Ed Hine, Cold Bore Capital | Breaking the Speed of Sound: Strategic Private Equity Buy and Builds

Welcome to the Karma School of Business podcast. In this episode, we have a great conversation with Ed Hein, operating partner with Cold War Capital.

Enjoy.

I'm very excited to be here with Ed Hein Ed, thanks for joining us.

Yeah, super happy to be here too. thanks for having me.

Absolutely, and we're doing this podcast in person and for all of us who've been kind of kept in little digital boxes. For me, this is like, particularly nice to see that Ed's got feet and legs.

Yeah, and I'm not just wearing a jacket on Zoom, only in shorts.

That's exactly right. I usually have my umbrellas on during these things, so it's great to have you here and maybe to jump in. Ed I'd love to hear. Kind of like your origin story, kind of how you came to be, how you got into the private equity industry. Because I think there's more and more unique stories about how people get into this world.

Yeah, I mean, I'm definitely not the standard path, that's for sure. So my first part of my career was in the Navy, so I spent 12 years in the Navy and had just a ridiculously charmed Navy career. Unbelievable experience.

Yeah, the energy line inspectors. Yeah, exactly right, I've looked at those companies, those are great.

Yeah, no, it's fantastic work and we were really very early days on that. So about two years into that. I'm doing BizDev work for the company and I'm negotiating a partnership with somebody to do their training work for them. We start whiteboarding the numbers and we're doing the bar napkin, math and all the things.

That's great, I mean, it's like, as we have these conversations and it's interesting and all these. There's all these different paths in the private equity now. And very often. Kind of we were, as I've been talking with even our internal team about these things. It's almost like this serendipitous, kind of like journey that kind of leads you there in ways that you never would have projected. But somehow it just seems natural.

Yeah, 100. It's like, vaguely aware that private equity was a thing that exists in the world. But before 2018, if you'd asked me to explain it, I would have said, Well, it's a bunch of rich people that buy businesses and that's like it. That's all I got.

So many people, even today, think it's a part of like, pretty women.

Yeah, right, right.

Now, maybe in the 80s, it was. It's changed a little bit, yeah.

I don't often find myself at, what's that the horse event that he goes to negotiate deals, right?

Yeah, so I've been in private equity for 20 years and I drive a pickup truck and more often than I was in the last row on the plane. Yeah, right, and it wasn't private.

As long as you get that, a yeah, exactly right.

That's the key. My wife has a companion pass, which we're really excited about.

Oh, that's clutch.

Which is, we save 25 every time we fly.

Nice.

And so I'd love to hear a little more. Like to drill down on your Navy career. what were some of the things you did there?

Like I said, I was just dumb, lucky, so I started out flying F-18s. I was goose, not maverick. I spent eight years doing that at Pecan Flight School, so deployed a couple of times with BFA 103, which is an East Coast based fighter squadron.

And talk about, you know, flying in F-18s. What was that like?

It's really cool, but it's not really cool for the reason, at least for me, for the reasons I think most people think it's cool. Like breaking the speed of sound, like, what's that like? You actually don't even notice it? It's like, super quiet, it's a non-event in the jet.

Yeah, that constant search for improvement and enhancement, I think that gels really well with your current role.

Oh, 100 right? It's never being satisfied with current status quo, it's wanting constant self-improvement or situational improvement. Yeah, it's 100 ties out.

One of the things I've had friends who've been aviators and they all talk about. The one thing that they bring up is not everyone has cool call signs like Maverick.

That's true, yeah, especially in the Navy.

Yeah, there's my friend who's in the Navy and flew, and he doesn't like to share his call sign. Because usually he earned it, certainly, for doing something that wasn't phenomenal.

We've got some gems out there, some of which are repeatable on a podcast, many of which are not.

So we'll save that conversation for a beer.

Yeah, well, that's the thing is, I'll tell you I went by fungus, but it costs a beer to find out what fungus meant.

It's exactly right. It's like no one, if the only one. Everyone could be so lucky to be Maverick and Iceman.

Yeah, I don't know a single one of those.

That is great, and one of the things that I appreciate from your career and what you've chosen. And other peers that I had in the private equity industry and people I know today is that they have a number of defining characteristics. One of them is kind of smart enough, another one is they're creative in a business capacity. And then the other one is this idea of overcoming adversity and experiencing challenges, and being able to kind of find ways around it.

