Family Business to $410M Exit

Kory Mitchell: What drives you to actually sell this business? Because from the outside looking in, I'm going, "This sounds like a great business. It's growing like crazy." Why on earth would you sell it? Tony Mallinger: I'm in a meeting, and I was with my father and my two brothers. We're coming off a really good year, and everybody is just miserable. And I'm like, "Why in the world are we doing this to ourselves?" Kory Mitchell: Today, I'm going to sit down with Tony Mallinger. He has a story that is incredible. A family business that is a manufacturing company that sells roofing products. It started out as a couple million-dollar business, and it results in a $400 million exit. What happens along the way and the challenges of a family business and the advisors that they put around them, that's the story. And I'm excited for you to hear it. Kory Mitchell: Welcome back to The Turn. I'm Kory Mitchell of Iconic Founders. The Turn is where blue collar founders talk about the businesses they've built, the value they've created, and what comes next after they sell. Tony Mallinger: I started in a family-run business and my father, back in the '80s, bought a company. I didn't know much about it. It was a manufacturing company producing products and metal, highly specified through the architectural community. Kory Mitchell: Your dad was an accountant. That's kind of interesting because you typically don't think of accountants as being entrepreneurial. Did he have something in his background that led him to buy a company? How did this all take place? Tony Mallinger: He graduated school with a accounting degree. He was doing taxes. He eventually broke out on his own. He had his clientele, and he had a mixture of personal and corporate returns. Well, one of them was a company called Metal-Era, and he was working with the business owner there. Late '80s, for whatever reason, the owner had to sell. And my father, give him a ton of credit, jumped in and said he already knew the books, he knew where the skeletons were buried. And what he did is he brought a partner, and they ended up buying the company 50, 50. Kory Mitchell: So, he knows the books. I'm assuming he wouldn't buy it if it was a crappy business. Was it a decent company when he bought it or was this a thing he had to really work on and improve? Tony Mallinger: It was a good company, but it was new in its space. What we called the product was pre-manufactured metal. And nobody in the industry was doing it at the time. When he bought it, it was doing about two million. And just to give you an idea, when we sold it the first time, we had 62 million. And right now, it's doing close to 100 million. He saw something in it and he saw the ability to grow, even though he didn't know the roofing market, the industry, but he saw an opportunity here and he took it. Kory Mitchell: What is his personality that made him see something in that company? Tony Mallinger: He's a unique duck. He was definitely a visionary, but everything was about the numbers. It was extremely black and white. So, if you asked him, "Hey, we can go buy this robot and we can see this ROI at two and a half years," it's a no-brainer. He's going to pull the trigger. But if I wanted to go hire 10 salespeople because I wanted to go sales and top line that way, it was a battle. He was a visionary, but in his own way. Kory Mitchell: How do you make your way into the family company? Tony Mallinger: Back in 2001, he asked if I was interested in coming to the business. At that point, his accounting person was leaving him, and he needed some help. He had one rule. Well, he had a lot of rules, but for the kids, he said, "Listen, you're not coming into this business unless you have experience. No matter what, you're going to take some time, work for a couple places, for a couple bosses, create some experiences and understand things." I graduated school with accounting and finance degree. And I was in manufacturing. I was controller, and I had two jobs. And when he called, we sat down, we talked, and I eventually said, "Yes." And from there, it was history. Kory Mitchell: How does your role evolve over time? Tony Mallinger: When I look back, it's almost like a blur, but I learned the numbers. I learned exactly what was happening within the business from that side. And then, understand the operations and the manufacturing side of it, and then, eventually get to the growth side of it. I'm a big believer that manufacturing should be a weapon for sales. And it wasn't quite set up that way. There was a lot of work to do in order to help get the company set up straight in order to grow properly. Kory Mitchell: Well, let's talk about growth. Did anything click for you? Did something fundamentally change for the business? You go from 10 million to 62 million over a period of time. How the heck do you go from here to there? Tony Mallinger: It took changing the company. We got the right people in, and I didn't get it right the first time, right? So, it's trial and error. And eventually, in 2012, I ended up getting my VP of sales. Took the right leader in that place. We started develop as strategic accounts. So, for us, we were dealing with, call it multi-facility owners. Think about guys like... We were doing all of the McDonald's in the country, Walmarts, Aldis. So, we would go after all