Asurion: 50X Season Two - (50X, S2)

Transcript from https://podmenti.com/t/1ba790b214ecad51

Today we're dropping a special episode in the invest like the best feed.
Fifty X is back, a fan favorite series from Will Thorndike and the team at Compounding Labs.
Will's book The Outsiders is one of the best business and investing books that you'll ever read.
You'll hear him continuing his work in the hosting chair as he looks in detail at investments that have appreciated at least fifty fold.
Season two features a Shurian. Colossus is excited to partner with Will as he sits down with the management and investors behind this legendary investment.
We kick off this special drop with a short interview that I did with Will on everything he learned studying this business, followed by the full three part series. Make sure to subscribe to 50X and your preferred podcast player and look out for Will's upcoming interviews on Joys of Compounding, where he goes into even more behind the scenes detail.
So Will, I thought I had of your release of fifty X on a Shurian, which is an investment that
is one of the most remarkable
In history.
that people will love the story when they hear about it.
that we should record to hear you reflect on it a little bit. You've been a big part of this investment journey too, even though you're the Virgil in the
fifty X context.
You two have been a key investor in the business over the long period of time.
Maybe you could just give us
Your overview
of your personal experience with this company and with this investment.
Shurian was an extremely early investment for me.
Made it very early in the
first stage of the private equity firm I was involved with building.

At a time when we were making our investments on a deal by deal basis.
Just an important thing.
Detail.
Because what it meant is
We were making them out of a serial LLC structure.
Which had no fun life.
So we had the structural luxury of being able to hold these investments for long periods of time. And we made eight investments that way.
And that investment turns thirty in July of this year.
Wow.
Okay, keep going.
very far back for me and
It's sort of a remarkable story. I mean the way I would frame it, so this is
An investment that was originally made out of a search fund in the very early days of search funds. I mean, this is deal number five or six.
Maybe seven in the history of search.
Some super early days.
And if you look at all of the search companies that have been bought in the ensuing years, there are
Hundreds of them.
That number in fact is closing in quickly on a thousand.
If you were gonna score them, we use something a very simple metric for
scoring growth equity transactions generally, but search fund transactions specifically.
We call the power ratio.
Which is very simply the
Trailing revenue growth rate.
Divided by
The EBITDA multiple paint.

surprisingly predictive over time. And we're basically looking for a ratio there of two to three X.
Just to frame that, core private equity would score under one on average, sort of 0.75x.
So two to three X is attractive and interesting.
In the history of search.
If you go back and look at the original Assurian transaction.
It would be
Top one percent ever.
In power ratio.
scored north of ten X. So it was kind of a remarkable
company it was growing very fast and we bought it at a low multiple. It was growing north of fifty percent revenue wise.
We bought it at around five times e bit DA.
And this business EBTA and free cash flow are actually pretty close.
So it was exceptional in that dimension.
And it was sitting in front of this amazing
high probability secularly growing TAM market.
So basically the growth in cellular penetration.
Investment was made, as we said, in the middle of ninety five.
There were twenty seven million.
cellular customers at that point in time.
In the podcast, we cover the first dozen years.
of the history at a Shurian and as you'll see, that's typically for us in pretty good detail.
By the end of that period in time, there were two hundred and fifty million.
So there was ten X.
Market growth.
And then the business itself had exceptional economic characteristics. Again, we sort of look at three
Criteria.
In core search as we call it.
Yeah.
We like a consistent pattern of recurring revenue, consistent pattern of repeat revenue.
We like
Organic gravity growth.
That's what we're talking about.
And we like capital efficiency.
And across those three dimensions, the original
Company.
Yeah, the original business at Ashuran, which was known at the time as Road Rescue Inc., by the way, totally different name.
scor very highly. It's just a very good business sitting in front of a high growing market. So
The point I would make at a high level is
Given those circumstances.
I think anybody

pretty exceptional returns over time.
That being said, I think if you look at what
The CEO there, Kevin Taweel, achieved
over the ensuing dozen years we cover in the podcast and really the broader thirty years.
That would be a top one percent outcome.
If you could take
the best team of CEOs from anywhere. And Kevin was a graduate of the Stanford Business School.
That is sort of extraordinary. So they were dealt an extraordinary hand, but they also played it
pretty uniquely well. And that's the story we you know work to unpack and
As I say, typically deep.
Detail in the podcast.
It's impossible to be totally precise about it because it's not a publicly traded business, but rough justice, what kind of a multiple of money
Did the investment represent?
From the beginning to through to today.
It's not precise.
Podcast is fifty X.
It's in the zip code of a hundred X fifty X.
A hundred X.
Fifty X. Got it. Yeah. Minimum trans time it would make the first one is now around fifty X, fifty X.
Yeah.
Yeah.
Pretty incredible.
If you think about that kind of multiple of money.
I think most people
intuit that that's only available as like a seed investor in Uber or something like that.
It's a very venture like power law outcome.
from a business that you said you bought for five times Ebita.
Five hundred free cash flow, really.
What does that teach you about?
That
Trope that like that kind of return.
should and does come from
the world of like power law technology investing versus
Ho hum search fund private equity.
Yeah, I mean I think the key variable in that obviously is duration.
It's interesting if you
go through the story, there's this fascinating period where
About
three years into the investment, there was an opportunity to sell it.

Seemingly gaudy.
Multiple.
of invested capital. Like a double digit
net M O I C to investors.
And there was a decision made at that time
to not sell it and hold it.
Really everything.
subsequently stems from that pivotal decision. We unpack it in detail, but it's kind of extraordinary.
For a group of investors. And at this point, the investors were very sophisticated, many of them professional investors, but not funds.
In the early days they were individual investors investing their own capital.
But they made a cautious decision not to sell at the twelve X.
M O I C three years in. I think it'd be hard for many boards sitting around the table today to turn that down. But it ended up
So the seeds for everything followed.
If you think about everything you've learned across those thirty years, watching the business get built and expand.
Aside from just the pure power of duration, which I know is one of the key things that you personally
care about and focus on.
I don't mean to make light of that amazing lesson and advantage.
What other things
Did a Surian teach you?
That
were distinct to it, maybe that you didn't wouldn't have or didn't learn from other companies.
That you've been involved with.
Going back to that thing, but it's a great question. So if you say, Okay, well
To stop this amazing circumstance.
but it had this outperformance, this sort of top one percent outcome. Why? And I think it's really a story of resource allocation.
the way I would think about that. And I think there's sort of three
types of resource where it company under Kevin's leadership had a differentiated approach.
I'm not gonna start with the one that you would expect me to start with, which is capital allocation.
I think actually I would start with human resource slash
Talent
And the company from very early on.
had a distinctive approach.
Two talent.
Kevin as a CEO.
allocated more of his time to talent than
Almost any
early career CEO I've spent time with. So he was on that from early on, finding, proactively looking for
Engaged in the truffle hunt.
of finding top talent for the company. And this is from the first twenty four or thirty six months.
In addition to which the company
was kindly relentless in continually upgrading its talent.
So this is something we get into in some detail in the podcast, but that's also code for replacing people
who were no longer capable of growing in their roles given the very rapid growth of a company.
So
That was part of it.
very conscious approach to managing talent over time.
Second piece is time allocation.
I would drive down to CEO time allocation and I would say still to this day, if you go to Kevin's desk.
He's God.
One of the little yellow shiggy on it.
His top three priorities.
He's just a laser beam as it relates to his own personal time allocation and specifically
Using that Eisenhower matrix.
Framework.
The important non urgent bucket.
is where he spends most of his time and has from very early days in the company. So I think
On those two dimensions.
There's different and then capital allocation wise, if you look at it.
There's an amazing organic engine underneath this company over time.
But there were critical junctures.
where the actual long term M O I C was driven by different capital allocation decisions. So
The two
best examples of that are they made two acquisitions subsequent to the original acquisition.
that effectively got the business into the handset insurance business.
and bulletproof its position there in an interesting way. And those were exceptional acquisitions.
Then.
were proactively sourced after years of
proactive work and many teams would not have
got into those acquisitions.
Lone able to do them.
And the way that they were processed here.
And then secondly
From pretty early days, the company was an active acquirer of its own shares.
something that's pretty rare in private companies. Actually not that easy to do, but the company bought in
pretty meaningful amounts of its stock over time. This was something it had learned from a key board member here and podcast participant, Irv Grossbeck.
Whose own company.
Continental Cable Vision had repurchased shares privately.
But at about year four and again about three years later, it bought in almost twenty percent of its sharedly.
And it continued to do so in the years post oh seven.
to the point where it's a very meaningful long term contributor to the net M O I C.
All of those decisions and actions were unusual.
What did it teach you about
business motes and sustainable competitive advantage and the cultivation of those
Things any company that earns that kind of return.
The world's a smart place. It knows where there's money being made.
That doesn't seem to have affected Assurance's ability to compound free cash flow per share.
What is it about its moat that has been so powerful?
Yeah, I think the company
evolved this really unique
B to B to C model.
It did an exceptional job delivering
service for
It's clients, the ultimate clients.
And for its

Cellular carrier partners.
In both cases it built really deep relationships.
Through excellent.
Execution
very metric driven, constantly driving
NPS excellence and then
Consistent.
extraordinary quality of its people.
Over time.
There were private equity investors who got involved.
after the transaction, the two thousand seven transaction that we sort of close the podcast with.
And a number of them have commented that
in interacting with the team post investment.
people three and four levels down could have run other portfolio companies of theirs.
Again, going back to Kevin's focus on that from early days.
Can you say two words each about Irv and Kevin?
And
Both what kind of people they are and what they've taught you.
So Urv
Is the crisp.
individual
I've ever interacted with.
in a life or business context. And I mean that in the best sense, meaning
He has a genius for distilling
to its essence.
Core.
business ideas and broader
Life.
Advice
He's like a distillation machine.
And Kevin.
is
A unique combination of
Kindness.
He's from Canada and he's a delightful person.
But with
Laser beam intensity underneath it.
So well disguised.
But there.
But deeply present.
So I think
There would be some overlap in the strengths of those two. And the reason that they had such a wonderful and long partnership in Herb was
Effectively the lead director until
twenty four months ago, at assuring it, from the earliest days.
And Kevin actually started as a case writer.
Four ears.
at the Stanford Business School after we graduate. So there's a relationship that predates actually the ushering
Company.
acquisition.
Final question before we get to the episode, which everyone's gonna love. What is your personal favorite part about the entire Ashurian story?
I honestly think, Patrick, it's the decision that we touched on earlier.
Not to sell the company.
Twelve X.
Net M I C to investors.
Three ish years in.
We do unpack that in much more detail in the podcast, but
That was a pivotal moment.
Highly countercultural.
Well, I've listened to this twice now. I think it's one of the most interesting business case studies anyone will ever encounter and has the added benefit of being one that's not
widely known because it's the sort of access and depth that you and your team have created are what make that possible. So thank you for doing this for all of us. So many lessons to learn. I hope everyone enjoys.

Welcome to 50X. I'm your host Will Thorndike, author of The Outsiders and a co-founder at Compounding Labs.
50X aims to dissect the anatomy of investments that have appreciated at least fifty fold.
We dive into each investment's origins, evolution, and eventual outcome, exploring key themes around long-term value creation.
ranging from operations, capital allocation, and culture.
to pivotal purchase and sale decisions.
We track the often circuitous route to exceptional long-term returns, and study how that rarest of investment commodities, conviction, gets created, maintained,
Threatened.
And sometimes.
To access proprietary research and exclusive materials, please visit fiftyxpodcast.com.
50X is produced by Compounding Labs in collaboration with Colossus.
Compounding Labs is an investment partnership focused on building long duration,
Serial acquisition holding companies.
Distinct from a traditional private equity firm, we int to hold assets for decades.
And operate with a lean and slightly feisty culture.
We are actively looking for exceptionally talented individuals to join our team.
If our countercultural ethos resonates with you.
please visit compoundinglabs.com to learn more.
Mm-hmm.
All opinions expressed by hosts and podcast guests are solely their own opinions. Hosts and podcast guests may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
So today we're gonna do a deep dive on a company you may never have heard of.
It's called Asurian, and we're delighted to be here this morning with its co-founder, currently chairman, Kevin Toweel.
Ashurian actually has several claims to fame.
Measured by M O I C, multiple of investing capital, a metric we obviously care deeply about on this podcast.
I believe it is both the best search fund investment ever.
And the best institutional private equity deal, period.
The company, which was originally called Road Rescue Inc.
turns twenty eight years old in July.
And for investors who held their investment for the entire holding period.
Their M O I C is well into the thousands.
To put a finer point on that, a dollar invested in the original purchase of Road Rescue in nineteen ninety five.
has grown at a compound annual rate of over sixty one percent.
through the most recent transaction in two thousand twenty one.
Translating into an M O I C north of five thousand two hundred and seventy five X.
Interestingly, and very unusually for us at fifty X, it is a story where the predominant source of value creation came from organic growth.
Although that's a little bit deceptive, as we'll see.
Importantly, there have been two constant presences throughout that entire period.
Kevin.
and a deeply talented lead director named Irv Grossbeck.
We are incredibly fortunate and grateful to have them as our guests on this episode of Fifty X.
Okay, now full disclosure, I am both an original investor in Ashurian.
And a close longtime friend of both Kevin's and Irv's.
Which doesn't mean, of course, I won't be actively grilling the Merritt Garland style on this podcast.
Anyway, Kevin, we're delighted to have you here.
Thank you for coming.
Thank you, Will. I'm excited to be here.
Excellent. Let's dive in. So if you don't mind, let's maybe start with a little bit of your background.
Free assurance.
So I grew up in Prince Edward Island, Canada.
Small province on the east coast, maybe a hundred and twenty thousand people.
And I grew up working in my dad's grocery store.
We have the maybe the predominant
grocery store where everybody in the community came and shopped every week and I

