All right, I guess we're going to get started here. Good morning, everyone, and welcome to Kingsway's Investor Day. Thank you all for joining us here on a beautiful morning in New York at this august institution, the New York Stock Exchange. My name is J.T. Fitzgerald, and I'm the President and CEO of Kingsway. I'm excited to have the opportunity to share our story with you all today, our strategy, and our vision for long-term growth. Before we dive in, let me remind everyone that some of the statements we'll make today are forward-looking and contain non-GAAP measures. They reflect our expectations based on current information and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Please refer to our filings with the SEC for a full overview of the company's risk factors.
I encourage everyone to review the detailed safe harbor disclaimer on this slide at your leisure. We've got a pretty packed agenda today. I'll start with an introduction to Kingsway, who we are, and what we think makes us unique, and I'll explain our growth flywheel, how we drive value both organically and through acquisitions. After that, our Chief Financial Officer, Kent Hansen, will walk through a business update with recent developments, latest financial results, and progress towards scaling our lean holding company structure. Next, I'll give an overview of the Kingsway Business System, what we call KBS, our framework for continuous improvement and operational excellence. Rob Casper, who leads our Skilled Trades platform, will then present a case study on our Skilled Trades vertical, which will show you how our model works in a recent real-world example.
After Rob's segment, we'll open it up for Q&A to address your questions. For those of you participating via the webcast, feel free to email your questions to James, J-A-M-E-S, at Hayden IR, H-A-Y-D-E-N-I-R, dot com. Finally, we're honored to have Tom Joyce, former CEO of Danaher Corporation, join us for a fireside chat. I'll sit down with Tom to glean insights from his experience at Danaher and his participation on our KSX Advisory Board. Just a couple of housekeeping items. During the Q&A, we have some microphones we'll pass around to the group here. There will be boxed lunches, so I think after the Q&A and before the fireside chat, people can grab a bite to eat, and we'll keep rolling. Let's get started. To our knowledge, we're the only publicly traded U.S. firm leveraging the search fund model to acquire and build great businesses.
We own and operate a collection of quality services companies that are growing, generate recurring revenue, have strong margins, and are asset-light. Our goal is to compound long-term shareholder value on a per-share basis through a decentralized management model and a very talented team of operators. We also benefit from tax assets that enhance our returns. In short, Kingsway is uniquely positioned to capitalize on the search fund model at scale within a tax-efficient public company framework. Why are we so focused on the search fund model? Simply put, it is an attractive asset class for generating strong returns. The search fund approach, often called entrepreneurship through acquisition or ETA, has a compelling track record over several decades. It involves backing talented entrepreneurs to buy and grow small businesses. We see search funds as a powerful engine for value creation, and that is the foundation of our strategy.
Historical data backs up the attractiveness of the model. Research from the Stanford Graduate School of Business shows that search funds have delivered annual returns in the mid-30% range over decades. This result, tracked across hundreds of search funds since 1984, underscores the model's performance. The idea is that a small acquired business led by a driven entrepreneur can grow meaningfully and deliver outsized returns. I won't go deep into the academic study here, but the headline number on the slide, 35% IRR, speaks for itself. It's a strong endorsement that our entrepreneurship through acquisition approach can create significant value for shareholders. The search fund model isn't just about returns. It fills a real need in the market. On the left side of the slide, you see the perspective of a typical seller.
Many aging small business owners want to retire but have no succession plan, no family member ready to take over, and often no attractive buyer for their business. They need an exit, a monetization event, yet these businesses are often too small for traditional private equity, and selling to a strategic buyer can be a poor fit with owners who are concerned about how that might impact their employees and their legacy. On the right side, you see the entrepreneur's perspective, a motivated post-MBA entrepreneur who's eager to run and grow a company. The search fund model connects these two. It provides the seller a graceful exit and legacy preservation and gives the entrepreneur an opportunity to lead and grow a proven business and participate meaningfully in the equity value they create. In short, search funds create a win-win.
The retiring owner gets liquidity and peace of mind about his legacy, while the young operator gets a business to lead and build. Now, why do search fund acquisitions tend to outperform? A big reason is the infusion of smart, energetic leadership into businesses that often have untapped potential. A small company run as a lifestyle business late in a founder's career might be doing well enough, but it often hasn't optimized growth. When a highly motivated, incentivized operator takes over, they can uncover numerous ways to improve performance. A founder-led sales effort can be transformed into a professional sales team. Pen and paper processes get upgraded to modern technology systems. A business operating in its local market can expand regionally or nationally. Instead of just taking cash out of the business, the new owner reinvests for growth.
In essence, the business shifts from a static, dividend-maximizing approach to a dynamic, growth-oriented approach under new leadership. At Kingsway, this is exactly our model. We acquire solid, small companies and put smart, energetic operators in charge. We typically target businesses with about $1 million - $3 million of EBITDA, acquire them for roughly 4.5-6.5x , finance with roughly 2.5 turns of debt and the rest equity, and then give the new operator the mandate, the incentives, and the support to grow the company. We assist heavily during the acquisition phase and then afterward during the operating phase by implementing the Kingsway Business System, our framework for operational excellence, to help these businesses professionalize and scale. A motivated operator plus a good small business plus aligned incentives plus ongoing support equals significant upside.
That's why the search model, when done right, can produce such great results. Let's talk about some broader context and the opportunity. We're in the middle of what we call the silver tsunami of retiring business owners. Over the next two decades, record numbers of baby boomer entrepreneurs will be looking to exit their business. Nearly $4.8 trillion of wealth is expected to change hands as these owners retire, the largest intergenerational wealth transfer in U.S. history. Over two million small businesses are projected to transition leadership in the next ten years. This wave of retirements is going to create a huge supply of businesses for sale. However, many of these companies are below the radar of traditional buyers. Lower-middle market private equity firms often shy away from deals where the key operator, the owner, wants to step away. That leaves a gap that search fund entrepreneurs can fill.
With only a hundred or so search funds active at any given time, there's an overwhelming supply of potential acquisitions relative to the number of buyers. In other words, demand is limited while supply is surging, which creates very favorable dynamics for buyers. It's an excellent environment to find quality companies at reasonable valuations, and Kingsway is well positioned to ride this wave by providing retiring business owners with an attractive succession solution. One of the challenges for investors is that the search fund asset class is not easy to access directly. If you wanted to invest in search deals on your own, you'd typically have to write small checks, $100,000, $200,000, $300,000 at a time into individual search funds and their follow-on acquisitions, sourced through a pretty tight-knit network. It's a very hands-on, fragmented, and hard-to-access process that doesn't scale well for most investors.
Another route is to invest as an LP in a private fund of search funds or a search fund accelerator. Those models can give you exposure to multiple searchers and acquisitions, but it usually means locking up your money for years and probably paying a second layer of fees. In short, traditional search fund investing can be illiquid, time-intensive, and potentially costly in additional fees. Kingsway changes that. As a publicly traded company, we provide an instant, liquid vehicle for investing in a broad portfolio of search fund acquisitions. When you buy KFS stock, you're effectively investing in the search fund model, but without having to source and vet individual deals or wait for a fund lifecycle. As a public company, we offer transparency in reporting that many private search fund investments may lack.
The bottom line, Kingsway offers a unique, investor-friendly way to participate in the attractive search fund space with liquidity, diversification, and transparency built in. What makes Kingsway particularly well-suited to succeed? We believe we have several key advantages that differentiate us and drive our performance. First, we have a strong track record already. We've proven this model can work with successful acquisitions and exits under our belt. Second, we provide robust infrastructure and support to the companies we buy and the operators who run them, thanks to the systems and expertise we've developed, like our Kingsway Business System. We also maintain disciplined investment criteria. We're very selective about the businesses we acquire, sticking to our sweet spot in terms of size, quality, and valuation. We attract top-quality searcher talent.
Entrepreneurs know Kingsway as a great platform, so we get to partner with some of the very best up-and-coming operator CEOs. Another advantage is our truly world-class advisory board. We have seasoned experts guiding our strategy and mentoring our young operators. Being a public company gives us a strong reputation and credibility with sellers. Owners take comfort knowing their company will be owned by a stable, transparent firm. We have permanent equity capital, meaning we aren't forced to sell assets on a fund timetable. We can hold and compound value as long as it continues to make sense. We also enjoy excellent access to debt financing, allowing us to structure deals efficiently with a prudent amount of leverage. Finally, as I mentioned, we have a tax-advantaged structure, significant tax assets that boost our net returns. All of these factors together make for a powerful combination.
Kingsway is a platform built with the right ingredients: track record, discipline, talent, capital, and structure to thrive in this space. Top-quality talent isn't just a slogan for us at Kingsway. It's a deliberate strategy. We believe great businesses are built by great leaders, so we have engineered a rigorous approach to talent sourcing, selection, and development. We handpick these individuals through a highly selective process, looking for exceptional drive, intellect, and leadership potential. Only a handful are brought on at any given time, ensuring we focus on quality over quantity. This rigorous vetting means that every OIR and CEO on our bench is someone we have confidence in to operate at a high level. We are systematically building a talent machine to drive our future performance and growth. Some pretty impressive people. Let's talk a second for how we decide which businesses to acquire.
We adhere to a disciplined investment criteria that guides every potential deal. In practice, this means we only pursue companies that fit a clear checklist of qualities we know from experience provide a margin of safety and drive long-term shareholder value. We are very selective, as I mentioned, sticking to our sweet spot in terms of industry, business size, quality, and valuation. Let me outline the key characteristics we look for. We target opportunities in industries that are growing faster than GDP and where that growth is supported by a long-term secular trend, where the industry is fragmented such that there are both lots of potential acquisition opportunities or shots on goal, and subsectors or niches are present, or even small companies can have a unique competitive advantage.
Those industries possess companies with strong business models like recurring revenue, healthy margins, and a history of consistent profitability and low capital intensity. We believe that these attributes deliver a margin of safety and set us up for solid returns on our acquisitions. Another strength of Kingsway is our truly world-class advisory board, an exceptional team of actively engaged advisors who lend their expertise and insights to our mission. We deliberately assembled advisors who have deep experience in search fund acquisitions, capital allocation, and company operations, and have all operated at the highest levels. Tom Joyce, who's here with us today, is the former CEO of Danaher Corporation.
During his tenure at Danaher, he helped triple the company's stock price, and he was instrumental in developing and deploying the famed Danaher Business System, DBS, which is a gold standard for operational excellence and a set of tools we have modeled with the Kingsway Business System. We will learn later today about how Tom brings his experience and playbook of disciplined growth and operational rigor to our advisory board. Will Thorndike is widely known as the author of The Outsiders, but he is also had an incredibly successful career in private equity and investing. Will is the original and perhaps most prolific investor in search funds and has been deeply involved in the search fund community for decades. He has a deep well of experience and pattern recognition to provide great insights to our OIRs and CEOs. Tyler Gordy is a great example of our model in action.
