How a boring company from Burgos came to catch my interest

f three years ago someone had approached me and said something like: “Hey, I have a friend who owns a company in Burgos, Gutiérrez y Hermanos Extintores SL, which installs fire extinguishers, has €2 million in revenue and generates around €350k in EBITDA. He wants to sell it—should I put you in touch with him?”, my reaction would have been to think, “ugh, what a headache”: a very small company in terms of sales and EBITDA, in a sector without major innovation or particular growth, and with no sign of big changes in the short term.

The first question

The first thing I would have done is ask whether the entrepreneur was a close friend, a family member, or someone special to them. Mostly to understand the level of commitment. If they had said, “No, it’s just a guy I met on a train,” I would have said: “Well, honestly, I’m not interested in this mandate, so don’t even think about putting me in touch.”

If the answer had been yes, that it was a friend or someone relevant, then I would have agreed to talk for half an hour, purely out of courtesy. The conversation’s purpose would have been to listen, be polite, explain in a politically correct way that such a mandate wouldn’t interest me, and maybe share some general advice. Not because I saw a real opportunity, but because, deep down, you have to help friends, and who knows—next time they might put me in touch with a company that’s actually worth selling.

If the call happened today…

On the other hand, if that same call happened today, my reaction would be different. I might agree to speak with the entrepreneur right away. The company would still be the same, with the same size and seemingly unexciting activity. Nothing within the company would have changed. What has changed is the environment.

It turns out that the sector is undergoing a real consolidation process, with a very active buyer called Grupo Fire, acquiring small fire protection companies in Spain through a roll-up strategy.

In other words, now the company is highly sellable.

You might be thinking: “Wow, Joshua, that’s opportunistic; when it’s hard to sell, you don’t want the mandate, and when it’s easier, you do.” Well, yes, that’s how it is. I like selling companies where I believe there could be buyers, and I really don’t like projects where I see it’s very difficult to sell.

Can you blame me for that?

Why it’s usually almost impossible to sell a company like this

Companies in low-growth, low-innovation sectors that are small (less than €1M in EBITDA) are extremely difficult to sell. Unless, suddenly, some player (usually a financial one) decides there’s an opportunity for a roll-up strategy.

Roll-up strategies typically occur in sectors dominated by small, independent, often family-owned businesses, scattered geographically and with little scale. The idea is to combine multiple small businesses with a few million in revenue to create a group with visible size, brand, processes, technology, and investment capacity.

How it differs from traditional private equity

Traditional private equity usually works differently. A classic build-up starts with the acquisition of a company of a certain size, called a “platform” (for example, one that already generates at least €20 million in revenue and €4–5 million in EBITDA). From there, it acquires smaller companies as add-ons, intending that, five years later, after acquiring twenty or twenty-five businesses, the entire group will be sold to another fund, a strategic buyer, or even taken public.

In that model, the starting point is always a large company, and the add-ons are usually companies with at least €5M in sales and €1M in EBITDA.

A pure roll-up doesn’t start that way. The group is built from scratch by adding small pieces. The goal is to create a big player by integrating small companies, often the size of Gutiérrez y Hermanos Extintores SL, which would never be acquired in a traditional build-up strategy.

Roll-ups everywhere

In recent years, many sectors have seen roll-up strategies: property management companies, accounting firms, B2B software, where groups like Business Software Group or Everfield have acquired multiple small companies and integrated them.

These processes are not permanent. Consolidation tends to concentrate in specific periods. Initially, there are active buyers, available capital, and appetite for acquiring small companies.

Once fifty or a hundred companies have been acquired and several groups reach significant size, the dynamics change. A company generating €1.5 million, which initially would have represented a 15% growth for an emerging buyer (with a size of, say, €10 million), later accounts for barely 1% in a group that already generates €100 million. The effort is no longer worth it because it doesn’t make a meaningful impact.

It’s not the company. It’s the timing.

This means that a small company in a sector beginning a consolidation process may only be interesting at the beginning. Once there are large groups with financing and significant size, that same business may no longer attract consolidators. Not because it’s worse, but because its size no longer moves the needle (I wrote an article on this topic a couple of weeks ago).

If someone intends to sell a small company in a consolidating sector, they shouldn’t wait too long. In the early years, it can be an attractive target. If they wait too long, it can go from “highly sellable” to “not even worth a look.” The company hasn’t changed, but the market has. And when that happens, there’s no easy way to turn it around.

By Joshua Novick, Partner at Bondo Advisors

Source: https://www.joshuanovick.com/p/como-una-empresa-aburrida-de-burgos