3 Operational Moves That Built a $300M Private Equity Fund

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In this episode of Making Billions with Ryan Miller, special guest Eric Wiklendt breaks down his proprietary PortCo Value Creation System—a framework utilized to close over 38 deals across metals, specialty chemicals, and industrial manufacturing, and secure a $300 million hard cap on Fund II.

Whether you are underwriting distressed assets, navigating complex corporate carve-outs, or structuring executive incentives, this masterclass reveals how to replace standard financial engineering with an unassailable operational playbook. 

[THE HOST]: Ryan Miller is a fund manager, capital strategist, and former CFO turned angel investor in technology and energy. He is the founder of Fund Raise Capital and Aequor Capital Partners, and has mentored over 1,000 fund managers across private equity, private credit, venture capital, real estate, and alternative assets globally.

[THE GUEST]: Eric Wiklendt is a Managing Director at Speyside Equity, where he spearheads the full lifecycle of investments, sourcing, executing, managing, and exiting control positions in middle‑market businesses. Eric brings an operator’s mindset to private equity—combining deep industrial experience with deal execution expertise.

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Transcript

Ryan Miller

Most fund managers chase deals. The ones who get oversubscribed build systems. My guests closed a $300 million fund, not by finding better companies, but by having a repeatable process that transforms underperforming manufacturers into high EBITDA exits. So if you're deploying capital into lower-middle market businesses and you don't have a documented value creation playbook, you're leaving returns on the table and your LPs know it. Stay locked in because what Eric breaks down here will change how you underwrite, how you operate, and how you raise your next fund. All this and more coming right now. Here we go. 

Ryan Miller

Before we dive in, just a word from our sponsor. When doing deals, we all know that raising capital is the one thing that unlocks everything. That's why I've partnered with ReefPass investors that are actively funding deals right now. So if you're a deal syndicator or founder thinking about launching an M&A-focused buy and build platform, reach out to Reef Pass Investors at reefpassinvestors.com. They are one of the best investors in the game that are helping you launch a new long-term holding company. So here's what I want you to do. Click the description in the notes and contact them for a discovery call and potentially get an invite to pitch your next M&A deal. Now let's get back to the show.

Ryan Miller

Eric, welcome to the show, man.

Eric Wiklendt

Thanks so much for having me. I really appreciate it. Really excited to talk about how to buy complexity, fix these companies systematically, and turn it into returns that get you LPs that uh have you oversubscribe. So thanks for having me on the show. Appreciate it.

Ryan Miller

Yeah, I appreciate you. I'm excited to talk to you. And before we jump in, just a quick disclaimer: all expressions of opinion provided in this podcast are subject to change without notice and are not intended to be a forecast of future events or results. There is no assurance that the trends highlighted in this podcast will occur in the future, or that projections, if any, will be met. So I just want to make sure that we get that out of the way. And then let's dive in, my man. 

Ryan Miller

So you've done some amazing things. You've closed over 38 deals across metals, specialty chemicals, and industrial manufacturing. You just hit a $300 million hard cap on fund two, which my understanding is, keep me honest on all this, is that you're also oversubscribed. So walk me through the sequence. What are the first three operational levers that you pull in the first 90 days? And how do you decide which one goes first?

Eric Wiklendt

Yeah, so we take an approach to this, uh, we like to call it a fix and build strategy. Phase one is fix and phase two is build. It's a system we use called the PortCo Value Creation System. It depends a little bit company to company what's going on there. But if you said, hey, Eric, pareto it out and tell me kind of like what tends to happen, what creates you know 80% of the value creation in that phase one approach, it, it's really three things. And it's incentivizing and aligning the management team, it's rationalizing the revenue portfolio, and it's optimizing the operational footprint. Those things happen a lot. They, because of the nature of the businesses we buy, which tend to be uh businesses that you know want to be sold, they may be in a misaligned ownership structure, which oftentimes mean that they're you know under loved and undermanaged and therefore underperforming. So we need to do that phase one approach first, which is the fixed part. Uh, they usually have those things going on where the management team needs to be aligned and incentivized to go work on the revenue portfolio and optimize the manufacturing and supply chain footprint. And you know, if it's a business that doesn't need the fixed phase, then we'll go directly to the build phase, uh, improve it that way, which is all about doing bolt-out acquisitions or executing organic growth activities like new market entries, new geographic entries, uh, new channel entries, things like that. But that systematic approach is what's really, really valuable. And it tends to be those things where we see things that are uh really valuable in the kinds of companies that we like to buy, which are $50 million revenue, $50 million to $500 million revenue businesses in the manufacturing and value-added distribution space. 

Ryan Miller

Brilliant. So, how does that framework help to tee you up for um for doing private equity turnarounds? How would that work if you were teaching somebody else, maybe apply that model to say, look, this is why this is important? What would you say?

Eric Wiklendt

Yeah, it's important because it's a very systematic process-driven approach based on the opportunity to create returns in a very systematic way that allows the strategy to work. And it's an anchoring activity, right, to make sure that we kind of always are asking ourselves, hey, are we executing the strategy right? And you know, are we using the right processes and systems to do it? That's really, really critical. And in private equity, well, any fund world, there's a lot of discussion around you know, generating alpha, meaning, you know, comes from, you know, we were just we were talking earlier in the show, right, about algebra, right? And calculus a little bit. Well, alpha is like, okay, where you know, where does the curve cross the y-axis, right? But it's like, why do you start better well or and or end better than somebody else who's doing something similar? You know, why while you execute your strategy? Why is your the execution of that strategy better than somebody else's execution of the same strategy? That's kind of alpha. Um, I make I'm I'm grossly oversimplifying it. But the, having that systematic approach to doing it and having the playbook for doing it is really important because at the end of the day, uh you know, process is how work gets done. So if you define how that work gets done and what you expect the outcomes of that work to be, the results, then it's a lot easier to do it over and over and just get better and better and better at it.

Ryan Miller

Brilliant. Okay. So when you look at a distress deal pre-LOI, what are two or three signals that tell you that it's unfixable and what data surfaces all of that information the fastest?