He's a West Point grad and Harvard MBA who became the CEO of PWSC, a business Kingsway acquired in late 2017. Under his leadership, PWSC's value grew tremendously. We sold that business in 2022 and achieved a 10x net return on our investment. His experience and insights about leadership in a small company are incredibly valuable to our entrepreneurs. Our operators and residents and CEOs have structured access to active and engaged advisors who serve as mentors to help them acquire and grow their businesses. As I mentioned, one of our advantages is a highly tax-advantaged structure. Kingsway has accumulated about $622 million of net operating loss carry forwards over the years. These are essentially tax credits from past losses that we can use to offset future taxable income. The origin of these NOLs goes back to a legacy insurance business that suffered losses around the 2008 financial crisis.
While that was a painful period historically, today it means we have a large stockpile of tax assets. Why is this important? Because it means that as we grow our earnings, a significant portion can be sheltered from federal taxes, which enhances our cash flow and the rate at which we can compound value. Now that I've covered search funds and our value proposition, let's talk about how we put it all into motion for growth. This graphic illustrates our strategy succinctly. Think of it as a self-funding growth flywheel. The process has three steps numbered on the diagram. First, partner with amazing talent to acquire great businesses. We seek out high-quality, profitable small companies that fit our criteria and acquire them at reasonable valuations. Second, invest to grow. Once acquired, we actively invest in these businesses. That typically means upgrading the team, upgrading technology, and improving internal processes.
There's often a J-curve transition period where we're investing heavily to position the company for future growth, after which the company emerges as a more sophisticated business with a better return profile. Third, reap increased cash flow and reinvest. As these improvements take hold, the businesses grow their earnings and cash flow. Because we buy them at good prices and make them better, the return on our investment is strong. Those increased cash flows after delevering can be returned to Kingsway to redeploy to fund the next acquisition. Over time, this creates a compounding effect. More acquisitions lead to more cash flow, which enables even more acquisitions. This flywheel will drive our long-term growth. Does this model work in practice? Absolutely. We have a promising track record to prove it.
Remember, Kingsway began slowly pivoting to the search fund model only in late 2017 with the acquisition of PWSC. As I mentioned, we had a great outcome there over our four and a half years of ownership, turning an initial $5 million investment into more than $50 million in cash for Kingsway. We then began to ramp up the accelerator efforts in earnest in 2020 and 2021. In the relatively short time since, we've completed several acquisitions and seen excellent performance for many of our companies. I think it's also worth highlighting that I've personally been involved as an investor in traditional search funds and as a former searcher for over 20 years, both personally and through Argo, investing in many dozens of searchers and their acquired companies.
My experience has largely mirrored the returns we highlighted earlier, and I have developed some pattern recognition around the attributes that I think make both a successful searcher and an attractive business. We're still in the early stages of our strategy, but the evidence so far validates our approach. We view our dual engines of growth as both by acquiring new companies and by expanding the earnings of our existing ones. We're currently targeting two to three acquisitions per year and set an underwriting hurdle of 30% IRR for our acquisitions. I would also note that because the pace of acquisitions can be quicker, particularly at our Skilled Trades platform, and based on what we're seeing in our deal pipeline, we're reviewing our annual acquisitions expectation and may revise it higher.
If you sum up our operating company's performance, our current run rate adjusted EBITDA is around $18 million-$19 million over the last 12 months, and we intend to keep that trajectory going through a combination of organic growth and acquisitions. I think it's worth noting what kinds of businesses we own and how the market values them. Kingsway's portfolio is diversified across several attractive sectors. We have companies in B2B services, healthcare services, vertical market software, and as I mentioned, we just launched the Skilled Trades platform, which you'll hear more about today. These are sectors where successful companies often command high valuation multiples. In fact, if you look at comparable public companies or recent transactions in these arenas, EBITDA multiples are frequently well into the double digits. Our diversified approach also means we're not overly exposed to one industry cycle.
We have a spread of businesses in high-demand sectors. We have a nice mix of industries in our portfolio, and public peers in all these categories trade at full valuations. Finally, let's summarize our acquisition performance and what it means for the future. Kingsway has been very disciplined in the prices we pay for acquisitions, typically targeting mid-single-digit EBITDA multiples. We like to say that we get our margin of safety from business quality, not price paid. Due to the structural inefficiency in the area of the market we're targeting, we're able to acquire nice businesses on very reasonable terms. I'd like to highlight a quick case study on one of our businesses, SPI, which we acquired in Q3 2023. We partnered with Drew Richard in the acquisition. Drew's a West Point grad and was an Apache helicopter pilot in the Army before attending HBS.
After an early career in a large corporation, Drew was drawn to entrepreneurship and joined Kingsway as an OIR. Drew focused his search on vertical market software companies and successfully closed on the acquisition and transitioned into the leadership role at SPI. This was a classic founder setup, and as a result, he was able to develop a great relationship with the seller and acquire that business on very attractive terms. He paid roughly one-time revenue for a wonderful software company. Since taking over, Drew has rebuilt the leadership team and invested significantly in professionalizing the operations. In 18 short months, he has transitioned a sleepy lifestyle business with great unit economics into a growing Rule of 40 software company. Just last month, Drew completed a tuck-in acquisition of Viewpoint, which will accelerate the company's growth by bolstering both their product portfolio and geographic market.
Stories like this give us confidence as we pursue new opportunities. We plan to continue this cycle, partner with exceedingly talented entrepreneurs, find great businesses at good prices, unlock their potential, and repeat. We have a robust pipeline of potential acquisition targets thanks to the silver tsunami of sellers out there and our hungry and hardworking group of OIRs. As I wrap up this section, I want to highlight what truly sets Kingsway apart. We believe we're the only publicly traded U.S. company leveraging the search fund model to acquire and build great businesses, and that unique positioning gives us a host of advantages. We have a strong track record of success and a growing portfolio of high-quality services companies. This is a testament to disciplined investment criteria. We stick to what we know works. We attract top-notch entrepreneurial talent, and we back them with solid infrastructure and support.
We've also assembled a world-class advisory board, so our CEOs have seasoned mentors to turn to. Being a public company adds credibility. Our reputation in the market helps open doors to opportunities that others might not see. Another big advantage is our capital structure. Because we're public, we have permanent capital that lets us invest for the long haul, and we have access to attractive debt financing to enhance our equity returns. On top of that, we carry significant tax assets from past NOLs, a real tax-advantaged structure, which means more of our future earnings can drop to the bottom line. In short, we have the people, the playbook, and the structure to keep finding and growing great businesses over decades. With that, I'll turn it over to Kent Hansen, our CFO, who will walk you through how this strategy is translating into our current business performance.
Kent, over to you.
Thank you, JT. It's great to see so many people here this morning, and I appreciate the opportunity to briefly discuss the state of our business. As you can see, we've been pretty busy since the last investor day a year ago. At the end of September, we purchased Image Solutions, which is headquartered near Asheville, North Carolina. The day after the purchase closed, the area was devastated by Hurricane Helene. Thankfully, Image Solutions team members and families made it through, and the office was more or less intact. In fact, it served as a place where people could get running water. Davide and team got the office back up and working in a matter of days and focused on helping their clients.
In the end, Davide tells me that they lost only 5% of recurring revenue as a result of the hurricane, which I think is a remarkable testament to Davide's leadership and the entire Image Solutions team. In March, just a couple of months ago, we closed on the acquisition of Buds Plumbing in Evansville, Indiana. Rob Casper, who led the search to find and acquire Buds, will be discussing this more later in the presentation. SPI, which JT just mentioned, also closed on a small acquisition last month, AtWork International, whose product is Viewpoint. AtWork is based in Mount Waverly, Australia, and my team is already fighting over who gets to visit there first. This acquisition gives SPI a nice cloud-based solution on which to build and expand, as well as opens up a broader global customer base for them.
We believe all three of these acquisitions fit nicely into the KSX portfolio. Last but not least, we sold the remaining piece of our discontinued real estate segment, the VA clinic, in August of 2024. With that sale, we are now fully divested of our non-core businesses. Now, turning to KSX performance, revenue was up 23% in 2025 versus 2024 1222222222222222222222222st quarter. This is mainly due to the acquisition of Image Solutions, but we also saw growth at SNS, DDI, and C-Suite. Adjusted EBITDA was also up 23%, mostly due to Image Solutions and C-Suite. We're still likely seeing the J-curve effect at some of these businesses.
However, each one of them continued to set the stage for future growth, whether it is DDI onboarding new customers at a nice clip without any outbound selling effort, Charles at SNS focusing on recruiting and staffing efforts, or Timmy at Ravex and C-Suite finding new ways to grow organically and inorganically. We remain very excited about the future to come with KSX. Turning now to extended warranty, U.S. GAAP revenue was flat Q1 2025 versus 2024, but cash sales were up 4% year- over- year and 9% since Q4 of last year. As a reminder, while we get paid upfront when we sell a policy, under U.S. GAAP, we recognize the revenue over the life of the policy. So the amount of contracts sold in prior years does impact our current year revenue. Adjusted EBITDA decreased from $1.4 million last year to $800,000 this year.
Despite the dip in adjusted EBITDA, we are encouraged by the momentum building in the extended warranty segment. The segment has returned to growth in cash sales, and trailing 12-month modified cash EBITDA was up nearly 12% year- over- year. Now, modified cash EBITDA is a commonly used measure to value the performance of warranty businesses, as it more closely tracks the cash flows of the business. We use it internally, and our bank uses it for covenant calculations. The recent healthy growth in this metric gives us confidence that GAAP earnings should rebound over time as deferred revenue from those sales is recognized in future periods. I would also like to point out that at quarter end, we appointed Robbie Humble as the new President and CEO of PWI and Penn, our two auto dealer warranty businesses. Robbie brings deep industry experience and a strong leadership track record.
Notably, his background and incentives are aligned more closely with that of our KSX approach. In the handful of weeks he's been at the helm, Robbie has already attracted new leadership and talent to the business. We are confident that under his direction, PWI and Penn will be reinvigorated to drive growth and improve results. In short, the extended warranty businesses remain profitable, cash-generative, and are positioned well for future success. For more information on Q1 performance of both extended warranty and KSX, I encourage you to listen to our Q1 earnings call replay. Before I turn the mic back over to J.T., I'd like to share with you some things we're doing behind the scenes to ensure the continued success of Kingsway. As a publicly traded company, we need to adhere to very high standards when it comes to accounting, reporting, and internal controls.
In fact, due to our continued growth, in 2024, our external auditors were required to opine on our internal controls, not just our financials for the first time. I can assure you this is not an easy lift, but I'm proud to say that due to the hard work of all the Kingsway-wide accounting and finance professionals, we were issued a clean opinion. I believe this is due in part to something that we started undertaking a little bit over a year ago. As you can imagine, there's a wide variety of accounting acumen at the companies we acquire, and often a lot of turnover. In an effort to ensure that we have the appropriate level of quality in our accounting and internal controls across all Kingsway companies, we began centralizing these functions into the holdco, starting with DDI.