these big chains, and then, really develop system sales for them and reoccurring sales, which is a big thing. Kory Mitchell: What kind of systems did you put in place to support the sales team over time? Tony Mallinger: We spent a lot of time developing systems that allowed us to be fast. What I learned in this industry is you don't have to be the cheapest, but you have to give value. They have to perceive that they're getting value for what they're buying. If somebody called for a quote, we want to make sure that we are getting it out in 32 minute. If something's coming in today as an order, we need to get you an acknowledgement today. The other big thing was lead time. One of the biggest drivers of our growth was we developed a, call it a product line that was built around speed. So, we bumped up our raw materials on certain types of products. We put finished goods on the shelf. You order it today before noon, we'll ship it out tomorrow. We really started to generate a lot of interest and a lot of loyalty because we're able to match the manufacturing and supports out of the business with what was needed in the field. Kory Mitchell: When do you make a decision to grow your production and how did that go for you over time? Because you have to 6X your production over the next 20 years. Tony Mallinger: That is a hard thing to do. There are points in time over my 25 years where I could say we did it phenomenally, and then, there are other times where we got caught where we couldn't support the growth. We went from, call it 40,000 square feet to almost 75. I think in '01, we built another 30,000 square feet, so we really tried to stay on it. And then, in 2008, we built another 32,000 square feet. And then, 2018, we built another, I think, what was it? Another 40,000 square feet. We were doing our best to really try to stay ahead of that curve, but within that time, I can talk about several years where we just got behind, and we're very cyclical based on the construction industry. We do a ton of schools. So, when school lets out, if you can't handle that, your backlog starts to build and build, and now, you've got a really upset customer base. We've had to work ourselves through many of those jams, but there's other times where I can say that we were ahead of it, and it was great. So, it's a tricky science. Kory Mitchell: I live in Colorado. Super dry here. And for years, I put an electrolyte in my water. It just makes me want to drink it more. I tell all the businesses I work with, keep your guys hydrated. We talk about hydration as one of the number one points of safety. I've been using Salt of the Earth. This stuff's great. It's got great flavor. You can just throw them in your bag and wherever you go, just throw it in the water bottle. It'll keep you hydrated, and they taste great. The grapefruit's my favorite flavor. They also have this four-pack that's pretty sweet. You can try them all. And now, they've introduced the creatine, which is also awesome because it's one of these things everyone's talking about now. You got to get your creatine in every day. So, try Salt of the Earth. For all the listeners of The Turn, you can get a 15% discount. Just use code ICONIC or click the link in the show notes. Kory Mitchell: It's a family business. Family businesses are hard. Everyone that's in one, including myself, will tell you, family businesses are complicated. I also know you had some other siblings in the business. When did they join? What roles did they take on? Tony Mallinger: I had two other brothers that come in the business after me. My youngest brother stayed on the growth side of the business, and he ended up in estimating and really understanding the technical nature of the products. He eventually became chief operations officer. My other brother, he came in as the IT leader and managed our ERPs, our CRMs, and making sure that we had our systems up and running. He had a niche part of that business that none of us had. Kory Mitchell: You become president, CEO of the company. Does that create problems between you and your brothers? Tony Mallinger: The biggest problem I probably had was there was probably alignment issues with my youngest brother, but it did create some tension. We had to work through that. It's never easy reporting up to your brother, but I really do applaud the efforts that we took to try to make sure that we were at least positioned correctly the best way possible to prevent the misalignment that we could have. Kory Mitchell: Family businesses are hard. It's tough enough to be in partnership with a friend, but when you do it with someone with your last name, it's so much more charged. And at the end of the day, you want to be able to go to Thanksgiving and Christmas together and go to the family reunion together. And when your whole life is charged with these tough, tough business decisions that you don't always see eye to eye on, it makes running the business sometimes feel impossible. Kory Mitchell: Well, let's talk about it. What are some of the strategies you all went through? Tony Mallinger: When I became president and CEO, my father ended up moving to chairman of the board. And one of the things I said to him was, "Okay, if you're going to move to chairman, then we really need to make sure that we have a proper board set up." So, what we did is we actually brought in a family