And that was probably where I first
got to understand this idea of entrepreneurship of working for oneself. Not that I saw it in a great light because I saw my father coming out from work at five o'clock, tired. He'd have dinner with us and go back to work till ten o'clock at night and we work six days a week. So it was sort of all I knew. I knew other friends had jobs working in the government or different
businesses and
They didn't necessarily appeal to me anymore.
Or certainly not more than what my dad did at the time.
Athletics was a big part of my life.
course hockey. I'm Canadian.
It's in the blood. It's in the water.
I also played soccer competitive.
What position in it?
I was defense man.
All five foot eight of me. I was not a large defenseman, but
It was the body war era.
It was. It had to be fast.
Good vision. And yeah, Bobby Orr was the superstar of that.
But soccer was really my passion.
Started playing when I was twelve and immediately took to it. It was a growing sport then in Canada and certainly in North America generally.
And
I feel like I learned a lot of lessons.
True.
My experience as well as soccer, both as a player and being coached by amazing coaches along the way. So a lot of lessons learned.
ended up playing for my high school team, local club teams are
Provincial Canada games team and it was also an important thread through
University because it was one of the key reasons I ended up going to McGill University.
McGill had just won two back to back national championships. So that was yeah, exciting for me. I was a walk on player in nineteen eighty three and
I made the team and that was just a huge
I don't know if I'd say a huge accomplishment, but I had grown up in a small pond and I was this big fish in a small pond. Then I had come to Montreal and McGill and nobody knew me, nobody knew who I was. So to sort of make it on my own without
reputation behind me was
Super exciting and exhilarating.
I spent five years there at McGill.
Taking a mechanical engineering degree.
What position in soccer, by the way?
I was center midfield.
Not sure I played defense or offense particularly well, but I was able to distribute the ball.
quite effectively. Actually my first year at Miguel was spectacular and truly formational for me.
Not just from a medic perspective, but from a mindset and business perspective.
I still remember these moments regularly. So McGill had just come off two national championship titles and we were clearly the number one favorite coming into the nineteen eighty three season.
I didn't start the first game, but when I got my shot, I think I was in the second game, I became a starter immediately. It was exciting.
But what was truly
Different.
There was a sense on the team.
That we couldn't lose.
It was sort of in the air, and I never felt like that before. And you would see it. There was one time we were playing one of our rivals in our home stadium. We were down by two goals and there may have been eight minutes left in the game.
But nobody was stressed, and sure enough, our center back.
he was from the Dominican Republic. He was not a particularly talented scorer.
But he came up, got the first goal, we tied it and won it in overtime. And it was
Really
Remarkable to be
part of that group of people who had that sense of invincibility, that sense of we can
Overcome any obstacle, а фунчено.
in the national final. We lost in penalty kicks at the very end. It was during a snowstorm in Sudbury, Ontario.
Not that you remember it for anything.
Every single moment of it.
It's one of those things that you never forget.
Interestingly, my son
plays across for
Duke University and
He made it to the national final.
This past year. I haven't told him yet that he'll remember that for a long time, but he's got two more years to make that up with a national championship.
Rectify. Yeah.
Yeah. And then you'll probably forget all about the losses.
Okay, so posts McGill
Oath McGill, I went on to work at Solomon Brothers as a financial analyst in the T year program. That was fun.
Fun may not be the right word.
As sport.
To work.
These young men and women as hard as they could.
This is like the Michael Lewis era at Salmon Brothers. Right.
Liar's Poker was published when I was in Atlas there.
It was truly emblematic of the culture at Solomon Brothers. I was not on the trading forth. I was in the building next to it, but the culture permeated the entire organization. It was very
Fast los.
Very much uh
Not a lot of guardrails or controls in place there at the time.
Who is it?
Education for me and what I really didn't want is the first time I actually worked for somebody else.
And the cultures at investment banks can be challenging period, but it was particularly challenging with Solomon Brothers in the late eighties. Not only did they have a culture where they would queue up employees as much as they could or use them as much as they could, and they weren't really into developing or nurturing or building a real culture. It was really all about driving
near term results.
It was
Also a time when
Wall Street was
declining precipitously. You're coming into recession, Krexel blew up in the middle of it, and you've got people being laid off. And during my second year there
Mergers and acquisitions group.
Probably
Contracted to about half.
its original size in less than a year. And
You got to see all that happening to the point where when I was being
interviewed upon my exit en route to Stanford Business School.
I remember the MD asking if I'd consider coming back after
This was cool and I just
Wasn't expecting that question. And I just answered honestly and naively and I said, Well, I suppose if I don't have any other offers, I'd come back.
It was just intuitive. It was just like no. It was a reaction.
I would never want to work in that culture if I didn't have to. But I learned a lot, that's for sure.
The thing I take away most from that
They're um
with the importance of
Getting it right.
of doing work
At uh
high level
And checking your work, making sure it's perfect.
And I took that with me out of that experience.
And so then you go to Stanford to the GSB.
Went to the GSP lovely I mean
Like a lot of Stafford business school graduates at the time of my life, it was certainly not overly taxing.
And that's
A lot of people who become my lifelong friends and these are people who
you work with, invest with, sit on boards with, or friends with, raise kids with. Of the things you get out of an education, probably the most important was a core group of people that
you end up spending the next 30 years with. And that was fantastic. I also got the opportunity to work as a case writer.
I call it my third year of business school.
So yeah, talk about how you ended up doing the case writing thing, what that job entailed, and maybe when did you first hear about what the heck a search fund was? Cause Kevin, when you and I were in business school.
Nineteen ninety two.
I think there had been
Five of them.
Raised to that point.
Yeah, there weren't a lot at that point. It was certainly Jim Southern
David Dotson.
Couple of others. Well, the search fund was
Sort of in a
background a little bit.
during our two years of business school, I hadn't really focused on it a lot.
When you went to be a casewriter, did you know then you wanted to search?
Absolutely not. I was more in the camp of I wanted to start a company.
So wrote about this in my business school application, the desire to be an entrepreneur. Certainly saw my father working in this tour.
During
Summers.
While I was at university at McGill.
Basically, I was my own boss. I was teaching soccer schools or soccer clinics throughout Prince Edward Island.
the opportunity to be my own boss. And I even started McGuild Classmates, a small consulting firm during one of the summer. So this idea of starting a company being an entrepreneur is it goes
Back to the beginning.
And so when I was
In my second year of business school.
Along with the
handful of other classmates we get together.
maybe Monday, Tuesday every week and we'd
bad ideas back and forth, maybe brainstorming try to
Come up with
Some company that individually or the group
could start and
I struggle at finding the right idea, what would make sense.
Interestingly, this is a ninety one, ninety two
Had we been coming out of business school maybe five or six years later, at the dawn of the internet,
Wear eyeballs for everything.
I'm glad we didn't because I think any one of our dumb ideas then could have gotten funded. I took the job as a casewriter.
Well, because I had no other offers.
I may have interviewed for one consulting firm, maybe one or two other
types of jobs, but I I didn't get the offers. And then it was getting late in the year and
My then girlfriend
suggested I
apply for this case writing job.
Spoiler alert, our story arc is about to intersect with Earth Grossback.
The job was to be casewriter for three professors, Erb Grosbeck.
Jim Collins, the author of Built to Last and Good to Great.

Professors and friend who's passed away and
was a great influence on my life and
They had interview a number of candidates, they had offers out
to two of those candidates for one position.
And those two candidates were holding out for better offers elsewhere.
I come in on a Friday afternoon, I interviewed with all three of them.
They made me an offer, I think, that night and
I
accepted before the other two could accept. So at least I had my job. I had my stable forty thousand dollar year
Job.
I didn't really know what I was getting into. Well it was more of a
Stop gap.
While I was doing my work I could
Think of ideas
To start a business.
And it was about that time.
Because I knew Irv had really been the godfather of
The search find
Or the mastermind behind it.
that I started thinking about the search fund as a plan B.
If I couldn't find a company to buy.
Fascinating. So
What point did you make the decision to
go down that path. How did those two things merge together?
Yeah, about halfway through my year.
As a case writer. I used to say it was the best job I ever had running assurance, actually.
a little bit better but it was fantastic. I got to work with
On average an hour a day with
curve or Jim or Bill and learning about businesses and management and leadership. And it was like an intensive
course or almost an intensive third year of MBA, which was better than the other two combined. Obviously gave me some time to
think about starting a business and gave me some time to reflect on that. I still wasn't making much progress on that front. And about halfway through, I decided it's time to pivot to
Plan B
Which was doing a search fund and I thought, Oh gosh, it's not gonna be as good because I want it to be my company. I wanted this to have my fingerprints all over it from the start. What I know now but didn't realize then was
When you buy a company
through a search bond. Yeah, your fingerprints
are gonna be all over it from the start. If not from day one, certainly within a couple of months.
you are the person that the culture is going to be built around. So
The fear I had about not being able to get that.
out of the search fund was not founded.
Decided to do it.
You go down the path, you raise the capital.
Right. Non trivial in that era, still sort of a novelty.
Think I raised.
A little over two hundred thousand.
And
Eight or nine.
Or ten increments.
Sort of looking in the healthcare
Industry. Jim Ellis
took over his case rider.
About the time I s raised the fund. And so he was officing at Stanford.
He was your success.
who was my successor as a case writer and then my eventual partner here at Road Rusky.
While Jim moved into my office, I didn't move very far.
I just found an empty office.
And started my search out of that empty office. I didn't really tell anybody. I felt like it was, you know, just keep my head down and nobody will figure it out. Eventually somebody figured it out and they kicked me out after about six months. But it was important because I got a chance to spend time with Jim every day. I was helping him with getting up to speed on casewriting.
Tim saw what I was doing.
It eventually led to a partnership.
between Jim and I near the end of
His year
of writing cases was about the time that
I had surfaced two potential transactions.
And Jim and I talked about them. We decided we're gonna do this together in that I would pursue one transaction, he would pursue the other.
And if
One fell apart, that person will come back to the other transaction. Or if we both ended up buying these companies, then we'd share some equity in each one. At least that was the idea.
And he raised his fund at that point.
No, he actually didn't raise the search fund.
We leverage my search fund.
We started doing diligence on each of the companies. Mine was small HMO based in Miami that focused on
The Cuban community there.
And
Jim had Road Rescue a small
Motor Club or Roadside Assistance Company based in Houston.
And we did diligence on each just as Jim was about to start raising money for the acquisition of Road Rescue.
My
Target fell through.
It wasn't that the seller had misgivings.
The reason it fell through was I
went to Miami with one of
My investors, Billy, and
We spent a half a day with the seller.
And then we went out to
Joe Stone Crabs in Miami.
And
Bill was very impressed with the seller.
So much so that later that evening when he and I conferred together about the transaction,
Bill's opinion immediately was, Now let's run away from this deal.
This guy is super talented. He knows this space really well. He knows the community. He has been part of it for a long time.
If he's leaving
I don't want to be stepping into his shoes. There not necessarily something amiss, but you'll never live up to that. It's going to be too difficult.
So we walked away from that and
I think the next day
Jim and I met up just right before he was about to start fundraising. We met up at a Chinese restaurant.
And Menlo Park.
And before appetizers hit the table.
We

resolved who got what equity, which is fifty fifty, and that we're gonna be leaving the next day to start fundraising together.
It was instantaneous.
And when you say fundraising, do you mean for the
Transaction.
For the Red Rescue transaction. We were looking for I think
Purchase prices around eight, eight and a half million dollars.
And
We generated that with
Two million in equity, two million in subordinated debt, all from investors, and then some senior debt on top of that.
That was an interesting experience going out to raise money.
For road rescue.
Talk about what that was like. It was a little different.
Then search fund deals.
Prior to that point.
I think we are sold out in twenty four hours.
It was almost instantaneous.
Jim and I we knew it was a potentially good transaction.
And good company.
But we
didn't have a lot of experience looking at
Companies.
I don't think we realized how good it was. This
While small, yes, was showing meteoric growth.