We were able to successfully absorb these functions with very minimal additional investment. In fact, by centralizing these functions, we were able to save the collective Kingsway companies hundreds of thousands of dollars. You can see that we're in the process of onboarding the more recent acquisitions, and we expect to lean into this model going forward. However, we have no plans to centralize these functions at Ravex, C-Suite, or the extended warranty companies, as those businesses have local teams that are performing at a high level. We continue to believe in the power of decentralization. In this case, we view the CEOs as our customers who are still responsible for their results, but they don't have to worry about the debits and credits and whether or not they're correct. With that, I'll turn the presentation back over to JT, and I thank you for your time and attention.
All right. Okay, a little bit about Kingsway Business System. No points for originality with the name. At Kingsway, we understand that buying a good business is only the start. What really matters is execution after the deal closes. This slide outlines our approach to what we call bending the curve, changing the conditions to improve the probability of success. On the left, you see typical pre-deal risks. We touched on our underwriting criteria a little earlier to filter for these factors. It is often the post-deal risks that can derail outcomes. Two stand out based on our experience. The first, a failure to hire or retain great people, and second, a failure to execute on the plan. That is where KBS comes in. KBS is our framework for de-risking execution.
We provide our CEOs with tools, coaching, and structured support to help them navigate common challenges and improve the odds of success after we acquire a company. It's designed to support first-time CEOs, professionalize small companies, and ensure a repeatable path to value creation. The Kingsway business system is our answer to the question, how do you take a small founder-run business and help a young CEO turn it into a high-performing, scalable company? We've built KBS by drawing from proven systems like the Danaher business system, but also the Entrepreneurs Operating System and several other, and tailored it to fit the needs of our portfolio companies.
KBS is structured around four pillars: talent, building a high-performance team; plan, setting a direction for the company and aligning the organization to execute against it; enterprise excellence, implementing proven processes to create consistency and scalability; and finally, growth, identifying and executing the biggest levers for value creation. KBS isn't just a theoretical model. It's a practical, hands-on system that gives our young CEOs the tools they need to succeed as leaders. We start with talent because, in our experience, nothing is more important than the collection of people, particularly those in key roles in a small company. Our CEOs typically inherit a team when they acquire a company, so we give them tools to first evaluate and assess the inherited group, who fits, who has potential, and where there are gaps. That includes using tools for talent mapping, organizational design, and change management. Recruit.
We train our CEOs to use top grading, a rigorous, structured hiring methodology focused on performance history and cultural alignment to fill the most crucial roles. Develop and retain. We help operators implement structured performance management and personalized incentive plans to develop and, importantly, retain their best people. Once our CEOs have the right talent in place, the next critical step is establishing a clear and executable plan. At Kingsway, we approach planning as a dynamic, continuous process, not just a one-time event. Our CEOs start by setting a clear vision for the company and defining the strategic objectives to achieve that vision. They then translate these objectives into detailed long-term and annual strategic plans, complete with specific improvement priorities, action plans, and assigned accountabilities. Planning alone is not enough. It is essential to execute and review progress consistently. That is why we have implemented a structured cadence of accountability.
Each month, we conduct rigorous reviews to measure our operators against clearly defined KPIs. During these sessions, we identify what's working well and address challenges immediately, creating an agile environment where adjustments can happen swiftly. On an annual basis, our leaders perform comprehensive reviews to refine their value creation plans, ensuring alignment with long-term goals and market opportunities. This iterative cycle ensures our operators remain focused on driving meaningful, measurable progress towards their long-term vision. At Kingsway, this disciplined planning and continuous improvement feedback loop is foundational to creating sustainable growth. It's not simply about setting ambitious targets. It's about consistently working towards them and adjusting quickly when necessary. The third pillar of KBS, enterprise excellence, is about establishing scalable, repeatable processes that move businesses from reliance on a few key individuals to robust, system-driven performance.
Small companies typically depend heavily on a founder or a few top performers, creating significant operational risk. Our approach shifts companies towards process-driven performance. A few of the areas, although not exhaustive, where we focus are highlighted on this slide: voice of customer. We coach our operators to systematically capture and understand customer feedback, ensuring their services remain relevant, competitive, and valuable to their clients. Continuous improvement, or Kaizen. Rather than periodic major overhauls, our CEOs implement a culture of steady, incremental improvements, fostering sustained progress and organizational resilience. Value Stream Mapping. We help our operators visualize their key processes end-to-end, identifying and eliminating bottlenecks and waste, delivering better productivity and value to their customers. Structured problem-solving. We teach our teams rigorous problem-solving methodologies to address root causes, not just symptoms. This significantly reduces repeat issues, improving productivity, and eliminating firefighting. And KPI management.
By establishing clear, measurable performance indicators, we give CEOs and their teams a precise view of progress, making it easier to manage operations proactively rather than reactively. Zero-based budgeting. This financial discipline ensures resources are allocated strategically and deliberately rather than automatically rolling forward historical budgets. We believe it's a powerful tool for maintaining cost discipline and directing finite capital to the highest ROI priorities. These are just a few best practices we deploy to create scalable and repeatable processes that enhance customer value and position our companies for sustained, profitable growth. Our fourth pillar, growth, centers around empowering our CEOs to systematically identify and capitalize on their highest impact opportunities. This isn't about chasing every possible initiative. It's about strategic, disciplined value creation.
Our KBS growth toolkit provides practical, proven modules that our operators can use immediately, including customer retention, enhancing loyalty and lifetime value through structured retention strategies, pricing optimization, often very low-hanging fruit in small businesses. We focus on identifying opportunities to align pricing more closely with customer value, enhancing margins without compromising competitive position or customer retention. Customer and market expansion. We help CEOs find ways to grow revenue by deepening existing relationships and entering attractive new market segments. Geographic expansion, leveraging successful business models and applying them to new geographic markets, systematically scaling proven concepts regionally and nationally. New product development, strategically expanding service offerings based on insights into customer needs and internal capabilities. Unit economics. We provide CEOs with frameworks to analyze profitability at the granular level, ensuring decisions are economically sound and growth initiatives deliver tangible value. And salesforce design.
We equip our CEOs to build high-performing sales organizations, from structuring teams effectively to developing targeted incentive plans and accountability systems. We continuously refine these frameworks based on successes and lessons across our portfolio. That means we're a learning organization. As we learn and improve in one Kingsway company, we disseminate best practices across all our businesses. These concepts aren't often part of the tool belt for a 30-something first-time CEO, but KBS gives them a comprehensive toolbox for value creation. Ultimately, the Kingsway business system is about turning high-potential entrepreneurs into high-performance leaders, turning thoughtful strategy into meaningful results. It's one thing to have a playbook. It's another to put it to work on the ground. We don't just hand our operator CEOs a list of ideas and wish them luck. We provide practical training, resources, and tools to help our CEOs drive real-world results in their businesses.
In other words, we roll up our sleeves alongside them to turn plans into execution. For example, we provide leadership training that focuses on the day-to-day skills our CEOs need to be successful. This includes things like establishing and focusing on the right priorities, building a healthy company culture, and communicating effectively with their teams. These aren't abstract concepts. They're hands-on workshops and coaching sessions tailored to the challenges of running a small company. We also maintain a centralized knowledge hub, a proprietary internal platform specifically designed for our CEOs. Here, they can instantly access operational templates, proven strategies, detailed playbooks, and real-world case studies from across our portfolio. It's like having an experienced thought partner always at their fingertips. Perhaps the most powerful resource we offer is the KSX community.
This is our expanding network of Kingsway operators and advisors, a peer group of CEOs who are walking the same path. They regularly share feedback and hard-earned lessons with one another in structured and unstructured settings. We facilitate peer-to-peer coaching, and our advisory board members are actively involved, offering guidance, best practices, and incredible wisdom. Our CEOs know they're not alone. The community accelerates learning and helps limit reliving others' mistakes. Together, these practical, supportive tools convert our ambitious plans into real-world action. I keep struggling with real-world for some reason. It's a system designed and curated explicitly for the realities of small businesses and inexperienced CEOs. It is central to our ability to deliver consistent, repeatable value creation and bend the curve towards better outcomes for our businesses. Now, to bring this to life, I'd like to turn it over to Rob Casper, the CEO of Kingsway Skilled Trades.
Rob will walk you through a detailed case study of our recent acquisition of Buds Plumbing and share how these principles translate into action and results. Rob, the floor is yours.
Is that advances?
Yeah.
Okay. Great. Hello, everybody. How's everybody doing?
Great.
Okay. Good. All right. I'm going to try to get away from the podium here, and maybe I'll walk around.
I need to stay at the podium.
I need to stay at the podium? Okay. That just.
I really got a room and camera. You can use the.
Is that good?
Yeah.
Okay. I'm not used to, I'm usually in a cinder block room, so maybe I'll try to get away from it here. Okay. I first want to say thank you to J.T. and thank you to Adam for having me here. This is not my usual environment, so thank you so much, and let's hope I do okay. I wanted to say thank you, most of all, to our plumbers. Right now, we have plumbers underneath a house and a crawl space digging trenches. They're there. They're muddy. They're with probably some dead rat. Some snake is probably contending for the space with them. They're doing the real work. I get to be here and have some food that I don't know fully what the name is, and they're out there underneath the house doing the actual work.
I just want to say thank you to them because I would not be there. I would not be here without them. Here we go. Here is a brief bio and a face for radio. I always look at it and need to thank my wife for putting up with me. Here is my background. It is 10 years or so in lower-middle market private equity. Multi-site operations, some plumbing, some HVAC, which is exciting. Once upon a time, I was an engineer, and I am learning very slowly to get away from that. That is my background in a nutshell. Okay. Great. Let me talk a little bit about Buds because it is a diamond. It is a beautiful company. Frankly, we would love to purchase 10, 15, 20 more if we could. We found Buds after a five-month proprietary search. We did both brokered and proprietary.
Bud's is a proprietary deal. It's the market leader in Evansville. It's the best plumbing company. I say that objectively. I'm obviously biased, but it's the best plumbing company in Evansville, Indiana. A brief shout-out to Evansville. Evansville is the heartland of America. In World War II, Evansville built many of the LSTs that our grandfathers came ashore in, and they made the MREs that I ate on a few deployments. I'm still here. They worked. Here's the details. We transacted. We closed on March 14th. The purchase price was $5 million. That was six turns on EBITDA, and there's the adjusted EBITDA. Again, we're very excited about the opportunities. I'll walk through kind of the growth levers and the Kingsway Business System, and we'll just go through it. I'll take questions at the end. Okay. Great.
