Colin King·May 28, 2024

How to Build a $28m Holdco (in 6 Years) | Colin King Interview

Colin King and his 50/50 business partner Joe built Circle City Capital Group, a Indianapolis-based holdco with ~$30m in run rate revenue across four operating groups, over six years starting in 2018. They met on Craigslist — both independently posting to find acquisition opportunities — and made their first deal, a $75k automotive parts trucking route business, as a side hustle before going full-time after their third acquisition in late 2019. Their portfolio grew opportunistically through 14 acquisitions including an e-commerce decor distributor, All-American Clothing (American-made apparel, ~$800k SBA-financed), a virtual bookkeeping firm, Vermont Flannel (~$5.5m in a complex four-part capital structure including friends/family equity, seller rollover equity, seller financing, and conventional debt), a montessori supplies distributor, a financial training content business (Profit Mastery), and most recently North America's largest teddy bear manufacturer for ~$2.5m in a 10/90 conventional bank deal. The crown jewel is USA Brands, the apparel and soft goods group anchored by Vermont Flannel, now at ~$25m revenue and growing 20% annually. Key lessons include the irreplaceable importance of critical mass in small business, the distinction between a company's financial profile and its business model, the difficulty of context switching across unrelated verticals, and the value of a bias for action over waiting for the perfect deal.

Deal facts

purchase price: Multiple acquisitions totaling ~$28m holdco; largest single deal $2.5m (Vermont Teddy Bear); Vermont Flannel ~$5.5m total including seller equity rollover
sde ebitda: First trucking deal: ~$50k SDE; All-American Clothing: ~$250-300k SDE advertised; bookkeeping firm: ~$200k SDE; Vermont Flannel: ~10-15% margin on $7.5m revenue
revenue: Holdco ~$30m run rate at time of interview; USA Brands (apparel group) ~$25m; Vermont Flannel $7.5m at acquisition; All-American Clothing $2m at acquisition; teddy bear company $10m; bookkeeping firm $500k; decor company $1.2m; montessori supplies ~$500k; Profit Mastery $750k-$1m
financing structure: Mix across 14 deals: SBA 7(a) loans (10% down, 90% borrowed) for All-American Clothing and Profit Mastery; seller financing on multiple deals; friends and family equity raise (~$1.3m) for Vermont Flannel; conventional bank financing (10% down, 90% borrowed) for teddy bear acquisition; some deals cash only with installment payments; Vermont Flannel structure: conventional bank loan + $1.3m friends/family equity + 19% seller equity rollover + seller financing
notes: 14 total acquisitions since 2018. First deal (trucking/automotive parts routes): $75k cash, sold ~$150k in 2019. Decor company (bamboo vases): ~$120k, seller financing ~1/3 upfront remainder over 2 years. Montessori supplies: ~$120-125k asking, paid in installments. Partnership is 50/50 with Joe (business partner met on Craigslist). Circle City Capital Group is the holdco entity. USA Brands is the apparel sub-holding entity.

Why this business

Colin and his partner Joe started opportunistically — they wanted to get in the game with whatever they could afford using SBA financing, find businesses with stable long histories, zero marketing spend, and no technology in place, so they could add those layers and capture the upside. The hold co was not intentionally designed; it grew from a bias for action and finding deals that fit a core checklist: long operating history, no marketing spend, no tech infrastructure, and a fair price.

What's working

USA Brands / Vermont Flannel has become the crown jewel, growing ~20% per year and now ~$25m in revenue after combining with All-American Clothing and the Vermont Teddy Bear acquisition
Partnership with complementary skill sets — Colin's finance/accounting background and Joe's operational/startup background — allowed faster execution than either could achieve solo
Acquisition criteria focused on businesses with long histories, zero marketing spend, and no technology in place allows them to add these layers and capture the value creation themselves
Location-independent and e-commerce business models provided flexibility and benefited enormously from COVID tailwinds, with All-American Clothing doubling from $2m to $4m revenue in 2020
Inbound deal flow: once established in a space, sellers and related businesses began approaching them (Vermont Flannel, teddy bear company, Profit Mastery all came inbound or through relationships)
Diversified revenue streams across seasonal businesses create cash flow balance — flannel earns heavily in fall/winter while decor and montessori offset in other seasons
3PL model for e-commerce eliminates warehouse overhead; successfully moved San Jose decor warehouse to Indianapolis 3PL, saving ~$300k/year in costs
Recruiting managers from personal networks rather than generic hiring has been more effective; leading with the person and then finding a business to fit (as with the montessori principal)

What's hard

Context switching across four unrelated operating groups is a major challenge — the holdco's eclectic nature creates constant distraction and divided attention
Critical mass problem: smaller businesses cannot support a true CEO, so strategic burden stays at the holdco level; no one in each small business is 'waking up thinking about where the next dollar of revenue comes from'
First acquisition (automotive parts trucking routes) required Joe to drive through the night for three months and Colin ~24 times — the business model was incompatible with building a remote holdco, even though the financial profile was sound
Working capital intensity for seasonal manufacturing businesses: Vermont Flannel burns cash January through August building inventory, then earns all its income September through December — forecasting and funding this cycle is a constant challenge
Advertised SDE almost always comes in lower than actual on day one — effective multiples are higher than they appear, and deferred capex, underpaid staff, and hidden costs surface after close
E-commerce is increasingly difficult — they describe themselves as having taken businesses from a D to a B grade in ecom, not A-players; COVID lift reversed for All-American Clothing which has declined back to ~$4m
The holdco now faces a strategic fork: shed smaller businesses to go all-in on USA Brands apparel, raise capital at the holdco level to grow all groups, or find add-ons to make each group large enough to justify standalone CEOs
Generic hiring through job postings has been ineffective; they rely heavily on personal networks which limits throughput for finding operators

Notable quotes

Critical mass is a very real concept in small business and then two I think it just was a business model that we were not interested in right because it was never going to be a company that would operate during the day.

Some people come at it and say I've got a checklist of 100 things that I want to see before I'll do a deal and I think most people would try to get to 90 before they pull the trigger on a deal and Joe and I may try to get to 60 right so let's identify the three most important things that are going to work for us or not work for us and find those as fast as humanly possible.

There's a business model and there's a profit model right the profit model is the financial profile of the company how the company makes money the unit economics all that stuff which is pretty easy to understand and a lot of people probably get that then there's the business model which to me is the logistics the meat and potatoes of how it all happens right.

I don't think it ever started with this grandiose image. I think we toyed with that idea and said yeah you know in a future state that'd be nice right the buffet approach you've got a diverse portfolio if one is down 40% then won't take the mothership down right.