Had
Recurring revenue.
was profitable.
low capital intensity and simple operations, it's like you hit the jackpot. And
Our investors got that right away.
Yeah.
took as much as they could. Like I said, I think we sold out within less than twenty four hours, and we had to end up carving people back. And importantly,
We and other investors wanted Erb to be part of that transaction. He was not in the search. So we went to all our investors who had the right and all were.
very much willing.
to pair back their ownership stake to a lower of command.
Because her was not only gonna come in as an investor, he's gonna sit on our board.
And here we are twenty eight years later and
Irv is still our stalwart on the assuring board.
Some quick
data on road rescue and that transaction.
So an important point is you guys bought
All of that, the multiple that she paid was
Yeah, it was four and a half times trailing.
Yeah.
For a business that had grown
Ninety percent in the prior year.
Revenue.
Pausing on that. That's
Extraordinary. And
If you took the year before that, it didn't grow as fast, it grew at thirty three percent. So you average those two, that's like sixty-five percent.
growth, right? Pretty conservatively.
And you pay less than five times EBTA for it.
We use this
metric now in the world of search power ratio as a way of evaluating transactions.
The organic revenue growth rate.
Divided by the EB DA multiple.
And a typical private equity deal.
would have a metric of like less than one times, like point seven five.
And a good search fund deal would be a lot better than that. It would be like
Two to three times.
Which is a lot.
You and
Jim were sort of fifteen X.
Literally.
The highest power ratio in history.
So it is not surprising that it got that sort of response from investors.
We did a lot of things right over time, but clearly
We were really lucky.
I mean, find this company.
that was leveraging
Growth in the wireless industry.
Because they sold their product through wireless carriers.
And it was, I think there may have been at the time in nineteen ninety five, maybe 10 million wireless subscribers in the US, which was gonna go to three hundred million.
That was really lucky. The dynamics of play were important and difficult to, I think, replic. The CEO of the company.
had a small stake in it and his father
owned the majority of it. So he's basically living under the thumb of his father. And
He had been running it for a few years, not too too long.
But
Was ready to stop working for his dad. And so this was a big payday for him personally. It would have been a few million to him, several more million to his father, but
In their world, that was a grand slam home run and we caught them at absolutely the right time.
Clearly no auction involved.
No deep process. I mean just to give some math on that, so the
Trailing revenue was
Five point nine million dollars.
Chilling EBTA was one point.
Five million dollars.
You guys put out a deck where you sort of projected what the next five years would be like.
The deck called for
Fifteen million of revenue by the year two thousand.
Five years, yeah.
So seventeen percent growth.
And three point seven million
V T.
You assumed a little bit of multiple expansion, kind of a crazy assumption. You said you'd get to five point eight.
Times EBT.
Oh, that kind of thirty seven percent IR.
We may have been a little aggressive.
Okay, so seventeen percent revenue growth was the core assumption there.
So you bought the company.
We bought it, yeah.
The actual process had its twists and turns, well.
probably the most interesting part of getting the transaction done.
Was
For two months Jim and I sat
In
the office next to the cellar.
Working with him waiting.
To get.
The largest contract.
GTE wireless renewed because we weren't gonna sign the contract unless that contract got renewed.
So we were very earnest.
And very cheap. We shared a hotel room at the embassy suite. It was super entertaining how
I think Jim, just give me ten minutes.
to fall asleep first'cause you snore like heck.
But we would get up the night every day. It's like Crownhog Day. We'd try to help
to sour prepare for his negotiations and I do believe
proper preparation for important events, whether it's a contract renewal, whether it's a
difficult conversation is so critical.
And Jim and I may have gone overkill in this one. We actually wrote a tome. It was here's the main contract terms, here's your position.
Ray. And then here's what we expect GTE will say.
This should be your response. It was sort of a back and forth. And it was probably sixty pages and
We handed it up to Ray, asked him to review it in preparation for his contract. We would actually rev it with him.
And it was probably overkill, but
It was important to us.
We needed to get that contract signed to get the deal closed and it happened and sure enough, two months later.
July of nineteen ninety five, we got the deal closed.
Very cool. One last thing to mention is I've been back through the materials, obviously preparing to talk.
With you on all this stuff. And
Then
P PM you guys wrote for the deal?
Think it's go straight to the ERV training as case writers.
It's just excellent. Like I would still recommend that as a model.
For people going down this fast to look at.
It applies also to the early board decks, which were also very crisp. Maybe talk about you buy the company.
You relocate.
You and Jim do.
We moved to Houston, Texas.
Overnight.
You go from
Stanford MBAs to
CEOs talk a little bit about the first hundred days in the new role
It was eye opening to say the least.
Explaining those two months.
Sitting next to Ray, we got a chance.
To feel
the sense of the organization got to know the people. So it wasn't quite as hard.
But now we're in charge. There was some element of a
What do you do? What do you do now? And we were really lucky, Will, we had this amazing board of directors that
Honestly, I still
Marvel.
at how talented a board we're able to pull together for such
A small company and for Jim and I.
You had Irv and you had Joel Peterson and Bob Oster, Bill Egan and David Dodson. Four of them were operators.
Bill Manley an investor, but
all with tremendous experience and were there willing to support us and give us advice at every turn, more of an advisory board versus a governance board. And so we had them to call on, which was helpful. And yeah, I recall the first few months were a lot of asking questions.
A lot of just observing what do you do.
Trying to understand the business. That was number one. And really getting to know the managers.
We importantly, I thought
We wanted to follow the money.
How does this really work? Are people really paying us? Are we really sending up checks? So we would literally sign every check. And because our business was roadside assistance, where we would send a tow truck in some town out to support or help one of our customers.
They would send us an invoice and we would
pay thousands of fifty dollar checks to now we have to sign them.
You guys signed all the checks.
Thousands of jacks.
How long do you guys do that for?
We probably did that for six months.
And then we handed that off to our new CFO who we hired a little bit later.
Jim and I are both happy to do it just so we understood.
The business.
If we got to know the managers.
We learned in business school it's good to delegate.
We attempted to do so.
We quickly found that that didn't work very well.
So we were trying to manage my objectives. So set up objectives and scorecard and we'll measure against it over time. Yeah, that didn't work. What
the team that the seller built.
was used to was
Executing orders.
So it would tell
The specific
Leaders what to do.
And they will go do it. But once they were done, that was it. They didn't know what to do then. So the idea of
Setting goals, empowering them.
to achieve those goals and having scorecards and manage them along the way.
That quickly sin that the team that was there
was not going to be the team that was going to be with us.
Certainly not the medium term and not the near term as well.
I think within a year.
Most of the team, if not all of the team was
Entirely well placed.
What do you remember about the first year?
Jim and I we saw this engine that was growing rapidly and we had this
sense that okay, land grab may be not exactly the right term, but it was a sense of once we got in and realized, oh, this is
big and growing, we knew that we wanted to spend most of our time on the revenue side.
So Jim and I to the extent we have two hundred percent of our time, a hundred each.
We probably allocated about 150% of the 200 to revenue growth. And Jim was entirely on either landing new accounts or managing our existing clients to drive more subscribers through their customer base. And I was about 50% on that.
working with existing clients and fifty percent on operations.
Which meant that we knew by commission, which is the right way to do it, that we were taking a risk.
on the operation side. So
Was the call center open? Were calls being taken? Were customers happy? Were they being supported and aided on the side of the road appropriately or not? And we were
counting on the people we had in place to manage us to ensure that that
happen.
Now one of the things we did do
to make sure that the operations were up and running. Jim and I would actually set our alarm clocks in the middle of the night. So I would set it for one and five. Jim would set it for three and seven AM, and we would wake up and literally just
While still in bed, call the 800 number, make sure somebody picked it up. Because at that time, while we were 247, well.
twenty four seven meant three people in a
couple of cubicles in a small room in Houston, Texas. It wasn't much of a fail safe for our plan B there.
And occasionally stuff would happen. Like one time somebody threw a brick through the window at our call center and
police got called and said the call center was down. So Jim and I
rush down the middle of the night and
Sure enough, I mean police presence in Houston in the mid nineties was incredible. So
We were there in probably five minutes. The police had the place surrounded in probably two or three minutes. And
Everything was cleared out of spied by the call center was down for an hour or two.
Put us in that room. Like what was it like?
being in that first office.
In Houston.
Yeah, Jim and I we'd have our offices adjacent next to one another.
Our assistant Tanya was out in the other room.
We had to make sure that she didn't bring her weapon, her Glock Nine, into the office. We have to keep that.
outside, which by the way, when we ultimately had to terminate Tanya, Jim and I rock paper scissored in terms of who was gonna fire her. And fortunately I won and Jim had to do it.
It was exhilarating. It was really fun working with a partner.
We interacted
continuously. We probably didn't even need the wall between us. I think we effectively separated our responsibilities.
I think that's important.
But we were always looking to the other for advice. Hey, I'm thinking about doing this. What do you think? Can I get your input on this?
There's a lot of energy and that and excitement. And well, I got to make the decision in the areas of my responsibility. And the same for Jim. We wanted the other.
to be involved and engage with it.
Strategic matters, Jim and I would come together, make the decision together. And there may have been three instances in our whole time together.
Where we disagree.
And then we're like, okay, we've got two co CEOs how do we handle that? Well, we would pick a board member, it was usually URV, and
Jim and I would either eat face to face or
on the phone with Irv and
We're actually pretty good about this. I would defend
Jim's position and Jim would defend my position. And we didn't want Irv to know who
Fell what and
Inevitably, in every case.
Instead of picking A or B
Irv had a third alternative that was so much better.
It was fun changing out the team was
That's challenging, right? I mean
We are early on in our first conversations with people.
of how to terminate them, performance manage them, and a lot of the
conversations that Irv teaches at Stanford and
managing growing enterprises or conversations and management. Like we were living it.
Real time. I remember Jim and I had made the decision to terminate one of our regional managers, and Jim called him up and said,
Hey, we're coming to San Antonio tomorrow and like to have a conversation and
It had been like three or four months and we've never been there.
And so he's like
Okay.
I will see you tomorrow.
We hung up the phone and
You called back maybe an hour later.
Said so
My
Wife and I were planning on
Looking at
boats later today and thinking about buying one.
Should I
Maybe delay that.
Until after our conversation.
Tim had to respond. Yeah, why don't you hold off on that? We'll talk about it tomorrow. We were learning our way through it.
of how to have these conversations.
He clearly knew.
There's so much we did wrong there. Obviously, he was sitting in place for months.
probably realizing wasn't doing a good job and we were
Letting that.
Drag out and
Instead of just showing up and having the conversation, we had this pre conversation which led to
in effective termination without a termination. So he had to wait for twenty four hours to hear it.
We were making our mistakes.
And yet.
The company was still growing. So one of the geniuses of the search fund is if you buy a company that is growing or at least stable and profitable, it can withstand the mistakes the young new entrepreneurs
Will inevitably and probably the biggest one.
The biggest mistake we made, Will.
Was
Во виса
That
Wireless was growing.
We thought we were in the roadside of this.
So we defined ourselves as a roadside assistance company. And this had meaningful impact to what we did and how we resourced and
where we allocated our time and
So
Probably in it.
I don't know, six months a year and we decide look, we've got this great channel distribution wireless. Well
There are probably other channels of distribution. Why not sell roadside assistance to automotive manufacturers, to insurance companies, credit card companies?
We know you can access
Where's that assistance directly through those channels as well. And so
Gemini Delta Salesforce.
And we started going after, you know, maybe half a dozen people with a leader.
And started going after those channels of distribution.
So
It took us about a year or so to realize that
This was a mistake.
We were effective at actually getting in to talk to the companies and even we're able to bid on some RFPs and General Motors I recall vividly.
But the big difference between these other channels of distribution and the wireless channel was
It was a cost center. Roadside assistance was a cost center. It was something that
these channels gave away for free and they would try to
Squeeze.
on the providers so that they would minimize the cost of that loyalty benefit that they were offering. Whereas for roadside assistance,
The wire cares marked it up and made a healthy profit. And so they were
Comfortable growing that.
And we could make money at that, whereas with the other new channels of distribution, it was very low margin business.
We finally figured it out.
Took us a while.
And then we backtracked and
To our credit, we made some hard decisions and we let go of that entire team.
This is year two.
This is probably yeah, year two, year three, maybe ninety seven, ninety eight. And we decide
Hold on. While we were undertaking all this folly over here with new distribution channels, the the core was still growing. Reside assistance to the wireless industry.
And we thought let's continue to lean into that. So this is sort of our first
lessen on the concept of focusing on the core getting more
Gee side of the core business and
We did refocus on the course and started looking out.
other products and services we can sell into wireless.
You guys put out a paper around that time. If you look at the growth characteristics of that core market.
They're just extraordinary, right? I mean
You can increase your penetration of existing customers.
You can sell new accounts and then
Meanwhile
The overall market is growing. People are
Sign up for more phones, but you started
Cellular penetration in the US was thirty two percent.
I think it might have been even lower than that, Will. I think by the two thousand it was thirty percent. So we got the ride even a little bit earlier than that.
When did you and Jim decide to move back?
To
The area.
I think we move back a year from the day.
Of starting. So we started in July ninety five, we moved back in July ninety six and
Gemini
I hadn't really contemplated it.
The topic was brought up by Irv.
So Irv was close to the company, still is, but he saw that we were traveling a lot. Jim in particular was traveling for client meetings and new business development. I was on the road as well.
for quiet meetings and for going out to our different offices. And he felt like
We would be happier
And
It would be more long term sustainable for us as leaders.
to recolocate back into the Bay Area where we wanted to be and where both our spouses had jobs. Because while we were traveling, so are our spouses. I mean, they were traveling, they're both consultants and traveling four days a week.
So he saw the stress it was putting on the system and thought that
Even though
It would be
Potentially better for us to be located.
in Houston that it was gonna be long term more sustainable, trustily, and we were
It didn't take him mentioning it twice to get out of there. We were happy to leave.
in sort of the first two, three, four years.
I would describe it, having read through those board decks recently, I would describe it as what my daughter would call a hot mess.
It's finished like
A consistent pattern of
You guys.
Growing.
you know, above budget.
So subscriber and revenue count.
Which is what's as you said, that was the that was what you were focused on. That was the driver of revenue.
That was exceeding plan and
SGN A would be a little bit over and ABTA would be a little bit short. There's a lot of moving parts going on.
The key point in that is never once across that period of time.
Did the company
grow subscribers less than fifty percent a year.
And that is pure organic.
all roadside assistants, right? And so in the middle of all of that comes a bid.
Right. So it's an interesting moment before all this where
C U C
I think it was.
Comes in and they bid
This is nineteen ninety seven.
Two years in
They made sixty million bucks, which is
Fifteen times M O I C
How did you and Jim
The board.
Process that
That would still, by the way, be a top five percent outcome.
Can I address your comment about us being a hot mess at that period of time first?
Mass is all strong.
Oh no no you're right.
You're right.
This was
Quintessential.
Who doesn't need to say a lot?
To make a point.
One of his
Great strengths.
So
In that time period.
The first
Two years. And he sees what's going on. He reads the decks. He sees us overperforming on revenue and underperforming on margin.
And he paused during the board meeting and
says something to the effect of
So
Jim and Kevin, do I have this right?
Feels like you're
overperforming on all the uncontrollable items and
underperforming on all the controllable items.
I don't think there's any response needed for that.
Got it.
Message received.
That will
Never be forgotten. And we'll be retold again and again. Going back to CUC. We get an offer.
From the COC, who were high fires at that time. I don't think they had merged with HFS at that point in time, but this was before the principals at COCL went to jail. It was sort of incredible. Was it fifteen times it would have been in two years? And
We were
Crowd?
Is the way to
describe it's like wow this is real somebody will actually pay a lot of money for this it's more of an LOY offering the hang on in due diligence and so we don't know if they really would have paid that but the conversation at the board meeting was absolutely enlightening. Like Jim and I were just spectators. We were
listening, we presented the offer to people they were new and to hear
the various opinions expressed on how to
look at this and evaluate it was felt like I was in a classroom and learning and absorbing all this great experience. One of our board members has a long history and was very, very successful at transactions.
I mean he was proponent
Of selling.
It was like luck, you just can't beat it. It's fifteen times your money in two years. You put a big win, not just a small one, a big win on your resume. You go out and you and Jim, you go at it again and you go find another company and
You set the car and you're
reputation is established and it'll be win for the investors and everyone.
And that made a lot of sense to Jim and I.
And then one of our other numbers, Perf.
Need a different view.
He started with how do you feel? And he asked Jim and I asked him questions, How do you feel about the company?
How do you feel like
the prospects are for road rescue over the next five years.
Do you think it's gonna grow?
You enjoy what you're doing.
And you made the case for if you have confidence.
in the runway ahead of you. And at the time we did. While there were
Pockets of competition from Triple A sprouting up.
We did have confidence in the growth and it was tough not to given how fast we were growing and how fast the wireless industry was growing. Irv said, look, if you're confident and you enjoy what you're doing, then
Do you really want to
Fell now.
pay half of what you get in taxes.
To Uncle Sam. And then you guys gotta go out and find another and
It's not easy.
Define
The road rescues are the world. They're
Few and far between.
That plenty of you ended up carrying the day. I mean, Jim and I, of course, made the decision, but
It gave us a chance to actually really evaluate how committed we were to this company and the industry. And in a sense, we
emotionally double down after that.
It's worth mentioning.
And erf
built his career
As the
co-CEO of one of the two best run cable companies, company called Continental Cable Vision.
that he and his partner ran for thirty years. So had some direct experience with similar situations that informed his views as a board member and investor and partner.
And friend.
I think both of them came at it from
their experiences that they had.
Okay, well so let's maybe talk about handset insurance.
My favorite topic.
Yeah, good topic.
Oh, that evolved as a business for you guys and how you got the MA hat back on there and just maybe talk a little bit about that the Mermac piece.
So once we decided we're gonna focus on wireless, we looked at
doubling down in that space. So
Building out our
Client services team and sales team to
fell into more wireless carriers.
But we also looked at
other products that we could potentially sell through that.
Same channel of distribution.
'Cause it's such an amazing channel distribution.
And at the time, if you went into any
Wireless handset store.
you would see a couple of brochures on the desk when you're waiting to buy your handset or set up.
Your wireless plan. One was Riside Assistance for three dollars a month, and right next to it, everywhere.
was cell phone insurance for three dollars a month.
And so of course we'd be
mystery shopping and training in these stores all the time. So you literally look at the pamphlet and read it. I'm like,
Hold on.
Cell phone insurance. That seems to be more closely aligned with wireless than roadside assistance.
Hmm, I might want to be in that business. And so
We would have never found
Cell phone insurance were we not
In the business.
But because we were
We got to see it and
Outside in it may seem like a big
No.
It's an entirely different product. Why would you consider this as an acquisition? But
Once you're in the industry, you realize that in fact
Both the person you pitch to at the wireless carrier is the same marketing manager. I guess a value added services marketing manager within the wireless company. So the person you're selling to is the exact same person. The financial orientation of the products.
were identical. They're both insurance esque. So a customer would pay three dollars a month.
build on your cell phone bill and the risk of how many times somebody would break a phone or use the service was borne by us.
And operationally
They were very similar. Somebody had a problem, they would call a call center.
We would either send a phone or send a toe truck.
They were almost identical businesses.
We actually got conviction pretty quickly we wanted to be in this business. So we pursued both a buy and build strategy. We knew that our biggest client, GTE, was
looking for a provider of cell phone insurance. So we started bidding on it because we had a seat at the table because of our relationship.
At the same time, we started talking to the three players in the industry that provided cell phone insurance. So there were three small players at the time.
The company we bought. The Merrimack Group, Lock Line and Signal.
And before that RFP concluded, we were able to actually move down the path with the Merrimack group and close that transaction.
And that's what
really launched us.
into the
cell phone insurance industry.
Talk a little bit, if you don't mind, about that deal. Had that come together.
It's based in Nashville.
Two partners who are former insurance agents with one of the big firms, I think Marshall McClane, started it and they were in the insurance industry and saw others doing it. That's niche and cell phone insurance.
Their growth profile looked not dissimilar to what Road Rasky did four or five years earlier. So you
Got this.
business at man I'm
You know, four or five million of revenue.
A little over a million of you but we're
Adding
Wireless subscribers, hand over fist, much like roadside was. So it's sort of like going back in time a little bit, but they were
Insurance agents, they had never run a business, scaled a business, so they were
running at the
limit of their capacity and ability. We hit them at the right time.
They were ready to cash out, if you will. I mean, had a nice run. They were agents for a while. Now this would give them plenty of money for retirement.
You approach them, right? So given that this is
proprietary direct approach.
Proprietary direct, we actually approached all three, and we tried to hold simultaneous conversations with all three. This one progressed more quickly.
And so we focused on it.
I recall the the transaction negotiations. We were at the Union Station Hotel in downtown Nashville.
I remember we had two hotel rooms.
The four of us were negotiating in one and
They came to us with their final offer, like the price is eight million, I think it was, or something around there, and not a penny less. And
Tim and I looked at each other and we're gonna have to think about this. And so we were tired to our room and we had this little
squishy basketball that we're
playing with and we're throwing it back and forth and our first question is.
How long do you think we have to
hang out in here before it's okay to go back in and say yes.
We had experience with
Rose system. So we had some idea. We knew that
the acquisition of the Market Market Group could be a really good transaction a
Roadside assessments.
Turns out it was 10x that.
We didn't know that, but we knew it was gonna be
Good.
But once we got inside and under the covers, you had to spend a few months in the organization. You're like, oh.
Hold on. There's a lot more here than we thought.
How many minutes did you give them?
Twenty minutes.
Twenty minutes, okay.
That's the lesson. Twenty minutes. No less than that. Yeah, we ended up buying, I think it was six times.
Even though.
It was growing so fast, I think the multiple on a run rate basis is a lot lower than that.
So the number is just
that we've got for that were
This is exactly what you said, Kevin. So
Little over four million of revenue.
One point two of EBT.
Subgrowth of sixty percent, right? So very similar to the
Growth rated road rescue initially. You guys paid
On a run rate basis, four and a half times the bit DA for that. That doesn't even include the fact that some of it was paid over time, and you could probably discount that if you wanted to, but it ended up sort of at that time.
about eighteen percent of enterprise value.
That's an important point, the eighteen percent. While Jim and I had confidence
Our board didn't have the same level of confidence. So there's this element of when you're particularly when you're doing acquisitions.
You never want to bet the farm. Like you don't want this to be the acquisition.
Doesn't go the way you think, then it takes the whole thing down.
My rule of thumb there is max twenty, twenty five percent.
of enterprise value.
I will deviate from that by commission.
We're gonna get to that, by the way, but yes, we're
I remember one of our board members thought this was the stupidest idea in the world. Like, who would buy insurance for your cell phones? At the time, you may recall, cell phones were sort of free. They were given away as part of your wireless plan if you signed up for a contract. And he was like, Why would you do this? This is stupid.
We had confidence we didn't know for sure, but
We also knew
Because the roadside assistance business at that point was so much bigger that it wouldn't have killed us if things didn't go
As we expected.
You financed it.
All with
debt and cash off the balance sheet.
No equity required.
Correct. Yeah. Nothing required.
That's actually an important point that we haven't really touched on, which is the business in addition to
Rapid growth.
And kind of exceptional economic characteristics, right? So
crazy high returns on tangible capital.
Well over a hundred percent on that metric and
Simple way to think about that is for a dollar of EB DA.
typically at least half of it and often more turned into free cash flow for you guys.
All of that growth you could finance internally.
Yeah, with cash flow or debt. Yeah. We didn't have a ton of networking capital that was required to grow the business, not a lot of PP and A.
We inherited
That structure.
Well certainly
Wind in our sails, if she will.
Acquisition closes.
Talk a little bit maybe about the integration. How quickly you guys brought that on stream and then we'll talk a little bit about
Capital allocation topic.
That was an exciting time.
We're no longer traveling to Houston, we're traveling to Nashville.
to get this up and running.
And there was a big aha within
A month or two.
Because essentially
Round numbers, the customer paid three dollars a month this insurance.
And you give 50 cents to the carrier as a billing collection fee. And then two dollars and fifty cents of that would go to
Basically the underwriter who managed everything.
And
That two fifty.
The Merrimack group only got fifty cents of it. The other two dollars
went to the underwriter to pay for claims, to pay for the logistics of getting those phones to the customers and to pay for profits that they would get.
Even though
The two fifty was managed by
The Merrimack.
Whoa, hold on.
We're managing it.
We know everything. We know the economics of this. We know the risk. We understand the risk better than anybody else, better than the underwriters themselves, because we are actually we see it real time.
And so
The first move we make, which changed everything, was
No, no, we captured the two fifty.
And that becomes our revenue, not the fifty cents.
We didn't know that before.
We brought in an insurance expert.
Who
basically quickly told us, No, no, no, you don't need the insurance company. You can rent their licenses.
And so
immediately instead of them taking the risk and controlling all that, we took that on and we rented their insurance license for
A few percentage points, maybe five at that point, and now is a lot less.
But
That gave us control of everything.
And now we're like okay.
Yeah, sort of game on. Now we get the underwriting profits immediately because we'll take that out, but then it opens up the world for us to
better manage
The claims
distribution process and ultimately the repair of those bones. So step one.
is to get control
of the entire premium and take over the underwriting profits. Step two.

become the logistics provider. So instead of
having a third party
FedEx or EPS and not just delivery, but manage.
The warehouses and all that, we created our own.
We started our own warehouse. And this way we would ensure that the customer got served, if not the next day and the day after, which was an important customer service metric. But
We also were able to do that a lot less expensively.
Than those third party.
Legislative providers.
And then finally the final step of vertical integration.
Will was the repair of cell phones. So
Every time, probably a majority of the time a phone had a problem, it was damaged and not
Lost or stolen.
So there's still value in those phones. And we
started the process of getting those old devices back.
refurbishing them, making them like new.
We would always replace the plastics on the outside so you're never touching old stuff, but we'd reuse the internal parts.
And we can in turn save a lot of money in that process while getting the customer into the same handset.
that they had damaged originally. So those three steps led us to control the customer experience, keep the price down for consumers, and increase the profitability of the program for our carrier partners.
So how long do you think it took
Kevin, to get to the point where you guys were sort of fully
And
vertical integration mode.
That took about three or four years.
Step one took
About
A year.
getting into the distribution business started about a year after we're in it, and that just scaled. We were in it right away, but it was a room the size of a closet. We gradually over the next years took more and more
from the third party and created our own logistics center. So that took a little over a year.
And then once we had the logistics center, we carved off a space.
And start repairing phones there. It evolved over time, but really it took about three or four years to get fully into it. And then
We just perfected it. We scaled it and perfected it and ultimately
We had operations in Hong Kong, we had operations in China. Now we've consolidated them all in the Philippines, a lot of our logistics and repair operations.
And again the sort of
Lynchpin.
For all this.
It's the Merrimack acquisition.
Seven point three million dollar.
First price.
Road rescue got us in the game.
And the Merrimack group was really the main engine.
While we stayed in the roadside assistance biz.
It was clear that
And some protection was
the engine after a couple of years.
We intentionally diverted resources from it, time and attention.
But that
became competitive quickly as well.
Probably around the two thousand
Seven, eight time frame.
The road side of this has went away, but it's all been about cell phone insurance since two thousand one.
The headline for a Shurian is phenomenal organic.
Growth over time.
But

Selected MA activities.
Have added just enormous value.
across the whole hold period. Merrimack being front and center and that and one other we'll get to, but a very unique feature.
of the company's history over time.
There was one capital allocation event in those early years.
Where in nineteen ninety nine you guys have
The cash generation you were talking about, Kevin. And
You decide to do
a share repurchase, something that's pretty unusual in private companies. Can you talk a little bit about that?
Early
repurchase sort of how it came about.