KBS, here are the four KBS levers that we have: talent, plan, enterprise excellence, and growth. I'll walk through each of these and tell you what we're doing and what we have done. The first thing we did was address some bottlenecks. We brought in a recruiter that I had used before, and she's terrific. She's been 20 years in the skilled trades. We're working very closely with her, and she's helping us address bottlenecks in the organization. There's about a nine-step work order process. We're placing the bottleneck at our plumbers and estimators, and that's where you want to place the bottleneck, by the way. That's been helpful. I'm there. I'm one of these folks with the red hair, I guess. I'm there trying to see what are the opportunities for us to, again, grow the organization.
We made an internal promotion. Jesse is our new ops director. He's terrific. I always look for that opportunity to make the internal promotion and really grow the business. All that we're doing is we're getting the business scaled organizationally to take the next step in the journey to continue to drive growth through the business. Plan. Here we go. I'm going to go through this, and then we'll get a little bit deeper on the next slide. It's called 80/20, but we use the Pareto rule. I'm just going to prioritize what are our big buckets or big opportunities. We use the 80/20 rule to prioritize those and go after those. Benchmarking. I need to understand, and I know kind of what the industry benchmarks are by role, by department. What are our unit economics? That's another word for it.
Understand how are we doing? Are we outperforming? Are we underperforming? Why, most importantly? Our KPIs support that. A lot of times, we'll get into these businesses, and there actually won't be data collection or KPI collection. One of the things that we do is we implement that so we can understand how are we doing versus our benchmarks. After that, it's training. If we are under on one of the benchmarks or staffing ratios or any of our KPIs, the real question is why. Often, that comes down to a, and it's usually me raising my hand. I say, "Okay. That's my fault. We're falling short in this area. That's my fault. That's on me." Now I got to deliver the training to that individual or to that department if we aren't performing up to standard.
Ultimately, that's some of the highest ROI opportunities in the business. Okay. Enterprise excellence. This is really around process. I live here every day. What have we done at Buds? We had some marketing spend that, frankly, was not great spend, was not judicious spend. We reallocated some of that. We also reinvested in a big way in a couple of channels of marketing. That was exciting. I look at service calls. I'm in Service Titan an unhealthy amount. I was in it before this meeting, just looking at what we had on our dashboard. I'm just trying to understand, okay, what are we doing? Are we executing in the right way? Again, if we've got some sort of left-tail unprofitable service calls, the bigger question is why and what can I do to address those over time? Supplier relationships.
That's pretty straightforward. I engage with our suppliers, and I think they still like me, put up with me. Then plumbers per truck, we really try to understand what's the appropriate—we call it the lay-down or the staffing ratio for the work that we're receiving. Frankly, it differs by market. For Buds, we have an opportunity to really go more towards drain trucks and sewer and jetting trucks. You'll see that in the coming months. That's that slide. Growth. Okay. This is the other area of my time. Two levers. We have market expansion. You can see we're really adding specialized departments. A full-scope plumber will have five departments. They're listed there. I know not everybody is versed in plumbing, so there it is.
We have that opportunity at Buds to really flesh out specialized departments that's going to enable us to serve the community better. That's what it's all about. You'll see that we're reinvesting now. We're buying some jetting units. We just bought a cabling truck. All that is going to yield just better service and ultimately better value for our customers. It's going to allow us to penetrate the market deeper. We expanded to Owensboro, which is in Kentucky, which is about 45 minutes to an hour away from Evansville. That's starting to show fruit and bear fruit. By the way, it's Johnny Depp's hometown. Great barbecue there. A little shout-out to Owensboro. Market expansion. We'll continue to do that. We have a great opportunity to continue to serve our community and the surrounding areas.
Lastly, this is a repeatable strategy. I think this is what is one of the things that's most exciting to me and maybe to others on the Kingsway team, I hope, is that we have the opportunity to buy many more Buds. In fact, I think the opportunity cannot be overestimated. I got to be careful about what I say here, but it is a tremendous opportunity. I think this is the first of many. I think that's it. Do you want me to stay up here, JT, or how do you?
Let's start a quick Q&A session now. As I mentioned, anyone on the webcast, Rob, you can stay up here because they might have questions for you.
Okay. Yeah.
They're our living embodiment of the KSX model here. As I mentioned earlier, anyone on the webcast, go ahead and send your email questions to james@haydenir.com. For folks in the room, just raise your hand. We'll try to get a microphone over to you and answer your questions. I see Gary. I haven't seen you in a long time. How are you?
Good. How are you?
Great.
Nice to see you again. Congratulations on everything that you guys are doing.
Thank you.
Seems like you're really just going, which is great to see. I guess for the Buds transaction, you mentioned levers to growth. Is there a latent pricing in that business?
That's not the first lever.
That's not the first lever we're going to pull. Yeah, that's how I answered that. I would much rather there might be in other businesses. It depends. At Buds, no. That's not the first lever we're going to pull.
No, I guess my question is, is it there to pull if you wanted to pull it?
Yes.
Okay. I guess as you look at other ones, are these wildly different in terms of valuations geographically and zip code and whatever else? I would imagine they would be. How do you guys think about that kind of thing? I do not know about anybody here in the room, but I always feel like I get a zip code adjustment whenever I need work done.
Yeah. No, that's real. Inflation is real. Yeah, the valuations do differ primarily on size and whether they're service or project-related plumbing or HVAC companies. Yeah, there's quite a range. Frankly, I mean, you all are sharper than I am on the investing front. In some cases, maybe TTM EBITDA is a little misleading because maybe they had a down year or something.
Gary, to your question, I mentioned it earlier in the presentation. I think one of the most consistent things we see when we get into a small business is that they have not optimized pricing. It's often one of the first areas we go as part of our improvement priorities is to really look at their pricing and trying to align that through a value pricing model and understand kind of the value that the company is delivering to their customers and approach it that way. Bringing some sophistication around pricing is often kind of low-hanging fruit.
Rob, thanks for taking the time to talk with us today. You talked about moving more towards sewer, drain trucks. Another one that I missed, I think, moving up the value chain of work orders. For those of us who aren't very familiar with plumbing, could you tell us just a little bit more about that? What's lower value chain stuff? What's higher value chain stuff? Moving up the value chain, are there a lot of competitors already servicing that, or is that kind of more of a greenfield opportunity? Just help us understand that dynamic.
Yeah. Typically, on the skilled trades, the market's segmented into resi, light commercial, heavy commercial, and then industrial. Buds is about 80% residential, 80-90%, and 10-20%, depending on the year, light commercial. In terms of complexity, generally speaking, this is all general. When you move up those customer segments, you move up the complexity. When you add specialization around jetting, pumping, etc., you're now introducing very expensive equipment, actually, into the plumbing company. It takes skill to operate that equipment, and you're paid well to do that. Some of those things we sub out currently, and that makes no sense. We need to be doing that ourselves and offering a great price and being repaid to do it.
We have the opportunity, again, both in specialization and department, to be a full-scope plumber and to move up the customer ladder, so to speak.
What are the competitive dynamics for the providers that are already there providing those services?
Yeah. There are competitors in all those spaces. We are going to have to compete, and we are going to have to win. We have some really terrific plumbers. We will build those skills, and I am confident that we can continue to penetrate the market.
Final question from me is, why did you decide to partner with Kingsway on building this trade services business?
Yeah. I think it's a huge opportunity. I didn't mention this. I should have. This is like maybe my third aggregator model. The first couple were reasonably successful. Hit about $1 billion in valuation in about four years. I think it really depends how much we want to go for it. I think there's every bit of that opportunity in the skilled trades. That is a massively compelling opportunity. Personally, I'll just share my wife and I prayed about this decision, and we felt like this was a decision that we were excited about. She supports me. She's my boss, my other boss. Having her willing to support me in that way, I was very grateful for that.
I thought I connected with Miles and Paul, who are not here, both service guys, and we both served in various parts of the world at one point. I talked to them, and they told me about Kingsway. They frankly said that they really enjoyed their time. They thought that the folks were good, that the values were good. I thought, "Okay. I kind of know what the PE world is or was." I worked for some great PE companies. Nothing against them. I really thought this was a compelling difference. It was a very non—I would say non-conforming decision, and it's one that I'm glad I made. That's the full answer. Hopefully, that's helpful.
Hi, J.T. This is Vishal. I work with Bard Associates. My question is about the funds' track records. Most track records that I know of, including Berkshire's, six decades dominated by a few winners. Otherwise, the track record is very sort of normal. That is what Charlie Munger used to say. In the search funds area, is it like most of the accelerators or whatever track records you looked at, is it dominated by just a few wins, and the other ones are just mediocre? Is that how it looks like?
Yeah. It's interesting. You can go to the Stanford GSB website and pull down that study. There's a lot of sort of detail behind this. I'm sort of speaking without all of the sort of precise facts. I think that for a while, that was definitely the case. There were a couple of overwhelmingly successful early search fund investments. One comes to mind. Will Thorndike just did a podcast on 50X about a company called Assurant, which I think really skewed the return data for a long time. Stanford does a good job of showing the returns to the asset class, both in the aggregate and excluding sort of the top three outcomes. For a while, there was a fairly significant delta between the overall and then excluding the top three because they really skewed the returns pretty significantly.
More recently, in the last decade or so, what you've seen is that the delta has actually closed. The returns to investors across all search funds and the returns excluding those outlier positives have actually converged. I think what that says is that the sort of ecosystem of investors have converged on what good looks like. No surprise, a lot of the attributes that we're looking for, I think, would be the same things that other search fund investors are looking for. That has eliminated left-tail outcomes. In the aggregate now, the asset class is performing pretty close to that 35% IRR that is the headline number that everyone sees.
The second question would be, as it relates to Kingsway, I know we have one big success. What does it look like if we exclude that success right now? Also, maybe it is too early to say.
Yeah. Look, I mean, we mentioned it, but there's a slide about the J curve. I mean, I think these things require some patience, right? I think that that's one of the beautiful things about this sort of permanent capital structure is that we have a much longer holding period so that we can see the J curve play out. As you emerge from that and growth accelerates, the returns start to accumulate. Last year, during the investor day, Will Thorndike was up here, and he's very close to the data. He's also probably invested in more search funds than anybody on the planet. He actually had some interesting insights gleaned from that Stanford data. He and a group of folks were able to calculate the returns to the people that bought those businesses from the search fund entrepreneurs and original investors.
What were the returns to those people over the next 7 to 10 years? And perhaps surprisingly, not to me, they're just as good. That says that you want to own these businesses for a long period of time. It would probably be coming all the way back to your question, too early to say how the rest of them are performing because many of them we've just acquired and going through that J-Curve. I think that the second acquisition we did, which is Ravex, a little over three and a half years ago under Timmy's leadership, Ravex has roughly doubled EBITDA in that period of time. Now with C-Suite starting to hit its stride, I think you'll see that company really start to go. That would be the next representative example.
I gave you the case study on SPI and what that's been done there. We don't calculate kind of carrying value or anything like that, so I wouldn't be able to give you a finite IRR. But there's definitely being value created, and I think that that will continue to, I think, actually accelerate and continue for a long period of time.
