Subscribe: Apple Podcasts · Spotify · YouTube · Amazon Music · iHeartRadio · Pandora · RSS
Episode Summary
Your phone is ringing more than it used to. Private equity is fishing, the offers sound great, and the structure underneath them is where the trap lives. Bobby Kingsbury is back on the show, this time from the buyer’s chair. He runs MCM Capital, a $75M fund that’s been doing leverage recapitalizations in the lower middle market for 26 years. We got into where the money actually comes from (state pensions chasing returns they can’t hit anywhere else), why the highest bidder is rarely the right partner, and how the extra $5M up front can leave your rolled equity worth nothing when the bank ends up owning your company. We dug into the diligence process the way Bobby actually runs it: quality of earnings, add-backs, customer concentration that hides inside multiple locations of one parent buyer, rep and warranty insurance, the earnout structures that wreck operator behavior, and the controller seat almost every owner under-hires. Part 1 of a two-part series. Part 2 brings the operator side.
Watch on YouTube
## Top 10 Takeaways- Where a PE firm gets its money tells you how they’ll behave with yours. Follow the motivations up the chain.
- Underfunded state pensions chasing returns flood PE with capital, which inflates the offers showing up in your inbox.
- Always ask a buyer where they are in their fund cycle. Late-cycle pressure produces overpayment and bad partnership.
- The extra $5M up front is worthless if the deal’s leverage kills the equity you rolled forward.
- Run your own quality of earnings before they do theirs. It removes most of the retrading leverage at closing.
- Honest add-backs can double your enterprise value at the same multiple. Most owners leave them on the table.
- Twenty locations of one parent buyer is one customer. Concentration risk doesn’t care what names show up on your CRM.
- Take-or-pay contracts mitigate customer concentration. Long-term contracts and exclusivity alone do not.
- Tie earnouts to overall business goals with a clawback, not to revenue. Revenue earnouts produce bad margin behavior.
- The controller seat is the one almost every owner under-hires. Hire ahead, and you get it back at the multiple.
Sound Bites
“It would be like going online dating going on one date and then deciding to marry that person.” (@00:14:17) — Bobby Kingsbury
“Right now businesses are trading for ridiculous values that aren’t sustainable.” (@00:07:55) — Bobby Kingsbury
“If your customer catches a cold you’re going to catch the flu or pneumonia.” (@00:39:16) — Bobby Kingsbury
“It’s all about negotiation and people both realizing that it’s all about risk going forward.” (@00:42:48) — Ryan Tansom
“I would much rather invest in a good business with great people than a great business with good people every day of the week and twice on Sunday.” (@01:02:04) — Bobby Kingsbury
About This Episode
Bobby Kingsbury is a Managing Director at MCM Capital, a $75M private equity fund that has spent 26 years investing in niche manufacturers and value-added distributors in the lower middle market ($15-75M in revenue, $2-8M in EBITDA). MCM specializes in leverage recapitalizations, where the owner sells a majority but stays operational and rolls meaningful equity into the next chapter. Bobby returns for his second appearance to walk through how a real buyer evaluates a business: where PE money comes from, what red flags kill a deal, how deal structure quietly determines whether the seller wins or loses, and what the diligence process actually looks like from the buyer’s chair. Part 1 of a two-part series. Part 2 brings Mark Linder, CEO of one of MCM’s portfolio companies, to talk about life after the deal.
Resources Mentioned
- MCM Capital — Bobby’s firm. Focuses on niche manufacturing and value-added distribution in the lower middle market.
- Traction by Gino Wickman — The EOS (Entrepreneurial Operating System) framework Bobby’s portfolio companies run, referenced as core to Mark Linder’s growth at TGC.
- Predictive Index — Behavioral assessment tool MCM uses to evaluate whether people are in the right seat for a given role.
Connections
Phase + Module:
- Module 5 — Predictable Revenue — Customer concentration as a structural risk the buyer prices into the multiple
- Module 6 — Transferable Margins — Gross margin profile (35%+ niche, 25%+ value-added) as the buyer’s first filter
Milestones:
- Milestone 4 — Owner’s Value (DCF) — What the business is worth to you holding it
- Milestone 5 — Market Value — What a buyer like Bobby will actually pay, and why
- Milestone 6 — Transaction Value — Where deal structure (leverage, earnouts, escrow, rep & warranty) determines real net proceeds
Concepts referenced:
- Normalized EBITDA — The add-back conversation that turns $200K of reported EBITDA into $500K of real EBITDA
- The Multiple & WACC — How concentration risk and team gaps move the multiple before a dollar is negotiated
- Enterprise Value vs. Equity Value — Why leverage piled onto the deal can wreck the equity you rolled forward
- The Owner-Operator Trap™ — The buyer’s red flag when the owner is also the entire executive team