The Future of Trades Business Acquisitions with Ryan Williams of DivvyShares

SPEAKER_00:One break, one of the knee. Ladies and gentlemen, I am here live with Ryan Williams, co-founder of Divi Shares. Ryan, thanks for coming on. Yeah, thanks for having me. Excited. So today we're going to start with the how we start every episode. Just a background on who you are, what you've done. You kind of have an interesting career arc where you've been in the real estate game, you've been in the construction game, and now you're kind of going as the on the investor side of things. Walk us through that career and how you ended up starting Divi Shares.

SPEAKER_01:Yeah, for sure. I appreciate it. Um, so uh I guess going way back, I've been in construction and general contracting for uh 20 plus years, since uh very early 2000s, late 90s. Um and uh so started out that way, and then that kind of got me into doing some real estate. So we did some real estate investing, not at a huge scale. I had, you know, several rentals. Uh we did some flips and things like that. And so um through the course of that, I met my partner John. Uh he was also in real estate. Um, and uh we were kind of voicing our frustrations with uh real estate and kind of the fluctuations in the market and kind of lack of control and lack of cash flow and things like that. And that's kind of started the discussions that got us into buying businesses, and so that kicked off Divi Shares. And that's that's that's in about 2024, beginning of 24 was when we officially started.

SPEAKER_00:And how much of you know, you've seen so much content online, it's been a kind of a big focus of the conversations on this podcast about buying trades businesses, home services businesses, how much of that online trend and the content that's out there kind of informed your decision making here?

SPEAKER_01:Uh, it definitely started the conversation. Um, you know, folks like uh Walker Dybel and uh Cody Sanchez. Uh we saw actually saw Cody Sanchez speak uh summer 24, um, which really just kind of reinforced what we already knew and were already doing. Uh so that definitely started some of the conversations and helped kind of guide some of those early conversations for sure.

SPEAKER_00:Absolutely. Okay, so walk me through you guys get together, you say, okay, we're gonna start doing this. What were the first steps that you actually took? Um, maybe you know you can talk about the financing side of it. Were you working on figuring that side out first? Um, and then ultimately, how did you end up with this unique model of Divi Shares? And can if you could kind of explain what is that unique model to the audience as well, that'd be good.

SPEAKER_01:Yeah, for sure. So I was already a little bit familiar with, and when I say a little bit, I mean a very little bit. Uh I had a uh couple of friends that worked for different uh trades companies, HVC and Electrical primarily, uh, that had those businesses had been kind of bought by PE. Uh so the good part of that is I knew, okay, this is a thing. Like people are buying businesses, right? Buying trades businesses on the on the flip side, I saw the aftermath of that. Um, I saw the aftermath of kind of what happened to those companies when they were bought by PE. Uh, through my friends, I was able to kind of hear their stories about, you know, just how change was handled, uh, kind of the disregard for the employees or the culture that existed before, anything like that.

And so uh that's really what kind of fueled our our model, which, you know, on the acquisition side, we we're we buy businesses

SPEAKER_01:just like everybody else is buying businesses right now. Uh our difference is on the back end, our goal was to sell them back to the employees, either through an ESOP or an employee on trust. And so that's where the difference comes in. And the reason we chose that uh was because we wanted to do, you know, basically what PE was doing, but just do it a lot differently. We wanted to, you know, work with the people that were there, reward the employees that A, help the seller get to a point where he could sell and have something worth selling, and then B, reward the employees for sticking around, helping us build it and bring it up to something that's you know uh exponentially bigger than what the seller sold us. And so uh we wanted to try and create as many, you know, quote unquote winners as possible. We wanted to put the employees in a position where they could win and they could benefit

SPEAKER_01:from all their hard work. Um, you know, for you know, decades and decades, maybe centuries, uh wealth has been built on the backs of the middle class. Uh, and we just wanted to try and find a way to keep that wealth in their pockets as much as possible. And so we do that through selling the business back to the employees.

SPEAKER_00:So walk me through the the tactical bits of that. What does that actually look like? Um, how does kind of the typical deal get structured for you all?