Last question for me. J-Curve shows EBITDA decline as investments go in. What should we as investors monitor, revenues across, just to kind of monitor the progress of the business?
Yeah. Look, I think it depends. I think that if we're buying businesses with a large percentage of their revenue coming from recurring sources, you normally won't see—and like low customer churn—you probably won't see significant revenue declines. I think Davide's situation with the hurricane was kind of a unique example of that. Obviously, SNS and the headwinds in the nurse staffing market created some revenue challenges. More often than not, what's happening is you are loading up the cost structure. You will see revenues stay fairly stable, but EBITDA decline a bit during the J curve as you invest in talent and processes and technology to professionalize that business.
Can you talk a little bit about the opportunity for organic growth that it robs at the plumbing? I understand there's geographic expansion. There's kind of moving up the value chain. Sort of X acquisition, and maybe you have to invest and EBITDA may decline. What does sort of organic revenue growth look like? It'd be a good outcome over the next, say, three years?
Yeah. 10-plus %, if you're asking for—am I allowed to say that? Yeah. 10—this is my first—I'm usually on the PE side. 10-plus %. I think we opened Owensboro market in April, and that is exciting and fun. We have the opportunity to, over the next year, again, get deeper in our current market. I mean, ultimately, at some point here, we're going to launch HVAC. That is a huge opportunity for us. We have customers that call, even though we're right now a plumbing shop. Customers call us for HVAC. We do not do that. Not yet anyway. That is a massive TAM. Every bit as big as plumbing. There is a huge opportunity there when we launch that trade. There could be more following that. I get very excited around Buds and around others when I see, "Okay.
We can grow this company. So.
Thanks.
Yeah.
Hello. Hey. I just want to say, one, congratulations on the closing with Buds. Two, one of the risk factors that you mentioned is that oftentimes the primary operator seeks to exit the business. I'm curious how your experience was with that at Buds and how you guys minimize that risk.
Yeah. That's a great question. The play that I've usually run in the past—and Mark Korn is retiring. He ran Buds really for 30 years, almost to the month. And he's a terrific guy. We've got him for another year. I'm going to try to keep him for longer than that if I can help it. At some point, he's retiring. The play that—and first, let me say, taking a step back, that's not always the case. There are other businesses that are in our pipeline where the owner actually just wants to de-risk a little bit and wants to continue on. That's great too. I've run both plays before. When we have an operator that wants to stay, okay, awesome, assuming he's a good operator or she's a good operator, great. Now let me just make sure the incentives and things align us.
In Mark's case, I want to understand, is there an opportunity to do an internal promote? Eighty percent of the time, from experience, usually we can do an internal promote. That is what we have done here. It is my job to train the replacement, right? I am going to offload some things from Mark, marketing, and a bunch of back office things that, frankly, should not be on his shoulders anyway now as a part of a larger organization. Then, I am going to train that new person who is going to come up and ultimately be the general manager. Again, when you can do that internally, you mitigate a lot of risk. Ultimately, I have made a few external hires over the years, and those are fine. I mean, you just have to be very, very careful, and those can work out well.
It is a harder play to run. Does that answer the question?
Yes, it does. Thank you.
Yeah.
The next question we have coming from the web, the emailed-in question is, "It looks like the acquisitions are happening both—this is for JT—both driven by corporate OIR and by installed CEOs in the case of the platform play. How do you prioritize amongst these two ways of doing acquisitions?
I would say that the general playbook for us is OIR acquires operating business in an attractive industry. For the first several years, the focus is on professionalizing with a view to organic growth. Many of those opportunities will ultimately have potential to grow inorganically via acquisition. We think pacing is really important sort of for two reasons. One, new CEO, new industry, new company takes a while, two or three years to get up the experience curve. We talk about attributes versus experience. We would want them to be taking on an acquisition integration. When search has gone bad—and it has, in my experience and lots of others—it's often because they try an inorganic strategy too quickly before they really know what a good acquisition, follow-on acquisition looks like, how to integrate it, all those things.
Pacing is important to get up the experience curve. It is also important from the way we think about sort of maximizing capital efficiency. We use bank debt as part of our purchase sources. It is important for us to delever in that learning period over three years, say. By doing that, follow-on acquisitions after you have got the experience can often be financed with little or no additional equity capital required. We do have some businesses that are now at the point where Ravex, for instance, three years, three-plus years into our ownership and Timmy's sort of experience journey and delevering. That could become now another lever for growth doing acquisitions. Rob is unique, right? He has done this a bunch of times. He came from a large private equity-backed build-up strategy in this specialty.
It is a little unique in terms of our willingness to step into serial acquisitions early in the investment because of his experience. He's already up the experience curve, right? That is a little bit different. In terms of prioritization, I think for us, it's just a capital allocation decision. If it is the best, what are the best returns on our finite limited amount of capital? We would always approach sort of prioritization based on the best and highest use of our limited resources.
Great. There was a second part to the question which says, "Who will be responsible for these companies? Will it be a pyramid structure, or will it continue to be—sorry, or will it be flat effectively?" The gentleman was asking, "Is it going to be a new IR or reporting to corporate?" When a platform is making all these acquisitions, who is responsible? How do you think about management?
Yeah. That is a great question. It will be Rob, but in strong sort of consultation and communication with us, right? I mean, I think that we are partners in this, and it will be very collaborative. We believe deeply in the power of decentralization, right, as the way to attract and, more importantly, retain the very best people is to provide them opportunity and autonomy and then create the structure of accountability and alignment of incentives to sort of align kind of our interests and hopefully working towards the same outcome. It will be collaborative, but it will be Rob working with Charles and me. Everything that he is working on makes its way through us.
Excellent. Thank you.
Hi. Can you talk about your dry powder and capacity to grow? I mean, I think earlier you kind of said you're going to reevaluate your cadence of deals. With the current capital structure, I know you did some preferreds last year. Just talk about what is your capacity, and would you do more preferreds as well?
Yeah. Last year, we talked about the objective of getting the flywheel. To us, flywheel means where internally generated free cash flow can fund all future acquisitions. We're obviously not there yet. We thought we would be there faster. Some of the performance in our warranty businesses held us back a bit. As a result, we've had to raise capital to fund our follow-on acquisitions without sort of giving away kind of everything going on. I want to be careful. We think that through some sort of strategic realignment of things, we're very close to getting to that point of flywheel. How we bring capital into the system, whether it's monetizing assets or raising additional capital, that's something that we're working on, candidly. The objective is to get to that point of flywheel where internally generated cash flow funds our acquisition program.
If I could just follow up, you kind of alluded to potential strategic moves. As you focus more on the accelerator potential, and I know in your warranty business, you have some businesses that recently took on that management incentive structure of the warranty. You still have some businesses that are more traditionally.
Led and managed, yeah.
Led and managed. At some point, when you get to kind of Wall Street, they look for these pure plays. You have still two segments. You're sort of moving that way. What are the thoughts on the remaining parts of the warranty business to convert it to something? I also noticed the business started to turn positive, it seems like. Any comments there?
Yeah. Look, I mean, I think that you're sort of putting together the tea leaves of what I'm seeing and what you're seeing in action and practice. I think that let me just say that the future of this business is 100% focused on building through search in the KSX platform. I'll leave it there.
Thanks.
Question for J.T. Can you drill down on culture a little bit more? I loved all the slides on KBS and how that works. How much time do the OIRs spend with the CEOs of the existing businesses? Does it look like a weekly meeting, a quarterly meeting? What does training look like specifically?
Yeah. I can't speak to what happens sort of organically in unstructured settings. We'll talk to Tom, and he'll share some insights on the KSX Advisory Board. We come together in person. I'd like to say quarterly, but based on scheduling, it ends up being about three times a year, sort of day and a half, OIRs plus CEOs and the advisory board in structured settings where there's some workshops around key themes around leadership or sort of enterprise excellence or any of those pillars we talked about and business updates and strategy and challenging them on sort of their value creation plans. That's a really cool way for our OIRs to sort of by osmosis understand and appreciate both the challenges and the excitement of running a small company. Many of them know each other.
That's probably our best referral source for future OIRs is our current team. And so I'm sure that there's a lot of sort of conversations and mentor-menteeship going on that I'm not even aware of. But in a structured way, it's the advisory board, which would be different than their interaction with me, which happens weekly.
Got it. Thank you.
Let's see.
Thank you for the presentation. My name's Nathan. Just had a question about the NOLs. I know you generated a lot of NOLs in that 2009 period from the poor performance of the trucking business. Just wondering how you'll monetize the NOLs in the future, given that they'll be expiring, I think, in the next kind of few years. Yeah, first question.
Yeah. Yeah. A big portion of those NOLs, roughly half, expire in tax year 2029, so five years from now. Obviously, I do not think that there is any way that you could model, regardless of the pace of growth, that you could use those up through sort of operating income, taxable operating income. There will have to be some monetization events in order to maximize that. There are some other ways too, but you would have to bring in outside—there are sort of NOL harvesting strategies out there. That is not what we are focused on for now. It is about growing our business. There will probably be some monetization events to try to capture those.
I mean, is it okay if you talk about some of the potential monetization events? Would you be able to?
I mean, think about it. It's selling businesses, right? I think that without, well, some of it's just sort of hypothetical, but we've got some businesses that will be almost a decade into our ownership and probably at that point grown to a point where it might make sense to sell them and redeploy that capital. Obviously, our warranty segment, as people have sort of talked about, would be another potential area to sell some businesses.
Just another question. I found over my short time investing in the public markets that one of the best ways to improve my investment process is to not only obviously study the companies I'm invested in, but study the companies that I either nearly invested in or companies that I exited maybe early. Maybe can you talk about some of the companies where you nearly invested or you exited early and how they've kind of performed since then and what you kind of learned from that and how you've refined your investment process through that?
Yeah. I mean, errors of omission, right, are sometimes kind of the biggest ones. Just in my experience in search fund investing, I've missed out on a lot of really good ones for various reasons, regrettably. You try to learn from that. In private company investing within the search accelerator, it's hard to really know how those businesses perform after the fact. There's no way to get access to those financials and things other than maybe sort of monitoring them in kind of headlines and newspapers. It's hard to learn on the omission side at KSX when we're sort of engaging with small private companies. On the sort of my traditional search fund investing, lots of businesses that the ones that stand out were sort of overwhelming home runs. For one reason or another, I didn't invest.
You try to learn from that and say, "What did I miss? Why did I say no?" and try to put that into your toolkit.
I mean, do you know how PWSC has performed since you guys exited?
Yeah. It's actually performed really well. We had an earnout. They just missed—it was like a stretch earnout—they just missed us getting into the earnout. Tyler has since left the company, but he built a really amazing team around him. They're running the business, and it continues to perform very well.
Thank you.
Is that it?
Yeah.
Okay. Super. Thanks, everyone. I think they're putting out some box lunches, so grab something to eat, get some sustenance, and then we'll reconvene here in a few minutes for the fireside chat with Mr. Tom Joyce.