There's always this
debate on whether you do a dividend
Or a share or purchase.
And
Er was instrumental in our learning on this dimension.
It was a big part of the continental playbook over time.
It's almost always the right tool to use. As long as you can value it.
Fairly?
It allows individual investors to make a decision. Do you want liquidity or not at this price? Are you a buyer, you sell, or you're a holder?
versus a dividend, which is
You're force feeding somebody money.
that they may or may not want. Sure, intuitively you think, oh yes, give me a dividend. That sounds great, but
as the recipient of that, what do I do with that? Can I redeploy that in the same place? Do I want to redeploy that? That was our first introduction to balance sheet management, if you will, from Irv.
It was a good lesson.
The importance and the impact.
Although I'm not sure we sh
Well we appreciate it at the time of a share of purchase over dividend.
Yeah, that's extremely well laid out.
Basically, this is the first step down the path for the company, right? Ninety eight, ninety nine, it's very early days. And you guys
Invest twelve and a half million dollars.
All financed by debt and buy in ten percent of the company.
The IRR math on that transaction is rather good.
Forty one percent IRR over twenty two years.
and an MOIC of two hundred and seventy five X.
So
Just the power.
Of doing that early.
And it's very rare in private equity it
Almost basically never happens in private equity. It's very rare even in church.
Kevin, we touched on this a little bit as we were talking about the cherry purchase, but
businesses generating all this cash. Can you talk a little bit about use of leverage in the very early days and
How you guys thought about that?
I think it was an important consideration and driver of returns, obviously, and when we did the original
Road rescue deal. I said we use leveraged.
To the maximum extent possible. So we're not
got a sufficient amount of as much senior debt as we could. And in fact the investor capital that we raised, we structured that partially as debt and partially as equity in order to drive the highest returns to shareholders.
You just
look over the next couple of years as we came to the Merrimac deal, of course, using
leverage the lowest cost of capital out there.
We were gonna use that at every term, whether it's not cash in the balance sheet or cash that we could generate from raising debt.
We always had that mindset from the start of
responsibly using
the lowest cost of capital that's available to us. And that was at times it was more available than less.
But we had that as part of our ethos.
I think that
Interestingly, you saw our leverage ratios decline.
from the initial transaction and up until the Merrimack transaction. And we just didn't have a use for that. So you think of what's the highest and best use of that.
And you'll reinvest that in the operations to the extent that you really believe in the return on investment that you're going to get from that. And we were, we were investing as much as we could.
Number two would be acquisitions and so there was nothing available to us. And then number three would be returning capital to shareholders ideally in a share or purchase secondarily in the form of a dividend. And
In those early years, we didn't really think about
the latter too much. Obviously we did that small transaction returning ten percent of capital.
to resure a purchase.
But
we would really come back to leverage
Mainly
at least in those first few years at either an acquisition or in conjunction with an equity recap that happened to undertake in the first one from that was really two thousand and one
When TA came onto the cap table.
Okay, TA is a good segue, so
Let's talk in a minute about
that transaction, sort of the first material transaction for the company. But before we do that, I just want to stop.
You give a snapshot of the business in
the year two thousand, so
Just after the Merrimack deal closed in ninety nine.
You'll
Remember that the original
PPM document.
The base case was fifteen million dollars of revenue and three point seven million of EBTA.
The year two thousand
actual numbers for the company, which of course include Merrimac at this point in time, early days.
Was a hundred and thirty five million dollars in revenue?
So is it sixty three percent.
Come on annual growth rate since closing.
And twenty seven million dollars at EBT.
Right at the twenty percent margin.
So that's
pretty substantial
value creation.
by any metric, along any measure.
the subscriber count grew about eight X over that period of time.
Right. So
That's
now come to fruition in the business.
And you guys make a decision to explore a transaction offer some liquidity to shareholders. Can you talk a little bit about that?
We have seen Mercurial growth and we were excited.
Buy it.
The same time we took it all on stride.
Maybe we're a little overconfident because with the Merrimack transaction. Yeah, things were
It's a little more challenging. We had now had two companies. Jim and I were stretched. The management team wasn't as strong as we would have liked it.
And so
There was some element of
I think Jim and I just seeing the risk.
Here. I was like, hold on. This is great, but
Now that Jim or I are taking anything out.
at this point. And
We were both interested in some financial security.
We decided confirmed with the board, we had conversations about whether we keep buying as many shares as we
wanted to or as were desired with just debt. And we thought we couldn't do that. So
We opened it up to an equity process and
that generated some interest, but in particular
The highest bidder was T A Associates.
And
Well investors
Or interest in liquidity. I think it was really Jim and I driving it.
sort of the need for financial security. And the board, they thought that was a good idea. I mean having management sort of hold on to type's never a good idea. And they understood that from the early days. So just allowing us to sort of
Let some air out of the balloon and give us some financial security. They thought and we agreed would help us be better managers. The TA transaction was.
Once again
A situation where Jim and I were
Back in the classroom.
He and I were nominally negotiating it. We were the front men, but really there were people behind each of us pulling the strings. On our side, it was really
Bill Egan and Irv Grosbeck, who are negotiating through us with PA. So Irv, PA had been an investor.
In her company. Bill had been a partner.
with the folks at TA. So they all
knew each other very well. And there was
Sure, there were baggage from each of their past that were being handled through surrogates that were Jim and I. And on the other side, Jim and I were dealing with Jeff Chambers and Richard Tadler were wonderful, but they weren't really in the control feed either. It was Kevin Landry and Andrew's claim behind them. So it was sort of
An interesting negotiation, but at the end of the day
We had the what I call it, the er factor.
In the sense of
When we said no to something
They knew it wasn't us.
And they weren't really negotiating with us. They knew it was coming from Earth, and we understand what that means.
And no man, no.
No man. No, and they came in with a term sheet
That had a high price, but it had a number of
conditions to include they wanted control over major operating decisions to include the budget and key hires. They want to take the company public.
Registration rights and
They wanted a preference and they wanted a couple of other items.
And getting into too much detail, basically we come back
at the advice of Urban Bell and just said no to all of them.
The insight for them, which again, Jim and I in the classroom being the students was
TA's in the business of investing in great companies. If we have confidence in the company.
And we don't need the capital because it's all secondary.
Then
We've got
All the power.
And while we ultimately acceded to
some minor rights to TA at the end of the day. They basically come in with the same security. It's all common and I think
Happily so, in the end.
And honestly, I think if you looked at the history
F T A Associates.
That transaction not being preferred.
Is
A wild outlier.
Thanks to the quality of the business.
It was absolutely common to both be preferred and to have a coupon.
Um I got neither of those.
Jeff Chambers ended up
joining the board and was a wonderful fit. I think board dynamics are always incredibly important and
He got a chance.
To shine early on because soon after TA investing, we missed our numbers. And I think the next two quarters were really the first time we've missed our numbers.
And
Jeff was as cool as a cucumber. He may have been sweating behind the scenes.
But he was consistent and supportive and we made our way through it. Everything turned out fine for TA, but he was tested early on, that's for sure.
And Jeff is great.
Quick math on that transaction.
Was
They paid a valuation of two hundred and twenty five million dollars. But
Sixty million dollars worth of stock at that. So they ended up
owning a little bit over twenty five percent of the company.
All that secondaries you said, Kevin.
significantly none of it preferred.
And the IRR for selling shareholders from the original search group over five and a half years was a multiple of invested capital forty one times.
And an IRR of a hundred and two percent.
So that's a reasonable start.
And we'll return to get into what followed from that start, but I think that's a good place to cut things.
So thanks for your time, Kevin. Perfect.
Kevin, in our last conversation, we talked about the first five years of Assurian's history from the acquisition of road rescue in nineteen ninety-five.
The TA coming in as a director in very early two thousand one.
Put some numbers around that. You started with eight and a half million dollars of revenue.
And one point two million dollars in EBITDA.
coming entirely from the roadside assistance business.
In two thousand, you had seventy eight million dollars in revenue.
And twenty five million dollars in UB DA.
With around thirty five percent of that coming from handset insurance.
Okay, so we're now officially in the T A era, early two thousand one.
It just seems as though that early oh one, oh two era represents a step function change for the company.
lot of transformation then. And maybe a place to start, Kevin, if you don't mind, is with the actual renaming of the company.
How did all that come about?
The story of our names is an amusing one, if anything. When we bought the company in nineteen ninety five, we bought rescue inc.
we were known as in the marketplace Mr. Rescue, but it was Road Rescue Inc.
When we bought the Merrimack group, we merged the two companies together. It was one holding company and we come up with the very creative name.
Road rescue Merrimack.
It clearly didn't roll off the tongue, but
It was a pretty straightforward process, Well.
We realized that that was not a long term name. It's entirely unrelated to TA investment, but we did need to come up with a name that represented who we are and who we wanted to be.
And we hired a marketing firm and they helped us lead us through a process.
Ashurian was the winner of that process. There were a handful of others that were similar sounding.
But the idea of assure assurance to protect
resonated with us and
That was also a time when URLs were difficult to find, so
We were pretty happy to land on a Surian and
It suck. I've been excited to continue with that name ever since.
Let's maybe talk a little bit about the
senior management team and
Yeah.
Overhaul.
There.
Maybe go back, touch on Gerald and we can
Go forward from there.
The hiring of Gerald Rusk was a seminal moment for me personally. It was where I
truly found or saw the power of hiring a ten X person.
Our previous CFO was a talented CFO who filled the role.
At the time.
But when we transitioned him out and Gerald into that spot.
Daryl didn't come from a CFO background.
But
You could tell he had the same hunger.
That's
Tim and I had.
I wanna say it's rare, this sense of I just
Wanna win.

