Podcast: Tech Exec’s Investment Strategy Leads to Acquiring a Towing Company
Matthew Saskin is not your typical owner-operator acquisition entrepreneur. The new owner of East Coast Towing in Raleigh, North Carolina, isn’t an operator at all.
With experience spanning real estate investing and leadership in technology startups, an eagerness to learn quickly, and an understanding of M&A, Matthew purchased a $5 million towing business that he’s already begun to improve in just four months, all while having someone else handle the day-to-day.
Time in Tech Connecting with People
Matthew had what might look like a fairly traditional trajectory before buying a longstanding business in the towing industry. The 38-year-old graduated with a degree in computer science from a STEM-oriented school, then dove into the tech sector. He didn’t, despite his degree, dive into coding.
Matthew’s place was with people.
He found his groove on the management side and built his experience as a go-to-market expert. He spent years in New York before moving down to Durham, North Carolina, about a decade ago.
Along the way, he and his wife also became real estate investors, starting with the purchase of a triplex and building on that until they had a portfolio of 50 doors.
A few years ago, amidst a soaring market, Matthew saw an opportunity to sell off their real estate portfolio and took it.
Out of the landlord game, Matthew set his sights on acquiring an existing business with his now-flush balance sheet.
An Acquisition Entrepreneur with Slightly Different Goals
Unlike most searchers, Matthew was not trying to buy himself a job when he started looking to acquire a business. He actually wanted to keep his current corporate W-2, a job he genuinely enjoys.
His sweet spot had been to act more as a capital allocator, an entrepreneur who owns a business without running the day-to-day. That’s what he had done as a property owner, always hiring a management company to take care of tenant issues, rent collection, and maintenance.
That was his goal again as he turned his attention to buying a business.
Strict Search Requirements
The kind of business Matthew was after was one where he could hire an operational manager to run everything. That meant it had to be big enough, and generate enough cash, to support debt service, reinvestment, and a well-compensated executive leader.
He was also clear about what he didn’t want, partially based on his existing experience, and partially based on what he was seeing in the market.
He didn’t want to explore the growing home services sector (HVAC, etc.). The market in his area was already dominated by several companies with a large footprint and good processes, and he also wanted to avoid licensure and other paperwork headaches in those industries.
He also wasn’t interested in the tech sector, where he saw inflated valuations, low margins, and little wiggle room to reinvest in or grow the business.
Beyond that, he wanted a business with an office 45 minutes or less away from his home for moments when he would need to go in.
“The goal there was as an absolute fallback plan,” Matthew said of the geographic requirement. “If things went completely sideways, I'd have the ability to step into the business full time, or my wife would have the ability to step in and help with things. So that's always the contingency plan.”
All told, he spent about six months searching before finding East Coast Towing on BizBuySell, closing on it in early December 2022. During that time, he connected with brokers and browsed BizBuySell. He went through close to 50 CIMs (confidential information memoranda) and had between 10 and 12 seller conversations. After spending about eight hours talking with the sellers of East Coast Towing, he submitted his first and only LOI (letter of intent).
East Coast Towing Ups & Downs
Like many towing businesses, East Coast Towing was proudly family owned and operated, and had been around for 25 years when Matthew came upon it. It had passed through a difficult moment six years prior, when the original owner passed away in 2016. That sent the company into a financial crisis, and it filed for bankruptcy.
But with better management in place, it got back on its feet and had been operating smoothly and making consistent profits more recently. It was around the $5 million mark in revenue, with 15-20% margins.
The sale price of the company ended up being $4.1 million, with over 75% of that being in assets that included the 30 tow trucks, shop tools, and other equipment.
Because it had been run by a family, and in some ways like a family, there was a great deal of employee loyalty, which also came with some dissatisfaction and concerns right after the sale.
Some long-time employees felt slightly betrayed by the sale of the business.
“There were several employees who were really upset week one, just super emotional,” Matthew mentioned. “Especially the ones who had been with us for, say, 10+ years that were very close to the original owner and founder who had passed away, because this was truly the end of his family running this company.”
