🔑 My friend built 3 home service businesses. Here's how

Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:

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No one else could figure out this business. But KKR made a 10x return on it
How to build a home service empire

🔑Market your business to Sieva's Business Business Academy audience

We began testing with our first advertisers last year, and it turns out this community is incredibly engaged. With 70,000 operators, investors, and "acquisition curious" reading this letter each week, we drove customers for advertisers ranging from Vesto (treasury management platform) to Mainshares (sourcing investors for SMB acquisitions).

We are looking for a couple new advertisers to partner with this year as we launch a few new products.

Interested in marketing your business to this audience? Just respond to this newsletter and say hi.

🔑 They bought a struggling business for $600 million and sold it for $3 billion

Here's a home service niche that's not talked about much: Garage door repair and installation.

Today, we're looking at KKR's acquisition and turnaround of CHI Overhead Doors, a $600 million acquisition that turned into a $6 billion exit in just a few years.

Let's dive in.

Buyout Terms

In July 2015, PE firm KKR acquired CHI Overhead Doors, an Illinois-based manufacturer of residential and commercial garage doors, from FFL Partners.

KKR acquired CHI for ~$600 million
Deal structure: 50% equity and 50% debt
Multiple: 13x EBITDA
CHI was up for auction; KKR pre-empted the process by offering a 72-hour close window

CHI was profitable, but struggling to grow.

Several other PE firms had already owned the business and couldn't figure out the growth levers.

But the garage door repair business has been growing steadily for years.

Clearly, the previous owners were doing something wrong here.

Turnaround

A key innovation from day one was KKR's decision to grant equity stakes to every employee earning less than $100,000 annually.

And they didn't cut base salaries to do this, like we've seen in other turnarounds.

This program allocated about 3.5% of the company's equity to non-management staff, aiming to create a sense of ownership and alignment.

Here's why KKR decided to implement the program:

CHI was no stranger to private equity ownership. The business had already cycled through three previous PE firms.

Clearly, all the typical cost-cutting and operational efficiency strategies had been tried.

So KKR tried a new approach.

KKR certainly considered these advantages when conducting the operational transformation of C.H.I. Co-Head of Americas Private Equity Pete Stavros was so pleased with the outcome of C.H.I. that he went on to describe the firm as “a powerful testament that creating a culture of ownership works,” and credit KKR’s 10x exit multiple to C.H.I. ’s employees “showing up every day and thinking like owners.”

- BSPEC piece on KKR/CHI Buyout

Here's what else KKR did:

Invested in tangible improvements, such as constructing a second manufacturing plant in Indiana to expand capacity and reduce waste.
Modernized the other manufacturing plant and focusing on safety (safety incidents decreased by 50%).

The Results

(from acquisition in 2015 to exit in 2022)

Revenue increased by nearly 120%
EBITDA quadrupled
Margins expanded from 21% to over 30%.

After seven years of ownership, KKR sold CHI to steel giant Nucor Corporation in June 2022 for $3 billion.

That's a 10x return on KKR's original equity investment, marking one of the firm's highest returns in over three decades.

How did the employees do?

All 800 workers shared in $360 million of proceeds, with hourly employees averaging $175,000 each, plus about $9,000 in dividends received since 2015.

Long-tenured staff saw payouts up to $800,000, life-changing sums for many.

Lessons for Business Buyers

Embrace Employee Ownership: Granting equity to frontline workers can align incentives and lead to productivity gains, safer operations, and innovative ideas from unexpected places.
Focus on Operational Value Creation: Beyond financial engineering, invest in real improvements like capacity expansion and process optimization.
Act Decisively in Deals: KKR offered an incredibly fast closing window to close this deal. If you want to win a deal, you may have to offer something that others aren't willing to.

🔑 If You Want to Build a Home Service Empire, Watch This

Jeremy Yamaguchi, an entrepreneur who's built many empires in home services, broke down his strategies for starting and scaling businesses.

He started in home cleaning, then lawncare, and now he's building pool services business.

We talk about the economics of the home service business models he's worked in, how he acquires pool service companies, and how he's scaled to over $100 million in GMV.

Watch this video if you want to build a home service empire.