SPEAKER_01:Yeah, and I, you know, I have to preface by saying we're figuring this out a little bit on the fly. So yeah, uh, there is no uh playbook for this. Um you know, there's a couple companies that have done it to varying success, and we're just trying to kind of add to that uh ecosystem. But um, and we haven't exited any yet, so uh we're still building, but we're doing it through regional platforms. Uh, and so we want want to have kind of a centralized hub uh company that houses some central operations uh that then kind of rolls up and acquires companies underneath that platform. And then our goal is really to sell that platform back to the employees that either are employed by the platform or employed by the companies uh within that uh platform's portfolio. So um that's kind of how it works. The exit is no different than any other buyer buyer buying it, uh, with the exception that we control

SPEAKER_01:how that exit happens. We control the timing of it, we control is it a full exit, is it a partial exit, because maybe the business isn't 100% ready at that time. Um, or maybe we have investors that are more interested in a long-term hold than they are a short-term gain. So um, you know, we can we can design the exit to fit uh, you know, whatever state the company's in, whatever uh situation our investors are looking for, uh, and everything like that. So we we control a lot of that. So uh that's kind of the basic overview of the model.

SPEAKER_00:Yeah. Walk me through the first um, I mean, how many acquisitions have you done so far? What have those acquisitions been? Um, and we'll just kind of start with the first one, and then I'll I'll dive a little deeper into each one specifically.

SPEAKER_01:Yeah, so we bought uh, like I said, we started in 24. We started our search, we closed two companies last year. We bought a plumbing company and a water filtration company. Uh plumbing companies in Asheville, North Carolina, water filtration's in Raleigh, North Carolina. Uh, of those two, the plumbing companies, definitely the biggest one. Water filtration was essentially nothing. It was a cash deal. Um, and uh uh we've since kind of turned that into a distributorslash manufacturer as opposed to having a retail side and built our own brand of water filtration. So that's uh we're selling that through the plumbing company. Um and so uh, you know, the plumbing company that we bought wasn't huge. I mean, we we did uh last year we did uh almost five million in revenue. So I think we're at like 4.6 or 4.7. Um, and so um, you know, we're that def that company is definitely still growing. It's a

SPEAKER_01:strictly residential service plumbing company. They don't do they do very little commercial, they do very, they do zero new construction or anything like that. So it's and it's in a pr pretty small market in Asheville. So um for what it is, you know, doing almost five million in revenue and a pretty limited scope of work is pretty good.

SPEAKER_00:That's fantastic. What was the timeline like on that? And I mean, I talked talk to me a little bit about because that was the first acquisition you've ever done, right? So, you know, walk me through the timeline and then also maybe some of the learnings that you had you didn't know coming into. I'm sure there was a multitude of learnings, but what are some of the things that kind of surprised you about that process?

SPEAKER_01:Oh, good grief. How long is this podcast supposed to be? I mean, there's there's a you know, there's reason there, there's reasons there's books that are written on the acquisition, just the process. I mean, there's there's a lot to it. Um, but being kind of in it and feeling some of that uh those processes pan out and feeling you know the emotion of some of that stuff that happens is uh a whole different thing. Um so timeline-wise, like I said, we started uh looking for businesses. Well, we started kind of forming Divi Shares and the idea in like January, February 24. Um, we actually sent an LOI on the company that we ended up buying, I believe it was in April. Um, so only not too long after uh we started searching. Um, but the asking price was considerably higher. Um, you know, we kind of got a little bit into diligence and realized that there was some stuff going on that wasn't in the

SPEAKER_01:in the SIM. There was some stuff once we kind of got really deep into the financials, we found some stuff and we knew we were gonna be adjusting the price. Uh we kind of started the retrade conversations and then we ended up falling out of LOI. Um, and so as far as timeline goes, uh we ended up going back under LOI, I think, two additional times on that company. The whole time we're analyzing other businesses and throwing out other offers, getting in other LOIs and dropping out of those because of stuff or whatever. And so um we got under the final draft of LOI in January, maybe it was December of 24, going into January of 25. Then we ended up closing in May.

SPEAKER_00:That's awesome. And then the the surprising components of that, what uh looking back on that, what was you know, what's the biggest learning, I guess, that you took to that second second acquisition?

