McGill QaaS Session (29th Nov 2021)

The following are key lessons from the session:

Unless you’re 40/50 y.o, there’s no big difference in being taken seriously then vs. at age 30, in starting your own fund, ability to take risks decreases each year in your 20s

Needed a lot more capital for VC, so for $3.5m required relatively low EV/EBITDA, cash-generative, compounding machine starting early as possible, needed asset-intensive businesses to borrow against
Interestingly, it’s so much harder to raise LP capital, than getting debt from banks, cheap forms of debt - taking 2% rates and re-investing at 30% (rather than taking equity)

First targets were nursing homes in early days, those businesses funded further bolt-on acquisitions
Simplicity of “I bought businesses for as little money as possible”
Giving leadership autonomy, when business is right, the financial history is good, the price is right... check for strong management
Value of copying

Don’t need to be inventive, copy some of the greatest mentors e.g. Buffet, Sam Zell, Chamath
“Literally copying them as best as we can”

As capital increases, deal-making getting more competitive at larger sizes, but still seeing underpriced opportunities in UK M&A marketplace
Goal to get to $1bn, sometime in 2024
Done is much better than perfect, avoiding analysis paralysis, things get thrown at you, otherwise you’d never move forward, ultimately you do have to rely on gut

Sameer has a journal, work-file for each year, have an excel with tab broken down by quarter with clear goal-setting - malleable

Human capital compounding via power of reflection, despite the time it takes for it, is worth it
Be aggressively patient, so be the quickest for deals, show up earliest, but then be patient with the process of compounding and its power
Being contrarian and right, is the holy grail
Parallel comparisons to Octopus, ahead of them, unique once in a lifetime opportunity to not stop
Were compounding at 170% per annum for the last 6 years, that will drop to 20-30%

Sameer has simplified investing, doesn’t have a PA, no need for large teams
With different sectors, have general info that sector works, early-meeting with Founder/CEO and getting buy-in works, then work with DD providers (sometimes lender also require this)

Use rationality and logic first, if not sufficient then use e.g. consultants
Make sure the Founder will run it for at least 5 years, but avoid situations where Founders/CEOs are riding off into the sunset
With acquisitions, always has been quality over quantity, acquiring smaller businesses, but every year increasing minimum threshold, hence only about 4 acquisitions per year

Some really strong advisors, good mid-market advisors will work their ass of to make sure you’re protected
Have to work with lenders, need to make your vision clear to your Founders otherwise they’ll question their place in a Conglo growing so quickly
Annual letters being issued, avoiding risk of over-scaling without clear vision

Will be interested in the business if most of the FCF is going to shareholders, instead of needing to be reinvested back into the business (CapEx, working capital)
Chilango was a turnaround business, isn’t a massive cash contributor to the group
Would love to buy insurance business at some point
So much arbitrage out there in the private markets

Now a well-respected mid-market operator, good relationships and have to keep these guys warm, having a strong brand is necessary
Sameer didn’t have the full plan laid out initially, there were constant pivots
Had to fake it till you made it, if you show up to a meeting and if you show a sign of weakness the deal falls away from you

‘Seek discomfort, be nimble and smart, focus on learning before you earn, have faith in yourself’
The reason we like majority ownership, is because we get full control over capital allocation

Rejection rate is ~99.1%, most businesses are bad
Few simple things, reject based on a knee-jerk 3x increase due to e.g. Covid (or will buy if evaluated on pre-Covid levels)
Never built a DCF model, don’t need to, only do a Price/EBITDA

Allows you to compare to other things you bought, other things in the sector, other recent deals
Some back of the envelope calcs
Want to buy this cash-flow generating asset, for as little as physically possible
Less I pay for it, the quicker it de-leverages, and more FCF is available to me
Some deals RDCP pulled off were at ridiculously low EV/EBITDAs, super cheap, bit of luck and circumstance
Moving excel file called the “RDCP Master Model”

It constantly has current EBITDA, day 1 EBITDA at acquisition, price we paid
Then it has all the things we’re looking at, the live transactions (the soft ones that might go live)
If a transaction is over 6x EV/EBITDA, then Sameer is not that interested, has to be cheaper
Then appropriate management teams, reasons for sale need to be clear, then also gut feeling
Professor - ‘running the risk of analysis paralysis with a DCF, in some cases you don’t overthink it’