked for me. 

 

Justin Donald: Yeah. That’s fantastic. Great advice. And you said it. I just want to re-emphasize it. Don’t be greedy. Take less. Partner up. Give away equity in situations where it can be advantageous for all parties because a lot of people want 100% of the pie, but a smaller percentage of a bigger pie is always going to be a winner. And you got to partner wisely and you’ve got to think about when you are partnering, if we do break up, which likely at some point in time you’re going to break up, what does that look like? Let’s spell it out early so that way it’s not as complicated if and when that happens. But pick your partners wisely, and then don’t be afraid to partner and learn the lessons along the way. And then when it’s time to split, you split and find other people that you can partner with as you grow and as you learn, and as you evolve. 

 

C.L. Turner: You split amicably. 

 

Justin Donald: Yeah. That’s good. So, give us some details here. I know some of these details, but whatever you’re willing to share on your most successful deal to date and a 30X return is incredible. 

 

C.L. Turner: Well, we’ve had three or four transactions in renovation, repair, construction, building, restoration trades but we’ve returned at least seven or eight times our money. And it’s been a spectacular run there. 

 

Justin Donald: I just got to pause for a second. Most people never even have a 7X and 8X, like never, ever. Like, that is the greatest gift in the world. Like, people get excited when they get a 2X, you know. So, you’re talking about 7X or 8X. 

 

C.L. Turner: We’ve had a few of those. They’re not all but we hit on something. We’re almost running, I won’t say unopposed, but we’ve hit on a niche that works three or four different ways. And like everything, it didn’t happen by grand design. It happened over time coincidentally. We work, I would tell you, most of the guys who found the businesses where we invest, most of them are hard-working, salt of the earth, very independent. Very few of them went to college and we, Crescendo, market ourselves to be friendly and helpful to that very specific kind of entrepreneur. That guy will not react well to any whiff of condescension nor to some notion that a 29-year-old newly minted MBA in Soho is going to tell him how to run his business. We are regular guys, we are Texans, we are Midwesterners, and that approach resonates with the kinds of guys who build businesses. And we’re able to buy them well. We buy them well because we source them on a proprietary basis but we are able to show and this is key. We’ve got three or four examples now where we can show owners reinvest a couple of million bucks with us in their deals and they exited at 20 million plus.

 

And it’s never stated quite like this, but what the de facto unspoken conversation is, “Please don’t press us hard for every last dollar on the entry price because it’s the exit where we’re focused.” So, that’s how we are. get entry prices that are done relatively attractively. but there is a phenomenon in the sectors where we trade where a single market, single business subscale less than 10 million profit. Those businesses just don’t trade more than 3, 4, to 5 times earnings. We don’t make those rules. Those rules are set by the market. There are reasons why. But if you can take one of those businesses and then one in Phoenix and append it to one in Austin and append it to one in Jacksonville and Charlotte, you create a business that is diversified and now making $20 million to $25 million of profit. And that’s more or less what we’ve done in every single example. That business before you’ve made any improvement to operations that’s gone from being worth 4X to being worth 6, 6.25X, and then when you pay down debt, that’s more equity value. When you can improve the operations in a variety of ways, that creates equity value.

 

And so, the market has said when you get to an aggregated basis, it’s worth 6 or 7 times, but when it’s done single and individually, it’s worth 4. But if you think about an equity value, if you buy business at 4X and you borrow 3 and you invest in 1X and you do that three or four times and it’s then more 6.5X. Well, all of that improvement falls to the equity. So, your 1X has gone to 4X. Again, before you’ve improved the people process and systems, organic growth, and the like. And we’ve hit on what seems to us to be an overstated valuation gap between companies of different sizes. Whether the small one is penalized too much or the premium is too high on the larger one, that’s a valuation gap in delta that we can fix. And it’s something owners can’t do themselves. And so, we approached them in a very collaborative partnership, like, we don’t run businesses. We don’t swing hammer to turn riches. But with your expertise that we’re acquiring the best-in-class operator and our M&A skills, together we can build a much more valuable platform. And as I said, we’ve taken three or four of them to nine-figure exits, some of them very publicly so. 

 

Justin Donald: That’s incredible. And I love hearing all the incremental increases in value. You know, how do you go from a 4X to a 6X? And one of the things, one of the catchy phrases that you’ll hear people talking about is rolling up a company or rolling up a portfolio. And so, you kind of hit the nail on the head here with this one, CL, where you said, “Yeah. As a standalone business, that’s a 4X, but when you got a few of them, well, now you can have that 6X,” and there’s a lot of industries where the gap’s even larger, where it’s not just a 2X spread. And by the way, at scale, fully maximized, I mean, your spread is much greater in your industry. There are certain niches where that like multiple is like 10X difference, the delta is 10, the delta is 20. It’s just incredible. 