consultant, and he was good overall. He helped set up this structure where I no longer was reporting to my father. I was reporting back to the board. We had a fiduciary board. Prior to that, it was just a board made up of some accountants and bankers, and the typical company stuff that you do. We ended up bringing on a couple people. One was a 40 years of experience in manufacturing. The other was more on the growth side of the business, but was running a couple hundred million-dollar companies, both in the private and public world. Tony Mallinger: So, we were able to add a couple of those pieces. And then, we had my two brothers and me and my father on the board as well. We really did the work in order to make sure that it was set up right. We had the right goals, the right budgets set up and the right plans in order to succeed. So, that was a big plus for us. Kory Mitchell: This is pretty advanced thinking, because I'll tell you, most family businesses your size, for lots of reasons, they don't think they need a board. They don't want to spend the money on a board. So, tell us a little bit about how that works and what does fiduciary mean in this sense? Tony Mallinger: So, basically there's teeth in the game. And in my opinion, the members of the board are there to provide a vote and a direction. When you're signed on, depending on how you're set up, you're getting votes on and able to use based on decisions that need to be made within the company. So, these are typically paid positions. It's more of a professional situation where it's legally bound. It's not, "Well, we're just going to create a board, and I don't really care what you say. You can talk all you want, but I don't have to do anything about it." Where this was much different. When the board members spoke, we really listened, and they had say in the game. Kory Mitchell: There's a lot of trust that goes with that. Tony Mallinger: Yes. Kory Mitchell: I'm sure that was hard to select the right people. Tony Mallinger: We didn't get it right the first time. We eventually settled on a couple that really led us to where we are now. Kory Mitchell: One thing that's so different about Tony and what his family did is that he put in place a fiduciary board. That's so unusual that people take that risk. Typically, what you see is, hey, this is my business. I want to run it. But Tony and his family knew working together as a family was going to be nearly impossible. Kory Mitchell: What about equity? So, you've got four family members in this business. You're president, CEO. Your dad's chairman. This is a real tricky thing for families to figure out how to get equity to children. How did you or did you figure this out? Tony Mallinger: Another thing I'll credit my father with. Before I came in the business, he was 50, 50 with his partner, and we had a couple companies that were owned 50, 50. Well, in '99, they split up in a good way. It was a good split. And what they decided was that my father was going to buy the 50% shares from his partner on Metal-Era, and his partner was going to buy the 50% shares of a distributor that we had. So, we had a fairly large distributor, independent rep distributor company as well. And so, his partner took that. When my father bought the shares, he ended up having his kids buy it. So, what we did is we ended up getting 30, 30, 30, and my father kept 10. He kept most of the voting rights, but the equity got into it. So, it was sub 10 million at the time. Tony Mallinger: So, the equity, it was at a reasonable cost. And what he did is he set up notes. So, over time, as the company performed and we had dividends paid out, we ended up paying down the stock, and my father got paid out. But if he would have waited till we sold, there's no way we would have been able to afford this. So, he did just a phenomenal thing, send us up early on. Kory Mitchell: So, clarification, was it 30, 30, 30, 10 of the 50 or of the whole business? Tony Mallinger: Of the whole business. Kory Mitchell: Oh, wow. Okay. That's really forward-thinking of him at that point. Really in estate planning as well, as it turns out. Tony Mallinger: Yes. Kory Mitchell: Was there ever something that you wanted to do that the board said, "No," to, or something that you disagreed with your family on? Maybe the board said, "Yes," to you. I'm just curious of some of the scenarios that could have happened with that fiduciary board. Tony Mallinger: There were a lot of times where we knew we had to invest on the growth side of the business. It means we've got to bring in salespeople. It's hard to get the sales if you're not going to invest in someone to go out there and try to solicit it and get it. That has been one of our biggest struggles. It slowed down our ability, I think, to go out there and really try to kill it. There were other times where we had opportunities for probably some M&A, and the appetite of the board just wasn't there, mainly coming from my father. That was always something of contention. Kory Mitchell: What drives you to actually sell this business? Because from the outside looking in, I'm seeing, wow, incredible growth. I assume you have strong profit, so it must have cash flowed well. This sounds like a great business. It's growing like crazy. Why on earth would you sell it? Tony Mallinger: This is probably one of the toughest days that I can