Through it, yeah, I mean, I've got a couple dozen of those, right? Like everyone experiences challenges along the way, and certainly in a military career the past 20 years, there's plenty of those. I think the best one, probably most salient for this conversation, was around Covid.

I mean, it's, yeah, that's one of these n equals one. this was an n equals, you know? Maybe not one, but similar event in world history, where everything just comes to a stop.

Right, right, people are going back to, like the Spanish flu, to draw a parallel and like, well, that's a little different. Like it's a completely different economic environment, right? Like we didn't have a globally connected community at that point.

No, not at all. And so when something happens, the world stops literally and entire supply chains become disconnected. You know, everyone's in the house.

You know, for us, it went just right back to basics, right? I don't need a fancy model to tell me, like, okay, if you list out all the things that you need to do to build a veterinarian platform. Like, I got to be able to get doctors, and I got to be able to get patients in front of doctors. Well, I feel really good about getting doctors and I feel really good about the work functions that they do to get those patients. So I don't need to go do these things that are no longer viable anymore to go do that.

And I think that's a really good mentality and perspective. And I think something that PE does really good is this idea of kind of like, sunk cost. And it's this idea of like, that was then, this is now. But so often, I think you see this a lot with public companies, and you see this a lot with, you know, just people in life and humanity where you're. And we'll talk about this further. But you're locked into kind of what you did. And that may or may not be relevant to what the world is today.

A hundred percent, right? The sunk cost fallacy is famous for that exact reason. And yeah, we bought some pet services businesses, and you know, we're. We got a location in New York City, which was probably arguably the hardest hit, you know, like geographic area, and certainly in the U S. That's okay. Well, next page, What are we doing tomorrow?

I think it's a great lesson as you think about the business builders that are listening to this podcast. And that's one of the hardest things to do is just to let go of what happened yesterday.

But it's simple, not easy, right? It's incredibly simple. super not easy, yeah.

And it's terrifying, right? And people you don't want it losses way heavier than gains, and people go to fear first often. And so that mentality and that ability, I think it's a great lesson, really, that anyone can do, but it's really hard. So, Ed, One of the things I'd really love to get your perspective on is this whole topic of value creation.

Become all they can be. So we run a buy and build strategy at Colborne Capital, but it's a it's kind of a twist on buy and build, so we don't go out and knock down the big platform first. What we'll do is we'll acquire multiple more tuck in sized businesses, and then we'll build the management team or the corporate infrastructure on top of that. So it's a bit of a twist on the traditional play.

And just curiously, when you say you kind of will get going and then you bring in a team, will you literally start making your acquisitions first before you have a team? Or will they?

It's a bit of a question that we're wrestling with now. Previously, we found industry executives that we think, you know, are really going to run this and do a great job, and that's been successful in the past. We're starting to evaluate, does it make sense to maybe go do one or two acquisitions and then, as we're doing that, build the team?

So you can almost be an incubator and then you bring in the right team for what you've learned. But your operational resources can kind of get it going.

Right, exactly, because you know, if we're going to go do that, maybe we don't integrate the platform right out of the gate, right? Maybe we do the acquisition 100-day plan. Stabilize EBITDA, avoid the dip, right the AMIS dip, or minimize the dip if we can, and then integrate later, potentially.

It's a fluid situation.

That's really well said. Yeah, it's very fluid.

That'll be a delicate way. So, yeah, it's like, Yeah, I used to do this. So that's a really interesting, I think, approach. And it kind of brings me back a little in time because I used to invest in industrial technology businesses. They're founded by engineers, and they're beautifully overly engineered products in search of markets. But they usually had one little kernel and you had to start really small. Because they by the time that they would get big enough, a strategic would pick them off.

I don't think there's a best way, right? I think every situation is probably going to be a unique snowflake of some caliber. And so it's about figuring out, you know, this industry lends itself to that, that industry lends itself to this. You know our physical security platform, you know the guys that run that platform. They are sharp as tacks, and they know that industry inside and out, and they know their customer base extraordinarily well. If you flip it over and you look at, you know, other industries, especially in healthcare. Let's say, you know, maybe you've got a doctor operating it. He's a phenomenal doctor and he's built a good practice. But maybe he doesn't quite understand his customer segmentation as well as he might need to.