Matthew had his work cut out for him in making sure all the employees understood their value in his newly acquired business.
Taking Over Involved Lots of Listening
Despite not planning to be the daily business operator, Matthew knew he needed to spend some time with his new team, so he took the first month of owning East Coast Towing to do just that. He leaned into his management skill set and his EQ, and just did a lot of listening.
“For us, the first 30 days was probably about just having that EQ right, having the ability to empathize and sit down and talk with people who realistically come from a very different background than I do, than most searchers come from,” Matthew explained, highlighting the distinctions between his own white-collar background and the blue-collar experience of his team.
Matthew was able to ask the right questions to get at the heart of what drove his people:
- Why are they here?
- What motivates them?
- What are their fears about everything that's going on?
And while Matthew’s business experience may be white-collar, he is passionate and knowledgeable about the thing at the core of the towing industry: cars.
He knows his way around under the hood and loves to work on his own vehicles, joking that he might’ve been a mechanic under different circumstances. That common ground has helped him make his new employees more comfortable.
Finding and Incentivizing the Right Kind of Operational Leader
Matthew also doesn’t have to shoulder the challenge all on his own. His general manager, who was brought in to run the day-to-day operations as planned, is “another Matt”. He’s a Navy vet with 20 years of experience leading large teams. He also has years of experience in the SMB operations world as a consultant at various incubators.
“I was truly looking for someone who could do [people management], and also be a strategic partner in the growth of the business because the intent is we grow it and we can put in additional managers as things expand,” Matthew explained.
Matt happened to meet all of Matthew’s criteria, and even exceed some, as the perfect fit for the role. His depth of experience in the Navy where he led ships of up to 90 enlisted sailors with structure and rigor, his past tenure in a COO role, and his strategic thinking made him the right candidate from a small pool of highly qualified individuals.
“And then, obviously, the key thing is we got along really well,” Matthew said. “This is someone who I'm interested to do quite a lot with and I'm spending a lot of time with and, you know, want to make sure that we get along with one another, have the same goal in mind.”
Matthew also made sure to carefully incentivize Matt to align his interests with the business’s larger mid- and long-term success. He included above-market base pay and a 30% variable cash structure tied to growth and EBITDA. He also offered a 4-year “phantom equity” vesting program that will allow Matt to also take some distributions when the time comes as well as profit from any future sale of the company, all without having actual stock ownership or stake in the business.
Hitting the Ground with More Improvements
Some of the immediate changes Matthew and Matt made upon taking over were simple but impactful for their shop and team.
One early problem that employees mentioned had been lingering for over a year was a broken vacuum that made it difficult to keep the place as clean and professional as they would’ve liked. So Matthew went out and bought a new one and also set up a cleaning service to come in periodically.
This, he explained, was just one small way to move the needle and show his team that their voice matters, to encourage them to bring up small, easily fixable problems. It fostered goodwill and empowered his people, all part of building the kind of culture that makes employees happy and contributing to the company mission.
Among other low-hanging fruit Matthew and Matt tackled was East Coast Towing’s online presence.
They’ve hired professionals to update the website and have grown the number of Google Reviews from the mid-400s to the mid-500s, with a 4.8-star rating average.
Matthew also outsourced bookkeeping responsibilities, which were taking up nearly 90% of a previous co-owner’s time at the business.
With the right management team in place, and everyone empowered to do what they know and do best, Matthew sees a promising future for East Coast Towing.
Current Involvement and Future Plans
Despite not being operationally involved all the time, Matthew still spends several days a week working out of the East Coast Towing office. He may be there actually working on his W-2 job, but he feels it’s important to be visible and build rapport with the team.
He also enjoys getting to participate in some of the trainings, including learning how to use some of the towing equipment, and he’s gone out to jobs to see the work in action.
In the next six months or so, he envisions cutting back his in-office time to one day a week, and within two years, he’d like to be totally hands off. It’s something he can confidently do because of the work he’s been putting in to set up and streamline the basics and ensure that the right decision makers are in place to efficiently run East Coast Towing.