SPEAKER_01:So the the biggest learning was uh well the biggest thing that we learned uh through the course of that is probably um whatever operating capital you think you need after closing, double it. Um and then uh second learning was if you in an asset purchase, uh your access to credit after close is severely limited, uh which was something that we weren't prepared for. Uh we kind of figured that we were buying a business that had been in business for 25 or 30 years, and you know, we would just be able to use those financials and uh at least at the very start, nobody let us use those. We they all wanted to see 12 months under our entity. Uh and uh yeah, much much more limited access to capital after post-close than we thought we would have.

SPEAKER_00:And is there anything you can do to kind of get around that, or is that just the nature of the beast? And now you have that learning and you can adjust the underwriting on the next deal? Like, what do you do with that information?

SPEAKER_01:So there's two things. So uh if we're doing an asset purchase in the future, we're we're gonna need a lot more operating capital. So that's one. Um, and then two is we've since worked with our attorney on more on stock purchases. And so uh if the company's in good standing in the future, we'll probably lean more towards a stock purchase if possible, and then just put uh uh you know precautions in there to carry over for lawsuits and and credit and tax burden and things like that that may pop up afterwards. So uh that's one thing that we've worked a lot with our attorney on is kind of leaning more into a stock purchase as opposed to asset. Because with the stock, you you do inherit the existing company and all that access to the company.

SPEAKER_00:Right, can you explain the difference there?

SPEAKER_01:Yeah, so a stock purchase, you're basically buying your way into the existing company. So with a stock purchase, the the uh sellers and the entity that the seller has set up, you're basically assuming ownership into that. Whereas with an asset purchase, he's shutting down his entity, you're starting a new one up. So all of your supplier accounts and everything have to start from scratch. So you have to uh you have zero history at that point with uh, you know, all of your uh vendors, they look at you as a brand new entity, so you they may give you good pricing, they may give you really crappy pricing and until they know that you pay and know how much business you're gonna do. So um with a stock purchase, you're basically just walking into the company, you know, as a 90% stock owner and uh, you know, keeping all that stuff as it sits.

Uh the bad part is with a stock purchase, if there's you

SPEAKER_01:know, if there's something hidden, like a lawsuit that maybe is coming up that's you know for past work that hasn't been filed yet, I mean you're right in the thick of that because you're part of that entity. Uh if there's, you know, if the if they screwed up taxes three years ago and you get audited and you end up having to owe 200k in taxes, uh, you're on the hook for that. So I mean there's there's a lot of stuff that you have to protect yourself from. Um so it's a give or take. So if it's a in our mind, if it's a solid uh acquisition and we've gone back and done all our due diligence and everything came back squeak squeaky clean, we might lean more towards a stock purchase.

If it's uh a little bit riskier, or maybe the you know, slightly distressed, or we can tell that there's a lot of bad debt or anything like that, that's a sign that we probably need to go into it as an asset purchase

SPEAKER_01:and then just plan on a higher level of operating capital to kind of unlock getting vehicles and doing that kind of stuff where we don't have to um apply for so much credit afterwards. There's a lot of uh, like if you if you read uh a lot of the books, they'll steer you away from the stock purchase just because of the risk. Um but in in like big MA, they're all stock purchases, they're not asset purchases, you know. And so on the lower end, uh I I think a lot of the hesitation is because the like you're not getting a you're not getting a template uh uh purchase agreement for a stock purchase for a company this size in a stock purchase. You have to have it drawn up. So um, you know, that's the and there's expense with that, pretty sizable expense. So awesome.

SPEAKER_00:Okay, well let's dive into the specifics of the actual sort of as a trades business owner. You know, you've now been spending how you know two years looking and underwriting deals. What are the things that you are looking for to say, okay, this is a deal we're willing to move on? Um, what are some of the red flags? And if you could kind of position it as advice to a business owner who is starting to think about selling, what are the things that they need to have dialed in?