I'd be real curious as you think about this like integration, you're bringing in these, and is there? Is there any kind of things you've learned? In terms of? You're acquiring it, to the extent you are acquiring, you're also building greenfield, but when you're acquiring businesses as part of your platforms, how do you think about? You're bringing in kind of very entrepreneurial people who have started a business that, in some ways, you know, like, like any entrepreneur, is extremely precious to them. And they're going to be brought together with a lot of entrepreneurs and they're joining to be a greater whole. How do you approach kind of that integration and making them part of the, you know, the team?

I mean, one, you talk about it really, really early on, right? Like, they've got to know what the vision is in the very early deal stages, and they've got to know that. You're not coming in to be, you know, the platform, you're coming into a platform that you're a part of. And they got to be okay with that. So it's it's really, really early conversations, really transparent. I think one of the things that I've been kind of maturing in my thought process and the execution that I think I'll take on the way forward is actually a topic I was talking about yesterday is how do you get better buy-in from that management team? Particularly if they're not dropping the keys off pre-deal close, right? So strategy sessions before the deal close. What does it look like helping them be a part of of drafting the a hundred day plan?

Right, yeah, yeah, and it's almost it's kind of similar as I think about it. The way you're doing it is, yes, you're acquiring their companies, but you're also almost taking them through, like the hiring process. And it's like, this is who we are.

Yeah, no, I think that's really, really accurate. And I think you, there's probably some weird like dating metaphors around all of this, too, right? That probably played pretty nicely. But absolutely. You really want, I think, a really high quality relationship there, particularly at this end of the market, where you hit it earlier, the nail on the head.

Probably, yeah, yeah, so that makes a ton of sense. I never really thought about it that way, but I hear you talk about it.

Yeah, and look, we're not going to be everybody's cup of tea. Yeah, and that's okay. Cause, you know, one of the most dangerous things we could do in acquiring companies in a buy and build strategy is buy the wrong company.

And I'm sure that builds you a lot of trust, and not only with the the one unit that you're bringing into, kind of your family businesses. But where it gets out, you know that you're straight shooting, hopefully.

Yeah, right, ideally. And we'll also incentivize those sellers on the backside and in many cases, to go tell their friends, right?

Absolutely, yeah. And you know, incentives and outcomes, and they all get aligned and being it sounds like you're being very thoughtful about that.

Well, I mean, don't look at me and give me credit for all this, right? Like I was a wave too higher. Let's be really, really clear about that.

But you're part of it, so I'm also not falling for modesty. We know I grew up in Texas, so I, you know, it's it's a mantra of of mine, but in a similar way. But I think being part of this whole business in these, you know, like private equity firms are businesses now. And they're on these like constant evolutionary phases and growth track trajectories.

I think that's exactly right, and I very much mean it when I don't. I don't think we'll ever get the model right, we'll just constantly try and be better than we were last time around, right, yeah.

And so I remember as like, I think, I always grew up. Like, if you, whenever you get comfortable and think you're a finished product, you're you're already behind.

Yeah, yeah, that's pretty fair.

And so, you know, you never cross the finish line and that.

I made it.

I arrived, Come on, dad, can I cross the finish line once? Nope.

Man, I think it's probably saying the same thing that everyone would say in this scenario. It's talent and culture. Really, really high quality talent, properly enabled by the right culture is pretty damn tough to beat. Yep, and so it's about, you know, finding, retaining talent, enabling talent training, talent mentoring, that's the important stuff.

And I think that's really thoughtful and it reflects a lot of what we see in. One of the interesting things about this kind of blue wave engine we've created here is we get to.

Work with all these really great people like you.

And the number one trend in PE is human capital and talent. And for good reason, I think, a large part because it's the evolution of the operating partner that have come in and brought this sense of. And it's not that the deal teams don't appreciate, you know, talent and people and all those things. It's just that they're focused. They're, you know, they've got a hundred plates spinning and they can focus on what they focus on. And now that you've got the operational capabilities arising and have that have risen in private equity, in private equity in general, it's that focus on people through the ranks of the portfolio company is is rising significantly. And I don't think a lot of people appreciate that. In terms of like this industry, that, like we talked about earlier, has kind of a reputation of like a 1980s movie.

Yeah, absolutely. And then you get to it, you know, when you do that, well, you went twice, right? Because you're building a better business, you're building a more resilient business, you're getting away from fragility, you're helping individual people. You know, it's a good fiduciary move.

So one of the things I know that you've done is you posted on LinkedIn. Some of these kind of imperatives that you think are really important for companies and and you get a good kind of engagement on these things and following on them. What are some of these things that you think are are really important that are that everyone should know?