Eric Wiklendt

Yeah, good question. So I'd say there are two really big things that you know we think about a lot, which are uh number one is around the management team, and then number two is around the go-to-market strategy. So, relative to the management team, if we're in a management presentation and we think we're thinking to ourselves, wow, like for this business to you know do well, we'd like, or what we would expect it to do, we would need to change the whole management team. That's a bad sign. That's kind of a walk away fast sign,  right? 

Eric Wiklendt

Or if you look at it, I mean the flip side of that coin would be if you look at it and go, wow, this business is not doing as well as we would like, or not where we would expect it to be. But you know, even if you fix the whole management team, there wouldn't be you know an opportunity for it to do well. That'd be, you know, another, another kind of same thing there, right? But it's about the situation with the management team, right? And then the other thing is the go-to-market strategy, right? Every business has to have a reason to exist to be in business long term. Customers have to want you in the industry. And if customers don't want you in the industry, then you don't really have a reason to exist. So we think about that a lot, right? It's like, can you do the right things with the right human capital structure? And you know, what do customers kind of think of the business? And where's the business, where does it sit in that competitive landscape such that uh there's a reason for it to exist and continue on? 

Ryan Miller

Okay, got it. Now, I've been wanting to ask you, so beyond the OPTO specifics, what is the underlying decision logic you use there that an emerging manager could apply to their next distress deal right now?

Eric Wiklendt

Yeah, part of what we you know, we talked,  we hit out a little bit, which you know, it's having that systematic approach, uh, that's your guiding light, of course, um the ability to execute your strategy or value creation plan. It, you know, again, it gives you that thing to anchor you in every deal. And those processes and systems are really, really critical. So we talk a lot about engineering the process stack in you know, three kinds of or two kinds of processes. One kind of process are value creation processes, those are the things the customers pay you for. Um, so it tends to be three things in manufacturing, right? It's designing products, manufacturing products, and selling products in a value, value-oriented way. Um, so value-based selling. And then there's key support processes. So those are the processes you need to do to support the key value creation processes. But understanding those things, understanding how work gets done in that given business and why customers pay you for that work to get done is really, really critical. And then if you think about you know our portco value creation system, really what that is, that system is it's just a collection of processes fueled by frameworks and tools uh to do things in a very standardized way so that it's scalable, repeatable, and generates the results that we're looking for.

Ryan Miller

That's brilliant. Now you've mentioned process a few times. Would you say that that's a big part of why you guys are so successful and how you keep getting oversubscribed on your latest funds? Is that you mentioned you're essentially acquiring a bunch of processes, which I agree. And would you say that you don't have to tell me what your processes are, but would you say that that has a lot to do with the secret sauce in your fund? Is that you just have really dialed-in processes that you can overlay on some of the companies that you acquire?

Eric Wiklendt

Yeah, absolutely. I mean, that's the system. I mean, if you look at what's going on in private equity right now, it's kind of interesting, right? It's a very bimodal distribution of funds that are getting funded, right? And what you're tending to see, and it's bimodal based on size. So you have the mega-funds that are $10 billion or more assets under management, AUM, then you have the $1 billion and less guys, which were is where we fall that are you know less than a billion AUM. What they tend to be, you know, the small guys uh like us, they tend to be hyper focused on a very specific strategy with a very specific methodology for executing it, which completely describes us. And it makes a lot of sense, right? Why things have become bimodal and the guys in the middle are, you know, maybe raising money as well. And it's because at the end of the day, uh investors want you know the best returns that they can get. I mean, that's obviously like motherhood and apple pie sort of statement, but it's like, okay, how do you get really good returns? Well, the answer is you pick people that are experts in what they're doing, they invest in what they know. And you know, for us, again, you know, buying these $50 million to $500 million revenue manufacturing businesses, we know the systems and processes that work really, really well in those businesses and create value. And I think it's important, you know, if you're you know, if I were an LP, which I am, I think I'm an LP in my own fund and then you know sometimes invest in other funds as well. But that's it makes sense to me. That's what you're looking for, is like somebody who invests in a unique strategy and knows how to execute it well and can do it over and over and over and over again in a very consistent way. So that's why process matters, because with scalable and repeatable processes, you tend to get very consistent results with a very, you know, low standard deviation. So you end up having a very you know skinny standard normal curve, which that's what we're all looking for in investing at the end of the day.

Ryan Miller

Uh of course, absolutely. Now, I know that you know we're talking about processes and we could talk about finance and all these things. There's also people involved in these things. And the, you know, the 25 cent word is human capital. And so we have to assess, and you mentioned earlier that you know, if you look at the executive leadership team or the ELT and you're like, look, we got to replace all these people, they don't know what they're doing, or whatever reason. There is an element of closing deals and running a font that has to do with the people that you are acquiring or the deals, the people within the deals. So, talk about what are the two or three behavioral signals in a room that tell you the existing CEO can, in fact, execute on that transformation versus the one that you need to replace before you close. What would you say?

Eric Wiklendt

Yeah, so it's a real simple test. And I have to admit, uh, it's something my dad taught me a long, long time ago. He was a university professor for a long time. He taught math and physics, and he pointed something out to me. I remember like, you know, one night I was, you know, struggling with math concept. And he he was a guy, you know, you could do, I guess you could do back this back, you know, many decades ago, but like, you know, he would uh teach uh geometry by taking his class to like the pool hall and you know, using simple methodologies and like real world examples to uh you know teach that sort of uh stuff, right? And but what he said to me, I remember uh he you know, this concept I was struggling with, and he explained it to me. I'm like, oh my god, that makes like perfect sense now. And I'm like, you know, I don't understand, like, you know, you know, I didn't understand it before. And the thing that he said was like, well, Eric, you can tell how smart people are by how well they can take really complex concepts and break them down in a way that you know they can explain them to you in the most simplest of terms, like you're in fifth grade. And that always stuck with me.