I call them drivers and stewards. I mean you want drivers to
Just accelerate the business, take it further. You don't have to push them. These people are excited to win and to grow and succeed. And others are content.
Two
Manage and
report and
Be custodians and
Trustees, if you will.
When you
Interview somebody
And you see it in their past.
These
Examples of
Overachement.
of attaining
high levels in whatever they do.
the sense of wanting to win. And we saw that in Gerald
And
The impact to the organization was immediate.
And
Surprising. Because he's our first
Big higher.
He not only
took on finance and handle that almost instantaneously. He took on parts of operations, he took on
information technology at the time.
And
He took us to places from a strategic perspective that we probably wouldn't have gone otherwise because Jim and I really saw him as a true partner.
as we moved on from roadside assistance into
hands up protection. There's a big wow moment.
For us.
Along the same lines of importance of tanks
Tight managers.
With a higher breath.
Jim
wanted to wind down his
day to day activity within Asurian and he was moving on to
Teaching at Stanford.
And
Jim and I went out to look for
Chief operating officer.
Someone essentially would report to me who'd help
Get the trains running on time. I think before that, Jim and I
We were good doers. We knew what to do. We were actually pretty competent. We were good salespeople. We could
Get the basics done.
Well, we weren't necessarily skilled at managing, driving, inspiring a team and
We went out looking for someone who had done that before because we were growing and scaling.
quite rapidly.
Finding right was
It was lucky that we found him.
We're introduced to a mutual friend.
He and I and Jim hit it off right away and
We realized given his experience at West Point running a couple of other companies in the past that he had the skills we wanted and needed to grow our business.
Where did he come from?
Who was the referral and what were a couple of the things he did before you ran across him?
He was
Introduced to us by Bill Lazier.
Bill was a professor at Stanford.
He's one of the three people I worked for as a case writer.
When I finished my MBA there.
And a dear friend.
Turns out he and Brett were close.
They had a relationship. I think it was
Through his son in law.
Friend of graduated from Stanford a few years before me.
And
We reached out to our investor base.
our network looking for people who filled this profile and
Belve.
connected us and we hit it off right away.
Brett's background was
West Point.
He did five years after West Point in the army.
He did not finish top in this class, he finished number two at West Point.
One point which I
Continually give'em a hard time about.
He had a couple of really senior leadership positions. I think he was the chief operating officer at risk management solutions, and then he was the CEO of another.
Small.
software startup that had just recently been acquired by Excited Home, if you remember that copy from
The way back machine.
We just caught each other at the right time.
And he came on board. We were looking, as I said, for a COO
We were never gonna get him with that title. So Jim and I were super flexible on titles and
He took the CEO title. I had already had the chairman title, and that was really the beginning of another amazing
partnership of mine.
Was he a board member from the outset?
Yes. We brought him on to the board.
Right away.
What he brought right away were leadership.
Skills.
In terms of managing a team.
That
Jim and I, but particularly I got a chance to learn from over the next several years.
He and I were partners and we would talk every day.
multiple times a day.
Much like Jim and I had.
And we were
giving each other advice. It was really
a great opportunity for me to watch him, to learn from him, and eventually to
Improve myself.
along the way. But think about
Where he was really strong. It was
Inspiring leading a team.
It was.
Focus on
The customer.
really understood what the customer experience was and drove that through.
the entire organization.
And then
One of his superpowers.
Is
relationship management.
Beyond being just a great leader, he is one of the best.
client relationship management people on the planet. And there's some great stories about
How he built some relationships over time, which are which are amusing.
I mean, first of all, it's kind of amazing.
If you think about it.
You going
From one
Super close productive partnership with Jim.
Almost seamlessly overnight to one with Brad.
Talk a little bit about some of the mechanics of that. What time did you guys get started?
It is true. I mean, I lucked. I feel very lucky to have had a handful of great partnerships over the years. It's so much more fun to do it with somebody and
I think about the relationship that Jim and I had and the relationship Brett and I have two things that stand out the most.
about each of those that were common. We talked all the time. We reached out to one another all the time. The second thing
was we pulled the others in.
So with Jim or myself or Brett and myself, we were always looking to the other for advice for help.
As opposed to
pushing the other person away and saying, Hey, this is my sandbox, you stay up type thing.
But Brett took his military training and applied it to assurance. So
I thought I was an early riser and getting going seven in the morning and sure enough
Nope.
I think Brett started as early and probably get up at four, four thirty every morning.
I was in the office by five and that
I mean it's such a town.
People see that. They see somebody
Getting in early, working hard.
dedicating their time
to this adventure we were on and
It's in factious.
He did it and
So I was there, yeah.
That sort of permeated through the management team.
And
Can you talk a little bit about
culture as you guys are building it.
And
hiring and talent management is you and Brett.
And team began to build off of that.
Together as a partnership.
It certainly started with
Jim and I and Gerald and then
Continued with Brett and I and Gerald.
The term we use to define the culture of the Surian.
Divine discontact.
And that's a term that was coined by David Kirk, a former
McKinsey consultant, but before that he was the captain of the New Zealand All Blacks world champion rugby team.
He wrote this paper on
high performing teams. And he described his experience with the all blacks. And then Gerald actually read it this article and he brought it into my office. I'll never forget.
This may not be who we are today, but it's who we
certainly aspire to be what that means to mine discontent is this idea.
That you've got a team of people who are
Incredibly talented.
Yeah, really
excited to be around and be interacting with one another and together.
You set really high goals, a high bar, high objective for yourself, and you work like heck.
And you go achieve those goals. And then once you're done, you don't rest. You do a post mortem. You look at what you did.
Can you do better? What were the mistakes? Cause there was all those mistakes, and how do you improve upon those? And there may be competition along the way, but you're really not so much focused on the competition. You want to use those as opportunities.
To get better, to actually improve yourself. And then when you reach those goals, you actually put up bigger goals and you just keep going. And that sort of drive excitement.
really permeated
The culture.
of the organization and
The
People saw that we talked about it.
the management all new at even today you can ask
Managers
all the way down the organization. I think people
Certainly
They understand what divide is content. I think they hopefully practice it. We're a bigger organization. I know that isn't as broad or widespread as it once was, but
that core of divine is connected is certainly still there.
It reminds me a little bit of that.
Story about
in the early days arriving at core values and the definition of fun and
You and Brett working through that. Can you go through that story a bit?
We hired a third party and brought together a broad cross section of our senior team with the objective of defining assurance core values.
It was a process that we were broken up into groups and those groups would work together for a period of time and we'd have their ideas and we'd come back and
It was sort of interesting.
How this sort of
merged people were voting on it. So there's some sense of, Oh, we're gonna vote on our core values, which
But the benefit of hindsight was not.
Probably the way to go because they are what they are. It's not like what you think they are necessarily. And
We went through the process of one
core value that emerged.
On many people's lists was the idea of fun or the core value of fun. We want to have fun and what we don't want to enjoy it, we want to be excited by it.
And while a number of roots put it there.
It just didn't feel right.
I was like, I'm not sure.
That fun is what we're trying to do.
And then one of our longstanding employees, a gentleman from Rodney Schaucer, had been with us for a long time.
He raised his hand, I saw.
And
We're talking about fine. He's like, look, this is not
Fun. That's not the right word. It's
Winning.
Winning is fine. Like we want to win.
Let's not
sugarcoat this or try to put a
Different face on the what it.
Really is.
We're here to win. And there was sort of a a haul moment there of like, yes, and it connects with divine discontent. It's interesting how the true core value actually does emerge. It's about who you are, not
The name you might put on it.
It was interesting how that just emerged from that process.
And then there was also kind of an honesty in your culture. And specifically
Maybe is it related to
people finding their long term roles and
How you thought about
giving feedback to people.
One of the things we did well
over time was
We had a strong discipline around talent management.
We recognized we were on a rocket ship.
We had a team that was driving
some cases holding on because it was growing so quickly. And we knew
Intuitively that
people who are in those seats were not necessarily gonna be people who can take us
to the next level and
One of the things we did really well is we were
honest with ourselves and with our team about
the roles they were playing now and would they be in those seats.
in the next couple of years. And
It turns out we ended up
switching over the entire management team.
About three times over the course of seven years. And it was
Mostly proactive.
In the sense that
We knew that the people in the role couldn't
Take us to the next level.
I mean sometimes we obviously made
personnel mistakes where you had the wrong person.
in the wrong seat and we had to address that. But
We were pretty rigorous about that. I give us
pretty high marks because
When you hire into a role.
Chances are you got
maybe a fifty fifty chance of actually making a grade hire. And I think it's as important, if not more important, to correct that mistake as quickly as possible. That really did
allow us to take full advantage of the opportunity because
The industry was growing so fast. We had opportunities both domestically and internationally. And we were
integrating vertically in the value chain so so much had to be done.
That
It was critical for us to get
the right people in the right seats.
during that period of time or
We would have nearly taken
as much advantage of the opportunity that we had.
I mean, those are not easy conversations, so any lessons learned on handling this?
The best
advice I'd have on what I try to do, but as is always the case, we're never do as good a job as we want to. And that's
Being
consistent and constant in your feedback.
and having an open dialog with your team members.
So that there's not a lot of ambiguity between how you think he or she's performing and how
He or she thinks he is performing. So having those constant conversations makes the ultimate conversation around it's time to leave a lot easier because you almost arrived to it at
The same place at the same time.
And
Just being honest with yourself and
being honest with those people and having the courage to actually have that, because those are difficult conversations. We know we avoid them. We don't like having them, but it's the right thing to do at your job. It
also helps the employee because if they're not performing, they need to know. Otherwise they have no chance of redirecting or addressing that. And I think as long as you're having those conversations
on a regular basis, that helps you hold your feet to the fire and taking these actions that should be taken on a timely basis.
The other thing that was helpful and is helpful having a partner is holding each other accountable.
If it's just you
then
It's easy to push off or
Allow somebody to stay in
a spot thinking here she may improve over time a little bit faster.
And it's always great just to have
In this case, we were partners, effectively operated as partners. So being able to hold each other accountable.
for our team was really helpful. If you
don't have that person, then having a board member or an executive coach or a mentor really is
helpful in prompting you to
See clearly what's happening.
Did you and Brett, as you're sorting through that, ever disagree?
We
Rarely disagreed.
One of the things I liked about
Our
relationship.
Was
We didn't get stuck in a specific
point of view or position.
I think both of us were pretty good about allowing the data or the information or new information to change our minds.
We may have had differences.
in small areas now and then.
We would allow the person who really had
Key authority over that domain to make the decision. I think only once
Will there was a time it was about a specific individual where we disagreed on whether to keep this person or not. That went on for six months. It was a situation where I thought this person needed to exit the company and wasn't quite there yet.
How we managed that was
Really more
Us continuing to converse about it.
It took, I think, six months longer than it should have. And eventually that person did exit the company.
The way we ran the company, if one of us really believed that somebody needed to exit, it had to happen because
Once a person has lost the confidence of one of us, then it's ultimately not gonna work out. We worked our way
Through that I say
Slowly.
And carefully because
You wanna be careful because you're protecting an important relationship.
You want to do it's right for the company, but the relationship that he and I had together, our working relationship.
It was pretty instrumental to how we operated as a company and doing that well.
to take the company and
Positive direction or a negative direction.
Well related things this idea of
Lack of hierarchy.
I think it was one of these
T A years.
Two thousand five, something like that.
Company added.
fifty percent more employees in a single year, right? How did you keep from hierarchy creeping in?
You do the best you can.
Of course it's going to seep into any organization.
You try to model it.
As best you can.
Having a low ego or being humble was an important part of the ethos of
Lessur in and that's
you're setting high goals together, you're working together to reach those goals.
But you're also open to
constructive criticism and when you do those post mortems to get better, it does
Take
People letting their guard down, being comfortable.
Having
Constructive criticism directed their way. So that does help from a hierarchy perspective.
In growing companies.
Managers, leaders.
set of responsibilities get divided all the time.
And so
People seeing that a senior leader
as the company he owns might have a section of his or her responsibilities cleaved out and given to somebody else, not under them, but
beside them.
Those are always
Challenging conversations.
people feel like you're taking responsibility away from them.
But
It's necessary in a growing enterprise to have great people focus in key areas and particularly as to scale underneath it.
is increasing at the same time.
That was how we
Thought about it.
the example we tried to make. I think one of the
Mechanisms we used.
Two.
Help.
promote that was a mechanism we call power of ten.
It's an exercise in
Focus and prioritization.
But it helps people to see that this is not about hierarchy because what we would do
is we take
Every so often for a really important
of that it could be a contract renewal, could be
going after a new client.
It could be
some other negotiation. It could be a supply chain problem or an operational glitch.
And
We would
Pull together.
A handful, maybe a half dozen people who had
knowledge and something to contribute to that problem or issue. And it didn't have to be
the CEO or the head of that client. It could be somebody who is lower down in the organization who actually had the details and understood it at a deeper level. And we will bring that group together.
in focus time, call it two to three hour increments, maybe do it two or three times.
And

Prep material.
in advance to allow people to think about these issues and
I know that sounds
Simple.
But it's wildly effective.
But just getting
a handful of people, the right people at whatever level in the organization focused
on a problem, not worried about the meeting that came from the meeting going to. And we found you
Always, in every instance.
would come up with alternative
The individually you never would have got to. It was a powerful mechanism. We still use it today.
Can you talk a little bit about
Organizational mobility.
is kind of a principle for top talent.
We
Believed.
In terms of
the best way to develop your people is to give them a wide range of responsibilities across the organization and in particular for your high potential leaders.
those that you want to continue to rise up in the organization.
I will tell you it's really easy.
for them to rise up in their functional area.
But to give them
cross functional
experiences
to meet other people and network within the company.
longer term that has a much greater impact.
on the business.
In fact.
When you look at our executive committee
Well, I think the average tenure.
Maybe approaching ten years.
And some
Fifteen to twenty.
It's a long tenure group of people.
Across a breadth of roles.
Cross the breath of brawls, yes.
Compensation. Can you talk a little bit, Kevin, about
specifically
Equity compensation.
And how you've evolved your approach. I mean, started out as a search fund, right?
a rigid mode to that. How'd the company's approach to equity compensation evolve?
Over time as you're bringing in these
A players.
This is where we
benefited early on from having a a tremendous board of advisors, directors who could
help us think about these types of issues.
And
Well it is
Certainly
important from a shareholder return perspective to shepherd equity very
Carefully.
Part of the ethos early on was you need to reward management team and have them aligned.
Where
The shareholder base.
And that meant
Distributing options as a key part of
the management incident plan. And that was built in
early on.
as part of our comp structure. Sort of was for Jim and I. And
In order to attract
the very best people like the Gerald Risks of the world.
To pull him out of his current role and
At a much lower salary.
We needed to use equity and the promise of that.
as a key factor in bringing him in and other
important leaders in the organization.
It connected to being able to get great people.
Really.
Because when you're a small company, you're getting these really talented people to come work for a small
roadside assistance company in Houston, Texas, or a cell phone insurance company in Nashville? Why would they do that? Well
You've actually got a great story because you get to be part of this leadership team, as opposed to being a cog and the wheel in a large company. You get to be part of a leadership team, you get to be in on the decision making. And
We've got this great vision that we've laid out.
To the extent we work hard and reach those goals, you can not only be part of that, but you're rewarded by it as well. And we tried to push this as far down.
in the organization as we could. And
It had fits and starts over time, but we ended up pushing it all the way down to the manager level.
So those people who come in
right after business school in particular get
Slugs of equity right away.
When did that happen? When did that pushing down deeper into the organization occur? Was that a TA era thing?
It was really a TA and Brett era thing.
We believed in it and certainly needed equity to hire the key senior managers. But once Brett came on board around two thousand one, two thousand two time frame,
think we're much more rigorous in our thinking about how to drive that.
down further in the organization and get people
A deep.
VP, director, manager level aligned toward these goals.
Another
Interesting aspect of our compensation will was this idea of
Full potential.
So
consistent with divine just content like reaching for those goals. We have a bonus plan that was a fair bonus plan that
People would
strive for, obviously. But we don't have this
Souped up or supercharged.
bonus plan for hitting full potential.
Because we didn't want to be that company that
Put out low target.
By the way, in any organization
That's sort of the natural state where people will tend toward that as you get more and more people.
Because it's easier.
Everybody wants to hit their goal. So you
Fent a lower one and if you beat it, nobody asked questions. And that's
The road to mediocrity, honestly.
Then you're just maintaining.
you're not really pushing yourself. So we'd always have this full potential bonus that was something
That was stretch and orientation. We would never really hit it all, but
I can tell ya.
It helped get us well beyond the reasonable plan we put in place and
well toward the full potential of what we could be. You saw it in the results. I mean the growth and the
Two thousand one to two thousand seven time frame was incredible.
And super roughly, where did that kick in?
If budget was a hundred, then the full potential, it was really unbounded, but think about a hundred and fifty.
The bonus would accelerate after
The hundred. And
As a rule of thumb, for every dollar above
hitting that plan, management will get a third of all the dollars.
That was made in that year. So an outsized portion of that pool.
Over budget.
came to the management team. So it was a incredible motivator to really achieve full potential.
How'd you guys think about providing liquidity?
to shareholders.
to management owners.
It's an important consideration.
Never really
Had a desire to be a
Public company and still down.
That said, if you're a private company and you're incending people with equity, you do need to find ways to get
Not only your employees equity, which is important, but your shareholders as well over time.
And we'd endeavor to
Have some sort of
liquidity event every couple of years.
What we found
Particularly with our management team.
was that
Equity incentives really worked.
But
If they don't see liquidity within
a three year period, then the value of that incentive actually tends to start declining because they're wondering.
Is this really a value? Is this really here? And having some level of consistency and track record of liquidity events is actually important to maintain the value.
of that incentive. So we would have
Either a debt recap or a debt and equity recap or sometimes dividends.
Along the way.
A lot of shareholders.
Did well by Ashurian.
But I will tell you, Well, the thing that feels
really good is you have that conversation with the director level person who may have made
a few hundred thousand dollars on a recapitalization where they sold some of their equity and they're set up for retirement, they put the kids through college. To be able to have that kind of impact on your employees' lives is really gratifying.
Can you touch, Kevin, on the compassion forward program that you guys started?
Compassion forward project.
is uh philanthropic
organization that we created internally at Asure and and it was
Giving it.
by assure and employees in support.
I'm assuring employees. We want to
Like most organizations want to be
part of the three giving back and to helping the community.
We happened upon it and it was one of our mid level managers
No.
came up with this concept of compassion forward and
We realise we have tens
Well, we have twenty three thousand, but we have so many employees who are hourly employees and
If they have
a traumatic or problematic or big issue in their lives. And
They might not have the money to pay for it.
It could be
additional health care costs.
for that person or somebody in their family.
Could be a death in a family and just
Being able to bury them. I mean, there are events in people's lives where they just need financial help. So we created this fund and the company seeded it and
Eventually employees can
deduct from the paycheck and put into it.
And then
It's managed by a group.
of managers who get applications from people who have issues.
And we
gift and donate money to these individuals on a regular basis.
It's really helpful. Got
thousands of employees in the Philippines and whenever there's a hurricane there, a lot of people are displaced.
and put out of their homes and have to rebuild their lives. And we use the compassion forward fund for that as well. So it really helps build
community and connection within the assuran network. It's something we think is pretty
Innovative and helps
tie that team feeling together. We try to promulgate this to companies who've got an evangelist who will go out to other companies and describe
compassion forward and how it works. With the hopes that other companies do this as well.
That's very cool.
All right, so shifting gears for a minute, going back to that.
T A
Oh one.
Period.
One of the
trends during that period was industry consolidation, right? So
Could you touch on that a little bit? And basically that's taking
The
customer concentration issue, which is central to the business, and if anything, extending it, emphasizing it.
Could you just talk a little bit about that trend?
We
benefited greatly from being attached to the wireless industry, obviously. That
Where the number of customers
with wireless hands that screwed from ten million when we started, I think in ninety five to ultimately over three hundred million. And when we started out, there were
scores and scores of wireless companies. They were set up almost by MSA.
But like a lot of industries like that, it just
Consolidated really
Really quickly.
So
I think
Certainly by two thousand.
the top three to five carriers would own seventy to eighty five percent of the market. So
It was clear back in the early two thousands.
We were going to be in a
consolidating industry.
That's just really the way it had to be for the economies of scale to work for them, which meant
customer relationship management was going to be critical.
It was always important, by the way, to be working with the acquiring company because
If company A acquired company B, then the vendors and partners of company A would tend to win out as well. And that worked largely in our favor in the early two thousands.
But we knew
Than that.
It was a concentrated industry and we really
did two key things. One was
Focus on client relationship management, keep them close and keep them happy. And two, diversify.
So we're always in this search to look for
growth outside of the wireless industry or in different areas of the wireless industry in order to
lower the risk that comes with concentration.
As it turns out.
Working within a concentrated industry can be a good thing.
It allows you to focus.
And if you've got a great
Product.
And you've
Done a good job of managing the client relationship.
So that they view you, your company, your product as strategically important to them.
Which was one of
Again, back to Brett's.
Superpowers. One of the things he was able to do.
for us, then you embed yourself in that organization and are able to
continue to grow along with it.
We've been successful at doing that over a long period of time in a consolidated industry.
As it relates to Brett's time in managing that.
Increasing growing already high customer concentration piece.
Had that affect the way he spent his time as CEO.
At least a third of his time, if not more, was spent on client relationship management.
I can say the same for myself.
It was important for us to
get to know the most senior levels of our clients.
If you're successful at doing that, then you have a seat at the table to pitch some new ideas and to help continue to grow with them and evolve your product suite with them in a way that's more difficult to do when you're down to mid levels.
And
We were effective at doing that over time.
It's a great story of Bretch.
wanting to meet the then CEO of our largest
carrier partner.
And he was
very strategic about it. He found out through that
CEOs assistant that
He liked to work out at five o'clock in the morning whenever he was traveling for these conferences.
So Brad.
Who
really didn't work out as much before this. Started working out at
Shocking to five in the morning.
And he would meet
The CEO.
Maybe the only two people on the gym.
You'd be there.
successive days in a row they get to talking and know each other. And that's the start.
It's very creative. It's thoughtful.
The time you spent to figure that out.
Was
critically important.
As important, if not more important, Will, is okay.
Now that you've got the audience, what do you say? What do you have to contribute? And
Brett was always prepared. So he knew how to position our product to make it
strategically important to the wireless cares. And it was really all about providing an amazing customer service, driving loyalty and reducing churn for them, as well as revenue generation. And
Given
our place in the industry, we were able just to
do that in spades for these carriers and
become a real important strategic partner with them.
When you look back at that period
It seems like there was
At least one period very early on where
There was some
Risk some scariness.
It's related to that sort of
early claims process system implementation O four ish.
Okay.

