Eddy Zakes·December 14, 2023

Scaling Sweaty Services with a Brokerage Model | Eddy Zakes Interview

Eddy Zakes, a former director of the international search fund center at IE Business School in Barcelona, raised a traditional search fund and, after a nearly year-long search built on highly personalized proprietary outreach, acquired Earth Development — a Green Bay, Wisconsin-based landscaping and snow removal company that operates an unusual outsourced brokerage/two-sided-marketplace model rather than owning equipment or employing crews directly. He paid roughly $12 million (about 5.7-5.8x an agreed-upon EBITDA of about $2 million) for a company doing $8 million in gross revenue, heavily weighted toward snow removal (about 85%) and thus highly seasonal and weather-variable. The deal followed a rocky path: an earlier LOI on the business was rejected in favor of another buyer whose later withdrawal left the sellers distrustful and guarded during Eddy's eventual negotiation. Since taking over in March 2021, Eddy has grown revenue to roughly $16 million and expanded from 5 states/5-6 employees to 14 states and about 24 team members, building out a real executive team (CFO, head of sales and marketing, VP of operations) — but this J-curve investment has kept EBITDA roughly flat as margins normalize down from an initially inflated ~20-25% toward a sustainable upper-teens target. A key early crisis involved his sole operations linchpin nearly leaving two weeks after close, underscoring the acute key-person risk in a thin-staffed small business, which he resolved by retaining the employee remotely.

Deal facts

purchase price: $12 million
multiple: approximately 5.7-5.8x EBITDA
sde ebitda: agreed-upon EBITDA of approximately $2 million at acquisition (later determined to have been somewhat inflated)
revenue: $8 million gross revenue at acquisition; approximately $16 million gross revenue as of the interview
financing structure: Traditional search fund (raised from institutional, OG, and 'young gun' individual investors, including Cambria Group/Lou Davies and Aspect investors); no SBA mentioned
notes: Deal closed late March 2021 after search beginning around mid-2020; original LOI on this deal was rejected in favor of another buyer, then that deal fell through and Eddy re-engaged and closed. Business is Earth Development, founded 1999 in Green Bay, WI, originally a self-performing landscaping/snow removal company that evolved into an outsourced brokerage model. At acquisition, ~85% of revenue came from snow removal; team was 5-6 people working in 5 states. As of interview, ~23-24 team members across 14 states, revenue doubled, but EBITDA roughly flat due to J-curve investment in team/overhead.

Why this business

Eddy ran the international search fund center at IE Business School in Barcelona before deciding to pursue a traditional search fund himself. He looked at about 200 companies nationally via proprietary, highly personalized outreach (not scraping/high-volume), with an early industry thesis around edtech/nonprofit-serving SaaS. Earth Development came to him passively: an investor (Lou Davies of Cambria Group) forwarded a broker teaser for a landscaping/snow removal company mostly as a check-in, not expecting Eddy to pursue it, since traditionally funded searchers rarely buy landscaping businesses. Eddy initially set it aside, but on closer look realized Earth Development wasn't a typical self-performing landscaper — it operated an outsourced brokerage/two-sided marketplace model (matching customers with vetted 'Service Partner' subcontractors), which changed his interest. He was drawn to the risk-management value proposition (one point of contact, one invoice/contract/COI across multi-site customers) and the recurring, contracted (often 3-year) revenue structure.

What's working

Two-sided marketplace / brokerage model: Earth Development doesn't own equipment or employ crews directly, instead vetting and coordinating a network of 'Service Partners' (subcontractors), giving customers a single point of contact, invoice, contract, and Certificate of Insurance ('one throat to choke')
Overflow/surge capacity advantage: because they work with hundreds of contractors across many geographies, they can shift equipment and labor across regions during major snow events better than a single local contractor could
Long-term 3-year contracts on both the customer side and the Service Partner side, creating recurring-revenue-like stability and reducing 'leakage' risk of customers cutting out the middleman
Acts as outsourced sales/marketing for Service Partners, helping them fill excess capacity (e.g., helping a partner move from 75% to fuller utilization) in exchange for loyalty and non-solicit/non-compete restrictions
Retained almost the entire founding team (4 of original 6 employees still with the company), especially key-man VP of Operations Matt, who nearly left two weeks into the deal but was retained and still works with the company
Built out an executive team (CFO, head of sales and marketing, VP of Operations) and added redundancy so no single employee is on 24/7 call alone through winter

What's hard

Highly seasonal and highly variable business: roughly 85% of revenue came from snow removal at acquisition, and revenue/profitability swing significantly based on snowfall amount, timing, moisture content, and storm patterns rather than just inches of snow
Seller's agreed-upon EBITDA (~$2 million) was later understood to have been inflated relative to true underlying profitability, partly due to a favorable weather-related adjustment negotiated in the seller's favor
First deal attempt on this exact business fell through when another buyer won the process; that buyer later walked away too, damaging the seller's trust and making the eventual negotiation with Eddy more difficult and secretive (sellers withheld customer identities, contracts, and pricing methodology for a long time)
Extremely low tech/operational maturity at acquisition: desktops with old monitors, an iPhone 5 as the newest phone, no redundancy in processes, and a business run by essentially 5-6 people at high capacity
Underinvestment by prior owner, who had deprioritized landscaping (seasonal side business he didn't enjoy) in favor of snow removal, and had 'reached a point of satisfaction' limiting further investment in the business
J-curve: revenue doubled and headcount roughly quadrupled/quintupled since acquisition, but EBITDA has stayed roughly flat because of investment in building out a real management team and infrastructure
Margins came down from the ~20-25% at acquisition (viewed in hindsight as unrealistically high/an accounting artifact) toward a more sustainable 'upper teens' EBITDA margin target
Key employee risk crystallized almost immediately: VP of Operations Matt announced he was relocating away from Green Bay just two weeks after the deal closed, requiring negotiation to retain him (ultimately remotely)

Notable quotes

This idea of like spray and prey and send out lots of LOIs — again that deep personalization and shooting your shot with an owner, with a seller, trying to find your way into these deals — that was my methodology through and through.

Earth development offers a one throat to choke sort of concept where you're receiving one invoice, one contract, one Certificate of Insurance, one point of contact with an account manager who knows what's going on at all of your sites, and we essentially are vendor procurement for your team.

I've circled in my diligence process my key man risks and I particularly circled Matt and said if this guy leaves I'm up the creek. And here comes Matt marching in and he says, I don't know how to tell you this... I'm moving to Madison, Wisconsin.

We don't do anything that's — there's not a secret sauce to cutting the grass. We don't have a technology that makes us wildly better. We're not a pharmaceutical company with intellectual property or secret formula. What makes Earth Development better is our team.