Jay Davis and Jason Pananos – Serial Acquisition Strategies and Holding Companies – Ep.130

My guests on this episode are Jay Davis and Jason Pananos. Jay and Jason acquired Vector Disease Control, which provides vector borne disease prevention and lake management services, in 2011. About 4 years after acquisition, they realized serial acquisitions complementary companies could be a powerful growth lever. And 14 acquisitions later, they sold the company in 2017 for a very successful outcome. Following the sale, they founded the Nashton Company where they’ve been mainstay search investors and the last few years holding company investors.

They’re also co-founders of Compounding Labs, a partnership between Jay and Jason, Kent Weaver and Will Thorndike to invest in long-term holding companies. Our conversation covers their investing in holding companies, how they approached serial acquisition at Vector and how they advise other searchers in the strategy, sources of capital and deal pacing, and building deal teams and when to start that process within your serial acquisition or holding company cycle.

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Links:

Jay on LinkedIn

Jason on LinkedIn

Nashton Company

Compounding Labs

Stanford Search Fund Harvard Business Study 2022

Topics:

(3:17) – If you look at Vector as a play for acquisitions, how did it fit into your strategy?

(6:41) – What actions did you take to prepare yourself for rolling up other businesses and acquisitions?

(10:56) – What key roles need to be in tip-top shape before you begin acquisitions?

(14:39) – What were some best practices you developed over the process of 12 acquisitions?

(16:14) – How have your roles evolved over time?

(20:53) – Have you noticed folks things being easier for serial entrepreneurs if they have a partner?

(22:29) – What other types of investments have high returns in the early days outside of team-building?

(25:24) – Are there any misallocations of time entrepreneurs have in the early innings of a serial acquisition strategy?

(29:49) – Does the presence of Private Equity in a certain industry make it more attractive to you?

(33:10) – What are some factors you weigh when looking at industries to potentially invest in?

(35:27) – What characteristics do you look for in entrepreneurs?

(37:46) – How does pace increase factor into your path as the team grows?

(39:38) – How does the source of capital shift over time?

(42:38) – What are your thoughts on Long-term holding companies and their increased popularity?

(47:27) – How do you sus out whether an entrepreneur knows they’re in this for the long haul?

(50:51) – How do these long-term hold companies shift over time?

(54:02) – How do holding companies shift your role when investing compared to a traditional search fund?

(56:59) – What strongly held belief have you changed your mind on?

(58:43) – What’s the best business you’ve ever seen?

Think Like an Owner Sponsors:

Live Oak Bank — Live Oak Bank is a seasoned SMB lender providing SBA and conventional financing for search funds, independent sponsors, private equity firms, and individuals looking to acquire lower middle-market companies. Live Oak has closed billions of dollars in SBA financing and is actively looking to help more small company investors across the country. If you are in the process of acquiring a company or thinking about starting a search, contact Lisa Forrest or Heather Endresen directly to start a conversation or go to www.liveoakbank.com/think.

Hood & Strong, LLP — Hood & Strong is a CPA firm with a long history of working with search funds and private equity firms on diligence, assurance, tax services, and more. Hood & Strong is highly skilled in working with search funds, providing quality of earnings and due diligence services during the search, along with assurance and tax services post-acquisition. They offer a unique way to approach acquisition diligence and manage costs effectively. To learn more about how Hood & Strong can help your search, acquisition, and beyond, please email one of their partners Jerry Zhou at [email protected] 

Oberle Risk Strategies– Oberle is the leading specialty insurance brokerage catering to search funds and the broader ETA community, providing complimentary due diligence assessments of the target company’s commercial insurance and employee benefits programs. Over the past decade, August Felker and his team have engaged with hundreds of searchers to provide due diligence and ultimately place the most competitive insurance program at closing. Given August’s experience as a searcher himself, he and his team understand all that goes into buying a business and pride themselves on making the insurance portion of closing seamless and hassle-free.

If you are under LOI, please reach out to August to learn more about how Oberle can help with insurance due diligence at oberle-risk.com. Or reach out to August directly at [email protected].

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