remember. I'm in a meeting, and it was with my father and my two brothers and we're coming off a really good year, and everybody is just miserable. There's no joy. And I'm like, "Why in the world are we doing this to ourselves?" There was alignment issues between me and my youngest brother, and my father here, God bless him, was really trying to treat everybody the same. So, he had a hard time trying to understand it. I remember going out to lunch with him and saying... This is 2019. So, if you remember 2019, it was the top of the top when it comes to M&A and stupid valuations and PE, strategic, everyone's paying up the wazoo, and I'm like, "This is our time. We've had a huge track record. We're coming off another great year. This should be something we consider." Tony Mallinger: And he wasn't happy, but he's like, "Why don't you bring it to the brothers?" And I ended up doing it and after some time, everybody's like, "Okay, let's do it." So, it was tough, but I think everybody understood there probably at that point where we were, our ability to go forward probably wasn't there. So, in my opinion, I think we got out at the right time because the last thing we wanted to do is start impacting our employees, the company, their families, everything else. So, that's when we chose, was probably Q1 of 2019. Kory Mitchell: So, what's the process look like? Tony Mallinger: We had no idea. We don't have a clue what we're doing at all. Luckily, we had a good board. One of my board members took the lead. He had a PE firm. He's like, "All right, here's what we're going to do. The first thing we're going to do is we're going to go interview attorneys. We're going to get our attorney first." So, we did exactly that. And we brought in three, four attorneys, and we decided on one, and we knew we were overpaying because we knew we had one shot at this. That's the thing. If you're going to go to sale, everybody maybe wants to look at how to do it, and then, save costs in that. We had full commitment to say, "We're going to do this once. We're going to do it right. We're going to get the right people. I don't care what it costs." And we did that. Tony Mallinger: That was the first step is we brought on one of the best M&A guys in the Milwaukee area. And then, it was a matter of we knew we needed a banker, and we didn't know anything about it, and we didn't know the craziness that a banker's going to now bring, but we ended up bringing it down to five bankers. And I remember we rented out some space, and we had them all come in and interview them. We had one that just blew us away. And soon as they came on, just unbelievable presentation. I'm trying to think if their valuation was the highest. I don't even think it was the highest, but everything about them said, "Yeah, let's go." Kory Mitchell: One of the cool things about Tony's story is that they actually made some really tough decisions from bringing in a fiduciary board, which costs money. All of a sudden, you have someone you report to, even though it's your business, all the way to hiring the best M&A attorney that they could find. They knew he was going to be expensive, but they knew they wanted the best. And finally, when they went to sell their business, having the right team around them was so critical, and they were thrilled with the results. I'll tell you that some people try to go it on their own and sell their business with their mom-and-pop attorney from their small town, and that almost never goes well. You need the level of support around you to be able to get the result you're looking for and to present the narrative of your company and your story because without that, you'll almost definitely leave money on the table, and the process will almost definitely be harder. Kory Mitchell: Did they deliver the value that you expected from that presentation? Tony Mallinger: They did and more. Kory Mitchell: Awesome. Tony Mallinger: We were pretty fortunate. Their range wasn't huge, which was good, but we actually, I think, surpassed the range. And the way they worked the deal, it set us up because we were able to take the real estate out and keep that and do some things that really helped set up the sale properly. Kory Mitchell: You sell the business. You get a valuation that you're really happy with. It sounds like it was above the range that even that your bank told you. What happens next? Tony Mallinger: So, they allow me to lead the process because honestly, only one person can do it. This can't be by committee. So, I was fortunate to be able to lead the process, but I still didn't know what was all coming because companies like our size are never set up with the right KPIs and the right data. We think we're all tracking the right things, but we weren't. We had to go find what that was and be able to tell that story. So, we were able to do that, put the data book together, put the SIP together, and then, went out to IOIs. And I think we had over 400 IOIs. We narrowed that down to 13. I probably gained about 40 pounds. Every other night, it was something. It was crazy. Kory Mitchell: All the steak dinners and the- Tony Mallinger: Absolutely. Kory Mitchell: ... wine and all that stuff. Yeah. Tony Mallinger: We ended up whittling that down to three. We ended up whittling that down to one. And it was a group out of New York. I'm working through the purchase