Chris, nice to meet you again. Very nice to say hello. How are you doing?
It's been all right. It was great. Really good.
Thank you. Hopefully, bumble through it. Yeah, yeah. You have to do it with a fine devil. I grew up with a devil. If the monster had to come back, the whole village would get bent up its legs. He was like, "In your house." I think I'm like... In patio that, especially in the villages, not even big monsters or devils, right? Yeah.
Yeah.
Very good.
Me too.
Thank you.
Thank you. Fine day.
I'm on the board of...
There you are.
Oh, great.
It was a nice meeting.
Oh, wonderful.
Is that right? How did you first get involved?
I met the fellow in the Metropolitan Fund, and we got involved in the company in Texas driving. I had a decent time with that. Then I came back and thought they were having some problems out in Western Canada at that time, procuring the residual value of minivans. Minivans were popular, and then we came on top of it. It was close by Hawaii. We thought, "Hey, this is so brilliant for the first time. We'll do it again." They were having incredibly significant problems with minivans. They lost control of the company unbeknownst to, I think, even them, which either they were lying or they did not understand it. It was a great deal.
Yeah.
We sort of became the bad partner in investment, and we just sort of suffered it.
Yeah. Sometimes it's taking a long time.
When we're ultimately successful, we'll have paid like $0.25 an hour.
That's good interest.
Maybe it was fun. Maybe there was some fun along the way.
Exactly. Some fun.
Or amused.
Exactly.
Yeah.
Got it. Are you still in Canada?
Yeah. Still in Canada.
Yeah. Yes.
I think that's the occasion that we're down here.
Where do you live in Canada?
Right in the center.
Oh, there you go.
Yeah. Yeah.
You have no beer?
I flew in and out of Kingston quite frequently. Yeah. Years ago, one of my responsibilities was a platform, and we called it our water quality platform. And we bought a business in London.
Okay. Yeah.
Called Trojan Ultraviolet Technologies and world leader in ultraviolet disinfection of water. Jeff is an exceptional business.
Really?
In fact, that business today is part of a company called Veralto. We wanted to maintain a different business. Then just two years ago, we put some of our funding around together into a new company called Veralto, from which that business has come apart. I love that business.
Do you?
Love them. Great team up there in London, Ontario.
Nice.
Global business.
Yeah.
Yeah. No, it was really good. Not long after we acquired the business, they were successful in landing the entire drinking water system of New York City.
Oh, you did?
Yeah.
Yeah.
All the water that we drink here is disinfected with Trojan Ultraviolet Technologies.
That's fantastic. That's some great water.
That was great water. Yeah.
Let me know your time where you were on the—are you going to retire or?
I did.
Prior to the end?
I'm exactly as busy as I want to be, but not that busy. I tell teams, whether it's J.T. or other teams that I work with in New York. I'm only on the board of one public company today, which is called Roper Technologies, which—
What?
What? I've heard of that.
You would have heard of it.
Yeah. Right. Very successful over a long period of time. A little like the answer ended up coming from the industrial heritage. I mean, really significant evolution in their case to a niche vertical market software business. About $60 billion in market cap, $60 billion in revenue. A page not online—
You've got the—
Great page that I bought in this—
Geographic?
Which was the 713th or something along the way.
That's a good page that you could put any company's name over the top of it.
Put it in your investor decks and lift your stock price.
That's just a really good combination of criteria. Roper's very similar to this. Her investor specs is somewhat similar to this. It's moved from being more highly technical into much less technical, not necessarily capital light, as these results. Roper is very much a light capital intensity kind of company. You're on that board?
I'm on that board. Everything else I've done is either in the nonprofit world or would be in an advisory capacity running places.
Yeah.
Which I describe as highly unstructured.
Exactly.
Which is probably—
That served both parties well in a situation like I'm in, where I am not as capacity constrained as I might have been, to show what a lot of her, a lot of flexibility gave Shai. Despite the fact how difficult we have getting our advisory board together and the team together.
Not because of you.
It can be.
The board is really appreciative of all you.
We're good. Thank you. I enjoy it.
Hope you enjoy it.
Yeah. Very much so.
Very much so.
Yeah. I enjoyed being with you.
Those guys have been terrific.
Yeah. I enjoy our time together very much.
Yeah.
Yeah.
Yeah.
Yeah.
You have had a way of being incredibly enthusiastic about the team and the work they are doing. The ability that this search, KSX, which has tracked talent, is really stable.
Yeah. It's a great feeling. I don't have to do anything like that.
Yeah.
Dude, so nice to meet you. My pleasure.
Yeah.
Let's do it.
Oh, my pleasure. Hey.
Hey.
Hey.
Hey.
Hey.
Ken.
Ken.
Nice to see you.
Thank you. Thanks for having me.
Nice to meet you.
You bet. My pleasure. All right. I think we're ready to go here with the Fireside Chat. Good afternoon, everyone. I'm delighted to welcome a very special guest to our Fireside Chat, Tom Joyce. Tom is best known for his remarkable 31-year career at Danaher, where he served in multiple leadership roles and ultimately as President and CEO until his retirement in 2020. During his tenure, he was a driving force behind the Danaher Business System, the legendary continuous improvement and operating excellence culture that powered Danaher's growth and innovation. During Tom's term at the helm of Danaher, the company's performance was nothing short of spectacular. Under Tom's leadership, Danaher not only accelerated its market capitalization growth but also achieved higher annualized returns as compared to the previous 15 years.
Accounting for dividends and the Fortive spinoff, Danaher's stock price rose from roughly $31 in September 2014 to over $190 by the end of 2020, representing a total return of approximately 525% and a CAGR of 33% during his tenure. Danaher's market cap also similarly expanded dramatically under Tom. By the end of 2020, Danaher's market cap had tripled during his leadership. Today, Tom brings his wealth of experience to Kingsway as a member of our KSX Advisory Board. We're honored to have him here today to share insights on leadership, the art of building great businesses, and how principles like the Danaher Business System inform our approach at KSX. Tom's strategic wisdom and philosophy have guided world-class teams and positively transformed an already world-class company. We're excited to learn more from his journey. Please join me in giving a warm welcome to my friend and mentor, Tom Joyce.
Thanks, J.T. That was really kind. Can you send that to Claire?
Yeah, right.
She might think more highly of me.
Your kids.
My kids.
Thank you for being here, Tom.
It's a pleasure. Thank you. I'm honored to be here.
All right. Let's get into it. Maybe a little background and context. You began your career at Danaher in 1989 and ultimately ascended to the role of President and CEO in 2014. To kick things off, could you briefly share your journey at Danaher and how the company evolved during your tenure?
Sure. Can everybody hear me okay? On the webcast as well? Okay. Thanks. Again, thank you so much for having me. It is an honor. I have been so excited to be a part of Kingsway over the last few years. It was a joy also to sit through the morning and get a broader view beyond even what we get when we sit together as an advisory board. Thanks for having me, and thanks for this morning. My journey?
Let's start with, unlike the talent that J.T. and the team have been able to assemble at Kingsway, I was just a kid out of an economics degree or small Jesuit liberal arts education out of the College of the Holy Cross who got a chance to work at a place called Andersen Consulting that later became Accenture for about seven years before I had the good fortune and truly is good fortune to have had the Danaher Corporation actually as a client of mine in late 1987, 1988, and into 1989. That's how it all began. Danaher was a—I checked the annual report many years ago. I think in 1989, Danaher was roughly $700 million in revenue. It really was a stroke of luck in a sense to be assigned to Danaher as a young consultant at what was then Andersen Consulting.
The famed author, Jim Collins, talks about a concept called return on luck, which is a really interesting concept. You'd have to sort of read how Jim unpacks that. I'm, I guess, really just a product of a return on luck. I was lucky to be able to join Danaher back in those days, the small company.
The return came really in the form of the opportunity to have great mentors along the way and a journey through marketing roles and then manufacturing roles where I actually had to make real product every day, punch a clock with steel-toed shoes on, and eventually ascend to running a relatively small business at Danaher and taking on broader responsibility over time up to and including the water quality portfolio, the life sciences and diagnostics portfolio, and then ultimately through the mentorship of my longtime partner and good friend, Larry Culp, who now, of course, is running the various parts of what we all know as General Electric Company, ascending to the CEO role in 2014.
Yeah. Wonderful. Thank you. Maybe tell us a little bit about some of the defining moments that shaped your career and, importantly, your leadership style and Danaher's culture over that period of time.
Obviously, it was a long journey. I had the opportunity to be a part of a growing and evolving culture of talent development that in the late 1990s, late 1980s—Danaher was only four or five years old when I joined—was really just a vague concept.
Through the leadership of Mitch and Steve Rales, our founders, George Sherman, who was our first president that was not one of our founders, and then ultimately Larry, I had, again, the good fortune of being part of an evolving talent development process that very much involved taking on different and diverse roles, putting you in challenging situations, sometimes being more than a little bit out of your depth, over your head in some stressful situations, eventually running businesses at the appropriate scale at the appropriate time that really I look back on and say, "That was sort of one of the secrets to success at Danaher," and certainly one of the secrets to success with me is having those opportunities progressively along the way. I had the opportunity, along with a host of others, to grow as a leader as Danaher grew as a business.
We kind of followed parallel paths as people in an enterprise together.
Yep. Amazing. Let's switch to what I would call Danaher's secret sauce, DBS, and the long-term success at the company. Obviously, Danaher is famous for DBS. Maybe in your own words, maybe describe what is the Danaher Business System and why do you think it was so foundational to Danaher's success?
There are a couple of relatively short definitions or descriptions of the Danaher Business System that maybe would be helpful to start with. The first is, and the shortest, is common sense vigorously applied.
Say that again.
I usually do. Common sense vigorously applied. The history of DBS, and I'll get you to the other shorter definition here in a minute. DBS came as a function of Danaher's knowledge of and experience of and learning from the Toyota production system in the late 1980s. That's where it came from. That's its genesis. Applying the tools of the Toyota production system in the late 1980s essentially was an experience of adopting those tools and codifying those tools and making those tools part of the way we ran, in those cases, a fairly industrially oriented manufacturing group of operating companies. In fact, it wasn't even known as the Danaher Business System in the late 1980s. It was known as the Danaher Production System because it was fundamentally applying the tools of the Toyota production system to manufacturing, to production processes.
As DBS evolved, one of the ways it evolved was through coming to the understanding that the tools that we were applying in a production environment were equally applicable to what we started to call carpet land, to the places where we were not necessarily making a physical product, but we were producing a service. Some of those services could be just internal services, not even necessarily external services. There were a whole host of tools and concepts, several of which, by the way, are on a slide that you saw this morning, whether it was visual management or Kaizen-like continuous improvement. Those tools became widely deployed throughout the organization, which sort of brings us then to the second way we came to describe DBS.