So I've been working on this and it's. It's kind of a collection of phrases that I've picked up along my career. And so some of it's from the military, some of it's from people that have mentored me in the business world. A lot of it is a complete copy from somebody else. But it's just like this kind of core values that I think are really, really important. So it's things like transparency and follow through our table stakes.

And you just talked about that right there.

Another one that I think is particularly relevant in the private equity world is Hope is a shitty plan. If you're betting on Hope to pull you out of the situation, it's not going your way.

I bet on hope a lot. During my career. You know, I always wished, you know, I never said once I wished, I waited longer to do something, yeah.

Yeah, right, some of it comes from let's see what's. People are more important than tools. I like that one a lot.

Yeah, I mean, it's, it's, it's kind of like this whole idea that that if. A lot of time it was something to my life that I I think I made things more complicated and more difficult than they needed to be. And so over time, I developed kind of a similar philosophy, which is the name of this podcast. And it's just the karma school of business, where if you do good things with and for good people and just focus on that, along with some other things, good things tend to happen. Life just becomes so much easier, and it probably took me longer than I it should have been like to figure that out.

What I've found is that writing them down and going through a process where I've probably been through like 30, 40 of these things. Is is the list gets bigger and it gets smaller. It's really helped me just be thoughtful and intentional about, you know, how am I going to conduct myself? And and going through that process of just literally writing was fairly, I think, important in my kind of career development.

Yeah, I've, I've somewhat. I have a little book I keep in my briefcase and I just little nuggets of wisdom and quotes that I'll write down. And probably one of the earliest. One is a good navy man you'll appreciate is like, make your bed in the morning. Yeah, yeah, now my wife will tell you I don't always do that, but I try.

No, that's a great one, that's a good speech, yeah.

It's a great speech and so I'd really appreciate that that you've kind of have these credos and it really helps kind of define focus and appreciation. And so one of the other things that I love with the chance to work with people like you and get to see how you all work. And the value and the perspectives that you have. Is that every day I realize what I don't know, and so, and it's humbling.

I feel that.

And so it keeps me on my toes and, you know, and it keeps you kind of on the level. And you know, every day, you know, I'll I send this email out to the kind of private equity world, it's like what I wish I knew before spinning out of private equity. And every day I'm like, why didn't I know this? And one of my friends, I kept on telling people that, you know, you could do this.

I mean, there's like, so many, so many things that young Ed probably should have heard a little bit more clearly. That my dad probably tried to tell me at one point, whether or not I listened, questionable, you know, I think, if you put myself back in that context now. So I was, you know, getting out of school, going into flight school. I think I was incredibly focused at that point in my life of, like, you have to nail flight school, right? Because I don't know if you're familiar. The way the Navy does flight school is. They don't want to stack the deck in any one community with, like, everybody wants to go fly fighters.

Maybe experienced in that area, I wouldn't buy the smarter.

Just the concept that you're never going to be done learning, you're going to be a lifelong student, so just settle into it and embrace that.

I think that's great advice. And it's this whole concept like life's a journey, it's not a destination. And every time I thought I got to a destination like Yo, here's a bigger hill.

Yeah, 22 year old me totally was thinking like, flight school is the destination, and then, oh, getting out of flight school is the destination. Oh no.

I was like, I've got an investment banking analyst job. Out of college, I've arrived and then, like, the great story is, I thought I was such a hot shot right out of college. And then I still had to get my parents to sign for my cell phone and back it because I like humbling.

Yeah, the I think the tighter way of saying is just getting comfortable, being uncomfortable. Yeah, and it's something I talk with my boys about. I've got, I've got an 11 year old, nine year old boys. And just talking to them often about just be comfortable, being in uncomfortable situations.

I think that's that's very well said, and I'm going to write that in my book, yeah.

Should have made the list.

So this is as usual and as I expected, I've learned a tremendous amount from you and thank you so much for investing your time. Because I know it scares to share your perspectives and wisdom here today with us.

No, it's fun. I really, really enjoyed it. Thanks for having me on and I really appreciate the opportunity, yeah.

Likewise, thanks.

Thanks.

Special thanks to Ed for joining. If you'd like to learn more about ED and Cold War Capital, please see the episode notes. That's all we have for today. For more information on this podcast and Blue Wave, go to bluewave..net Forward Slash podcast. That's b-l-u-w-a-v-e.