 

C.L. Turner: You really need to look at the delta to the equity, though, because if you put them together and the value goes from 4X to 6X, the debt didn’t change. You bought them all at 4X, you borrowed 3. So, your debt’s 3, meaning the equity just went from 1X to 3X, which is more a 3X growth in equity is obviously far more pronounced than a 50% improvement in the overall multiple. That gets back to your leverage question but there are 10 or 12 markets where we focus on, Sacramento, Reno, Denver, Phoenix, Vegas, Dallas, Austin, Houston, Jacksonville, Orlando, Tampa, Charlotte, Nashville. We’ll do others on an exception basis. But if you can take best-in-class providers in those high-growing, high-profile markets and you can put them together, then you’re already starting a 3 or 4X return on your equity before you make any operational improvements or do any of the other things that we try to do in a portfolio company. So, it’s two-pronged. There is a financial arbitrage game and then there’s an actual improvement game. And you try to hit both. 

 

Justin Donald: Yeah. And why those markets? Why do you like those 10, 12 markets better than other places that you didn’t name? Because there are other big cities that could be on the list but I know you’ve got a specific reason why you like those markets. 

 

C.L. Turner: Sure. Well, one, they have critical mass to their high-growth markets. And three, they are generally business-friendly. And what I would say, we have and do own one new business. We won’t own another. The challenges are 5X easily, fold a normal business. So, if you’re working in the trade businesses, big growing non-union business friendly. 

 

Justin Donald: Yeah. And by the way, I have to say, I mean, plumbing is an incredible business to be in. The margins are incredible. And this is coming from a guy who also owns a construction company, a maintenance company. The margin that you can make in the plumbing space is just astronomical. Everyone needs it. And a lot of the people that are running these, these are mom and pop operations. So, if you come in with any sort of operational know-how, any sort of ability to scale and create systems and frameworks and use software, I mean, the returns could be the 30X like you have experienced here with this company. And in general, I love home services, like anything in that space is incredible. You’ve got the B2B option, you know, business to business. You got the B2C option. I love as much B2B as I can do, but you are never going to be a shortage for customers when you’re in home services. 

 

C.L. Turner: That’s true. It’s worth noting. Our approach, though, is very different than others. Many people are aggregating service place, buying them at 7X to 10X, hoping to aggregate them and sell them for 12X to 15X. Our approach thus far and it’s changing with the likely downturn in the economy, the approach that worked for us in plumbing, same thing, swimming pools to a lesser extent in gates and some other businesses is we’ve come in through the construction and refurb arm and bought best in class and best markets there. What we know is the DNA required to build a service business is very different than a builder and we’ll say it as essentially to the operator, you have autonomy within the construction piece that you’ve run admirably for 25 years. If you could have done the service, you would have. We know it’s a different skill set. We’ve got that. And from a financial standpoint, we now have some experience in building out services within a construction play and with almost a partitioned business using the construction piece in the installed base is a big feeder.

 

The key here is, though, when we buy the dominant pool business or a plumbing business or a gate business on an installation front, you’re getting a free option on the service piece. And so, we’re thinking into the math, how do we create returns? Well, there’s a financial arbitrage, there’s an ops improvement arbitrage, and then we have the ability to take a huge installed base, name your trade, and build out a service platform there for which it doesn’t exist today but is ripe for the picking. And that makes a more valuable composite business when we sell. Everything works well. 

 

Justin Donald: Yeah. That’s beautiful. I love any time a deal has multiple ways of making money, multiple arbitrage strategies. And one that I would also throw out there that has been very advantageous for me has been a technology arbitrage. So, I started a company with a couple of friends called IFM Restoration, and this company services single-family home rentals for the largest owners, institutional owners. 

 

C.L. Turner: We’re going to be competitors soon. 

 

Justin Donald: That’s right. That’s right. There’s so much opportunity in that space but the interesting thing is we were a service company, right? We were doing maintenance on these. At one point we were doing rehabs, full rehabs, second rehabs, turns. We really found that our sweet spot, our bread and butter, was maintenance. We also found that the margins there are better. It’s easier to float it. There are just so many reasons that we stuck with maintenance and certainly, there are like different specific, I guess, job orders or maintenance requests that are better than others, higher margin than others. And we always love plumbing. Plumbing is always one of our favorites. But what we did is we took this service-based company and we built our own proprietary software on it so that we could make the leap from a service company that might get that 3X or 4X multiple to a technology company that now, since we have our own proprietary software that we’re running work orders through, we now get a multiple on revenue instead of just evening the profit. 