As it became more than just a set of tools, as it became a thought process, as it became a set of beliefs about the ability to drive, to keep it simple, continuous improvement, the second definition became DBS is who we are and how we do what we do. The reason that definition is important is because of the way it starts. It became who we are and then how we do what we do. In other words, it became fundamental to the nature of the people and the thought processes and the philosophies and the beliefs and the value system of the company. When that happens, that foundation becomes the bedrock on which all the tools sit.
It becomes one of the reasons that so many companies tried and failed to replicate the success of the Danaher Business System is because the focus was on the tool instead of on the foundational culture that allowed those tools to be sustained and repeated and essentially believed in over and over and over again. Without going into all the tools and everything else, that's essentially, to some extent, the secret sauce.
Yeah. That's amazing. I think that that probably wouldn't naturally be intuitive to people as sort of a package of tools. Tell me about the challenges of making that who you were. How do you sort of initiate that and sustain that over time?
It's actually not as hard as you might think. It's hard if you're an enterprise that's sort of you're a big company. You're a full-fledged company. You're looking across, and you're trying to benchmark something like the Danaher Business System or another system of success, but you've got a huge enterprise. Unlike where we started at Kingsway, where we're starting small, we're building incrementally, search after search, company after company. At Danaher, think about it. If you go back to the late 1980s when we were essentially small, call us six operating companies, maybe even just four of scale, and then you begin the process of deploying tools and driving performance and acquiring businesses and driving tools and driving performance and acquiring businesses, the repetition of that is creating a culture. In some respects, you don't even know it. It evolves.
Again, that's why some of this is difficult for other businesses that are real businesses of scale that are trying to transform themselves. It's hard when you think that you can do it without all the reps that lead to doing it well over time. We just had the benefit of now 40 years of reps.
Yep. Yep. It just sort of organically becomes hardwired in the DNA over reps and time and sequentially.
Right. Right. We are going to get to Kingsway at some point.
Yeah. No. We're going to get there. One more on Danaher and sort of operating in a decentralized model. Obviously, over four decades, Danaher transformed from a collection of what I would describe as maybe sort of more unglamorous industrial businesses into what is now a world-class science and technology company, compounding shareholder value at over 20% per year over a very long period of time. Obviously, you accelerated that transformation during your tenure as CEO. What were the key strategic evolutions or decisions that enabled that long-term success and then the transition to Kingsway?
Yeah.
How do you think we can apply those lessons as we envision the future trajectory of the Kingsway platform?
Sure. Unglamorous is probably not just your own definition of where we all started at Danaher. When I joined Danaher in 1989, my mother, when she would be asked, "What does your son do at Danaher?" or, "What does Danaher do?" she would say, "I don't really know, but I think they're some form of a widget manufacturer." That just speaks to what an industrial company that was unglamorous sort of was and felt like to anybody who wasn't part of it back in 1989. The performance and many of those metrics that J.T. shared earlier that I had the good fortune to be a part of in my tenure really began under my predecessor, Larry Culp. Larry took over Danaher in roughly 2000.
During his tenure, he started to lead an evolution of Danaher that transitioned the portfolio from being what you would safely describe as an industrial products business, unglamorous as it might have been, great businesses, reasonably good growth businesses, tremendous gains in profitability and cash flow, driven by the Danaher Business System, driven by terrific capital allocation and outstanding performance, driven by a talent flywheel that continued to evolve. At the point where I succeeded Larry in 2014, the business had moved significantly away from capital being deployed to highly industrial, capital-intensive businesses to capital being employed to more product technology businesses, specifically, for example, water quality analytics businesses and increasingly medical diagnostics.
What I had the opportunity to do following Larry was to then sort of accelerate that process even further by not only continuing to deploy capital towards more technology-oriented, in my case, life science and diagnostics, medical diagnostic businesses, but also to exit a number of our legacy businesses that were our more industrial businesses that would have been characterized as less growthy than the newer businesses that we were acquiring and generally lower margin than the businesses that we were acquiring. Very good businesses, but not quite as good as the businesses that we were buying.
What we did was we gave birth to new public companies that took these terrific businesses that we had built at Danaher, acquired and built over time, and created businesses like Fortive, for example, that a good friend of mine, Jim Lico, spun out of Danaher and has now run as a public company. A business called Envista, which was our dental products business. Again, one of the leaders in the dental market that made sense as a public company. Finally, most recently, Veralto, which is run by someone that I worked with extensively over a long, long period of time going back to water quality, Jennifer Honeycutt, who's doing an outstanding job in what were businesses that I was responsible for years ago, the water quality businesses and then our product identification businesses.
Many of the step-ups in performance under my tenure from 2014 to 2020 really came as a function of that evolution of the portfolio as much as it did from the raw performance of those businesses during that time frame. I think coming to Kingsway now, I think one of the things that first and foremost has characterized what the team has done well to this point and continues to do well is they're putting a view towards the market first as opposed to the company first. That was kind of fundamental to the evolution of Danaher and the uptick in the multiple over the six years that I led the business, putting that increased focus on the nature of the market dynamics and knowing that the market dynamics were essentially the foundation on which the performance of that business has been built over time.
Portfolio evolution and now with the opportunities that the team has here to construct that portfolio with the fundamentals is just an unbelievable opportunity you guys have.
Yeah. We think so.
You know so.
All right. So let's talk about your role on the KSX Advisory Board. We're lucky to have you. You joined KSX board in 2022. Maybe start with what attracted you to Kingsway, our model, and this advisory role?
Yeah. Obviously, it was the CEO. I mean, without the CEO, it never would have happened. The truth of the matter is that J.T. and I had known one another for several years, but we had never really talked about the nature of what Kingsway was. In a phone call a few years ago, J.T. kind of briefed me on Kingsway, but more importantly, the search model and all that was search, which I only had a really limited perspective on. The more J.T. unpacked that for me and I came to understand much of what I think was shared with many of you this morning in terms of the power of the search model, it really became very, very intriguing to me.
I think the difference between, say, joining the board of a business and being an advisor into the search model at Kingsway is the time that we get together in our advisory meetings with each of the team members, some who obviously own businesses, some are the operators in residence who are searching today, is really incredibly energizing and rewarding for me.
If I think about the things that give me joy in life and that was one of the great pieces of advice I got as I was retiring from Danaher is when someone said, "Tom, don't commit to anything that isn't going to give you joy." One of the things I've realized over time, both looking back on my days at Danaher and my days in the last four or five years, is one of the great joys that I get in life is spending time with young up-and-coming leaders and helping them think through not only what do they want to do, but how do they want to do it and how to help them be successful in their business and personal lives. Kingsway is just a really unique opportunity to do that with some incredibly talented people.
I mean, one of the amazing things for me, looking at what J.T. and the team have created at Kingsway, is the incredible level of talent that has been attracted to joining this enterprise over the last several years. I mean, we would have searched for months through every business school at the top of the tier list that you could name to put these types of talents on the Danaher payroll. And to have the opportunity to spend time on businesses that have the growth and scale opportunities that these have with really talented people, it's a thing that just energizes me.
Yeah. Amazing. Me too. I mean, I think I share that. For me, professionally, I'm not an advisor, but it gives me incredible sort of professional delight to be able to work with this group of people who are so incredibly talented, more so than me. It brings a lot of delight, is the word I use, but joy, right?
Yep.
Yeah. Amazing. Maybe a little inside baseball on the advisory board. Maybe share with us how the advisory board, you and others, work with our KSX CEOs.
Yeah.
A little inside baseball.
It's multidimensional because obviously, we have folks, as you know, who have acquired businesses. I mean, if you go back to Timmy, for example, maybe Timmy has the business that was greater.
Three and a half years.
Three and a half years. You have somebody who's run a business for the last three and a half years. You have a couple others who've owned a business for a year or two, right? Buds Plumbing is, what, less than a year old? Okay. We have our searchers. We have the operators in residence. The conversations are multidimensional at different stages in the agenda during the course of an advisory board meeting. I think if I start with the owners, the operators of the businesses, we get a chance—it sort of brings me back to my old days in an operating review—we get to do a little mini operating review.
Without getting too deeply into the minutiae of any of the businesses, we try to help the operating leaders elevate to the point where they can identify and communicate what are a couple of the threshold sort of performance issues that they could use some help with. By elevating into those, we can have a really meaningful conversation about how to help them. It might be from Tyler's point of view. It might be from Will's point of view. It might be from mine, depending on what the issue might be. As you get down to maybe some of our leaders who are early in the ownership of a business, so maybe we've just acquired it or maybe we're just finishing diligence, we're about to close, we've had some really great conversations about what should the first 100 days look like?
Maybe what should day one look like? How do we communicate well? How do we energize the team? How do we do retention of key team members? How do we do top grading when we may need to? I think those are, I think, some meaningful conversations. Of course, we have those who are spending time looking for businesses who are actually in the search process. Those are, I think, can be really valuable conversations we have as well because the Kingsway model very much parallels the way we always thought at Danaher, which is market first, company second, valuation third, and always in that order. If you like the market, you've studied the market, you're starting to understand the market, great, keep going. Let's look for the best company in that market.
If you do not like the market, if the market does not have good fundamentals, go to page 13 in your deck if you want to know what a great market looks like. Page 13 is one of the best slides I have seen in the deck. It talks about what a great market is, those six or seven characteristics. Forget it. Do not bother telling me about a good company in a bad market. I think this process of really keeping the searchers focused on a market, once they are confident in the market dynamics, looking for the best companies, and only then, once you have identified that company, do you manage yourself through the valuation algorithm to figure out whether it is a deal worth doing.
I think that operating philosophy, that mentality that's coursed through the business, and those conversations then that we can have in the advisory board meetings, particularly around markets, I think are just terrific. I really enjoy those.
Yeah. Us too. It's been really helpful and instrumental in sort of orienting the way that we think and the sort of sequence of the way that we approach looking at potential acquisitions. Incredible. Maybe just sort of the—I'm trying to draw a loose analog here from DBS to KBS.
Yeah.
Sort of applying less.
Sure.
Obviously, we've been developing our own business system inspired largely by many of the principles of DBS. Obviously, in the presentation, we discussed our focus on optimizing on leadership, enterprise excellence, planning, and growth.
Yep.
Do you see any parallels between Danaher in its early days and where we are today?
I think the good news is that there isn't a great parallel to Danaher in the early days. I think that's good news. Here's why. Because DBS's evolution, simply put, lean, then we figured out growth, then we figured out leadership in terms of tool development, in terms of what our focus was, and so on and so forth. That's part of that history I was talking about from the 1980s through 30-40 years. So lean, growth, then leadership. In the case of Kingsway, what you guys have gotten right is you've really focused first and foremost on attracting and enabling the best talent first. You've really put, in many respects, leadership first, which is great because you get that foundation on which you can then build the search process from there.