Eric Wiklendt

 And it's kind of a bit of a great test for thinking about a CEO when you're asking uh CEO questions about the business, right? Because any business is going to be pretty complex, and usually the things we're talking about are pretty complex in that business. So the question I always have for, or the thing that's always going through my mind when I'm evaluating CEOs and executive leadership is when you give them a difficult question, how well can they, how quickly can they explain the concept in very simple terms? Because if they can, it means they know the material really well and they know the business really well. And that's important because if you think about a CEO who you know is running a business with a hundred people or a thousand people or 10,000 people, you know, they need to communicate at every level of the organization. And breaking it down to the simplest terms is really critical because A, that means they've thought through it and actually understand what they're trying to execute, and then B, they can communicate it to other people in the organization such that you know the acronym for team actually works, which is together everybody achieves more. But if people don't understand the basic strategy of the company and their part in it, it's gonna be really hard for that business to execute it. And it starts with the CEO being able to explain it in very, very simple terms that pretty much anybody could understand.

Ryan Miller

Yeah, we, I've heard it said the ELI 5, explain it like I'm five. And you remind me of a really cool principle. Um, I didn't come up with this thing, but it's no less profound. I believe it was Steve Jobs, who said simplicity is the highest form of sophistication. And and we know if you kind of study that guy in his leadership, that was something he believed in deeply, is to say simplify, simplify, simplify. He even had a piece of art, and you, if you know it, it'll actually talk about that in the art piece of just simplifying the artwork. It went from a complex to a very simple pencil drawing. And uh the whole principle in his leadership is like exactly what you said is we need to see simplicity. We don't have to overcomplicate things to try to get people to think we're smart. In fact, someone who's actually smart sees someone complicated things and it has the opposite effect. Would you agree?

Eric Wiklendt

Yeah, well, they're usually trying to hide something when they're. It's just complication is just a form of obfuscation, right? And so when I see that, it's like a big red flag, right? It it's like oh okay. Um, you know, either that or you're a philosophy major, and you need to use polysyllabic words to express really simple concepts so that you feel good about yourself or something. But you know, in the real world, um, you know, when we're trying to get things done, you know, this the simpler uh explanation and methodology, methodology is usually the better one because frankly, it like goes into people's brains faster and then execution happens faster. It's like there's no benefit of complicating anything ever in the real world.

Ryan Miller

Yeah, absolutely. You know, there's a whole part of private equity which is kind of the portco valuation or the portco-value creation system. So talk about one specific tool that a fund manager could adapt today and put to work on their next deal this quarter. What would you say?

Eric Wiklendt

Yeah, a good one that we use. I uh you know, and it kind of starts here with us, so I'm gonna highlight it, which is uh what I would call the strategy deployment process, or we call it the you know, Speyside Management System, but frankly, it's the conglomeration and confluence of you know several things that we've all seen at various companies at which we've worked. And it's it's out there, it's it's you know, you you you hear this a lot, but we kind of do it in a specific way, and it's a five-step approach. 

Eric Wiklendt

Step one is you know, what do you want to get achieved? And for us, that means like in the hold period, which you we usually kind of think about either in three-year chunks or five-year chunks. So in the three to five-year period, what is the value creation plan? Like what do we want to get done such that you know that defines great? And generally speaking, you know, for us, and what we're trying to do with Speyside, with the kind of companies we're trying to buy, it usually means we're trying to double EBITDA in the first three years, and usually by improving, significantly improving the EBITDA margins, right? That's kind of the phase one for us. And then phase two would be in the next, you know, one to two years, like how do we then grow, right? But you know, step one is you know, what defines great in that three to five year period? And then step two is like, how far do we want to go in this year, right? In in a one-year period, right? So then we'll develop you know a one-year profit plan for the year, break it down into digestible parts, create midterm goals. We usually like to do it. You know, some firms would do it quarterly, we tend to do it monthly for the year, and we'll create a balanced scorecard uh to explain like what that means. 

Eric Wiklendt

And then, you know, part of that is like step three, which is like, okay, how are you gonna do it? And it's that balanced scorecard, it's the one-year improvement plan, it's what are the key projects and initiatives we're gonna execute this year, usually three to seven. And then, you know, what are the key processes we're gonna try to improve during the year? We're always looking to do process improvement and continuous improvement because there's always something that can get a little bit better at a uh you know at a company. And then, you know, then the next question, step four is how, you know, kind of like how much. And that really is where those key metrics and one-year goals and objectives come in, and smart goals and uh things like that. We're real big on goals that are time bound, of course. You know, a goal uh, you know, without a time is you know just just a dream, right? You know, or or said differently, a dream is just a goal without a deadline. So we're really big on deadlines and you know, sometimes got to adjust them, right? Either forward or backward. 

Eric Wiklendt

And then, you know, step five is probably the most important thing is like who's gonna do it. Um, so you know, what are the human capital resources that are needed? What skills do those folks need to have? You know, what are the what are the project plans look like that are built, uh, whose name is next to the task, you know, and then making sure monitoring and making sure it happens, and then iterating, you know, every every uh you know, three years, you know, one year and then quarterly and monthly, depending on the length of the process or the length of the initiative to make sure that you know the the whole whole period uh vision is being achieved. But just doing that and getting everybody on the same page and aligning and cascading goals throughout the organization is really, really, really valuable. And it kind of ties back to that discussion, you know, that question you asked me before like what's a big red flag with a CEO, right? And the answer is the, is to be able to you know communicate very simply and therefore effectively. Well, think about it. Well, think about the process I just described that I'm telling you is super duper important. If you got a person like leading that, and that person can't explain things very simply in a way that everybody can understand it, that process I just described is gonna fall flat on its face and fail miserably.

Ryan Miller

Man, and I couldn't agree more in you know, continuing pulling on that thread about sitting down with a CEO. When you sit down with a CEO, let's say he's been burned by financial buyers before, right? So there's the tip on the shoulder or some scar tissue. And um, you know, when you deal with some of them, yeah, absolutely. What do you say and do in that first meeting just to make you trust make them trust that you're different? You're not someone who's gonna burn them, you're looking to do a great deal, one that makes sense on both sides. What do you do to get them to trust that you're not one of those guys who are trying to burn him?