 

C.L. Turner: In my next slide. 

 

Justin Donald: Right? And so, it’s just an incredible just a nice shift in the way that you look at it, the way that you define the company, and that has allowed us to raise really good money from our VC partners and other investors as they like that tech component. So, your company went from, you know, had a valuation base on a 3. For us, it was like 3X, right, 3X EBITDA to, you know, you can get to the point where like a 10, a 15, a 20X revenue and it sounds crazy, but you’re talking about night and day difference in the valuation of a company. 

 

C.L. Turner: We’re aware of that, but it’s never been actionable for us for a couple of reasons. It is worth noting, though. In the service business, one other profit lever, when you have an installed base and a construction base, what you generally don’t have to pay much for is sales and marketing where because the leads, for example, in our pool business. We have a very substantial pool business in three states and five markets. We can attach maintenance contracts to 60% of those pool sales. We’d just ask. But sales and marketing is a significant expense for most service-only companies, and that’s typically modest for us. Completely understanding the point. The challenge for us, though, is we’ll take a guy who has a business in Phoenix, for example, and then we say we’re going from Phoenix and we’re going to try to acquire in 4 or 12 of these other markets, and we’re going to have to build personnel infrastructure around that, and we’re going to have different reporting and we’re going to introduce you to one or two additional trades, and we’re going to add follow-on service to that.

 

The last part, we can only do a couple of things, and it also would be fair to say it’s not a strength of ours. But when we see these businesses, we look at value leaders and there might be eight or ten right on a piece of paper somewhere. We’re talking to a very successful guy who sometimes begrudgingly gives us permission to make modest changes. And so, we have to force rank. That would be a great growth lever. And I salivate at looking at businesses that trade off revenue multiples when, I mean, 10X earnings sounds high to me. I think we should get two companies and 10X revenue unlikely affiliated and it’s not really a Crescendo. This is more of a personal investment likely affiliated and one business that trades on a multiple basis and it’s staggeringly different. 

 

Justin Donald: Yeah. It’s a whole different world. And, I mean, that’s the beauty of being an investor, being able to figure out how to hedge what your current operation is. So, if you’re an entrepreneur, you have a lot of your eggs in that entrepreneurial basket. So, then how do you hedge that risk and that income and how do you place some of that income in some other bets that could have a big payoff, but at the same time are low risk because you don’t want to lose capital. That’s the number one thing you don’t want to do is lose capital, except maybe early on to learn the lessons that you need to learn so that in the future you don’t lose capital or lose as much. So, hey, CL, this has been incredible. I just love having you on the show. There are so many cool things that we are able to get into. I appreciate your expertise. Where can people find out more about you and Crescendo if they want to learn more? 

 

C.L. Turner: Easy enough. CrescendoCap.com and we’re also on LinkedIn as well. But yeah, it’s a lot of fun and you’re again leaving me with envy with respect to tax revenue. Wish we could do that. 

 

Justin Donald: Well, there will always be the niche industries where you can. There are always going to be seasons where you can. There are going to be seasons where that changes and where the 10X becomes a 5X. And so, it’s good to capitalize when you can capitalize. I think we’re moving from a frothy, very excessive just valuations and market especially on the private side, public too, I mean both, and you’re moving into an area where I don’t think the valuations are going to be the same. Certainly, debt is a lot more expensive today. It makes the leveraged buyouts or any sort of deal where you’re using leverage to get it a lot more expensive, a lot tougher to paper, and valuations are going to shift because of that. So, I think it’s smart to know the right seasons to sell and the right seasons to hold, and you have just done incredible things. So, I just want to. 

 

C.L. Turner: Know when to hold them and know when to fold them. 

 

Justin Donald: That’s right. That’s right. That’s a good song and what a great ending note. I would love to kind of wrap this up in the similar fashion that I always do. I want to make a closing remark and then I’ve got a thought prior to that. I’ve been getting a lot of feedback from people, a lot of interest, people wondering, how do I learn more and get more involved in the lifestyle investor community? And I would say for the right fit, for the right person, for someone’s ready to take their knowledge base to the next level, apply to the Lifestyle Investor Mastermind, the world’s most exclusive mastermind for savvy investors looking to regain control of their time, build their wealth, looking through invisible deals that the general public doesn’t get a chance to see, deals that are negotiated ahead of time with preferred terms that de-risk the deal or amplify the multiples. So, check out more information at LifestyleInvestor.com/Mastermind. And in closing, I just want to ask you one question, as I always do every week, which is this: What is one step that you can take today to move towards financial freedom and living a life that you truly desire that’s on your terms, not by default, but by design? We’ll catch you next week. 

 

[END]

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