What that was like.
Company's growing super fast.
But within that you gotta
Kurfuffle.
We've had a few of those.
I certainly remember the claim system.
Failing. That almost brought us down. I think we were down for two weeks.
And doing things manually.
In the early days, particularly in a concentrated industry.
A few bad moves can derail the entire
system as a manager, you want to be
taking risk out of the system wherever you can.
The claim system problem. That was just self affected.
That was
We made the classic mistake of moving from an old system to a new system without the ability to fall back if things didn't go well. It was as basic as that, and the new system didn't work.
Everything went to manual for about two weeks. It was all hands on deck.
every manager, every person in the organization.
How did you guys?
Personally
Deal with that.
In the call center.
helping people literally
On the phones.
Taking claims, everybody knew what to do. Certainly there was making sure that the IT system was getting work done in the background, but no, we were there.
Please roll it up.
We had to be there and it was a tense time.
Because we were
getting calls from our clients deciding them, Hey, what's going on? And we needed to be taking care of these customers who are used to very short hold times, very short
cycle times in terms of getting their claims processed. And now they go from minutes into days and you get some agree customers, but we worked our way through it. We had built up a reservoir of goodwill with the clients such that we're able to manage our way through that.
I can tell you we've not made that mistake again.
Can you talk a little bit about the approach over the years you guys have had to testing and learning new products?
As I look back over the course of time or the Surin, you can see this nice curve where things have gone up and to the right.
We made some good strategic moves along the way. It's funny people ask
Did you envision all this?
Did you have this?
Strategy from the outset.
And the answer is absolutely not.
I call what we've done strategy by experimentation.
We were in the flow.
We attach ourselves to a great industry and
Well, we knew directionally where we wanted to go for the most part.
We didn't know exactly what was gonna win or not. So you're always placing bets.
You're always placing not an infinite number, but a handful of bets. And you want to execute those bets well. And importantly, you
Double down.
On the ones that work. And you
kill the ones that don't. And we've had a number over the years that have not worked.
Fortunately.
We've had enough.
of the pets do work along the way. And I think of that not just in products, but in acquisitions.
Then we bought the Merrimack group. Well, that was
Making a small bet in a new product to the same channel distribution to wasn't bet in the farm.
And then through the course of the early two thousands, we were betting in another way to diversify is other products sold through the wireless channel.
We developed a product called Pay Ashore, which was to
help carriers attract credit challenge customers, which they weren't bringing on at that time. It was really
A little bit before the prepaid era.
We had another
Business called.
A Sharia Managed Wireless where we would take over the
management of all the handsets for it enterprise. And so there'll be life cycle management as well as tracking of those devices.
And we got them up and running, we stood them up, and both of those turned out for different reasons not to work out. So we shut them down.
But others
Along the way.
we're successful in addition to handset protection.
We made little bets in
integrating into the value chain.
Whether it was getting into the reverse logistics or repair this is and once we've found that those worked, we were able
To grow.
We have a long history of just testing and learning.
That's an almost perfect segue, I think.
We're gonna return to the M and A topic, which we've touched on before and
This is an eight hundred pound large bet.
Let's shift and talk a little bit about walk line.
And how that
unfolded over time, maybe from earliest days when you guys came across company.
Yeah. So Lockline was in our
Sides right from nineteen ninety when we started looking at answer protection. There were three buyers.
We ended up buying the Merrimack group, but we talked to Lockline, we saw it there and there's signal out there as well.
Once we
completed the acquisition of the Merrimack group in ninety nine and
We never lost focus on one of these others and
We reinitiated conversations with Lock Line.
More subsequently in two thousand two.
They were owned by
an insurance agency in Kansas City.
We put in a bad day.
took themselves out to auction.
And
We thought we had a generous offer in there.
They were telling us that there were other bidders. We didn't believe them. We were wrong.
And
Another Kansas City based company.
ended up buying them for
Maybe ten percent more than we were offering.
It was
such uh
Disappointment.
To have that
Flip through our fingers.
And we could have easily paid that and more. I think we're obstinate and overly confident in our position that we were the logical buyer of this. And who else would buy this?
Well
Turns out.
We were wrong on that.
So that went away.
We re engaged them two years later.

buyer who prevailed in that process before strategic or financial buyer?
Somewhere in between. It was a company called DST Systems. They're also based in Kansas City.
They had a history of investing in companies outside of their
Core business.
They weren't uh a private equity financial buyer
Typically.
That is essentially what they were doing in this case, because there were no obvious synergies between what Lockline did and what DST did.
And for that reason
We thought we're good.
pull it out again at a much higher price than what they paid for.
The conversation started
Who is clear that?
I was not gonna make headway.
with the CEO.
Of DST.
How would you summarise why?
Different generation. The CEO was older. He's certainly
well established in the Kansas City community and known somewhat nationally.
And in some ways I was beneath this station.
So we brought in the big guns. We brought in Irv.
From the board and our general counsel consigliary amazing attorney Dick Floor.
from Goodman Proctor. He and her and the DST system CEO were all
of similar age and stature and
That helped us get in the door.
Think it played to their ego, which was a factor.
It got us to the table where we started the discussions and there were some long negotiations.
But it came to a head in two thousand six when
We're able to bring it all together.
In a transaction where we bought La K Line.
Largely for stock.
M D S T.
ended up owning almost a third of a company.
Explain the location wrinkle.
One of the great things about
Lock line is
We were in the industry together. We
probably knew as much about them as they knew about themselves. And there was such a great
value to be created by putting the two companies together because we could take their business model, apply ours to it, and create
tremendous value because we had this vertically integrated approach and we could increase
Very but uh X fold.
Almost on day one.
We wanted this to happen because we knew value is gonna get created. That said.
It was a stock deal.
We're marrying
These people and DST would have two board seats and a third of the company and negotiations.
Or not time or
They're almost challenging, but
They were fraught a little bit.
By the fact that negotiating with one another, but you're also seeing how the other person is treating you along the way because you're gonna be partners.
And
Right at the last minute at the eleventh hour, we're about to sign a deal and
Lo and behold, a wrinkle emerges, the the seller wants to
ensure that we maintain a presence in Kansas City, a physical presence for a long period of time.
because it was important to him that
Jobs stay in the community.
And this is gonna have an impact on the synergies because we as imagined contracting.
Material.
So we are back
Into our own room and
Thought about it.
It became clear.
the loss of that synergy wasn't going to
be enough to derail the deal in any way.
But how
We were being treated along the way. Didn't feel good. So I reached out to Irv and
Got advice from him.
He wisely said look.
Now you know.
At least.
who you're dealing with and
This is somebody you're going to have to do what's for the
Next year's.
Are you sure you want to go through with that?
I didn't even hesitate.
It's good.
I can endure a lot of pain if the value is there. And we just knew.
The value is gonna be there.
That's why we're willing to stretch in terms of the size of this deal as a percent of our
Enterprise value and
we were marrying this organization. I knew there were gonna be challenges with it, but I felt like
We'll figure that out in the future.
But let's create value in the near term and
Lo and behold, we went ahead and closed the deal and fortunately it
Both things came true. We create a lot of value.
And the marriage was
Fraught.
It didn't work out very well.
Quick math on that is
Enterprise value is just over four hundred million dollars, four hundred and eight million dollars.
D S T takes that all in stock.
Deliver the third of the company.
So
Big chunky bet.
Valuing

about fifty percent of enterprise value beforehand for the company, right? So that's a big bet.
As a multiple of cash flow that's
Around ten times trailing EBITDA.
And about seven and a half times the
projected EBITDA for next year, but that's before Synergies.
Which even after Kansas City are gigantic here, if you sort of factor those in.
multiple page is sort of six, six and a half times EBTA, just to sort of frame all that.
Can you talk a little bit about the integration process, how that went?
That went.
Shockingly smoothly.
We had a couple months.
before close to line that up. And this is a big deal. We hired some
advisors and experts in Maine.
And they helped us with the merger integration process and how to manage that'cause we hadn't really done anything.
That's big before.
And
Probably the most important
element of that.
Integration being successful was
getting aligned with their CEO.
Shakwam.
So Chuck.
came with the company, he had led the company, and he was gonna come in and partner with Brett and I as really a trunk guy in terms of managing the business.
And he was all in.
And once his management team saw
That's
He was in
We were aligned.
Everything else fell into place. It made all the other decisions easier. And we knew
how we were gonna integrate these two companies. It was gonna happen day one. So the day the deal closed, we had the org chart set out, we brought in every manager one on one, right? And Chuck and I spoke to each of the individually, you're in this slot, you're in this slot, you're in this lot. A few people didn't have slots and those were tougher conversations.
But
We made them.
And so we got the org structure done day one.
And it took a couple of weeks, but we got alignment on the approach we are gonna take.
Part of it was operational, which wasn't as important, but it was really a client management.
getting a line to that and
Basically the big win was taking their client base.
and converting it to our business model and
doing that sequentially and that
serve to generate
increasing amounts of EBITDA over the next few years.
Just a super roughly, I mean
This is inexact, but
If you looked at the value creation from that again.
Enterprise value paid was
four hundred million dollars roughly.
EBIT DA created from that.
probably two times that amount at minimum.
So
Really glad.
That deal happened that be fair to say, Kevin.
It was pretty seminal transaction for us. Now, we would have loved to have been able to purchase a company for two hundred million a few years earlier and gotten these synergy sooner, but
It was a huge win for
Certainly the shareholders.
company and I think for customers and the carers because we became a stronger partner.
to the carriers and we're able to offer more services over time.
All right, so let's shift to capital allocation.
in TA period here.
You look at the data.
For the first
four five years after
Jeff and TA make the investment.
Leverage is
Pretty
Negligible.
pretty low across that period of time.
Is that fair to say?
It is fair to say, yeah.
And business is just generating so much cash, it's able to fund its growth.
that you guys were just focused elsewhere. So the first thing that happens
after a long period of time is there's a dividend recap transaction in
Kind of the middle of oh six.
Almost exactly five years into TA's ownership.
It's big.
Seven hundred and fifty million dollar dividend recap.
NAS entirely with debt. It takes leverage overnight to
Just over four times E to TA, four point one.
Times.
Do you remember all that?
There's our first large
transactions and TA and
In the preceding three or four years, our focus was so much on
Just holding on scaling, managing this business, that not a lot of time and attention had been.
Put on optimizing the balance sheet.
Cause along the way.
With the benefit of hindsight, we should have been doing some short purchases.
That would have gotten people liquidity.
And
Those transactions are highly accretive.
to remaining shareholders. I think
Two reasons. One we're really focused.
on the core business and it was
Growing really fast. But two.
And nobody wanted to sell.
It's not like there was a desire of shareholders in this time frame to sell because everybody saw what was going on. So they're excited to be part of it.
And then even more so when we close the lock line transaction earlier that year in two thousand six. And then so all right, we fast forward we get through that. Still nobody wants to sell shares, but to recognize that like we've got plenty of capacity.
on the balance sheet here to lever up.
get some returns to shareholders. And that's when we did pretty big
Dividend.
I think it was a little over a third of our enterprise value at the time. And
Basically ended up dividing seven hundred fifty million out to our shareholders.
on the share purchase front, there's one other
event was kind of midway through October oh four, you guys bought in about twenty five million dollars worth of stock, which was about six percent of shares outstanding, right? So
That first one in ninety nine that we talked about was about ten percent, but this was another six percent.
returns on that piece have been
Also pretty extraordinary.
A seventy times multiple of investing capital.
and a fifty six percent IRR over seventeen years.
That was definitely worth doing.
That's the
thumbnail summary on
Capital allocation in the TA period.
And the next event is O seven.
The equity recap. Can you talk a little bit about the timing for that?
how you guys thought about that point in time.
There were two things happening. There are two reasons we ended up doing the transaction.
The market.
Was incredibly frosting.
And this is leading up to the financial crisis.
Our timing couldn't have been
Better honestly.
Not that people want I mean T T A was
Six years in.
to their transaction. So it was
From their perspective.
All right, we've been in.
This has been a nice ride for us. Let us take our chips off the table. So there's some like interest level there.
And then you combine that with the market being incredibly strong at the time.
It was a topic of discussion, but really drove it from my
perspective.
It gave us an opportunity to
Yeah.
D S T liquidity.
And that's a euphemism for get them off the cap table.
Like the marriage didn't work.
As I said, we create a lot of value with the merger of Ashurian and Lockline, but
The board dynamics were challenging.
I didn't get along with their two board members.
There was constant friction there. Other board members didn't get along with them and
I just knew this is gonna be better longer term if we got them liquidity and got them the chance to
Move them off the board.
It was really those factors coming together where we decided we're gonna run a process here. Oh, we ran a process.
I remember going through it.
This is how frothy times were. We were interviewing private equity firms.
So we would go out and see if we'd even let them into the process.
Yeah, it's certainly a heady time.
We were walking into conference rooms and
The first thing that
Some of these
partners would say to us like just name your price.
I'll pay whatever. And certainly that felt great.
Felt validating.
The process ended with us.
Picking one party.
To negotiate with.
One winner if you else.
highest price. We wanted to negotiate some of the terms.
Then once we finish negotiating the terms with that private equity firm.
We told them.
Like
You've got lead and we're gonna give you this much allocation.
But I'm gonna take
The same deal.
And give it to the other two.
finalists and give them the option to join.
The party.
And here's why.
We don't want
One
Private equity firm.
controlling.
our direction.
It was important to us that we had a group of people around the table.
Who were ultimately looking out for the best interest of the company long term and not necessarily one particular fund. So we ended up
negotiating originally with
Madison Derboy, we brought Welsh Carson and Providence Equity into the deal.
All the time.
Interestingly, Erv was in the background saying
This is a really frothy market.
I would encourage you.
to work as fast as you can.
catch through this process. And
The words couldn't have been more pressured because
Our debt deal that
Went along with the equity.
was the second to last deal.
in early July two thousand seven that closed.
And then I think one deal the next day closed, dead deal, and then
The window shut for
quarters and quarters. I don't even know. It was certainly over a year while the window was shut and we managed to get that transaction done. And that turned out to be a pretty seminal transaction for us for a number of reasons.
It's really impossible to overstate how rare.
that cap table is.
If you sort of
Look at the final.
ownership.
post transaction
Original.
investors and management team continue to own forty percent of the company.
Madison Dearborn owns twenty two percent.
Providence Equity owns twenty two percent, Welsh Carson owns eleven percent.
So the private equity
group, collectively, club, so to speak, is fifty five percent.
control but just barely in
D S T continued on six percent. So
Those sorts of transactions, those club transactions are very common in venture capital. They're very uncommon in private equity. So definitely a mark of the times.

information together. So the total enterprise value for that O seven transaction was four point one
billion dollars.
Three point four billion
Equity value.
And TA exited their position entirely. So for TA that gave them
When even twelve X.
return on their original sixty million dollar investment or
Just over forty nine percent IRR.
A lot of the original search fund investors ended up exiting in oh seven.
Not all of them.
But a healthy chunk of them did. And if you look at their
IRR math.
from the nineteen ninety five original transaction through O seven.
That's a four hundred and sixty eight X.
Outcome.
And it
Seventy two percent actually slightly better.
I R R so
reasonably good outcome and
If you look at the TA period and you just look at the operating math.
It's kind of interesting.
Where
revenues go from just over a hundred and ten million dollars when they join
To
Just over one point two billion dollars. So it's a ten X
Growth.
in revenue.
And
The Eva TA goes from thirty.
To
Just over three hundred.
So again, ten X growth in EBTA, ten X growth in revenue. So
That's a pretty good six year period of time.
We certainly had a good run during that period. That's sure.
That was a pretty good run.
Thank you, Kevin, for your time and what an incredible story. Thanks so much for sharing.