Eric Wiklendt

Yeah, uh, that's a great question. And it's hard to like do in like a minute, but um, you know, in that first meeting, it's definitely doable. And the thing we really like to stress for folks is that for us, we're kind of a, we're a bit of a unique fund from the perspective that we're really a fund built for operators by operators. So if you look at myself and my other two partners, we've all been C-level guys at middle market manufacturing businesses. And being able to explain that to a CEO of a business that we're trying to buy is really, really valuable. And we can do, you know, at Speyside, we can do all the cool financial engineering stuff and structuring and whatnot. You know, we've been doing it for decades, but I think you know, lots of firms can do that really well, frankly. That's kind of what you learn as an investment banker. So you know, that that's not unique to Speyside whatsoever, in my opinion. What's a little bit unique to us is our PortCo Value Creation System and the fact that it's fueled by people that have been sitting in that CEO seat before. And what you'll notice, like, you know, when we're talking to a management team about their business, you know, a lot of times they're taking as many notes as we are. And the reason why is because we take a very consultative based approach to it, where we like to have a discussion about the business and a holistic discussion about the business. So we like to talk about the you know, the Market and the go-to-market strategy and the operational plan and the human capital plan. And then, you know, understand how that feeds into the financial plan and results. Where, you know, a lot of other PE firms, they're going to really start with the financial statements and they're going to crawl through the footnotes and ask those kinds of questions, which we're going to do that at some point during due diligence as well. But we're going to spend the first that first meeting getting to know the, that CEO, getting to know the business, and really understand the business strategy and how it gets executed. And then through that conversation, usually what those guys will see, they're like, based on the kind of questions we're asking, they're like, Oh, you actually sat in my chair, you understand how difficult it is, right? You're difficult, different than other PE firms where a lot of people there, the only thing they've ever run is a spreadsheet or a PowerPoint deck where you guys have actually run businesses and plants and supply chains and salesforces and marketing plans and whatever. So that ability to, you know, have that discussion on common ground, because we're a fund of operators built for operators, really helps um connect with management teams and then uh get a deal done in a way that's uh beneficial to all.

Ryan Miller

Okay. That makes sense. Now, one question that I've been wanting to ask you, I know you managed over 70 union workers in Mexico. I'm curious of what the shop floor taught you. So, what is one management principle you learned by supervising those 70 people that directly changes how you assess and even fix a portfolio company now that you're a fund manager?

Eric Wiklendt

Yeah, so uh it's actually 70 UAW guys in Waterloo, Iowa, and over 300 union guys in Mexico. So one, I was a software supervisor, um, and then the other one I was a plant manager. But you know, pretty pretty simple, uh great rule of thumb is treat people how they want to be treated, or how you'd want to be treated yourself. Treat people with, you know respect and care and you know, try to get to know them you know as people. But yeah, that that's yeah, I guess that's my biggest you know thing is like I really love to understand why people like do the things they do or think the way they think or you know, whatever. So I try to spend a lot of time you know with that. And you know, because I think like you know, it's interesting. I guess what the decision I've come to about people is that you know, people are not generally illogical or irrational. If you had the same experiences in life and the same set of facts that that person had, it's probably pretty likely you would make a similar or the same decision. So, you know, why while you may have different facts and experiences and therefore it leads you to a different decision, endeavoring to understand their background and what makes them tick and how they think, you can pretty quickly discern like why they make the decisions they make and how they get to the conclusions that they get to, right? 

Eric Wiklendt

And I think you know, you should be spending a lot of time, you know, especially in leadership, you know, you should be spending a lot of time listening. And here's why it's so worthwhile, such a great return on investment. Because as a leader of a business, you should be the chief constraint removal officer more than anything. And if you just listen to people, you'll understand the constraints in the business back to process, right?  What are the constraints to work getting done, i.e., the process not being efficient. And so if you respect people and you listen, you will just get gems of opportunity for improvement that create a high return on investment. And the fact that you're you know listening and respecting folks, and then you know, giving them the resources they need to remove the constraint to do great work. It's my experience that like 95% of people, if not 99, want to do great things, like they want to work as a team and have great results, and it's just a matter of like how do you help them do that? And the answer is listen to them, find out what the constraint is and remove it. And my gosh, they will you know do great things to try to uh create the result if you make it easy for them to do their job because you listened.

Ryan Miller

Hey, if you're finding value out of this discussion, could you do me a huge favor? Could you just take a second and hit that like or subscribe button? It costs you nothing, but it tells the algorithm that this is valuable information and it helps us to get it to more people. Thank  you, you're incredible. Now let's get back to the show.

Ryan Miller

Brilliant. You know, when we first met, you told me a funny expression. I think it applies here. It's like the seven Ps or something like that, where you have the seven P's and the five C's. So maybe the five C's and the seven P, because this ties into removing constraints and leading people, but it's a very fun and funny expression that's hard to forget, as I well know after you told me that it's all I could think about. So, what are some of those, those, those uh I guess the alliteration that you have?

Eric Wiklendt

Yeah, so a buddy of mine that I played rugby with uh back in grad school, he was a um Navy SEAL, and he he was fond of talking about the seven Ps, which I guess it's a it's a thing in in the teams in the Navy uh SEAL teams, which is prior proper planning prevents piss poor performance. And uh I I don't know, it was stuck with me because like you know, we'd be playing these rugby tournaments, and you know, sometimes we'd win and sometimes we wouldn't. And you know, he'd always refer back to the seven Ps, right? And he'd always be like, did we prepare? And you know, sometimes the answer  was no, because you know, we had tests to take or interviews to do, and so the outcome wasn't great. 

