Manny Saxena·July 31, 2023

How to Buy & Exit 3 Street Sweeping Businesses | Manny Saxena Interview

Manny Saxena, an Indian immigrant and Kellogg MBA who discovered search funds in a Barcelona study-abroad class, joined search accelerator Broad Tree Partners in 2018 after stints at Sears and an AI startup. In October 2020 — in the middle of COVID panic — he simultaneously acquired two street sweeping companies in Northern California from the same retiring owners: a municipal sweeping business with ~45-50 city clients on long-term recurring contracts, and a union-based construction sweeping company serving general contractors on an hourly basis. The businesses were funded via Broad Tree's deal-by-deal LP structure and purchased at sub-5x EBITDA. Within two months of close, Warburg Pincus-backed Sweeping Corporation of America (SCA) bought his largest competitor, forcing an accelerated competitive response: Manny opened a Southern California office, won contracts from SCA, and then acquired a third large player in Sacramento to cement Northern California dominance. Operational improvements — GPS fleet management, AR automation, a shift to newer trucks, and preventive maintenance scheduling — compressed costs and boosted margins significantly. SCA kept raising its acquisition offer, and 16 months after buying, Manny sold all three businesses to SCA in February 2022 at terms he describes as life-changing, in the top-5 percentile of search fund IRRs. He subsequently launched Mars Energy Partners, a solar industry roll-up in California, where he operates as executive chairman.

Deal facts

multiple: sub-5x EBITDA (acquisition); characterized as life-changing exit multiple
financing structure: Search fund accelerator (Broad Tree Partners) with deal-by-deal LP fundraising
notes: Bought two businesses simultaneously from the same owners in October 2020: a municipal street sweeping company and a construction street sweeping company (union). Subsequently acquired a third large competitor in Sacramento as part of an inorganic growth / arms-race strategy against Warburg Pincus-backed SCA. Sold all three businesses to SCA (Sweeping Corporation of America, backed by Warburg Pincus) in February 2022, approximately 16 months after acquisition. IRR described as top-5 percentile among search funds; MOIC described as top 70-80th percentile.

Why this business

Street sweeping checked every box during the uncertainty of early COVID: essential service mandated by law (municipalities must sweep streets to maintain their NPDES permit), funded from restricted enterprise funds completely separate from general municipal budgets (so even if a city went bankrupt, sweeping budgets were protected), deeply recurring revenue via 3-5-10 year contracts, highly fragmented industry (80% of players had fewer than 10 trucks), and minimal competition for contracts in Northern California due to California's strict emissions regulations (CARB) requiring newer, expensive equipment. Manny also saw clear tech and operational improvement opportunities in an industry that had largely been ignored by sophisticated operators.

What's working

Recurring municipal contracts (3-5-10 year terms) made revenue highly predictable years in advance
Essential service protected by restricted municipal funding streams, insulated from general budget cuts or city bankruptcies
California CARB emissions regulations created a high capital-cost moat that kept small competitors out of bidding
No customer concentration: ~45-50 customers with no single customer over 10% of revenue
Union labor on construction side actually a competitive advantage: only union contractors could bid for union general contractor clients, leveled the playing field on wages, and improved retention
Fleet management software (GPS tracking, preventive maintenance schedules, digital proof-of-service) dramatically reduced customer service disputes and maintenance costs
AR collection software reduced accounts receivable significantly (from ~$3-4M to ~$1M), improving working capital
Shifting capex strategy to newer trucks faster reduced maintenance/parts costs and improved driver morale and service quality
Dominant Northern California market position (three largest companies in NorCal after roll-up) created near-unassailable density advantage
Strong seller relationship: owners were cooperative and Manny maintained good relationships throughout transition

What's hard

Heavy capex requirements (trucks cost $300-500k each); had to reframe evaluation to EBITDA minus maintenance capex as true free cash flow metric
Inflation (2021-2022) created a painful squeeze: fixed-price municipal contracts locked in rates while fuel costs doubled and parts costs rose ~150%; required proactive renegotiation with ~50 municipalities
Union complexity added pension withdrawal liability and other legal/financial exposure that made the business harder to sell to buyers
Blue-collar culture gap was real: establishing credibility as an immigrant MBA in a Bay Area street sweeping business required deliberate relationship-building with drivers and mechanics
Warburg Pincus acquiring Manny's largest competitor just two months after his close turned the business into an arms race against a 90-billion-dollar PE fund
Exit came much faster than planned (16 months vs. intended multi-year hold), partly forced by competitive dynamics; Manny had wanted more time to execute on the growth strategy
Some buyers were nervous about union liabilities during exit process, complicating the sale

Notable quotes

I knew they were going to come because the West was the only place they could go to because they were doing all kinds of activity on the East Coast.

This is literally a 90 percent — a close to 90% of what our upside case in five years was, and we were like year one into the business.

Capex is a bad thing but can also be your friend. The friend part is like not everyone in a really fragmented industry can afford — back in the day the trucks were $300-350,000 — could afford those type of trucks. In many cities, because of California being California, [they] mandated use of new equipment, so there were very few people who were able to bid for those municipalities, hence you had less competition.

The biggest value add that I had at sweeping was when I was working more on the business versus in the business. I realized that after the deal got done and I felt like I just had to maximize that number of times that I would do those strategic moves.