SPEAKER_01:So licensing is a is a big thing that needs to be durable. Um that's that's probably the single biggest if you're getting into a a business that requires state licensing. Uh the other thing is staffing. You know, if the what we found is that usually on a couple of initial calls, if the owner is saying, Yeah, I'm about 50% in the business and 50% out, or I'd I'd do this, a little bit of this, or a little bit of that, there's a good chance they do all of this or all of that, and they're in it about two or three times as much as they say they are. Um, and not that that's uh, or I should say that somebody coming in to replace them is gonna be in it two or three times as much as the owner is. Maybe that's a better way to say it.

You know, if they're doing, let's say, the estimating and they're like, I spend, you know, maybe 15 hours a week estimating, chances are to replace that, at least in the

SPEAKER_01:initial, it's gonna be a full-time job. You need a full-time estimator to come in and take over what that owner is doing in about 15 hours. Um, and so you know, if I had to narrow it down to two kind of things that really are the biggest red flags, that's licensing and uh levels of staffing, levels of management.

SPEAKER_00:When when you look at a business, you know, there's all the stuff with AI, automation, and as somebody who's acquiring companies, you look at a business that doesn't have any of that in place, maybe they're all on paper. How much of that is an opportunity versus a red flag for you? And you know, do you when you see a business that is super doing really well on SEO, they've got AI implemented in certain areas, is that a positive? Or do you see that as actually we would rather fill that gap and increase the value of the company? How do you look at all this different technology that's in place and how that impacts the valuation?

SPEAKER_01:So there's there's a couple different ways to look at it. So you can look at it from the what's the what's the operational load of implementing that stuff, right? Which is basically, you know, what's it gonna take staffing-wise to get that off the ground? Um, I tend to look at it more like what's the the culture load of implementing that. And so if I'm looking at a at a business that, you know, the tenure, you know, a lot of times you'll look at an employee list and you'll see, man, this guy's everybody's been there more than 15 years, 20 years. That's gotta be great, right? But if they're not on a CRM and they don't have any kind of tracking systems and they're not doing KPIs, uh you're gonna have very high turnover the second that you start implementing that stuff. Um, and so there's a culture load to uh implementing technology, um, especially in service industries.

You know, if we're just

SPEAKER_01:talking about you know uh construction and service industries, a lot of those guys don't want to have to like look at their phone to see where their next job is. They they want to have printouts of everything they're supposed to do today. Um, and so the second that you you implement that stuff, the guys are gonna get frustrated, even if they're gonna end up going to another company that's gonna do exactly the same thing. They just don't want to do it under the same roof. Um and so I look at it as a negative if they don't have technology, not so much an opportunity. Um, now, if let's say that it's just an operational thing. Maybe all the all the stuff facing the technicians and all that stuff is fine.

Maybe they have some kind of project management tool that the guys are using, but maybe that just doesn't roll into the operation side, that it's not tied to marketing, it's not tied to bookkeeping

SPEAKER_01:and stuff like that. That's a little bit different because that's just you know, there's an operational load to implement. But once it's up and running, it's not going to affect the guys at all, it's not gonna affect production, it's not gonna affect anything else. You might have a higher uh higher quality leads coming in, and you'll be able to handle bookkeeping a lot faster. That's there's not much load to that to implement. Um, and so that would be an opportunity. Uh, but anything facing the technicians or I I refer to them as revenue drivers. So this is like technician, sales, the guys that are actually driving revenue. Uh, you don't want to have to make any gigantic changes to those guys unless you unless you have plenty of time to implement um and you already have go into it knowing that you're gonna have to be hiring from day one.

SPEAKER_00:So it sounds like the summary is if it's a back office thing that you don't have to create any behavioral change, that's a positive. Um whereas if you are going in working with somebody who's been doing it one way for 30 years, that's the resistance you want to try to avoid as the purchaser of a business. And then if you flip that around as a trades business owner who's looking to sell, making sure your team is open to that that technological growth, that's the one thing you want to make sure you have a place.

SPEAKER_01:Yeah, for sure.

SPEAKER_00:Got it. Very cool. And what have what have you guys seen or implemented in terms of technology? Have you experimented with any new things going with that first acquisition? Is there anything you guys implemented there? Yeah, we've implemented a bunch.