Eric Wiklendt

And then another favorite of mine is clear. Can I guess I made this one up. Uh clear, consistent, clear, constant, consistent communication creates results. And uh I it goes back to like, you know, you think that people know what you said or whatnot, but saying it once is usually not enough. So saying it, you know, multiple times, very clearly, very consistently, very constantly, uh, it allows people to understand uh what's expected, especially in like you know, large, larger teams, right? You gotta try to get everybody on the same page. Um I I remember uh in graduate school, uh Covey came to visit our school and he made 300 of us close our eyes in a big lecture hall and said, Okay, close your eyes now, point which way is north. And then he's like, keep pointing. Now everybody open your eyes and look. And there were people pointing all over the place, right? And his point of that was now think about that for a second. You all, you know, at least think you're really smart. Um, and you probably are pretty decently smart. And think about like large organizations, there's 300 of you in here. Think about the very, very simple question I ask, which way is north? Now think about an organization with like a thousand people in it, and they're asked, hey, what's the corporate strategy? Right? And like think, yeah, like it's kind of crazy, right? To think about like you know, you're gonna probably if you ask a thousand people, you're probably gonna get three thousand answers. Um, because you know, half of them will change halfway through. But the point is, is clear, consistent, constant communication creates results because again, getting people on even on a one-page you know, strategy, getting everybody on the same page is not easy, and it it's a function of saying it over and over and over and over again so that people know what the plan is.

Ryan Miller

And so, yeah, of course, that constant communication and really that is a leader's job is to get the company, their team, whoever it is that are in part of their stewardship to all pull in the same direction. And sometimes that's people, sometimes that's entire factories or divisions that are working or they're not. And so, since you deal a lot with manufacturing and plants in your private equity fund, I'm curious about when you have to close one down because this is a reality in private equity. Sometimes you you have a portfolio, you gotta either roll it off, roll it out of your portfolio, or shut the whole thing down and kind of take the L. Either way, I'm curious what are the financial and operational thresholds that trigger a plant closure? And how do you sequence the workforce communication that you were talking about? And how do you keep it from just destroying morale across the rest of the portfolio? What do you do? That's a tough spot.

Eric Wiklendt

Yeah, so there's kind of two parts of that. You know, one part is uh making the decision, like how do you you know, kind of what are some basic guides to do that? And then, you know, the, then the second part is like how do you execute? Um, or well, you know, what are some of the keys to executing? And just so you know, like I'm about to summarize like a couple thousand pages. So when I was at Eaton, I wrote or co-authored what was called, The Standard Transition Process, and that was all about you know shutting down and turning around and moving and starting up plants all around the world. I think at the time that company had like 200 plants. So they were constantly, you know, moving things around the world. And in our world, in private equity world, to your point, especially the kinds of businesses we buy and you know are looking at, a lot of times they're not up completely operationally efficient. And you know, one of the things we'll look at is, you know, we'll start by understanding capacity utilization and profitability. And usually those two are, you know, they kind of go hand in hand, they're a little bit yin and yang. But if you think about like, so you know, a lot of times, like you know, you'll see a plant where it's a five-day-a-week operation, eight hours in a shift. And so let's just say it has one shift five days a week, eight hours uh a day. That's 40 hours. There's 168 hours in a week, that's about 24% of the hours in a week. So in that plant, you would say, at least on a time basis, now, uh and uh you know, operational purists will kind of argue with me here a little bit about you know what do you really look at and OEE and all these other things. Like there's you know other metrics, but like a really simple one is just capacity utilization based on time, right? So if you're running 40 hours a week, one shift a week, um, you know, just during the week, uh, out of the 168, 168 hours in the week, you're running at best at 24% capacity utilization on time. 

Eric Wiklendt

Well, that's not you're gonna have a hard time making money there, right? Because at least in manufacturing, there tends to be a lot of deployment of fixed capital into property plant equipment. And so your return on capital employed there, uh, which you know would often include working capital as well, is just not gonna be really high because your capacity utilization is low. So that'd be the first thing you kind of look at, right? Is like how much is, how many hours a week are, is a plant being run? Um, and you know, would there be an opportunity to make two plants into one? And also, like there's kind of the other side of the coin, you know, a little bit that you get ferreted out when you think about profitability. Sometimes you'll look at a plant and maybe it's the you know, capacity utilization is pretty low, but they're really, really profitable. And you go, wow, like holy cow, they're super profitable, you know, with pretty low capacity utilization and therefore low operating leverage. Maybe we should run more products at this plant, or maybe you should look for a way to grow because this plant will kill it. They'll make more gross profit and manufacturing profit and operating profit and EBITDA and free cash flow. So that's the other thing to think about is profitability, and it's a bit of a governor as well. Uh, you can accept lower capacity utilization if the profitability is higher. Um, but then you kind of look for ways to continue to fill a great plant like that. So, you know, we think about both things like is it too low or is it underutilized from you know a time or resource perspective, or is it underutilized from a profitability per square foot perspective? And it means we should look to put more work into that plant. So those are the two big things, like capacity utilization and then you know profitability.

Ryan Miller

All right. So utilization and profitability. So you have distinct benchmarks. So maybe there are fund managers out there that don't do factory, totally fine, right? We we all we're we're all in the same path, just uh different off and on ramps. But I think what I really want to highlight, and I don't want to miss skip past this, is that you do have already, you have thresholds. So you're not like, yeah, but he's a real nice guy, or you know, all that stuff. And I've been there, I've made that mistake. And what you have is to say, you know, there's certain thresholds, we have that in place. It's already pre-decided. If it enters into the red zone, we'll call it, we already know what to do. So we've already defined that sale point that let's wind it down, let's roll it out. Would you say that, and again, back to the process, would you say that is a big part of what you do is to say we know what the thresholds are to capture something before it goes really bad? We already have that in place and we know what to do. Would you say that that is a big part of what you do to cover your downside risk?

