Ep. 4: Family Office: An Alternative Approach to AEC M&A

The Family Office is a winsome alternative to traditional private equity in the AEC industry. Join your host, Jeff Adams, as he discusses this topic with Chris Cook, CEO of ELEV8 Holdings. ELEV8 Holdings is an investment company dedicated to reshaping and consolidating the fragmented civil, structural, and architectural engineering sector across the United States. 

Chris Cook shares his unique journey and discusses how Family Offices provide a more personal touch and greater autonomy compared to traditional private equity. Learn about the Carling Group’s entrepreneurial spirit and how their Family Office model is designed to foster growth and collaboration within the AEC industry.

The conversation reviews the concept of a conglomerator, highlighting how the Carling Group’s strategy of building a diversified portfolio across multiple sectors, including technology, sports, health, and buildings, can benefit AEC firms. Discover how ELEV8 Holdings is selecting and vetting potential investments, their approach to partnerships and exit strategies, and why Family Offices and conglomerators might be the future of M&A in the AEC sector. Whether you're an industry professional or simply curious about alternative investment strategies, this episode offers valuable insights and expert analysis.

Tune in to understand this transformative potential in the AEC industry and why they are becoming a preferred choice for many business owners looking for growth and successful exits. Don't forget to subscribe and leave us a review wherever you get your podcasts!

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Transcript

[Intro] 00:00

Welcome to AEC Unscripted: M&A Edition, your go-to podcast for unfiltered conversations and expert analysis, brought to you by Stambaugh Ness.

[Opening Credits]

Jeff Adams 00:27

Welcome to AEC Unscripted. I'm your host, Jeff Adams, the Director of Mergers and Acquisitions at Stambaugh Ness. Today, we're going to be exploring an alternative to private equity investment, referred to as the Family Office. I'm delighted to have you joining me for this episode, Chris Cook, the CEO of ELEV8 Holdings. That's ELEV number eight, ELEV8 Holdings, an innovative investment company headquartered in Florida.

ELEV8 is dedicated to reshaping and consolidating the highly fragmented civil, structural, and architectural engineering sector across the United States. The ELEV8 leadership team and its International Investment Family Office have successfully transacted a multitude of deals in the UK, Spain, Middle East, and the United States, forging a path towards greater efficiency, collaboration, and growth. Chris, thank you so much for joining me today.

Chris Cook 01:26

Thanks, Jeff. Thanks for having me on the show.

Jeff Adams 01:28

Absolutely. Chris, briefly tell us a little bit about your background. It's very interesting. How did you end up being CEO of ELEV8 Holdings?

Chris Cook 01:38

Yeah. So, a little bit of a twisted history in terms of taking the road less traveled. I started out in IndyCar, and my family got me into racing and specifically, what I started learning very early on was the art of sponsorship. So we worked with sponsorships like Gatorade, Dodge Motor Company, Champ Car, Quaker State Motor Oil, and what quickly became apparent to both my dad and I was it was all about getting these sponsors to do deals with one another.

And so what happened after that? After being fairly successful and reserve champion, doors started opening up in the equine industry because I was; my dad owned a nice equestrian estate fairly close to equestrian programs, and I was mentored by a very successful businessman who also taught me how to expand horsemanship in horse businesses around the world.

And so with that, really got me understanding was the mindset of investors, how to raise capital, how to encourage people that they were going to see the return on their investment, and then also understanding selling a dream and selling a vision. And so what that really did for me is opened up why investing is important, and led me to, myself, start acquiring companies; my first real acquisition outside of raising capital, an already established business, was a business brokerage and a media company.

Specifically, we brought $1.4 billion of investor liquidity to the Ocala metro area through our EIR Academy program, which was introducing investors into the Ocala metro. And then also, we were putting deals in M&A, commercial real estate, and a few other industries together. And we really saw that the major part of media was being able to build relationships. And so, we that used in order to see what the advantage of being in M&A was. 

That's where I met our chairman, Graeme Carling. Specifically, we started discussing how we could work together in the future. And I said, you know, I see a great opportunity in civil and structural engineering. We developed a feasibility study and pitched the idea. He really thought that, especially in the current market of owners looking to retire and what he had done in conglomeration internationally, that this fit into the business model. So, we decided to form ELEV8 Holdings along with my co-founder, Dan DiVincenzo. I'm a deal guy; I'm the one who works on the deals and looks at the numbers. Dan is an industry expert that's been in civil and structural engineering for the last 20 years. We really are passionate about helping owners grow in their companies and be able to see the retirement advantages of some of these businesses that have been around for 20 or 30 years.