SPEAKER_01:So they were already on Service Titan and very deep into Service Titan. So uh we had no issues with the guys already knew kind of their numbers and things like efficiency, and they were used to hearing dollars per day and uh hours of production and stuff like that. So uh on that side we were pretty good. Um the things that we implemented uh so we put cameras in the trucks that are that are AI driven, and so those monitor behaviors uh both of our technicians, you know, our drivers, but also uh like of other drivers that are affecting our guys, and so um, you know, kind of monitors inside the truck and outside the truck, which it's an amazing system. Um, and then We've also started you we use AI for automated text messaging and things like that. Speed to lead, you know, so anything that comes in through aggregators or anything like that, we use it for speed to lead.

We tried to use uh AI CSR

SPEAKER_01:uh which did not go well. Um and so that ended up costing us several, you know, uh several hundred grand to be honest, uh, over the course of a couple months uh in lost revenue. Um and it it ended up being uh I mean we could we could dive into that a little bit. Please do.

SPEAKER_00:I'm that'd be very useful. Very interested in that.

SPEAKER_01:Yeah, so we tried the AI CSR thing. First thing we noticed is that there was a lag. Like it the it just wasn't responsive. And we went back and forth with the vendor, and what it ended up being was we had to rewire our office because the everything, the wiring in the office was so old. Um, we had to get a new new routers, all new um uh routers and modem and server, like all of that stuff had to get replaced. Um, which that cut our response time, like reaction to like within conversation, it cut it down almost in half by doing all of that. Um, because there was just the equipment, our phones, everything was outdated, and so it was just injecting a lag into uh that process. And so um that was part of it. So that ended up costing us almost 10 grand just to get all that stuff done.

Uh and then, but once we got into it and we started using it, the problem that we had, because this is in western

SPEAKER_01:North Carolina, um there we had so Asheville is a is a diverse area. We have there's natives there, there's you know, people come from you know up north and they have second and third homes, you know, people from New York or California have second and third homes there. Uh and there's also a very high population of retired folks. And so what you run into is that there's this big variance in accent and conversation pace. And so what would happen is that uh we would, you know, through the course setting up AI, one of the things that you dial in is pace of conversation. So how long before in a in a silence in a conversation, how long before the computer says, Are you still there? or something like that. So what would happen is we would dial it in for a retiree, right? Which might have uh half a second or a second longer pause uh tolerance.

Well, then somebody from you know New York who that's

SPEAKER_01:their third home and they're in town for a week that wants to get something fixed, they're not gonna have patience for sitting in for a second and a half of silence. Like they want conversations to move. And so if but if we dialed it to them, then the older folks would be rushed and get, you know, they would get frustrated because a computer regle on, you know, are you still there? Well, yeah, I'm here. I'm trying to like tell you the address or whatever. Uh so that was part of it was conversation pace. The other part of it was uh very, you know, it had a lot of issues with accents. Um, and in Western North Carolina, you know, got I love North Carolina. Let me just preface by saying that. But there's people here who have very thick accents that are that are sometimes hard to understand.

And if your AI system trying to figure out, you know, somebody saying they get a leak pouring out of the

SPEAKER_01:ceiling at Mama's house, you know, the I might not know how what the hell is a mama. Um, and so with that kind of stuff, it was just hard to coach. And we ended up, you know, kind of scrapping it. Um, we still use it for some things, but uh we don't use it for direct customer interaction. It's not in our call tree at all anymore. Uh we'll probably go back to it at some point, but we're gonna let some of the bugs get worked out and then we'll we'll try it again, you know, at some point. But right now it's just not worth that. We lost uh it cost us too much in sales.

SPEAKER_00:And was it all inbound that it was targeted on? So people calling in, the AI agent answers the phone, that was the the use case.

SPEAKER_01:Yeah, we started using it on inbound. Um, and it was you know kind of at the tail end of our call tree. So it would come in, run through our CSRs and then our office manager, and then I mean, because it but it was still getting you know 20 calls a day. Um and so that's where we saw the drop-off is you know, we know what our conversion is for our our regular staff, and then you see uh once it goes to AI, it's you know a quarter of what it would be if somebody had answered the phone. And so yeah, it just ended up not being worth the worth the penalty for us.

SPEAKER_00:And when when was this? And just the reason I ask is just because the evolution of AI is so insanely fast, and you know, unless when did you try to integrate this?