Eric Wiklendt

Yeah, I would say that understanding the industry at a detailed level is critical, right? And that's you know, sometimes people will ask us like, you know, sometimes you guys buy businesses that are underperforming, like, you know, aren't you aren't you a little bit, you know, worried about that? Is that you know that is, that like really risky? And what I say is that you know, situations like that where you have knowledge are less risky or de-risked. It's kind of like, you know, you watch the guy that's like the lion tamer, right? Um, you know, or I don't know if you've ever been to Florida and you watch these guys that like play around with alligators or whatever, or the guys that like dive with sharks. It's like they know they know those animals like so well that they can see the signs and read the signs so that they make sure that they're not putting themselves in danger and they know how to you know, deal with those situations so that they can get themselves out of danger. 

Eric Wiklendt

For us, it's kind of similar in the fact that again, we've run plants and we've run sales forces and marketing teams and finance groups and et cetera, et cetera, et cetera. We, you know, those are the lions and the sharks and the alligators you're kind of playing with, to your point, uh, to make sure you understand when danger is is around. And but if you know what you're looking at and you know how to mitigate it, it's not that dangerous. And that's what we're really good at. And it, that's also why it's very important that you know we're a firm of operators built for operators, and also we tend to hire uh really good management teams, operating partners, and consultants to help with understanding that risk and more importantly, take the active actions to quickly mitigate it. So that is you know a really, really critical thing in what we do. It tends to be why you know we can buy the kinds of companies that we buy and make them better.

Ryan Miller

Got it. You know, um, a big part of uh and you please keep me honest, but a big part of private equity and acquisitions, sometimes you buy the whole company, sometimes you just buy an asset through let's say an asset carve out. So in a carve out LOI, walk me through, say, three items that you would negotiate or you recommend that someone would negotiate the hardest on, just from your opinion.

Eric Wiklendt

To me, it's probably number one is the transition services agreement. Number two would be what's true standalone adjusted EBITDA, and we can talk a little bit more about that. And then the third thing is in the deal docs, you know, you're doing a lot of things to mitigate risk uh around those things. So making sure the reps and warranties and indemnifications all are congruent with what's going on in that company and or that car bound process. So though those would probably be the three big things. Um and then there are kind of other, you know, like sort of I don't know, unique things that you know would occur, like understanding like the human capital profile and what people do sometimes around playing games with certain assets. 

Eric Wiklendt

So if you think about like uh human capital and working capital and fixed capital, if somebody knows they want to carve out an asset, sometimes they'll plow a bunch of bad things into an asset, and then it becomes kind of a scapegoat that gets set up set out in the desert uh to get to get slaughtered, but they lose all the risk associated with those, you know, human capital, working capital, fixed capital, assume liabilities, and all that stuff. So making sure you understand what those are and you know not getting uh not getting saddled with those, making sure you're not getting a scapegoat asset is really, really critical. But the transition services agreement that I talked about um is really critical because that defines how you're gonna work together with the selling entity over you know somewhere between six and twenty-four months to you know continue to use their systems and services until you can get off of them and truly stand up that company as a unique standalone uh carved out entity. And um, you know, there's a lot that goes into those trans inference transition services agreements. 

Eric Wiklendt

The good news there is that, you know, frankly, you know, as the acquirer, you want to be off those systems as soon as possible. And they want you off of those systems as soon as possible. It's so it's like the good news there, at least your interests are like really, really well aligned. But you know, sometimes like you know, you'll have folks that will do a carve out, and if you don't understand how those systems work and how to get off them quickly, sometimes those folks will be on there much longer than the seller wants them to be. But you know, we look at it as like you know, we want to be good deal partners as well. So uh you got to negotiate those right and then you know endeavor to be a good deal partner and uh be done using your deal partners' systems and services as quickly as possible. 

Eric Wiklendt

And then, you know, what adjusted EBITDA is is really, really critical because it does matter at the end of the day. I mean, EBITDA's at the end of the day, EBITDA's you know, a lot of, a large component of um cash flow, right? It's a nice shorthand. You can't really fake cash flow, but you know, I guess you can fake EBITDA. So understanding uh standalone costs are critical. And some of them are one-time costs, and then some of them are ongoing uh costs to the standalone. So you know, one-time costs would be things like legal consulting, tax consulting, uh insurance consulting, uh management consulting, any of that kind of stuff, interim employees, whereas like ongoing costs to standalone would be like your you know, your yearly audit, your yearly tax work, uh insurance for a smaller entity, uh standalone ERP systems, uh, you know, laptops and phones and uh any management compensation that needs to be adjusted or lease, office lease assumptions, or you know, increased supply costs because you're not you don't have as much buyer, buying power, things like that. But putting that all into adjusted EBITDA or paying a multiple off that is really, really critical. And then making sure that that you know flows through to free cash flow at the end of the day as well, so that um at the end of the day, you know, you can't really spend EBITDA, you can only spend cash. So you gotta make sure it shows up in cash flow at some point.

Ryan Miller

Yeah, I love that. And you know, the TSA,  the Transaction Services Agreement, this is a really cool thing to for those that are new and may not understand it. If you're doing an asset carve out, that's typically not a standalone business. And you said uh earlier that they want you off the systems, and so we have to say, okay, what does that look like? You know, it doesn't have standalone systems processes, legal, audit, treasury, insurance, APAR. There's all kinds of things that just don't exist. And then I think what you're saying then is that the transition services agreement really discusses how is that gonna look. Um, and in yours, does that imply any adjustments to the second point, EBITDA? Does that apply to any of that? Or or how do all of those connect, especially the first two? So the adjusted EBITDA, what that is, as well as the TSA. Did, does the TSA feed the adjustments or how do you go about that?

Eric Wiklendt

Yeah, it can because a lot of time, you know, you're using those uh systems and services of the seller and the theoretically, right? The longer you're on their systems and services, the less time you're paying through your own. So it does affect the adjusted EBITDA, like, or it can positively, I guess. But you need to know, like, once you're off of those systems and services of the seller, you're gonna then pay for them. And again, it's like what is the that's usually a negative adjustment to standalone adjusted EBITDA. And that, that's really that, that's the hard part, in my opinion, about doing a carve out. They're I don't know. I love, I love, love, love doing carve outs. I, they're, I think they're super interesting because they're like there's so many moving parts, and so they're a little bit challenging, but which makes them like super fun, right? It's like the difference between playing like three-dimensional chess, you know, and checkers, or like, you know, bridge and war. Uh so they're they're great to do, but yeah, they they go, they it's kind of the brackish uh water in a deal a little bit, is where transition service agreements meet adjust and EBITDA.