agreement, and it was a bear. I remember finishing the purchase agreement. I think we went out to dinner. We came home. I went to sleep. I slept till noon. I wake up at 5:00 in the morning every day. I slept till noon. It was a huge load off of my shoulders. That was March 4th of 2020. We got the purchase agreement signed. Well, that following week was when COVID happened. We were fortunate that they didn't bail, that they stuck with us, and we ended up closing on April 17th. Not only did I have to run a company with my family out, I had to run the company in the midst of COVID where you're battling every employee wanting to leave. Tony Mallinger: We were busier than hell because all the schools are let out. Now, all the schoolwork is opened up, and they need product to put it on. I sent my office team home to go work from home, and I've got a production team that I need there in order to produce some materials, and they want to go home. And it's like... I can't believe we got through it, but we did. Kory Mitchell: You close on the deal. You ended up staying in the company. What happens to your dad and brothers? Tony Mallinger: My dad ended up retiring. My other two brothers, one ended up buying a manufacturing company not too far away. And then, my other brother ended up building, shortly after, ended up building this massive indoor sports complex, like 150,000-square-foot sports complex with two softball fields, a football field, six basketball court, hard courts, multiple levels. So, they were all able to take what they got from the sale and be able to translate it into something new and fun. Kory Mitchell: Amazing. So, you stay in the business. What role do you take on now that you've been acquired by a PE fund? Tony Mallinger: We were very selective, and that's the thing with selecting your partners. And that was probably some of the best advice that I got. We need to make sure that, one, I wanted partners that didn't have operators. I didn't really want them in our business. I wanted to still run it, so I was still president and CEO, and then, I was able to keep my entire team. Kory Mitchell: So, fast forward, what comes next? Tony Mallinger: We're in the midst of COVID. So, it's April, I want to say June, I come to the board, I've got an acquisition opportunity. I've been staying close with my number two competitor, and they called and they're like, "Let's talk." Because they knew, we had money behind us. We threatened that we're going to add a facility down south and they're like, "We're not going to do this anymore." And they were located in Asheville, North Carolina. They went with it, and we dug in. We ended up buying that on February 1st of the following year. And then, we continued to grow it, and our strategy kind of changed. So, we owned the number one and two positions on the edge market. At that time, we were probably around 80 million. We really strategized of how are we going to get into the building envelope? We knew we had to expand off the roof edge and onto the building walls. Tony Mallinger: So, what we did is, at first, I ended up hiring a company to go out there and try to find opportunities. Nothing really came about that, but through a relationship we had through our national accounts, we were using a vendor. We ended up working with a company called Citadel Architectural Products, and they were on the wall side of the business doing ACM products, so aluminum composite metal panels. We ended up talking, and they had three owners, all over 62 years of age, and no succession plan. And I'm like, "Perfect." So, September of '23, we ended up buying that. So, we were fortunate. We were able to take a $62 million business and be able to, in four years, almost to the day, take that to about 130, doubling both top line and bottom line. And we did it through a combination of organic growth and acquisitions. Kory Mitchell: That's incredible. Kory Mitchell: So, what you see in Tony's business is somewhat typical of conservative, small, particularly Midwestern family businesses. They're really financially conservative. They are able to sell the business. They have a financial backer, and all of a sudden they're doing M&A, and they're able to release the reins a little bit. Tony goes out a few months after he sells, and he buys his biggest competitor, and it's a home run. And over the next couple years, they're able to double the size of their business because they're able to take some of the guardrails off, buy some great businesses, and take their business to new heights in a way they just wouldn't have been able to do on their own if they were following the same old rules. Kory Mitchell: I know that you went to sale again. How much integration did you have to do before you sold? Tony Mallinger: It was a lot on the financial side, a lot of Power BI. We didn't do anything with ERPs. We were running a company with three different ERPs, and we tried to run them separately. So, to give you another example of where our growth came in, Metal-Era was the flagship, and we had 33 independent reps. Well, when we bought Hickman, they didn't have independent reps, or they had very little. So, we ended up putting in another 33 independent reps. We went in further with their brand. So, we were able to create some nice competition, even though it was internal, but out in the field, and we really elevated