As I mentioned before, there have been two constants at Asurian over the last twenty eight years.
Co founder, CEO, Chairman Kevin Tweel.
Whom we met last time and Irv grows back.
A lead board member and investor since the original acquisition.
Burves had two distinct careers.
First he was the co founder with his partner Amos Hostetter of Continental Cable Vision.
A pioneering cable television company.
Or was the president of Continental from nineteen sixty four to nineteen eighty.
and remained a director, serving as chairman for a time after that.
And so just to
Take a minute on Continental.
Basically everyone in the cable television business in the nineteen sixties, seventies, and eighties did well.
However, there are two records that stand out.
One public and one private.
The public one belonged to John Malone at a company called T CI.
The other one was lasser known and belonged to Irv and his partner Amos at Continental.
The company had a reputation as the best run in the industry.
And it also had phenomenal returns.
Company, as I mentioned, was founded in nineteen sixty-four, and its IRR over the ensuing thirty-five years was over thirty percent.
with total multiples of invested capital to shareholders who held their stock of over five thousand X.
So again
Not too bad.
By the way, when Irv and I first spoke about this podcast
I told him about fifty X and he jokingly mentioned that the title was kind of wimpy.
After all, he had been involved with two companies.
That are around a hundred times fifty X.
So again, that's uh
pretty reasonable background for this podcast.
Anyway, following Continental, Irv became a professor.
First at the Harvard Business School and since nineteen eighty six at the Stanford Business School.
Where he has been one of the most acclaimed teachers for over thirty years.
is the co founder of the Center for Entrepreneurial Studies.
Which now accounts for almost half.
of the courses in the second year curriculum at Stanford.
On a personal note, Irv has been a key advisor to me.
For the last thirty plus years.
I would describe him as my personal board of directors, which is a very elite group, as Irv is the only member.
And it meets once a year at his house, typically in New Hampshire.
And I can say that on several occasions, that advice has been pivotal for me in my career decisions.
It's also worth noting in an early echo of this podcast that Kevin Tweel and I audited Irv's classes at Stanford in nineteen ninety two due to low lottery numbers, which prevented us from gaining normal entry.
All right.
So Irv.
Thanks very much for joining us.
And let's dive in.
Well, thank you for those kind words, some of which are deserved and almost all of which are accurate.
And I just want to point out that the continental returns don't hold a candle to the Asurian returns.
It's a pretty rarefied zip code.
If you don't mind her of Let's Jar.
With a little bit of your background from the early days before you became a professor.
Maybe starting with how you and Amos found your way into cable television after your initial search.
So
We were
Friends and fraternity brothers from Amherst College.
And
I graduated from HBS in nineteen sixty and he graduated in nineteen sixty one.
He's two and a half years younger than I.
We were conducting separate searches.
For a company to start or buy
And just comparing notes with each other. He was working then for
An individual investor.
In Boston and I was a case writer at Harvard Business School. This is during the period
Nineteen sixty two to nineteen sixty four.
And
The investor for whom he worked
had made a
modest investment in the cable television system in Keene, New Hampshire.
It's true that
Connection that
We first or I first heard about cable.
But
Just prior to that, we decided to start working together
As partners rather than just comparing notes as friends.
It was the most
Ridiculous actually in retrospect.
Search with
No framework at all despite our
education and alleged intelligence.
We looked at
Plastic inflatable toys we looked at
Indoor tennis centers, we looked at residential fuel oil.
It was just
What could we find that might be interesting?
Then when he
Heard about
Cable television.
It turned out that there was a company called Spencer Kennedy Laboratories, which was about a mile
From Harvard Business School.
And they made electronics.
Or the then nascent cable.
Industry.
It was hardly an industry. There were just pockets of activity.
Yeah.
The terrain was mountainous.
in places like Pennsylvania and Oregon
And a fellow named Bob Brooks, who was uh
Vice President of Spencer Kennedy Labs kind of took us under his wing, partly because he was a nice person and partly, I suspect, because he thought if
Or crazy idea of starting a company ever materialized, maybe he could sell us some electronics equipment amplifiers.
Specifically.
So he helped us understand the industry. He told us a few states to look at, which included North and South Carolina.
And Ohio where we eventually ended up
And some other states.
And we
Took two
Doing an analysis of the propagation of
television stations.
And
Population pockets.
So
We'd get a map and take a protractor and we'd apply
A circle on that map as to what the A coverage and the B coverage of the television broadcast stations was and we would look for places where
There were
Opportunities.
And we eliminated North and South Carolina.
So finally
Namis and I decided that I would go to Ohio.
And we would
split the cost, which was important to me since I had no money.
And
I would
Make a little foreign out to Ohio.
Yeah, and there was some
cities we had targeted out there to take a look at and really see what the lay of the land was.
While we're on that, Merv, do you mind just telling the story of Tifton?
And those first systems and how they arose from that.
I went to some promising
Cities that we had uncovered.
One of them was Mansfield, Ohio, and in my infinite
Wisdom or lack thereof
I decided no, there's an awful lot of what we called free signal, meaning available broadcast signal off air.
Uh no, I don't think so. Well, of course, since then someone else came in and built a wildly successful system in Mansfield, Ohio, so that's
Boat number one we missed.
Then I drove to Lima, Ohio, where there was a cable system under construction.
And then I went to Finley, Ohio.
Lima Finley, Tiffin and Flostoria, where we ended up
We're all in northwestern Ohio, south of Toledo.
Near the Indiana border.
So Finley
had a franchise process that had already been started. A franchise means just a local ordinance that
gives you the right to cross the a general easement over the right of way to hang your cables and electronics.
They hadn't granted anybody one there yet, but there was one in process.
So then I went up the road to Tiffin and Fostoria, Ohio.
Which were
in the range of twelve miles apart.
Maybe fourteen and
Together they aggregated a population of forty thousand
So we started
The franchise process in Tiffany and Fostoria by
hiring local lawyers and
Making her case that
We
Had half an idea what we would do.
Which was not true either, but
We had an idea, but
We were a little lacking in the execution department.
What?
I think come back to Continental at different points along the way here, but maybe let's talk a little bit about
Kevin and Jim Ellis and
how you came across them as case writers and
How they came together is
Partners.
So I was interviewing in
I think it was the spring or
Maybe the winter
Oh
Nineteen ninety two, the year that
You graduated as well, Will?
I was interviewing
People who had applied for casewriter and some of them
Had been in my class.
But as you mentioned earlier.
Kevin had not been in my class, but
He showed up and said, I want this job.
And my recollection, which could be
retrofitting history, but
He said, I want this job because I need this job, and I don't have another job.
And I think I'd be good at it.
And I think I might want to be an entrepreneur.
Something along that line.
So fortuitously
I hired him and he became a casewriter from nineteen ninety two to nineteen ninety three.
Then Jim Ellis, as you mentioned.
Took that role.
He graduated in nineteen ninety three and took that role from nineteen ninety three to nineteen ninety four.
And of course I don't know when they first met each other or how they became acquainted, but
By the time
Jim had taken over and was part way through his one year term.
He and Kevin were well acquainted.
And do you remember the story of how they found road rescue?
I do.
I'm not the one to tell it, but I'll tell you my recollections.
Or the
Like Amos and me
They were coordinating their efforts, but separately looking for something to buy and
They had studied
The
towing industry.
So
Kevin.
Wasn't as enthusiastic about
toing business and towing related businesses.
As Jim was, Jim persevered.
And Kevin.
showed up one day and said, I found a business I think I might want to buy.
It's a physician practice.
In Miami, Florida
And it serves the Hispanic community and the doctor who's willing to sell it to me for a reasonable price.
is Hispanic himself, so
Everything's conducted in Spanish.
Then sometime later
Kevin came back and said, Well, wait.
I don't know that I wanna do that. He said I talked to one of my prospective investors, Bill Egan, and his first question was Do you speak Spanish?
What I had to confess that I didn't speak Spanish, Bill said you might have a pretty uphill fight.
Figuring out how to buy and operate that company.
And he said that turned the tide with me.
Um
Maybe there were other steps that intervened, but
Then he and Jim
Reunited.
And
Mr. Rescue as I understand it.
was an offshoot of
Learning about the towing industry.
That opportunity came up.
In connection with their examination of tolling.
At that time.
It was an offshoot that was growing very rapidly.
Typical search deals as I recall it at those very early days were generally targeting more stable businesses.
Right.
businesses that could quote unquote go once more around the track.
Exactly.
Yeah, and Rodescu obviously was a completely different
Kettle of fish.
I remember my question to Kevin was
But wait.
Most people belong to Triple A and then when you buy a new car if you do
You get free roadside assistance
Why are they gonna pay you for that?
And he and Jim had a list of reasons why that was gonna happen.
Which included better service
Broader service offerings
So forth.
In any event, I was not part of their
Search fund either of their search funds which
They then combined.
I was not an investor.
They just were talking to me from time to time about what was going on.
Can you talk a little bit about how you
Came to
Invest.
My recollection is
They pursued
The
Acquisition of capital to buy Mr Rescue.
And
They came back and said
We're three hundred thousand dollars short.
Would you want to put in three hundred thousand dollars?
I said, you know, really that's not good for me. It doesn't really work.
And they said, Well it wouldn't work.
And
Their capital structure, as you well know, was half debt and half equity.
And
I said well
If that three hundred thousand dollars would be divided one fifty and one fifty, I said
I'd really like to get
five hundred of equity
But that doesn't sound like that works, so
I'll help you find the other three hundred.
They came back.
A while later and they said
We've decided there's room for you to
Put in.
The amount that you specified.
And will you join the board?
And I said, Sure, I'd be glad to, and that sounds fine to me, even though I was extremely skeptical of the whole business.

I thought these two people were triple A people, and that's really what I was investing in, but I thought their idea was
close to crazy.
That they were going to provide
services to wireless
industry customers that nobody knew much about at that time.
And they were gonna provide the same service for a fee that was being offered for nothing, I thought, boy
These guys are gonna have to
Wave a magic wand to do anything, but
I'll put my auntie into the middle of the table and see what happens.
Is Kevin and Jim
Describe it the minute
That
They knew you were on the board.
all the other church investors were very comfortable carving their investment back to accommodate
you at that level and one of those investors
Was
A guy named Paul Ferry.
He's the founder of a very
Well known and respect the adventurer.
Capital partnership matrix partners.
who was I believe a longtime friend of yours, or do you mind telling the story of his investment in that company in Road Rescue?
Yes, Paul and I were longtime friends. We were neighbors
Lived about a mile apart in Weston.
We had gotten to know each other
I was not an investor with him, but
We were good friends and we talked a lot and
I had a lot of high regard for him.
And so
This sounds a little
So
Promotional but
My understanding of the story is that
Kevin and Jim sent him a FedEx package full of
Their PPM.
And
Arranged a meeting with him and went to Boston to meet with him.
I don't know if this is true or not, but
They got there and there was the package.
And opened on his desk.
They thought, Oh no, this is terrible. This is just gonna be a courtesy meeting.
And Paul said
Well, okay.
Give me your story and they gave him the story and then he said who do you have for investors?
They gave him the list of investors which at that point included me, and then he said
Well is Grossbeck gonna be on the board? And they said yes, and he said, I'm in.
Yeah.
That's what I heard. I don't know if that's apocryphal or true.
That is verbado in Kevin and Jim's version too. And
Paul once told me that a Surian
Was
Maybe the best
return the best investment he'd ever made, partly because of the returns and partly because
You had been involved and he'd never had to go to a board meeting.
Which of course he liked her much.

I mean anybody involved with a Shurian has never touched
their returns and any other thing they did, I'm fulfilled. So
We're all in the same fortunate boat.
Exactly.
So
Can I imagine by the company and
Can you talk a little bit about that board coming together?
So you were
front and center in that, obviously. And the search doesn't use this term, but effectively
the chairman, at least in Kevin and Jim's mind, and I think other investors
But Bill Egan, Bob Oster.
Joel Peterson and David Dodson were the other
So can you talk a little bit about that group and what made it?
An effective board.
Well, first of all
The size
I love smaller boards.
Or small growing companies.
Why populate it with eight or ten people when you can have five or
So plus the principals and
It just is so much easier to manage and schedule and have discussions and
Have impromptu
Conversations as needed and
Get things done.
And then secondly, when you look at those four individuals
They were all
Experienced in some respect.
David Dodson was the youngest.
But
He had
Bought a company.
And operated successfully.
It produced good returns and he had learned a lot about
On the ground operation.
Of a company that
Was in the alarm business.
In Texas.
So he had operating skills.
Obviously Joel Peterson is a highly accomplished person, as is Bill Egan.
Bob Oster had
A lot of experience as well.
Operating companies I think he
was just beginning his record of investing in smaller enterprises, but
He w had a very practical turn of mind and was a no nonsense person and
Said what he thought and
Often it made a lot of sense.
But they were people who
Really cared about trying to help
Kevin and Jim
Build a good company.
They weren't all about themselves and their backgrounds and oh I've seen this before and there was no conversation like that.
There was all
People just trying to pitch in and help.
Pretty early on.
The company had an opportunity
to sell itself.
It what would then have been a big multiple of capital, sort of a double digit multiple of the equity invested.
To a company that no longer exists called CUC.
What was the
Discussion like at the
board level and sort of sorting through the decision whether or not to pursue that.
I
Have a general recollection that
Are there were different points of view based on the backgrounds of
The individuals.
We all tend to speak from where we've been to some degree, but
I mean, I think part of the art of advice is uh trying to get outside that frame of reference and
listen and think about things and be helpful to people irrespective of where you've been.
I don't mean to pontificate, but I do think that's helpful to people.
But I didn't do that. I spoke from where I'd been and Joel Peterson
was an advocate for where he'd been
See, he's a world class person with a unbelievably successful track record.
In a transactional business, which was real estate.
His position
As I remember it was wow.
Somebody's offering you
Was it seventy five or a hundred million dollars?
You're really just
kinda getting started and somebody thinks you've got something here.
Sell.
Take your profits. You'll have investors for life.
The world will be your oyster, you'll be investable as entrepreneurs.
You'll have plenty of other opportunities.
And my point of view was
different which was I wasn't saying you
Shouldn't so I was saying
But
The way I would make the decision is
to think about what the runway was for you you and the business ahead.
And what the risks were of that path.
and make a conscious decision as to whether you wanna stay on that runway and path
Yeah.
The foreseeable future.
Or not.
And if you see the opportunity
There's tremendous
Advantage.
than accrual of value.
And
If you see your way clear.
It's not gonna be that easy to find
Another venture and you'll pay tax and have less to invest and so forth. So
I guess I was subtly in favor of
But not
strongly in favor. I was just in favor of analysing the situation and not just taking a price that
would have been an amazing return, although over a very short period of time.
As Kevin and Jim described it, that was a very healthy conversation and ultimately, of course, that
perspective prevailed and
Shortly thereafter
The
Came an opportunity.
To buy
Merrimack.
Which really
have the potential to transform the business.
Beyond just roadside assistance.
But again, that was
As I understand it, something that was
not unanimously supported at the board level.
Do you remember?
That transaction and
How that all unfolded.
My recollection
Is that
They had already built insurance into
They're offering to customers
They simply
contract for that insurance with an existing company.
And they felt that
The premiums being paid were
higher than necessary
For the rest that was being taken.
So then they had a chance to
require what would become a captive insurance company.
And I remember some board members saying
That's a bad idea because
you'll be valued like an insurance company if you own an insurance company and
That's a totally different valuation metric than you're hoping for.
But I think the perception of Kevin and Jim certainly
That some of us supported was that
We're not turning ourselves into an insurance company.
We need an insurer.
And it would be better not to have to pay the stepped up value to an outside insurer if we have an opportunity to attractively
Acquire
A small size company.
And the company of course did that.
That was a launch pad moment.
If you go back and look at the old board decks, which
With this.
Podcast I've done.
You see in those early days before TA got involved, sort of in the pure search period, you see this very consistent pattern of the company hitting.
Revenue and sub count targets.
Which are very aggressive.
but generally falling short, some years actually quite a bit short of EB DA targets. E but DA, of course, growing very nicely.
but not necessarily on budget. And talking to Kevin and Jim seems like that was a reflection of how they were allocating their time.
Even with some of this operational messiness, Kevin and Jim were miles ahead of the original forecast.
they had used to raise the capital.
In their original base case, Kevin and Jim expected revenue to grow from eight and a half million dollars when they bought the company in nineteen ninety five.
To fifteen million dollars in two thousand
A compound annual growth rate of twelve percent.
In reality.
Revenue grew from eight and a half million to fifty two million dollars.
a compound growth rate of forty three percent.
And Eva TA grew from one point two million
over twenty five million.
a compound growth rate of over eighty four percent.
At this point, Kevin and Jim wanna take some chips off the table and end up selling
twenty eight and a half percent of the business to TA associates.
What do you remember from that transaction and how it evolved?
Jeff Chambers, I had known before that.
He was the lead person for TA.
I don't believe there was any kind of
major price negotiation, I think that
There had been a price established and
Maybe agreed to, but
Some
Additional conditions were
requested on the part of TA
And
I think over time
as they were resisted by management, TA came around and decided to
invest on the same terms as the rest of the equity instead of having some preferential terms.
Jeff joined the board, of course, and was invaluable over the next few years.
That's exactly right. And
I believe
That

No preferred security.
No special governance rights.
Yeah.
Was
highly unusual for TA at the time.
quite clear of attributed to your involvement, I will say with both Kevin and Jen.
But a very good outcome for the existing shareholders, for sure.
At Continental, we had had an original involvement with TA many years prior to that, but
Obviously not with Jeff Chambers.
So maybe some of that was in the deep background, but
I don't remember specific conversations in which I was involved.
at all so
I can't imagine that
I was anything other than a validator for the company.
Maybe this is a good time to talk a little bit about the building of the team.
Uh a Surian.
Right around the time of the T A transaction, do you mind?
Talking a little bit about that.
It had become clear that with Jim Ellis' departure
couple years earlier.
In the late nineties, I think.
It became clear that
the rate that they're growing at.
They were really thin at the top level despite
Kevin's enormous talents and
his energy level and his good judgment.
They needed more
Help.
At the top. And
Part of that was operational, but part of that was also recruiting.
So it seemed to me there were
Two
significant shortfalls
Both arising from a lack of top management breadth.
You know, it's sort of a unique thing as you look
Back on it.
You know, for
Kevin.
Being able to
transition between
partnerships that
The highest level.
relatively seamlessly and effectively. So obviously starting with Jim
the original partner, co founder, and then
Evolving.
pretty quickly to a similar relationship with Brett.
Is that a fair assessment?
Yeah, and
It's continued on
Yeah.
Current years as well.
Kevin's amazingly
Skillful.
Along many dimensions, but certainly one of them is
He's the best kind of conflict avoider.
He knows where he wants the company to go.
But it's
This is my view from outside is that he's very graceful.
In his assertions.
and very respectful of other people he's working with and
There's no top down sense.
Although
It's clear that
Kevin's in charge and
Has the tiller firmly in his hand and is directing the direction of the company.
It's all done in a very elegant
fashion and
That's really stood him in
Wonderful stead and it's a quality that
A lot of people don't have.
Or as you sort of look at Asurian and you compare it to other companies you've been involved with.
From uh
Culture.
management
talent attraction, talent building perspective, how would you compare a Surian to
other companies more generally.
What dimensions
Does it stand out on in your mind?
Well, they see one of the hardest jobs of
Great managers is
Two
Terminate.
Ahead of the curve.
It's hard enough to hire ahead of the curve.
But it's really hard to terminate ahead of the curve.
In terms of
The managers they hired
They were unafraid to say they had made a mistake.
That's a very subtle point.
And it's not talked about
In management literature to any
degree that I've seen not that I'm a comprehensive reader of management literature because I'm not.
People just don't talk about it and
The reason is obvious, which is it's unpleasant.
Who wants to talk about letting somebody else go?
But
It's so essential.
The biggest thing that stands out at me is the absence of dead wood at Assuran versus other companies where
Managers are inclined to be kinder to people in the sense and
Reposition them elsewhere and
I mean that's how fat builds up in companies and
Walking the line between
being careful about this and being ruthless
Is not that easy.
But they found a way to not be ruthless.
But to
really make performance oriented decisions coach where they could.
But then not spend time working on what they consider to be lost causes and
That's probably the single biggest difference I see.
In their management style.
Do you mind talking a little bit about Brett as a member of the team and CEO and
His sort of role in building the company?
Yeah, I don't have a real inside look as to how he and Kevin divided things up and how they work together. I know that the
chemistry and mutual respect.
Between um
Is very deep.
It remains
To the present day, despite
Changing roles.
They're both
Really smart.
They work hard, they're honest.
They have low egos.
And
They have different skills to some degree, I think.
Kevin is a little bit broader brush.
And
Bread is
Perhaps just a little bit more detail oriented, which
Doesn't suggest at all that he doesn't have
An enormous intellect because Brett does have an enormous intellect.
It has nothing to do with intellectual capability.
It has to do with
orientation and how you think about things and
How much of your time you spend on broad gauge?
Issues, strategic issues.
financing issues as opposed to
How do you make the trains run on time? And Brad had a special talent for
Attracting people
Who could get the trains to run on time.
I might
Skip for a minute.
to capital allocation.