Ryan Miller

Yeah, I could see where that linkage happens, man. So, you know, earlier you mentioned that aligning, actually, I think in the very beginning of our conversation, you mentioned you know, aligning and incentivizing leadership a lot in obviously your own, but in portcos that you're acquiring. So, what does your equity incentive structure actually look like? Like vesting milestones, performance triggers, rollover requirements, any of that? And how do you calibrate that upside so the CEO feels like a co-owner, they take on that responsibility and they really act like and drive value that you're expecting? What does that look like for you?

Eric Wiklendt

Yeah, in a phrase that I'm gonna plagiarize from my partner Kevin. I love it, this phrase uh that he reminds me of all the time, which is a good which is a great one, which is we want partners, not employees. And you know what he means by that, we really like to find alignment, uh you know with folks in such a way that we all are rowing the boat in the same direction uh at the same pace. And what that means for all parties involved, right? Whether it's our limited partners that invest in our fund or us as the general partner in our fund or the operating partner in our portcos or the, pardon me, the leader, leadership teams in our portfolio companies, is we all want businesses that are going to significantly increase the equity value quickly. And the way that we like to align that is by you know working with folks such that they're highly incented to do the you know long and difficult and challenging work that creates equity value in a business. You know, if we can do that, like if we can deliver a uh business that you know doubles or triples the EBITDA in our three to seven year hold period, it means the equity value is going to go way up. That means that our LPs are going to get a great return. It means we as the GP are going to get you know good carry economics. And it means our operating partners and management teams hopefully create generational wealth. 

Eric Wiklendt

So partners not employees and the way we align that uh usually is with equity LTIPs. LTIP stands for long-term incentive plans, things that get paid out when we have a liquidity bet, usually you know the three to seven year uh hold. But uh we will put those in place for you know key key value creation uh members and partners in in the firm and that allows us to you know make sure that those folks like really have something exciting to look forward to in terms of uh you know the opportunity to create generational wealth and we've done that through a lot of different mechanisms we've done it through options restricted share units phantom  equity. But the one we like the most these days are profits profits interest units so those are great because uh the folks that get them uh they're they tend to be very tax efficient from the perspective um at least in the United States if you get uh PIUs profits interest units and you do an 83D election you you pay long-term capital gains tax on those payouts which that that's good and it you know it's fair they they they earn it so you know um government's getting plenty of money uh in those situations uh but those folks are rewarded for their really hard you know long difficult work of you know helping to create significant equity value uh based on executing the value creation plans that we author during operational due diligence. 

Eric Wiklendt

So that that's really important to us and you know we generally give we tend to set aside somewhere between seven to ten percent of the diluted equity in a portfolio company in a platform uh for these uh long-term incentive plans that help align everybody's interests really really really well 

Ryan Miller

Yeah I do the same 10%. Now it it there's a lot of things there's a lot of learning and sometimes this is fun, sometimes it's complex, sometimes it's very simple and one of the things that but all of it teaches us and and I'm curious for you so there are deals that can teach you a lesson sometimes it was the best deal of your life and that taught you lesson sometimes it might be the worst deal you've ever done also teaches you a lesson right we either win or we learn. So talk about a deal that taught you the most. What happened on that deal, what decision would you reverse if it was a bad deal and how did that help you in your newly minted $300 million fund? 

Eric Wiklendt

Yeah so you know the the way I think about and about this and you kind of hit on it uh quickly there but I I like to uh on Sundays I I coach uh coach rugby um and I always tell my kids you know there's no losing there's just winning and learning and a lot of times you know we learn the most during adversity and I I think that's uh really important to uh know uh you know and you know sometimes you're gonna have failures like uh uh again you're gonna have learnings uh we'll call them that but you know it's yeah what can you take from them. And you know we had a deal in fund one uh that was a  stamping and fab roll up in the Chicago area and it was you know really uh a business where we mashed together four microcap companies they were all below $50 million in revenue  a couple one of them was 45 two were the mid-20s and one was below  10. So we tried to smash that together create a $100 million revenue platform that had seven million of EBITDA and then the goal was to double EBITDA to uh you know 50 a little over double it and then you know hopefully sell off. It didn't go really well um for a variety of reasons um we ran into some challenges with the customer base and then ran into some challenges with the operational improvement plans and then ultimately COVID came along and it really was the tidal wave crashing over the bow of the boat that sunk it. But what we learned there that we've, you know, now applied to fund two was size matters. 

Eric Wiklendt

So we will no longer buy platform businesses below $50 million in revenue. We'll do both onset for sure but you know platform businesses where especially where a transformation is needed and improvement is needed just a bright line no go for us. And the reason why is we you know demonstrated out that you know small things kill small companies because they tend to have more operational and financial risk because they don't tend to have the scale in terms of systems processes and people to mitigate risks when they do come along. And so with these smaller businesses uh you know little things can cause you to be staring into the abyss of insolvency pretty quickly uh because they're just they they don't have enough of those systems processes people and therefore structure to sometimes like take the actions or the medicine needed to like fix the business when it's that size. So for us we just we won't we don't do platforms anymore that are below certain size which is that $50 million bright line we, you know, micro cap  deals. It's just it's not worth the risk and you know the thing we're trying to continually improve is getting better risk weighted returns  you know at the end of the day so that's a way to mitigate you know that we can very much control right it's a good way to you know not take as much risk in a fund is by you know portfolio   construction. Kind of motherhood and apple pie kind of obvious thing but you know uh we had some really good deals that were below uh that were smaller and you know we kind of figured out it's just it's not worth the risk so we're we don't do it anymore.