Jeff Adams 05:01

Chris, thank you for sharing that background. It's very interesting, and I think it shows how the entrepreneurial spirit exists, not just inside the architecture and engineering space, but to individuals like yourself as well, where you've honed in and, I'll say in a roundabout way, came on to the civil and structural space, where you're working with other entrepreneurs and finding the investment dollars to get into the space.

So tell us. You mentioned Graeme Carling a while ago and your partnership with him as chairman of your board. Tell us a little bit about the Carling Group.

Chris Cook 05:41

Yeah. So, we'll start with Graeme. Graeme came from humble beginnings. He started out in joinery, which is carpentry in the UK. He saw that that wasn't for him, and he decided that going into a life of entrepreneurship was really where he wanted to focus. He had started and failed at some businesses before he really found commercial real estate. He saw that education was one of the biggest things missing in investing, so he decided to educate himself. Through that education, he built out one of the biggest private real estate portfolios in Scotland and is now the largest tenant holder in Scotland.

Through that process, he started seeing that M&A was even more of an opportunity, built out Carling Group Equity Partners, and started what's called a conglomeration. That is, being able to enter multiple sectors. Right now, they're in technology, sports, health, and buildings, and then also looking at other businesses like civil and structural engineering.

So, what the Carling Group really does is they're able to see the talent of people based on an industry, put talented people together, grow a portfolio, and help those businesses have wild success. And so that's kind of the short version of the Carling Group and their equity partnerships.

Jeff Adams 07:19

So yeah, hearing Graeme's story is somewhat similar. Both entrepreneurial spirit in there and finding different ways to do things. How would you say family office, which is what the Carling Group would be considered? How is family office different from private equity?

Chris Cook 07:39

Yeah. So, in private equity, typically speaking, you're going to be raising outside capital. So you'll have GPs and LPs, and that outside capital is coming in from a multitude of investors. Whereas family office, is usually one family,depending, it can be multiple families, but just to keep it simple, it's usually one family that has their own capital and is investing in projects.

And what you find is that the family office often has a more personal touch to it. And that's what we really liked about working with the family office and Carling Group. It's a very personal touch. Also, there was a lot of autonomy in the businesses that we were looking to acquire. You know, we're not looking to come in and totally restructure everything.

We're looking to keep a lot of quality leadership in place. So, private equity is a little bit different, especially with the outside capital and all the shareholders that they have to answer to. Things can be voted on that may or may not be in agreement with the owners.

Jeff Adams 08:42

How does a family office and people like yourself find each other? You told that story, and it was in a totally unrelated way, where you struck up a conversation with each other and said, hey, what about this area? Did I hear that correctly? That's the way this all came about.

Chris Cook 09:05

Yeah, absolutely. Yeah. So, how we found each other was through a media relationship, and we've built several media relationships because we've been talking to so many investors. But there are family office networks, and there's a multitude of ways that you can get in contact with family offices, like the Carling Group is on several podcasts and TV shows that encourage businesses to contact them directly.

We were lucky in that we had a relationship, and we decided to go into a venture together based on that relationship. But it's fairly easy to contact most family offices.

Jeff Adams 09:48

Very good. Listen, you also mentioned another term a while ago, and that's a conglomerater. Explain to our audience what the conglomerater is.

Chris Cook 09:58

Yeah. Essentially, a conglomerater is looking at several different verticals. And so, whereas some M&A firms, they'll only look at one vertical, and that's all they'll pay attention to, a conglomerater usually has a large board that is comprised of entrepreneurs that are very successful in a multitude of industries, and they're really looking at growth. They're experts, and no matter what business they're looking at, they know how to add on additional cash flow, directors, and employees to grow the business and then capture multiple equity opportunities for the business owners. And so the conglomerater, the reason why we felt that that was important, is because we wanted people that had expertise at a multitude of transactions in a multitude of industries, not necessarily just one. So that's the brief description of a conglomerater, is that they're rolling up in M&A, or rolling up is 10 or 12 businesses at a time. They're rolling up multiple industries.

Jeff Adams 11:16

Very good. No, I think that's very helpful. Let me ask this question: You hear in your background that you don't have any experience yourself within the space. But you mentioned your partner Dan. How does he fit into this equation and help you as you uncover opportunities within civil and structural engineering?

Chris Cook 11:41

Yeah. Dan's really critical. What his specialty is, is that he can get to a granular level and look at a business's numbers, operations, and SOPs, and really determine where the best areas for growth lie and what new opportunities the business can capture, specifically with contracts and marketing.