about the company's share repurchases.
And
I think
your fingerprints may be on this, but one of the interesting things about the early days of the company is that it
made two share repurchases early on.
The first in nineteen ninety nine, so before TA got involved when it bought in
Ten percent.
of total shares outstanding.
You know, leveraged, financed.
Buy back.
And then secondly, once TA was on board, they did it.
Second buyback.
In two thousand and four.
of a little over six percent.
The returns from those
two buybacks, by the way, are just extraordinary. I mean the the first one is
Forty one percent.
over twenty plus years.
And second one is over fifty percent.
over you know, almost twenty years.
But can you talk a little bit about
Repurchasing shares in private companies, which is something that
You guys did it continental over the years and
It's pretty unusual, but
something that has been part of the Surian's playbook from early on.
Yeah, we did it at Continental because
Both Amos and I thought it was
A good place to invest.
We had some free capital that was generated from time to time.
And
We thought
Well, we wanna for sure invest it in
The land grab to use your phrase earlier in a different context because the cable business was indeed a land grab for a long period of time.
But we also want to invest it in our own company.
And
It served two purposes. One
to allow us to put capital to work and the other to offer liquidity to people who wanted it.
And it was of course optional. People could
Take us up on the opportunity or not, and we tried to price it
As fairly as we possibly could.
At Continental, well.
That
point of view I'm sure bled over into my conversations with Kevin because
I think it's attractive and
By the way, back at Cottonell for one second.
One of our
major institutional investors
was unalterably opposed
To having us repurchase shares.
And we had a
Terrible time.
Convincing that person that it was a good use of capital
No, you should be expanding, look at all the opportunity and
So forth. So
One of those investors wasn't
Thrilled with what we did.
But even then being two thousand
One and thereafter.
Seem to be a very attractive use of
Any free capital you could scrape up.
Because
Who wouldn't want to invest in a Surian at that time, at least that was my point of view.
It with
All of the opportunity that lay ahead.
for them and the quality of their management and it just seemed like they were in a real sweet spot.
Would you mind Irv talking a little bit about
The lock line.
Deal and
How that came about and
That one you were very specifically involved in, as Kevin tells the story with Dick Floor.
Would you mind talking a little bit about that?
Kevin and Brett were talking about
Block line and then nothing happened and then it would come up a year or so later and nothing happened and it seemed to me it was a few years that
They had wanted to acquire Loch Line and
Had been unable to and then
What I remember is that they came to a board meeting
And whenever it was and
They said.
We just can't connect with this guy. He's impossible.
We haven't been able to
Do any good at all?
So I think I remember going to Kevin after the board meeting
And saying, Do you want me to take a crack at this guy?
Whom I didn't know. He lived in Kansas City, was running a small to medium sized public company.
Of which lock line was a part.
Kevin said, Well, sure, go ahead. And I said, Well, if I'm gonna do that, I'm gonna drag my friend Dick Floor, who's
Just
An unbelievable individual.
I want to go out there with him.
Because
One of my great talents is
Getting out of the way of smart people.
And I knew that if I were out there with Dick Floor that I wouldn't have to talk too much.
Would you mind doing it?
Just a quick summary on Dick Floor.
Dick floor.
And Bill Egan.
Uh
Both alums of the same
College?
Dick Floor went to Harvard Law School.
He was a partner of Sullivan and Worcester in Boston.
And
He had one of the best minds of anybody I've ever come across. He was absolutely
Brilliant.
Yet he was
The most
Pleasant self effacing.
Practical
Easy going person.
In the world.
So Dick and I went out to
Kansas City and we made an appointment with the
Fellow who was head of the parent company of Lock Lane.
And
Dick proceeded to charm
This person absolutely charm him.
It turns out
The person who was the CEO was a Horton graduate.
Dick knew a bunch of people from Wharton
Yeah.
found ways to establish connections with him and
He started out grumpy and ended up smiling, and I think that might have been the first time he'd smiled in quite some time.
And that began a
Process.
Which resulted a few months later in
this person agreeing to
A deal in principle
Not
Fully signed, but a to a term sheet, as I recall.
Which was attractive.
Or a sharing and
I had sort of picked up the ball from that first meeting.
And started working with the guy along with Dick and
We were
trying to work on general terms and I would check with Kevin and then I would talk to this guy.
I remember in my infinite wisdom
Saying to Kevin before they closed, Are you sure you want to be in business with this guy?
He was a dangerous cocktail.
Of smart and nasty.
To my eye.
Not overtly nasty, but just
Sharp.
Smart as a whip though, and
Just not
The kind of director they had and
He and his CFO were gonna join Ashurian as board members and
He said, Kevin, you should obviously do what you want to do.
I'm just wondering
These people are really tough apples, said
Kevin said, I know, we'll just have to live with them and of course that was a great decision.
I'm not sure what decision I would have made, but I did have reservations having dealt with a guy
over a period of a few months, as I remember.
It's funny as you mentioned that or Kevin tells a story about how late in the negotiations there
That CEO came back and said
We need
our team to be able to stay in Kansas City.
I mean at the very eleventhour.
Which of course directly affected some of the
economies and so forth that we were going to get by combining the
Do you remember that piece of it?
I remember last minute demands that
I didn't remember what they were.
I do remember one
Fun story.
About them.
Which is the first board meeting.
that they came to at a Shurian.
I try to be early to meetings, but it seems to me
This meeting
I was
Maybe barely on time or a minute or two late or something.
And here were all the
Legacy
Rashurian board members sitting on one side and both ends of a table.
Big oval table.
And here were these two guys over on
The side by themselves.
kinda getting settled in their chairs and I walked in and
I thought ooh this is really awkward.
So I asked them if I could sit between them.
I did and
I just felt that
There was a chill to begin with in the very first board meeting, which we really didn't want.
And
I don't mean that in in a self laudatory way, but
I have a distinct recollection that I sat between them at the first board meeting.
Broke the ice a little bit.
Yeah.
Yeah.
Interesting.
That transaction
was large.
The total consideration was about fifty percent.
Of
company's enterprise value beforehand. Fortunately it was
Wildly accretive.
being able to combine those two operations and
Really grow that business.
A four hundred and eight million dollar valuation paid is less than half.
The EBTA that Assurian now enjoys from that book of business.
So definitely worth doing.
And not
Too much.
After that
There was the two thousand seven transaction.
Which I think T A was driving. They wanted some liquidity. They'd been in it.
Six years or so.
Mid two thousand seven and
It's
the dawn of the private equity group sort of getting involved.
The timing was extraordinarily good. That was a bull time in the market. Kevin credits you for
being absolutely right about that timing and optimizing around it.
Do you remember
that transaction and how it unfolded.
Maybe specifically the piece that allowed
the company to end up.
Without a dominant single
private equity owner, which of course is unusual.
In a transaction like that.
I don't and
I appreciate Kevin's compliment, but I have no recollection of
Being market prescient.
He's very clear on that, by the way.
How can anybody be market present?
Well, what I remember about that is
Maybe not.
Oh
How many was it four?
Or five who came in?
Three major ones and maybe a fourth.
I remember
Them separately wanting to talk with me and Kevin
Saying
Will you meet with XYZ? Well sure, of course I'd be glad to when
They said, Well, what's going on in this company anyway? It's
Been private for a long time.
When's it gonna be public?
How are we gonna get out?
The valuations are pretty rich. We're buying from an informed seller.
I said I
Don't know. I think they have one way ahead. They've got great management.
They said, Are you selling? And I said, No, I'm not selling.
And that was
at the center of it, if I wasn't gonna be there, it wasn't because of me, it was because of the signal
But
Unloading a bunch of my stock would have sent.
Or maybe this is a good time to revisit the board topic, right? Because obviously after that transaction.
board changes pretty significantly the uh private equity owners
Mm.
front and center in that. Can you talk a little bit about
Board effectiveness.
since that time and maybe how you'd compare the
Very different board groups.
Well you referred
A couple of minutes ago to
the fact that there was no one dominant investor
However
My
Impression is that they do act as a group.
On occasion.
And
They're loosely referred to at Eshurian as the sponsors.
And
The
players in the sponsor group.
Do change over time.
But
I wouldn't say it's
Just
People with
a series of minority investments, there is a coordination among them.
They do confer
Fairly regularly.
I would say it kind of straddles the line between
Having sold control and not having sold control. I think there are times when
To my eye, they seem to exercise their collective power.
And other times when
They didn't.
They're all high quality
entities over the years and
Have all done well.
And I remember having a conversation with Kevin at the time
Just prior to the closing.
And said wow, you know, you're selling
Fifty five percent to this
Group of people
And
There have to be some changes and
Their agendas and yours won't always match.
He said, Yeah, I know, I understand. I think this is the right thing to do.
Now back to your original question, how have the board dynamics changed?
My perception since that time.
And the
Last.
Sixteen years or so.
Is that
There's kind of a leader of that group of people, that loose confederation of people.
It happens to be CPP now because they're the largest shareholder.
But
There's a presence there from people who all came in at the same time and
all were acquainted with each other and bought the same security at the same price.
So
It used to be
People sitting around the table with no control.
Just the control that management had by dint of its
Execution and all of the value it had created.
Since then I think there's a little bit more evidence of the respective agendas of the sponsors that is present in board conversations.
And if you
looked just at
Value creation.
Help.
to management.
on the part of the boards.
And you were gonna compare those
Two groups.
Sort of the initial group.
Which I would say would include Jeff Chambers.
And the post O seven group.
Again, with the lens of
who can be most helpful to management and building the company.
How would you compare those two?
So I'll try to do that, but I would say at the outset that
In a way it's an unfair comparison because management needed more help.
Before two thousand seven than they did after?
The main way in which the sponsors have been helpful.
Is
the context that they have as a group.
And the collective experience they bring as a result of
having invested in so many companies.
The contacts are
Unalloyed benefits, no question that
They know somebody somewhere
Almost whenever you need or wherever you need them.
The part about the
Advisory
I do see
Differing agendas at play from time to time.
There's an inherent conflict of interest between serving one's
own shareholders and serving the shareholders of the company on whose board you sit.
And I do see those conflicting agendas at play fairly often, and I see sometimes that decisions are made in favor of one's own agenda.
An example of that is
I heard a comment actually during a board meeting some years ago from one of those sponsors.
or institutional investors to the effect of
Gosh, we really don't want you to
branch over into that area, we have enough investment in that area. We think of you as an XYZ company.
And we want you to stay there and keep doing what you're doing. You're doing a great job.
I found that difficult.
I think that just
is the cost of doing business with them. There's nothing improper about it. There's nothing
Kidden or
nefarious in any way, they're quality people and smart and they're all successful.
But sometimes
The best interests of a Surian are not always served in those conversations.
Very interesting.
Okay, I'm gonna shift topics if that's okay.
Would you mind talking a little bit about
How you thought about managing your own investment?
in the company over time.
across the series of transactions.
It's the same advice I gave them when they were thinking of selling for seventy five million or whatever the number was in the beginning.
If you see a runway ahead,
And you feel okay about the risks?
Why not?
Stay and play.
And it was a concentration for me, but it was a
Tolerable concentration and
So inside.
Opportunistic by nature.
I thought there was a lot more bread to bake and
I was disinclined to be a seller despite the various opportunities. I admired Kevin tremendously and the job he's done has been
Of the charts, as you have said.
And I was
Thrilled to be
An investor in along for the ride.
And
Grateful that
I was lucky enough to be there.
Actually despite my own
Factlessness in the beginning.
I got lucky and they decided to allow me in under the tent and
Lucky me, so
Shut up and be a good person and
Try to contribute and
By the way, who wants to sell?
What am I gonna
Do with the capital, pay a big tax on it, and then figure out what to do with it next, then it probably won't be as good as a shurid.
Two more questions, Rv.
They're both a little bit wider ranging.
At a high level
Are there any lessons you'd pull out of
Kevin's experience running Ashuri and the Ashurian team were generally for
future CEOs
Aspiring CEOs.
Nothing compares to winning from the high road.
And that's what they've done.
They've
Stuck with very high
Ethical standards.
They hire smart people.
They make changes where necessary.
They treat their people generously.
They treat their customers with respect, and everybody that I've ever seen Kevin interact with.
He's treated with respect.
Another is
You can't overpay for good management.
There's no such thing.
You also can't overpay for a great acquisition.
Which
They worried a little bit about with lock line.
But
It had such a
growth trajectory and was so
A creative that
Who even remembers the price unless you're looking back at the records.
And I think that's true as well. You can't overpay for good management, you can't overpay for a great company.
I think a mistake that a lot of us
Make is
Oh boy.
That price
Price for that.
Whatever it is, that's just
Too much. I can't
Bring myself to
Spend that much money.
course the way to look at it is not
Today, but
It's tomorrow.
And
Tomorrow do I really know whether I spent fifteen percent more or not?
To buy something great?
So that's certainly
One of the takeaways.
Okay, my last question, I'm gonna return to a topic we hit earlier. So or if you've been involved in
Two companies that were
participating in exceptionally fast moving streams.
And continental in Australia and
How would you
at a high level compare those two companies.
Well the similarities
Uh
Both companies had borrowers personalities and weren't afraid
to use aggressive
Leverage.
Techniques.
Against a predictable background.
By leveraging up your
not taking nearly so much risk as you are with a more volatile underlying P and L.
That's certainly one.
Another similarity is
trying to attract and retain top talent. It took us a while to wake up to that.
We hired bottom talent for a while and paid dearly for it.
Because the mistakes we made in getting that company started are
Too numerous to mention. I mean the first key engineering person we hired
Was
Not satisfactory.
We turned on our first systems and we had to turn them off.
For three weeks.
Customers were supposedly paying
And we said, Whoops.
We have some more work to do on our system and we thought it was gonna be a few days. It was three weeks.
And that was all because the person we hired was a very bad choice.
We were
both in our late twenties, or I was thirty by yet then.
And
There was
Just
Bad judgment.
Should have known better, but didn't.
And one of the things that
Both companies did do in its later years is
Try to attract and retain top talent.
And be willing to
pay them in terms of both equity and
Current comp.
In ways that made it
Hard for them to leave.
Ways in which the companies are different is that Asurian is
Far larger
Twine thousand employees now.
We had
I don't know.
Very few thousand employees.
when the company was sold after thirty.
Thirty two years was sold in nineteen ninety six.
So
In a sense we were much more capital intensive.
That also is
something to watch out for if you're an MBA student, you're told, but there are times it's a good thing because it
served to the structure of the industry being capital intensive made it a
Unregulated
Monopoly in effect.
And if you could raise the capital, which we were able to do
You enjoyed some of the benefits of no competition.
I guess other
Things were weakarded our
Ability to make decisions
Very carefully.
That's why I was concerned about
The fifty five percent ownership.
I don't think that's
Affected Ashurian in a major way, but
At the fringes it has had an impact and
Amos and I together for the first sixteen years and then Amos alone for the last sixteen years running that company were able to run it the way
We wanted to run it.
Making the judgments that we wanted to make.
Within reason.
I mean we didn't have people with other agendas. We had people
questioning the decision making and the strategy which they should.
As board members.
But not with other agendas.
The iron filings were all closely aligned.
That's not currently true with a Surian, but
I mean insurance has so far exceeded
Continental's performance that
They must be doing an awful lot of things right.
All right, well, Erv, thank you so much for taking the time to do this. It's uh wonderful to see you and uh very fun conversation. Thanks very much.
Well, thank you very much for including me. I'm very flattered and
I'm thrilled that you're doing this. I know a lot of people will benefit