Ryan Miller

Got it. Okay. So size matters. Okay. Uh I love that. And uh you know it's interesting I was having that with one of my uh portfolio companies right now is they want to do some acquisitions and we started talking about that exact same thing. They said but the you know they're trading at 16x and and I said yeah it's it's a little expensive but here's why you're paying a premium when it's when it's big it was I it was around $50 or $60 million. Is because they now have systems they have processes. They're not just a bunch of cobbled together staff and people just trying to make it up and so they've solved a lot of problems. That's why they got to that revenue point. So yes you pay a premium or you don't, you want to dive in on the smaller ones that's pretty risky sure you get a deal but sometimes you could what looks like a deal is really you catching a falling knife. And we don't want to do that to say look at the deal look at the price on this thing and you're like yeah go ahead and grab it see what happens you slice your hand off. And so sometimes the deal is not always the deal we want to look at to say and and and you said it great where it was just saying too much downside and not enough upside to justify it. Well that couldn't have said it better my man. So that is absolutely critical. Now if there are operators out there right now who just want to get a serious look from a company like yours at Speyside what are two or three things that an operator needs to demonstrate to an allocator like you not just claim but demonstrate to get that serious look from a firm like you guys.

Eric Wiklendt

Yeah it's a good question. And I, you know I think about it like yeah how do you go from like not just necessarily a GP or you know whatever but how do you go from operator to investor? Because you know private equity fund is just one think of it as like a vessel right . It's one way to do investing this way that you know I currently do it. But uh I also went from operator to investor going from like running a manufacturing plant in Mexico to doing corporate M&A. And so there's kind of different ways to do it. And they're different vessels to do it in right um it's just it just kind of depends on you know what you're trying to achieve. 

Eric Wiklendt

But if you think about like the investing process right there's uh in private equity funds anyway but most any vessel you know that we're talking about you got to raise money you got to find deals you got to execute deals then you got to transform deals i.e create value and then you gotta exit um  deals. Right, those are kind of the big things and you know with people that are going from operator to investor usually the place where they are less experienced and you know it's a little bit harder to learn quickly is the deal execution standpoint. Like how do you buy a company? 

Eric Wiklendt

Now the good news is you know there's kind of two big parts of that there's like the valuation and then there's the deal docs uh where you need to where you need to get better. So kind of finance and legal if you will but you know there's accounting and tax and all kinds of things wrapped up into that statement. So for folks that want to you know kind of be in that game you gotta you gotta be able to help create value at a fund uh in you know one of several ways either you know be able to help raise money be able to find deals be able to help execute  deals. Normally most people get into the transformation side of the game uh you know as an operating partner and then maybe as an investor um and then you know being able to to exit. So for us uh we think about a lot about that like especially in a transformational you know part of the game like you can learn a lot and in our in a fund like ours uh those sorts of folks are really really valuable and we you know we look at that because uh the reality of the business the reality of you know what we do at least at Speyside most of the value is created after we the deal closes because that's where we're executing that Portco Value Creation System to improve the EBITDA and therefore the equity value of the business. 

Eric Wiklendt

So if you're a guy or gal that hasn't done a lot of deals a lot of times the transition into a fund is usually the transformational route and then you can kind of learn the other  parts. The harder part is the uh to learn right away if you haven't gone through corporate M&A or investment banking or something like that is the execution part. But there are a lot of like tools out there to to learn that and and whatnot like you know when I went into corporate M&A they sent me to like a couple months uh like training class on uh deal execution basically and you know Wall Street Prep or one of those things like uh you can take their  courses. And you if you're pretty, if you're smart they break it down you know those kinds of courses, pardon me they break it down really well how deal execution happens and then it's a bit like an apprenticeship. You just gotta go do it. Like I unfortunately you can't it's not like the movie, The Matrix where they can just you know shove a jack in the back of your head and upload all the knowledge. You have to go uh you have to go uh learn it by winning or working.

Ryan Miller

Yeah absolutely and yes there's been times where I was like you know for that one part I wish that was a real thing where you could download and learn kung fu just like uh Morpheus and what is the name Neo yeah so I love it uh but until then we'll we'll just we'll put in the reps and some good deals and we'll just keep winning and learning. So if this has been great getting to know you and learning all about Speyside, your fund and all of the cool things that you're doing and just I can see why you were oversubscribed on your last fund.

Ryan Miller

Now before we wrap things up, is there anything else you'd like our listeners to know ways to reach out to you ways if they just want to get more of Eric in their life?

Eric Wiklendt

Yeah sure uh you know if you go on our website you can find my contact information or go on my LinkedIn um always happy to take calls or answer emails and you know we're always looking for good businesses to  buy. We're you know we really love buying $50 million to $500 million revenue manufacturing and value added distribution businesses. So you know if folks are looking to sell something at some point or want some or just want help or you know ideas on how to do that happily and happy to talk to  them. And you know we're always looking for good operating partners, management team members and EPT consulting firms to work with as well so um happy to talk with those those folks uh also yeah we really I mean I I think I I personally think I have the uh greatest job ever um you know joke around with some of my uh industry cohorts and uh you know tell them like I I would actually do my job for free um which is probably not completely true there are definitely parts of my job I would do for free probably parts that I would pay somebody to be able to do I really love like finding cool companies to buy and figuring out ways to improve them. That's the part of my job that uh I just I love it to death. So always happy to talk about that with folks and you know look forward to uh you know making more connections in the future and uh if there are people that want to sell businesses or you know are looking to you know work in a private equity portco at some point.

Ryan Miller

So this has been absolutely good talking to you and learning about your fund and all the excellence that you guys do at Speyside. And I could see why you were oversubscribing your $300 million. So just to summarize everything that Eric and I spoke about you want to align and incentivize your portco management teams just to hit the targets you need for your fund. The second one is build your best in class processes to overlay into private equity portfolio companies that you acquire. And finally clear and consistent constant communication creates results and prior proper planning prevents piss poor performance. You do these things and you too will be well on your way in your pursuit  of Making Billions.