And what he brings to the table is that he's been able to scale, I believe, three companies three to four times in under a year. And so that really comes from internal growth, and he understands the systems procedures and outreach that are needed to grow mid- and just below-large civil, structural, and architectural engineering firms.

So that's one of the things that he comes in and does for us and is a vital part of what we do.

Jeff Adams 12:49

It's very good. Yeah. So I hear the entrepreneurial spirit on one side, working with the people where the capital comes from. Right. And putting the deals together. But then having the person who's got the operational expertise in the space, I can definitely see the value in you partnering together and really bringing a lot to an AE firm as they continue to grow and move forward as part of your investment group.

So, when you're speaking with firm owners, what do you think they would find most compelling about your investment model?

Chris Cook 13:29

Yeah. Well, one of the things that separates us is, one, we ask you what your dream is, where you want to go, and where you want to take this business. When we listen to most owners, a lot of times, we're having conversations about how sometimes the company has stagnated and reached its growth potential, and they're looking for the next opportunity. Other times, the owners are looking for retirement, so we start talking about what a retirement package looks like and what an exit looks like. So, one of the things that we will start to discuss is whether this might be a good event for you across an entire portfolio of companies.

So, some of the owners might want to capture an equity event in the holding company if that is the right tactic to take, and then others might want to participate in a future exit event and be able to capture more of that exit price based on a higher valuation. So you can kind of think of it as strength in numbers.

So we really look at being able to offer owners a better share program for employees, a better program in terms of their exit event at the end of our working together. And then we really have that personal touch that some companies that come in feel a little bit more institutional.

Jeff Adams 15:03

All right. How do you go about selecting and vetting the criteria for your initial investment? You guys haven't made an investment yet in the US, right? Under this under ELEV8. So tell people what we're talking about here.

Chris Cook 15:22

Yeah. So, we're currently looking at platform businesses. We're really like multi-discipline businesses. What we want is strong leadership and a strong financial track record. Also, owners who want to work with a larger portfolio of companies and see that synergy together. So when we're discussing and getting into conversations, it's more about whether the firm's ownership clicks with us and if they see the vision of what we can build together or if they are looking for a little bit of something different. Some owners want a quick exit and to move on. And we're, we're open to that. We have the ability to do that. And others want to stay in the business and keep working into the business for a certain amount of time.

Sometimes, we come across companies that are happy with where they're at, and that's okay. We say that's fine. We have discussions about possible partial divestitures and bolt-ons. But what we're really looking for is a multi-discipline platform business that we can use as a foundation. And we're being very selective about how we choose that.

Jeff Adams 16:42

So, the firm that comes in as a platform, what I'm hearing you're thinking about is their goals and if they align with yours—and getting that right fit. Then, you can flex the exit timing according to the platform firm's owners. As you start looking at add-ons, I guess what you would refer to them as are the add-ons that you're going to have on this platform once you have them. How does that criteria differ when you're looking at add-ons?

Chris Cook 17:17

Yeah. Sometimes, the criteria really differ, and specifically, it might be an acq-hire situation. Some companies need more employees, so the add-on might be specifically because they need to grow with contracts and handling volume. Or it might be that we've talked to businesses in the architectural space that want to have a civil outreach. They want more civil exposure. So we start looking at, okay, the next thing that we would do is we would add a civil component to this business. 

So, we really look at it in terms of business specificity. We've formed our potential acquisition criteria for bolt-ons or add-ons based on each business that we're talking to, and if it can fit a whole set of acquisition criteria that we have, that is a fluid process. It's not necessarily something that we zero in on. We really talk with the owners and the founders to make sure that the next businesses that we acquire are the right ones for our model.

Jeff Adams 18:35

Very good. How does ELEV8 involve itself in the day-to-day operations of its investments?

Chris Cook 18:42

Yeah, that's a good question. We like to stay out of the day-to-day operations. We actually do more on the management side of things. We like to be able to have accountability and accountability reports rather than being in the day-to-day operations. We don't necessarily need to tell professionals how to run their businesses.

However, we might have conversations about expectations and key milestones.

Jeff Adams 19:17

So, I guess when you talk about setting these milestones, is this something that you set collectively between the platform leadership and yourself?

Chris Cook 19:31

Yeah. So, it's a collective agreement. We meet with our board and then the board of the companies we look at, and we set collective goals that we all agree on. Then, we measure those goals and make sure that there are no misunderstandings or, if there are goals that are not being hit, we understand why and how we can support whether that's media outreach, financial support, or that might be heading toward the next acquisition.

