Juan Aguilar·July 8, 2024

Buy as Search Fund, Keep as Long-Term Owner | Juan Aguilar Interview

Juan Aguilar is a Guatemalan entrepreneur who studied engineering, worked at BCG Mexico, did a private equity stint, got an MBA, and then launched a search fund in 2016 with the goal of returning home to Guatemala. He raised a non-traditional fund from a small group of mostly first-time Guatemalan investors (plus two US search fund anchors), using sequential credibility-building to unlock investor buy-in, then bank financing, then owner conversations. In April 2017 he acquired a light manufacturing door company in Guatemala — one of the largest in Central America with ~70-75% regional market share, ~$20m revenue, and ~$3m EBITDA — through a deal structured with ~30% equity, ~50% bank debt, and a mix of seller note and earnout. His first years were consumed by rebuilding a management team that had been stunted by a micromanaging prior owner, focusing the business on its core high-volume door product, and using EOS to instill accountability. His most consequential move was a 25% price hike executed in a single step in 2020/2021, informed by research on door undervaluation and the low sensitivity of door cost to total home construction cost; this nearly doubled EBITDA to ~$6m on ~$30m revenue. In 2021/2022 he executed a dividend recap by relevering to original acquisition debt levels, returning investor capital plus preferred returns while retaining full ownership. He then hired a new CEO, stepped back to a board chairman role, and partnered with a childhood friend to build a long-term holdco acquiring additional light manufacturing businesses in the Central American construction materials sector, targeting 5-7 platforms and backing the model with permanent capital and a MOIC-first (rather than IRR-first) compounding philosophy.

Deal facts

sde ebitda: EBITDA ~$3m at acquisition; grew to ~$6m by end of 2021
revenue: $20m at acquisition; ~$30m by end of 2021
financing structure: ~30% equity, ~50% bank debt, remainder seller note + earnout (70% total leverage)
notes: Closed April 2017 after ~8-month search begun August 2016. Business was a light manufacturing door company in Guatemala with ~250+ employees and ~70-75% market share in Central America. Dividend recap executed in 2021/2022 by relevering to original acquisition leverage levels, returning capital and preferred return to investors.

Why this business

Juan had a thesis around low-income housing growth in Central America and was targeting construction materials companies — roofing, flooring, windows, doors. He came across this door manufacturer through an investor network connection who knew the owners. The business had ~70-75% Central American market share, was export-capable, and fit the macro tailwinds he believed in. Two aging partners with no viable succession plan were ready to sell to resolve a personal conflict and a lack of family heirs willing to take over.

What's working

Dominant market position: ~70-75% market share in Central America in high-volume residential door manufacturing at acquisition, top 3-5 in Latin America
Labor cost advantage: manufacturing in Guatemala means labor-intensive processes are more cost-efficient than automation, keeping capex low and margins strong
Major pricing power move: raised prices 25% in a single step in late 2020/2021, backed by research into industry undervaluation and willingness-to-pay studies; margins increased significantly and the industry followed
Focus on core: cut kitchens, closets, and installation services to concentrate on high-volume doors, which improved efficiency and margins
Geographic expansion: successfully entered Caribbean and Colombia export markets, growing revenue
Dividend recap in 2021/2022: relevered to original acquisition debt levels to pay investors back capital plus preferred return while retaining full ownership
CEO transition: hired a hungry, coachable operator as CEO to replace himself, allowing Juan to step into a chairman/investor role while the business continued to grow
Long-term hold / permanent capital model: cleared IRR hurdles then shifted to a MOIC/compounding framework, retaining equity and continuing to grow

What's hard

Culture shock at acquisition: prior owner was a heavy micromanager, leaving executive team with no autonomy or accountability; took 2-3 years to rebuild management team with people who could operate under EOS and take ownership
Complexity of manufacturing: procurement, quality, SKU proliferation, operator safety, and a too-broad product line all made it harder to understand the business quickly; took much longer than the '6 months' searchers are often told
Geographic and market constraints: Guatemala is a very small, relationship-driven, non-transactional market where selling a business is culturally rare and business owners take years to warm up to the idea
Raising a search fund from first-time investors in a market unfamiliar with the model; had to build credibility sequentially through US anchor investors, then BCG partner, then local Guatemalan investors, then banks
Competitive risk from price hike: raising prices 25% created new lower-cost competitors entering the market, requiring confidence in non-price differentiators (service, quality, volume)
Nearly made a costly error: was about to sign a lease for a Colombian manufacturing plant in late 2019 before COVID stopped it; the Colombian market and currency subsequently struggled, so the decision to stop was fortuitous

Notable quotes

I like to say I did a traditional non-traditional search fund, which is kind of funny. I did raise funds, but the majority and the vast majority of my investors were first-time search fund investors.

We raised prices over 25% in one step. This wasn't a sequential like 2% towards 25% — this was one day to another at 25% price hike in our products. And that was probably one of the best decisions that we made as a team, and that changed the profile of not just the business but I think the entire industry.

We essentially doubled the business — we doubled EBITDA and doubled revenue. The EBITDA doubled before revenue doubled, so we did increase margins obviously through this price hike — the margin profile of the business changed significantly.

I would invite everybody to stay and just stop and think — and for example if you haven't read The Outsiders by Will Thorndike, I think that's a great book every Searcher should read, and just think about the other avenues of capital allocation.