our sales efforts. Tony Mallinger: And then, Citadel brought the ability... They had so much opportunity that was left on the table that we just had to give them a spark, bring in some new people, but we didn't do a ton of integration. We didn't have a ton of time, to be honest with you, because at the end of 2023, the board decided that we're going to go to market and go through another process, and we ended up selling the company on May 1st, so there wasn't a ton of time. Kory Mitchell: I assume you got a good return on investment for the fund? Tony Mallinger: Absolutely. I think they ended up paying roughly about 180 million originally. I think we sold it for 410 million. Kory Mitchell: Wow. Tony Mallinger: So, there was a substantial return on that investment. Kory Mitchell: Incredible. What an awesome story. Kory Mitchell: There's this perception out there that you sell for a huge amount of money, and how could anything be hard? The overwhelming reality is that most owners that go through a sales process have a really hard time post-exit. Tony's fresh in this journey, and he's still just figuring it out, but I could promise you, he's going to have some soul searching to do because so much of his idea identity is tied up into a business that he worked in and grew from a very small mom-and-pop to a national leader over 25 years. That's a tough transition. Kory Mitchell: How's the family now? You had this tough go. You guys are all making a ton of money. Everyone's pissed off at each other. How are you doing now a couple years later? Tony Mallinger: I will tell you, the years after the initial sale were rough. It was really, really rough. And I wasn't talking to one of my brothers. The other, I was talking to, but it was just different. And my father, I still had a relationship with my parents, and that was good, but it was rough. Even though it ended well, I don't think it ended like anybody wanted, if that makes any sense. Now, fast-forward, the last couple years has been tremendously better. And we're now going to family gatherings and doing all this stuff. So, it's been much, much better. Kory Mitchell: I'm so glad to hear that. Some of these wounds in family businesses can be deep. It's one thing to make a lot of money and have this really successful business, but you also want to be able to go to Thanksgiving dinner. Tony Mallinger: Absolutely. Kory Mitchell: Well, let's talk about a little bit of fun stuff. You left the business, and it's pretty fresh, right? It's like last month. How does it feel? Tony Mallinger: Week one, there were moments where I'm like, "Damn, did I do the right thing?" There's still loose ends I need to tie up. And I've had some meetings with some boards I'm on. And I was telling someone earlier, it feels like it's Saturday every day. I can wake up, I get my kids off to school, I go work out, and then, I got people coming over. I'm starting to settle in. And the most important thing I'm trying to tell myself is not jump into anything too fast. Because I know I'm not done. And then, I know I have another chapter left in me, but I don't know what that is, and I don't want to rush it. And I want to take time, enjoy the family. I've got a daughter who's a senior. She's 17. We're working through all the college stuff. I've got a son who's in eighth grade. He's 14. He's finishing up grade school, and then, I've got a third-grader who's nine. So, my kids are still extremely young. So, I'm very fortunate that I can take the time off and spend it with them right now. Kory Mitchell: Amazing. Well, on that note, Tony Mallinger, this story was awesome. I feel like at some point down the road, I want to do a second episode. I'd love to see what your next act has in store. I'm excited to hear what you do with some of this downtime. In the meantime, thank you so much for joining us, being willing to share some stories, some of which are tough. And until next time, let's win. Tony Mallinger: I love it. Very nice to meet you, Kory, and best of luck, and I'm happy to talk anytime. Kory Mitchell: One of the things I loved about Tony and his story, he admits you can't do it without the right people around you. I've been fortunate because I was Tony years ago. I had no idea who to ask for help from. Now that I've been through this journey over the last several years and sold my own business and seen tons of transactions, I now feel like I can take blue-collar founders through the process in a way that's so much better than the experience I went through. So, if you need some support, reach out to us at theturn@iconicfounders.com or go to iconicfounders.com and look us up. I'd love to hear from you because I love it when the good guys win. Kory Mitchell: One of the things I loved about Tony and his story, he admits you can't do it without the right people around you. I've been fortunate because I was Tony years ago. I had no idea who to ask for help from. Now that I've been through this journey over the last several years and sold my own business and seen tons of transactions, I now feel like I can take blue-collar founders through the process in a way that's so much better than the experience I went through. So, if you need some support, reach out to us at theturn@iconicfounders.com or go to iconicfounders.com and look us up. I'd love to hear from you because I love it when the good guys win.