Turning a $250k Investment into $7m+ | Marvin Karlow Interview
Open on YouTube ↗Marvin Karlow, a PhD physicist-turned-technology executive who spent 20 years in corporate America and startups (Texas Instruments, JP Morgan Chase, ChoicePoint/LexisNexus), reached a breaking point at age ~45 and — with no plan but a best-friend business partner named David Bridgeforth — bought a 25,000 sq ft industrial powder coating operation in Tampa, Florida in June 2011 for $2.1m (~3x EBITDA) using an SBA loan and a ROBS structure to fund their 25% equity. Despite early struggles with customer concentration (top 5 customers = 70% of revenue), forced price concessions, and the culture shock of running a warehouse with 17 Spanish-speaking employees, they overhauled operations and technology, moved to remote management after two years, and built a sound business. Around 2014-2015, Marvin joined a separate partnership to acquire a money-losing Dallas powder coating operation ($400 consideration, $5m revenue) from a PE firm, turned it around to breakeven in 45 days, then rescued the business by landing a major aircraft manufacturer as an emergency customer over a single weekend. The Tampa and Dallas companies were merged in early 2018 (~$3m combined EBITDA), and a publicly traded Fort Worth metal finishing company — already rolling up the space — acquired the combined entity at 7x EBITDA (~$21m EV). Because the ROBS structure required a C-Corp from day one, all shareholders qualified for the QSBS Section 1202 exemption, eliminating roughly $4m in capital gains taxes. Marvin's ~$250k initial investment yielded approximately $7m+ in proceeds.
Deal facts
- purchase price
- $2.1m
- multiple
- ~3x SDE
- sde ebitda
- trailing 36-month EBITDA ~$700k
- revenue
- ~$2m (Tampa operation at acquisition)
- financing structure
- SBA loan + ROBS (401k rollover into C-Corp) for 25-30% equity; no seller financing mentioned
- notes
- Tampa powder coating acquired June 30, 2011 at $2.1m full asking price. Second deal: Dallas powder coating operation acquired ~2014-2015 for $400 total consideration (carved out of PE portfolio, was losing $50-75k/month, ~$5m revenue). Two businesses merged ~early 2018; combined EBITDA ~$3m+. Sold to publicly traded metal finishing acquirer at 7x EBITDA = ~$21m EV. Marvin owned 37.125% of combined entity. QSBS Section 1202 exemption eliminated capital gains tax (~$4m saved). Guest is co-founder with David Bridgeforth (50/50 partner in Tampa). Dallas deal had three additional partners: Robert, Jim, Daryl.
Why this business
By process of elimination — Marvin knew he couldn't get another corporate job and had learned from failed startups that he was 'not a zero to one guy,' so buying an existing business was the only remaining option. He and his partner David wanted a B2B business in either DFW or Tampa Bay. The powder coating operation was the first business they visited; after initially passing, they came back because the fundamentals were sound, the financials were the cleanest they'd ever seen in a small business, and the operation was clearly well-run ('you could literally floss your teeth in the reflection on the side of the stainless steel wash').
What's working
- Exceptionally clean financials and a well-run operation from the sellers (husband-wife team) made for a sound acquisition with no hidden surprises
- Clear division of labor between partners: David owned operations/the floor, Marvin owned finance and everything else — they picked their lanes on day one and stayed in them
- Full technology overhaul (CRM, ERP, financials, cloud-based admin) allowed Marvin to manage the business remotely from Dallas after year two, using a virtual EA in El Salvador
- Turnaround of the second (Dallas) powder coating operation from -$50-75k/month to breakeven in 45 days by leveraging operational expertise built in Tampa
- Landing a major aircraft manufacturer/supplier as an emergency customer over one weekend — a $2m/year account — replaced the largest customer lost to Mexico outsourcing
- Merging Tampa and Dallas operations raised combined EBITDA to ~$3m+, making the entity attractive to a strategic acquirer at 7x
- ROBS structure forced C-Corp incorporation, which inadvertently qualified all shareholders for QSBS Section 1202 exemption, eliminating ~$4m in capital gains taxes on exit
- Strategic acquirer (publicly traded metal finishing company in Fort Worth) proactively approached them, resulting in a clean 7x exit with no capital gains tax
What's hard
- Two major customers used the ownership transition as leverage to demand aggressive price concessions, effectively zeroing out all operational efficiency gains in year one
- Top five customers represented ~70% of revenue (top two were a substantial chunk), creating dangerous customer concentration throughout the hold
- Had to write personal checks to cover payroll during a slow period early in the ownership — 'a very brutal moment'
- Partner commuted Dallas-Tampa for two full years; wife and young daughter relocated to Tampa two weeks per month for the first year
- Dallas powder coating's largest customer abruptly outsourced all work to Mexico with no warning, requiring an immediate replacement
- Merging the two businesses together was 'fraught' — the deal nearly died multiple times before closing in early 2018
- Roll-up strategy in powder coating proved difficult: the business is hyper-regional (150-200 mile radius due to diesel transportation costs on heavy metal parts), limiting fragmentation and synergy opportunities
- SBA financing required going through three banks (two went into receivership during the process) in the frozen 2010-2011 credit market
Notable quotes
If I do this for 12 more months, I'm going to be dead. And she looks at me and says, 'What do you mean dead?' And I'm like, 'You know, have a funeral, collect the life insurance, dead.' And she thinks about that for a second and says, 'Well, then you probably ought to get out.'
You can literally floss your teeth in the reflection on the side of this thing. And I just knew in my gut that this was a well-built business.
Pick the poison for which you have the antidote.
Not one time did I ever wake up and go, damn it, I could have gone to Goldman Sachs.
If you're just absolutely miserable working for someone else and watching them get the equity value that you're creating, then don't hesitate. Just jump right into the deep end and you'll figure out how to swim before you drown.