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Episode Summary
You built a services business. Real customers, real cash flow, a team that knows how to deliver. Every time you talk to a banker or a buyer, the multiple lands somewhere between 3x and 5x of EBITDA, and that’s the ceiling. Meanwhile, the software company across town with a fraction of your customer base trades on a multiple of revenue. That gap is what Corey Tollefson and his partners at ArcSpring built a firm around. Corey spent 25 years inside Retek, Oracle, and Infor running analog-to-digital transformations from the operator’s chair. Now he’s buying lower middle market services businesses (insurance brokers, debt settlement, last-mile logistics, flag football leagues) at services multiples and pivoting them into tech-enabled companies that exit at software multiples. We got into how he sources deals through his network, why owner-operators are rolling 25-30% of equity into the next chapter, how to find the hidden software asset sitting on your balance sheet that nobody priced, and why “digital transformation” has nothing to do with installing Oracle or SAP. Real case studies, real numbers, and an honest read on where most PE firms stop and where the real value creation starts.
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## Top 10 Takeaways- Your services business gets priced on EBITDA. The tech-enabled version of the same business gets priced on a multiple of revenue.
- The hidden software asset inside your operations is the part nobody priced when they ran your comps.
- Owner-operators can roll 25-30% of equity and still take real chips off the table today.
- Digital transformation is not installing Oracle or SAP. It is rewriting how your customer actually engages with your company.
- The further down the micro-vertical you go, the more likely you wrote your own software. That code is monetizable.
- The customer experience in most analog services businesses is so bad that a competent digital pivot is the growth strategy.
- Five years is more than enough to pivot an analog business if your operators actually know technology, not just spreadsheets.
- If you are reinvesting cash, you better know exactly how that capital turns into enterprise value before you write the check.
- Financial-engineering PE firms can spread your numbers. They cannot deliver the operational pivot that captures the multiple.
- Your 5% of unhappy customers used to be invisible. Now they are on social media torching your reputation in real time.
Sound Bites
“We don’t want to be a Thoma Bravo. We don’t want to be a Vista Equity Partners. We’re not buying software companies. We’re buying companies that should be software companies.” (@TBD) — Corey Tollefson
“We’re buying these for lower multiples off of EBITDA. And if we do this right, we’re going to be delivering transformation that allows us to sell at a multiple on revenue.” (@TBD) — Corey Tollefson
“As you pivot to the cloud, the relationship doesn’t end at the signature. The relationship begins at the signature.” (@TBD) — Corey Tollefson
“If you determine that you’re going to put a certain amount of money back into the business to reinvest, you better damn well know how that’s going to create value. Otherwise, don’t do it.” (@TBD) — Ryan Tansom
About This Episode
Corey Tollefson is co-founder and general partner of ArcSpring, an operator-led private equity firm based in Atlanta focused on transforming lower middle market services businesses into tech-enabled companies. Before ArcSpring, Corey spent 25+ years in enterprise software, including senior leadership at Retek, Group Vice President roles at Oracle inside the Oracle Retail business, and SVP and General Manager at Infor. He partnered with Duncan and Simon Angove and Jordan Lamb to build a firm that pairs traditional PE financial discipline with the technology and operating playbooks needed to pivot analog businesses into digital ones. The firm targets companies with $5-25M EBITDA in fragmented services markets where digital disruption has not yet arrived, and underwrites to a 3x base case with venture-style upside.
Resources Mentioned
- ArcSpring — Corey’s PE firm. — arcspring.com
- Intentional Growth Digital Course — Ryan and Pat Hobby’s course on building long-term value. — arcona.io
- Exponential Organizations by Salim Ismail and Peter Diamandis — Referenced for the idea of building a sister company to cannibalize the mothership.
- Honeywell — Referenced as a public example of an industrial business pivoting to recurring software-like revenue.
- Satori Capital / Sunny Vanderbeek — Referenced for an alternate PE model with no hold period.
Connections
Phase + Module:
- Module 2 — Expand Knowledge — Understanding the buyer universe, valuation drivers, and exit pathways
- Module 5 — Predictable Revenue — Pivoting revenue model from project to recurring as a value lever
Milestones:
- Milestone 5 — Market Value — How comparable transactions and buyer type set the multiple
- Milestone 6 — Transaction Value — Rollover equity, takeout structure, and second-bite economics
- Milestone 7 — Value Growth Plan — The bridge from today’s business model to a higher-multiple version
Concepts referenced:
- The Multiple & WACC — Why analog services trade at EBITDA multiples and tech-enabled businesses trade at revenue multiples
- Three Lenses of Value — DCF, market, and transaction view of the same business
- The Four Value Levers — Revenue model, margin, growth, and risk as the levers being pulled in an analog-to-digital pivot
- Enterprise Value vs. Equity Value — What the owner actually walks away with after a rollover
- Revenue Architecture — Recurring vs. transactional as the foundation of multiple expansion
- Value Gap — The space between today’s EBITDA multiple and tomorrow’s revenue multiple