How to Buy, Double & Exit a Turnaround (as a First-Timer) | Ben Rizzo Interview

Deal facts

sde ebitda

Business was losing money at acquisition; Rizzo estimated that in a healthy state it could generate roughly $1.6-1.8m EBITDA on 20-30% margins

revenue

Upper seven figures at acquisition (Rizzo suggests ~$8m as a placeholder), grew to a run rate of roughly $15-17m by the time of sale (doubled in about two years)

financing structure

No SBA loan (business had no earnings); Rizzo personally assumed the company's existing debts to the bank, insurance company, and union, signed personally for a new line of credit to replace an old one, and put in his own cash (low-to-high six figures, growing into seven figures over the hold period) as working capital in lieu of taking any owner distributions

notes

Purchase price was effectively the assumed debt load, which Rizzo calculated at roughly 70-100% of the business's true asset value (based on the resale value of its monthly maintenance contracts) before buying; he wrote the family a small check and took on their personally-guaranteed debts to the bank, insurance company, and union. Sold after ~2 years to Berkshire Partners' Three Phase elevator platform for what Rizzo describes as a 'life-changing' seven-figure outcome.

Why this business

Rizzo, a chemical engineer turned MBA who wanted to stay in Pittsburgh for family reasons, geographically constrained his search and branded himself as a generalist buyer, networking broadly (including VC pitches) until a lawyer connected him with Hatfield Elevator, a fourth-generation elevator service, maintenance, and repair company on the brink of bankruptcy. He was drawn to elevator servicing as 'a great industry' (mandatory code-driven service, elevators aren't going anywhere) with the 'gold standard' of contractual recurring monthly maintenance revenue. He verified with brokers, PE firms, and industry contacts that the resale value of the maintenance contracts alone likely exceeded the assumed debt load, giving him a margin of safety even in a worst-case liquidation scenario.

What's working

• Contractual, recurring monthly maintenance revenue that kept coming in regardless of the mess elsewhere in the business
• Keeping the fourth-generation owner (Bob, the lead technician) in place with a rich incentive employment agreement, since he was essential to servicing customers and had zero incentive from the sale itself
• Tightening bidding discipline (cost-per-hour-per-truck analysis) so the company stopped taking any revenue regardless of profitability
• Cleaning up billing practices so hours worked were actually billed to customers, and drafting a real-estate lawyer-written terms-and-conditions sheet plus using confession-of-judgment paperwork to force slow-paying real estate clients to pay or get liened
• Shifting the customer mix toward industrial/manufacturing clients who valued fast response over price, versus price-sensitive residential/commercial building owners
• Being 'the least hated elevator company' by delivering genuinely responsive service in a market where large competitors overloaded technicians across too many stops
• The union being focused on the large national players (Otis, Schindler, Kone) rather than small independents, which let Hatfield operate without adversarial labor dynamics
• COVID ultimately accelerating growth via industrial clients, state government contracts, and student housing modernization work once initial disruption passed
• Sourcing all three of his deals (including two after Hatfield) through local intermediaries -- accountants, lawyers, wealth managers -- rather than broker blast lists, because those intermediaries have broader 'node' connections and different motivations than brokers

What's hard

• The prior owner had over-invested in one large real estate development that went bad, leaving personally-guaranteed seven-figure debts to the bank, insurance company, and union with no formal repayment terms
• No SBA loan was available because the business had no earnings, forcing Rizzo to personally sign for new credit and continuously inject his own cash (working capital, not distributions) throughout the hold
• As the business recovered post-COVID and pursued large modernization/construction projects with sophisticated GCs, Rizzo recognized he lacked the industry expertise and risk tolerance to negotiate fixed-price contracts with large liquidated-damages exposure -- the same dynamic that had originally bankrupted the prior owner
• Growing too fast without enough capital/expertise was the explicit reason he decided to sell to a PE platform rather than keep scaling himself
• A subsequent turnaround attempt (a VC-backed technology company) went much worse than Hatfield because revenue simply wasn't there to build on, unlike a service turnaround where costs can be controlled
• Balancing being 'in the weeds' full-time (Hatfield) versus a lighter-touch, multi-business hold-co model going forward, and figuring out how much personal capacity he actually has to support two businesses at once

Notable quotes

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