There might be future growth that needs to happen as well, so more resources can be put in, specifically through acquiring a new company.

Jeff Adams 20:12

So, Chris, let's talk about exit strategy. You've mentioned that a few times. What will that look like to both a platform and the additional add-on firms that you have in the investment?

Chris Cook 20:26

Yeah. So, typically speaking, whether it's a platform or your "add-on business," we usually have a divestiture event where the owner retains a certain portion of their ownership. Across the portfolio of companies, those owners can exit at a higher multiple than if they sold their businesses individually. That might look like a strategic buyer, an assurance firm, or a private equity group. It can take several different looks in terms of that final exit. But what you see is that there's going to be a higher evaluation event at the end. When we're looking at and speaking to the owners, what we really have had some positive feedback on is that for the years that they've spent inside their businesses, this really helps them in terms of getting the highest return on what they've put into the business for the last 20, 30, 40 years, and that helps them and their families and, ultimately, their employees as well because their employees are able to capitalize on the growth of the businesses as well. That might turn into the form of bonuses, such as stock option programs for employees. In some cases, it might also culminate into ownership events for the employees that they can capitalize on.

Jeff Adams 21:53

Okay, Chris, have you made any changes to the operations or the administration of the investment firms?

Chris Cook 22:02

Yeah, there's not a lot we're going to change other than some of the SOPs. But for the most part, you'll see on the accounting side that Stambaugh Ness plays a key role in everything we do, so the accounting is kept in one house.

But as far as procedures, we keep a lot of the procedures in place of the acquisitions that we're looking for, because once again, we're not looking to come in and change everything that's already going well and successful. What we're looking to do is grow and expand on businesses that have already achieved profitability and sustainability. We're able to take that across the portfolio of companies, and that is what we're looking to do in our first platform business: go out and take the philosophy of ELEV8 and the Carling Group and duplicate that through our first acquisition.

Jeff Adams 23:13

Well, Chris, I appreciate you sharing all of this and for joining us. Before we close, is there anything else you'd like to share with our audience?

Chris Cook 23:24

Yeah. If you're looking at a potential exit or a potential divestiture and looking to work with a successful group of entrepreneurs with a track record, feel free to reach out. We'd love to have a conversation. We're open to discussing your future, your goals, and what you're looking for, whether that is working with us across a portfolio of companies or learning a little more about how you could potentially retire from your current company; we're happy to have a conversation.

Jeff Adams 24:05

And, Chris, as I've been listening to you today, as far as your involvement in the Operations Administration, you mentioned you don't change much. You said you will do some consistent accounting and that you are kind of getting some processes aligned. But as far as the system changes like accounting systems or, you know, is there any consolidation that happens there, or do you keep everyone operating on disparate systems, the way they were, however, they came to you?

Chris Cook 24:35

Yeah. No, the idea across The Carling Group and ELEV8 Holdings is that we want everyone in one house, in one accounting system, so our accounting partners, specifically Stambaugh Ness, we see that Stambaugh Ness is going to be the preferred accounting partner across the entire portfolio. One is because having fragments of systems just leads to a lot of confusion and complications in the medium term and in the long term. Then, when we start looking at exit events, those accounting systems need to be very clear, concise, and audited. So, we are not looking for a multitude of accounting systems. We have one accounting system and one accounting house. And that keeps things very simple. And then also for the owners, if they're able to work with a top-tier accounting firm that is able to really come in and do a much better job than any process they currently have in place.

Jeff Adams 25:44

So, when you think in terms of an exit strategy going forward, then once ELEV8 decides to exit, the investment, you see this portfolio of companies staying intact as one single entity going forward. Is that what I'm hearing?

Chris Cook 26:03

Yeah, that's the goal. We don't see a reason to change that. It would be, one intact in an entity that would move forward, into another exit event. And so, breaking it up really doesn't have much interest for us or much advantage for us. We feel that having it together as a portfolio and keeping it together as a portfolio has a lot of security for the owners and the employees, and it has a larger value in the long term.

Jeff Adams 26:40

Very good. Well, Chris, thank you so much for joining us today.

I'm Jeff Adams, and it's been a pleasure guiding you through the conglomerater or option of M&A in the AEC industry. Thanks for tuning in to AEC Unscripted Mergers and Acquisitions Edition. Remember to subscribe and leave us a review wherever you get your podcast. And until next time, keep pushing forward.