Reid Tilestone·April 18, 2024

The Gritty, High-Capex Road to Millions | Reid Tilestone Interview

Reid Tilestone, a former San Francisco finance professional who built and sold multiple Anytime Fitness franchise locations before earning an MBA at Chicago Booth (where he helped launch its ETA program), bought a Milwaukee-based industrial pumping business -- grease trap pumping, VOR (vacuum/drain) truck work, and kitchen exhaust cleaning -- doing about $2m in revenue and just under $1m of SDE at roughly a 5x multiple. He financed the deal with about $500k of his own equity and an SBA loan covering 85% of the purchase price at a fixed 5% rate, secured through a strong personal relationship with his lender, and closed with no seller note despite the seller wanting a fast, low-involvement, all-cash exit (only 4 weeks/80 hours of transition help). Tilestone was initially wary of the business's heavy capex (trucks costing up to $800k) but used deep operational diligence -- fleet inspections, calls to mechanics and truck dealers -- to underwrite the risk, discovering an unusually sticky, high-margin, recession- and pandemic-resistant customer base (87-91% repeat rates verified from 15+ years of transaction data). He grew the business 20-30% per month by getting his own CDL, digitizing paper-based scheduling, converting reactive customers to service agreements, and doubling down on the highest-margin pumping and VOR work, then sold about three years later to a private-equity-backed strategic acquirer after seriously considering (but ultimately passing on) an ESOP/SBA structure, instead cash-paying employees retention bonuses equivalent to the ESOP's value. He is now an entrepreneurship-through-acquisition educator, author of a book on ETA, and has relocated to Salt Lake City.

Deal facts

multiple: 5x seller discretionary earnings (SDE) at purchase
sde ebitda: SDE just under $1m (roughly $800k+ adjusted EBITDA) at purchase on ~$2m revenue; adjusted EBITDA margin above 50% at exit
revenue: ~$2m at purchase, growing 20-30% per month after acquisition; grew further after LOI signed with strategic
financing structure: ~$500,000 of his own equity plus an SBA loan covering 85% of the purchase price at a fixed 5% interest rate; no seller note (seller wanted all cash and a short transition)
notes: Owner stayed on for only 4 weeks at 20 hours/week (80 total transition hours). Sold ~3 years later to a private-equity-backed strategic acquirer; considered but ultimately did not do an ESOP/SBA structure for the exit, instead paying employees a cash retention bonus equal to the present value of what they would have received under the ESOP. Could not disclose exact final purchase price/multiple due to NDA, but described a rollup dynamic where similar businesses fetch multiples as high as 12-18x in strategic consolidation.

Why this business

Tilestone had spent 6 years building and running Anytime Fitness franchise locations and wanted his next business to fit criteria he and other searchers look for: fragmented customer base, recurring revenue, and a stable management team. He found the industrial services/pumping business (grease trap pumping, VOR truck vacuum/drain work, kitchen exhaust cleaning) through a broker (generational Equity) while conducting a search that was 50% proprietary/50% intermediary-driven. He was initially scared off by the business's heavy capex (VOR trucks cost ~$800k new), but deep operational diligence -- calling truck sellers and mechanics, hiring an outsourced mechanic to inspect the whole fleet -- convinced him the capex was manageable and that the recurring, sticky, high-margin nature of the work (customers who don't want to think about dirty compliance-driven jobs) made it a great asset.

What's working

Extremely high, disciplined gross margins: the prior owner never took jobs below a 33% cost percentage, producing ~50%+ EBITDA margins overall, some individual jobs at 90-95% margin
Very sticky, long-tenured customer base: verified via broker transaction data since 2007 that customer repeat rate was 87% and revenue repeat rate was 91%, with median/average customer tenure over 10 years
Recession- and pandemic-resilient revenue: business grew through the Great Recession and grew significantly through the pandemic even though roughly half its work was tied to food service
A methodical 'temp-to-hire' onboarding process (roughly a year to earn full W-2 status/benefits) that produced high-quality, loyal technicians in a historically hard-to-staff, dirty-work industry
Digitizing operations (moving scheduling off a paper 'red book' into the cloud, having technicians use mobile apps) unlocked efficiency and let him convert one-off/reactive calls into recurring service agreements and autopay
Getting his own CDL and going out in the field himself built credibility with technicians and let him truly understand the job before making hiring and tech decisions
Cultivating a genuine relationship with his SBA lender secured a fixed 5% rate on 85% financing -- an unusually strong structure he attributes to the lender internally advocating for him with credit committee

What's hard

High capex (e.g., ~$800k VOR trucks) is a real risk that scares off many searchers/lenders and requires deep diligence on truck costs, maintenance, breakdown contingencies, and secondary-market purchasing to underwrite properly
Losing the main grease disposal site (owned by a tribal casino, which turned it into a parking lot) forced him to lean more heavily on the industrial/kitchen-hood side of the business than his original thesis
Rolling out field service management software/cloud systems to a legacy paper-based operation was much harder and slower than expected -- he tested multiple vendors personally in the field because sales pitches didn't match reality, and cautions it typically takes about 4x longer/harder than people budget
A change to how meal breaks were tracked in the field cost some margin and also damaged trust with technicians who felt surveilled
Ultimately walked away from an ESOP/SBA structure for the exit -- despite tax and retention advantages -- because he couldn't get comfortable with a board controlling a business that needed agility to shift toward high-margin work
Because of an NDA he could not disclose the exact final purchase price or sale multiple
Labor is the core operating challenge: hiring people willing to do genuinely dirty, physically demanding work and retaining them through a tight labor market/pandemic shortage

Notable quotes

I think about diligence by the way as not at a 10 out of 10 scale, it's literally an 11 out of 10 scale. You can't actually get to 11 cuz you're just going to find things when you get in the trenches that you didn't expect.

What you do not discover during diligence... you're definitely going to discover when the operations come out, so be very thoughtful early on the process.

It's work that no one wants to think about and no one wants to do. They just want someone that's going to solve it and not make it a headache... so if you take care of it credibly, you get the job done, if the price is not completely unreasonable, then hey, you're going to be all set and good to go.

Hire slowly and fire quickly. It is as simple as that. Bringing people on needs to be a methodical process.