SPEAKER_01:We shut it down in December. We started it uh probably August or September is when we started, you know, kind of soft rolling it out, and then uh but we shut it down in December.

SPEAKER_00:Very interesting. Yeah, it'll be I'll be curious to see, you know, if you come back to that when you come back to that, just because like I said, AI, you know, six months ago, you've even in December, the AI game is completely evolved. Um, and so that is the challenge. One thing you mentioned there that I think is important for anybody who's implementing AI is the fact that you said you knew the conversion rates on the AI versus the regular SDR. And you know, you can't just go and implement willy-nilly's any AI platform and understand if it works unless you have a benchmark to compare against. So, you know, that gave you the ability to look and say, Oh, this isn't working.

SPEAKER_01:Yeah, it's you know, I've had that conversation with people that have said, ah, well, you have no way of knowing how much it actually costs you. It's like, no, I actually do. Like, I can tell you, I can't say I can tell you to the dollar, but I can tell you within probably a 10% margin of error how much it cost us. Um, you know, people I've had people say that I had no way of knowing how much it cost. I've also had uh people say, well, it was you know, it's it's gotta be worth the operational savings of not having a CSR. I'm like, no, we we replaced it for and actually saved money. So um, you know, yeah, there's knowing that metric and knowing, you know, uh having the data um well enough in hand, like you know, the quality of the data to be able to make that kind of judgment call is key because it would be very easy to get in that and just say, oh well, it's worth it.

I don't have to hire

SPEAKER_01:a CSR. I don't have to, you know, I the phone's not ringing as much, so it's not bugging the girls and like all that kind of stuff. Uh, but when you can actually see, geez, this cost us well into six figures uh to try this, like it's uh it's pretty easy to pull the plug when you can you can see the numbers.

SPEAKER_00:Absolutely. And it'll be interesting, you know, as you grow, you see a lot of companies uh bringing in these sort of chief AI roles or just somebody whose full job is to sit over top of all the different agents that exist at an organization, monitor their performance, figure out which ones are working, why they are or are not working. Um, and so it'll be interesting to see how that sort of role grows as you know more and more people are are building holding companies and they have multiple different operations. Um, I'll be curious to see how you know that role impacts the service industry.

SPEAKER_01:Yeah, for sure. And, you know, I'm I'm not saying that we'll never go back to it. We probably will at some point because it'll, like you said, it's evolving so fast. Um, but also we don't, you know, we don't have the staffing to like in that kind of a role. So let's say we had somebody that was just in charge of, you know, either IT or yeah, even if it was just like an IT manager or something like that, somebody that could be all over it and like, you know, on the phone with that tech support all day if they needed to be to get it dialed in. We just don't, we're not at that level yet. Uh once we get to a level where we can get a little bit more specialized, plus the the the services that are out there go through you know enough iterations to where they have all those bugs worked out. I'm happy to give it a shot. I mean, I I could at least see the potential of it. Um, but yeah, we're just

SPEAKER_01:we just weren't there yet.

SPEAKER_00:Absolutely. Speaking of that next level, we'll kind of finish with this question. What you know, we're we're headed into Q2 now. What does the future look like? What does um, you know, what is kind of the end goal of this business and where do you see kind of this year taking you?

SPEAKER_01:Yeah, we're you know, we're about a year and a half into a uh uh seven-year plan. And so uh we want to get uh you know under contract on at least four more acquisitions this year. Um and uh was the end goal of having you know about 10 million in EBITDA uh by year seven and being able to start the process of selling this thing back to the employees.

SPEAKER_00:Ryan, thanks so much for coming on. Um, where can people find you? Obviously, you're looking to buy businesses, so for any of those trades business owners out there, where can they find you?

SPEAKER_01:Yeah, so you can go to our website, divishares.com, divyshares.com. And then uh you can also find me on LinkedIn. Uh just look for the BizOps Ninja. You'll see my uh profile pick with the beard. And uh yeah, feel free to connect with me on LinkedIn. Um, you know, reach out, set up a meeting. Happy to talk.

SPEAKER_00:Beautiful.

SPEAKER_01:Thanks so much. Yeah, absolutely. Thank you.