Adam Borcz·February 12, 2024

How to Grow a Blue Collar Business from $900k to $2.4m in Earnings | Adam Borcz Interview

Adam Borcz, a former submarine officer turned independent-sponsor operator (working for turnaround investor Tom Ripley for 5.5 years), used a self-funded search to buy Delta, a 30-plus-year-old commercial office-furniture installation company near his home in Maryland, closing via an SBA 7(a) loan in June 2019 at roughly $900k SDE. Rather than pursue growth for its own sake, Borcz found that the business was capped by an inability to hire, so he built an HR/recruiting function and roughly doubled the labor force, which -- combined with a warehouse that scaled at only 10-15% of the rate of headcount -- pushed EBITDA from ~$900k to ~$2.4-2.5m through pure operating leverage. The business has no recurring revenue and high customer concentration but proved resilient through COVID and prior recessions because its end customers are government/intelligence-community facilities and large corporate accounts that must keep replacing office furniture regardless of the macro cycle. In the back half of the episode Borcz pivots to his current role as an LP in traditional search funds (via Riviera and others), arguing from hard experience that traditional search funds offer investors better governance, growth/exit incentives, and likely better returns than self-funded deals, even though self-funded searcher-operators like himself retain far more autonomy, upside, and control.

Deal facts

sde ebitda: SDE ~$900k at acquisition (2019), grown to ~$2.4-2.5m EBITDA
revenue: ~$8.5-9m at acquisition (implied by ~10% EBITDA margin on $900k)
financing structure: SBA 7(a) loan, self-funded search, ~20% common equity retained by investors including father (10%, passive, no legal rights) with remainder to Borcz
notes: Closed June 19, 2019. Sourced through an existing intermediary relationship; deal fell through with a prior buyer and Borcz got it under LOI within about a week, closing roughly 60 days later. C-corp seller structure meant few add-backs; business was clean. 10-year SBA amortization; described being 'on the right side' of the loan by year 6-10.

Why this business

Borcz had spent 5.5 years working for an independent sponsor (Tom Ripley) acquiring and operating distressed lower-middle-market businesses, and wanted to move from fixing broken companies to owning and running a healthy, profitable one as CEO with full autonomy. He learned about self-funded search through Annapurna/Mike Malary and Jeff Stevens and liked that it required no outside investor approval and gave him full control. He sourced Delta, a 30+ year old commercial office-furniture installation company, through an intermediary he'd built a relationship with while sourcing turnaround deals; the deal was local (12 miles from his house), the sellers were fellow veterans, the books were clean, and trailing financials showed the business had never skipped a beat through prior recessions.

What's working

Deep moat/switching costs: 30+ years of execution track record, warehouse infrastructure, and trained labor force that competitors (fewer than 10 in the market) can't quickly replicate
Sticky dealership relationships (Herman Miller/Knoll dealers) and blue-chip end customers (federal government/intelligence community, Amazon, Northrop Grumman) with resilient demand even through COVID because cleared facilities keep churning through furniture regardless of macro conditions
Massive operating leverage: once overhead is absorbed, incremental gross profit drops almost entirely to EBITDA, so adding ~10-15% more warehouse space to support a doubled labor force nearly tripled EBITDA (from ~$900k to ~$2.4-2.5m)
Solved the sellers' stated growth constraint (labor sourcing) by installing a young HR manager plus a respected veteran installer as recruiting/training leads, doubling headcount within 12 months
Reactivated dormant customer relationships simply by showing up and telling them Delta was open for business (one Maryland dealership went from zero to $2m/year revenue after a single meeting)
Profit-sharing plan tied to gross profit created company-wide alignment and made the growth story a shared win for employees
'Do nothing' transition approach (borrowed from a Kellogg professor's book) - listened for months before making changes, preserved seller/customer trust during handover

What's hard

No recurring revenue and high customer concentration -- project-based business with no contracts, which made the SBA lender (Live Oak) hesitant and required Borcz to sell them on historical consistency instead of contracted revenue
Government/GC end customers mean difficult payment terms, project delays, and an inefficient labor scheduling problem
High turnover in the bottom ~20% of the installer workforce despite improved hiring pipeline
COVID caused a steep short-term drop (2021) even though the business proved resilient overall; some commercial (bank) customers permanently cut back on office build-outs post-COVID
Believes self-funded search has a real, unquantified failure/underperformance risk that gets underreported ('rainbows and kittens' narrative) -- without prior operating experience, a self-funded searcher can end up running a break-even business for a decade with no ability to force a sale or bring in help
As a search-fund LP as well as a self-funded operator, argues self-funded deals are structurally worse for investors than traditional search funds because investors have no governance rights or ability to remove the CEO, and self-funded searchers have less incentive to push for a growth/exit timeline

Notable quotes

I still feel like self-funded has the most autonomy and gives you the most control... once you take on investor you have a boss it may not feel like you're an employee but you have a boss.

The underlying theme of self-funded deals is this business did not need to grow to be a great investment for me... the growing part was a nice to have.

Once you're above break even and all your overhead gets absorbed every incremental dollar of Revenue you generate... gross profit equals EBITDA.

I don't think the keeping the business going at the same level profitability... is necessarily the hard part. I think the hard part for the inexperienced person... is when we had to cut during COVID and we had to manage cash.