I think the movement, once a searcher is in the game and owning a business, my assessment is it's pretty well balanced between the growth equation and, let's just call it, the operational performance of the business overall. It's because I think the team does a pretty good job of figuring out, well, what really does this business need? Does it need help in the back office because we can't get out of our own way? Or do we have performance and talent problems? Or do we have a real problem with our growth engine? How do we move forward on that? Let alone how do we dig ourselves out of a hurricane or a downdraft in skilled nursing on the back end of the pandemic.
I think the approach that's been leadership first and then with a clear prioritization of what are the vital few issues, regardless of whether it's in the operational side or the growth side, whatever it might be, or the talent side, I think has been a really good process. I think the advisory board sessions that seek to have our operators elevate to the point where they can be articulate about what those issues are and we can have a conversation is really helpful. A lot of us who grew up with not necessarily that understanding or that mentorship perfected the ability to just confuse and distract on the slide. I mean, the more slides, the merrier. The smaller the font, the better. We perfected that.
Today, I think the team is understanding how do we communicate the vital few, how do we have a meaningful conversation about that, and how do we get some help to make a difference.
Yeah. Yeah. Fabulous. A hallmark of Danaher's approach was maintaining a decentralized operating model. We talked earlier about our belief in the power of decentralization, independent business units, lean corporate center, while also still somehow instilling a common system and culture. What challenges did you face driving consistent adoption of DBS across this diverse set of businesses? And maybe you spoke to this already, but to me, what best practices help maintain this sort of trade-off between both the entrepreneurial autonomy and this cohesive culture of continuous improvement?
Certainly bringing the team together, as we do in the advisory board, three or optimally even four times a year goes a long way to ensuring that there's communication, best practice sharing, that leaders who have realized that the phrase is lonely at the top are living that loneliness every single day. Bringing them together for that best practice sharing, knowing that there are resources that they can go to, whether it's the advisory board or the incredible ways that you guys have codified a lot of the tools and resources that they can go to digitally, by the way, is fantastic. If you go back to the whole concept of a highly decentralized, autonomous operating environment with a small center, that I know I can speak for the searchers or our operators.
That is incredibly attractive to people, whether you want to call them entrepreneurs or not. Obviously, if you call them an entrepreneur, then that sort of goes with the territory. Remember, the people that we try to attract are the same people that could have gone to other operating environments where the superstructure over whatever they were responsible for would have been highly unattractive. We attract people who want to be in that environment where there is a small corporate center that they can go to for help, but in general, where that autonomy is something that is prized and protected and allowed to continue to exist because we believe it is fundamental to the success of the enterprise. In my mind, it is the best way to run a diversified business like this. It is the way to attract talent.
Optimally, I think having, whether it's things like the advisory board or our codified tools in a place where they can go get help, is the thing that allows people to never feel that they're quite as out there all by themselves as they might otherwise feel.
Yeah. Yeah. We like to call it entrepreneurship in a supportive environment.
Yeah.
Just creating that scaffolding around them.
Right.
Yeah. Obviously, our model is a bit unique. We build businesses through the search fund model inside this sort of public holding company structure. I'd be curious, what strengths do you see in the search model of an entrepreneur-led acquisition? We'll start with that.
I mean, I would just say I learned how to answer that question really by the slides that you put up earlier today. I mean, it was incredibly powerful the way you laid out not just the academic research on it, but the dynamics of why search ultimately works. The one to me that resonated most powerfully was essentially the seller and the buyer page and the individual characteristics as to how in the search model, the alignment of the seller dynamics that you had over here and our team's dynamics over here are so perfectly aligned that to me, that almost says it all, is that perfect alignment. It is something that if you tried to create that same slide for any other enterprise model, I think you'd have a tough time seeing as perfect an alignment as that.
Yeah. Yeah. What unique challenges do you think that the model presents that are different than?
There are some challenges. The one in particular that sticks out for me is it's a very individualized effort, right? On this side of that slide, there's essentially kind of one person. It's Rob searching, or it's Davide searching, or it's Drew searching. At their desk, think about it. It's just you. You don't have a team. You wake up in the morning and you go to a desk, probably in your apartment, and you do your work to search for a company. I mean, that's hard. That's really hard. It makes running the company feel easy because you have a team, you have people, you're doing stuff every day. That's number one. Number two, your relationships across to the seller are challenging because you are trying to represent something bigger than just yourself. Yet, really, what you're selling is you.
You're trying to convince a seller that doesn't really understand why this is like, "What are you a part of? Or where's my company going?" You've got to both communicate your understanding of the market. You've got to communicate your understanding of their business. You have to build a relationship with folks. You have to convince them that the place where their company that they've put their whole life's work into is going to be a place that they're still going to be proud of after they've parted with it. It's challenging. It's challenging.
On the flip side of that, though, the seller over here would much rather talk—at least my experience being from a big company talking to small companies that we want to acquire—that seller would much rather talk to somebody like Rob, who invests in understanding them personally, who invests in understanding the legacy of that business, who invests in convincing them that they're going to protect and be a good owner. They'd much rather talk to Rob or Drew or Davide than they would somebody from some corporation they've never heard of and their business going into some morass of an enterprise that'll never be found again. It is a very difficult process, but a really powerful one when you think about the personal nature of search to a seller like we typically experience.
Yeah. Yeah. It's definitely hard.
All right.
Some people don't appreciate how hard search is, but just—okay. Earlier today, we talked to investors about the J curve of performance when you'd place an inexperienced leader into a new business and then begin making investments in people and technology and processes to accelerate growth. How do you think the advisory board and KBS accelerates the path down that curve to get to—at least what I would call sort of the experience curve and the improvement curve—to get towards growth and improve profitability?
Well, yeah.
Or maybe it doesn't.
No, no, no. I'm not sure the extent to which we accelerate it, at least on the downside. I think of it this way. The fact that we acknowledge the J-Curve to begin with is massively important because by acknowledging the J-Curve, by acknowledging that when you acquire a business like this, that there are talent transitions, there are investment decisions that need to be made, you're going to make some tough decisions that might not feel right from a top or bottom-line perspective. Acknowledging that is enormous in terms of enabling a new CEO, a new president, to make those tough decisions, to do the right thing in the interest of the long term. I mean, too many of us who took on a newly acquired business would have lived in fear of making a tough decision, lest we do any harm in our view.
At the same time, when we hesitated, we were really mortgaging the long term. I think acknowledging is really what that's all about. In a sense, that does help to acknowledge that decision-making. It helps to accelerate the decision-making process. Do the tough stuff fast so that you can get on the upswing faster. In that sense, it is a bit of an accelerator. It may not necessarily feel like that, but that acknowledgment of the fact that the tough decisions will happen upfront and it could have some challenging impacts near term, I think, is huge.
Yeah. Yeah. Yeah. Wonderful. Maybe last one and then open up to the floor. One of the defining aspects of Danaher's long-term success has been its culture of continuous improvement and obviously the way that all of the best practices and tools were shared systematically across the operating business. We talked about this a little bit. How should we think about documenting, sustaining, teaching, and improving KBS to ensure a similar system of learning and culture the way that?
I would say, first off, you're already doing it not only well, but dramatically better than we did in my time. I say that because you've already taken so many of the best practices, documented them, codified them, and put them in your playbook, your digital playbook that's readily accessible to the team. Now, yes, we live in a more digital age today than what I grew up in, in our business world. I mean, I was thinking about this very question getting ready for today. The first word I wrote to myself as I was thinking about this was primitive. I mean, we really were very primitive in terms of the way we passed best practices down. I mean, it was almost like thinking back into religious writings and the Gospels where nothing was written down. It was just passed by word of mouth and experiences.
In many respects, that's the way we did it. I think what the Kingsway team has done really well is you've grabbed a best practice, whether it was something that you saw from the team or something you learned from Danaher or another source of a best practice, and you've done your best to write it down, to communicate an example or a particular circumstance so that if somebody had a question on the team, they can go to that, read it, we can then talk about it and move more quickly through it. I think the team's made extraordinary progress on that score. I would just urge you to continue to do that because it's a really powerful repository of best practices.
Super. Again, Tom, it's really amazing, not just for me and obviously all of our shareholders, but more importantly, all the incredible operators and searchers we have, to be able to have you as a mentor and share all of your wisdom and knowledge and history with them. It's, to me, just an incredible resource, and we're very grateful for it. Thank you for your.
I'm super happy to do it.
Thank you for being here today. Are you okay with a couple of questions?
Sure.
A few questions for.
Hey, Tom. Thanks for coming today. It's my understanding that Danaher has a DBS office consisting of, I've heard, anywhere from 25 to 75 people, which sounds like a lot. Kingsway is still pretty early in its journey, but are you or would you advise Kingsway to build up a similar type of function over time?
I'll come back to the Danaher part of your question. That was a reference to Danaher in a second. Not anytime soon would be my answer. The reason I'd say not anytime soon is two things. One, the repository that I talked about of information about best practices is, in truth, very super powerful. That's a way that you get best practices shared and good examples shared. The advisory board is another. JT, being as much of a lifetime learner as he is and a student of these principles, is already teaching and coaching in that regard. The DBS office, in my days, the physical place called the DBS office was probably populated by somewhere between 12 and 15 people. If you've ever heard a number like 75, that's all the people with DBS titles that are in the operating companies around the world.
That's how you get to a big number like that. They're not physically out in what used to be Wooddale, the product ID location. We never had that kind of number there. Remember, that office became important in terms of deploying resources because we didn't have as much of the repository digitally available. We didn't have the frequency with which you bring the advisory board together. We didn't have the like-minded team of searchers that were looking all for the same thing. There's a lot less viscosity in the way Kingsway and the team operate to share best practices than we would have had in these far-flung enterprises that, by the way, were of such a scale that you had to deploy people in there to pound the thing in in some respects. It's just different.
Hi, Tom. Markets first. I wanted the next level of detail beyond that, which is what is it about the markets? Is it more like sticky relationships with the customers? Is it like slow growth, fragmented markets?
Yeah.
Because fast growth means they could be disrupted by technology. What is it about the markets which?
Sure. Thanks for the question. It's multidimensional. I wasn't kidding when I was talking about page 13. High percentage of recurring revenue, capital light and non-cyclical, fragmented industry, long history of consistent profitability, low customer concentration, growth business in a growing industry. You might think that that's describing a company. It can be, but it also describes a market. If you showed me a market that, in general, was characterized by high recurring revenue, that was generally non-cyclical, where the market was highly fragmented, where generally the companies were pretty profitable, where generally the customers were pretty fragmented, and that businesses across that market, just like the market, were growing, you can start talking to me about a company you found. That's as much a great definition of a market that I love and that we love at Danaher.
I'm on the board of a wonderful company called Roper Technologies. We could put Roper Technologies across the heading of this page and use it in an investor presentation. Those are characteristics of a great market.
What are some examples of which were bad ones or which were good ones?
Let's see. It would be highly capital-intensive from an investment standpoint. It would be transactional in nature. There'd be very little recurring revenue. It would be highly concentrated with about four or five key players, and they'd have about six or seven customers. All kidding aside, that would be a bad market.