Are you ready to dive into the strategies behind building thriving businesses and impactful partnerships?
Discover how partnering with the right leaders can transform companies and markets.
In this episode, John Block, co-founder and CEO of Unity Partners, takes us through his fascinating journey from childhood aspirations to leading a game-changing firm that builds better businesses together.
In this episode, you’ll discover…
- Why John chose the name “Unity Partners” for his firm
- The secret mantra that drives Unity Partners’ success
- How foundational principles can propel business growth
- Strategies for reducing uncertainty in business success
- The impact of technology on smaller market investments
- And more
Mentioned in this episode:
Transcript
Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority in executive and transactional liability and founder of Rubicon M&A Insurance Services, now a proud member of the Liberty Company Insurance Broker Network. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here. That’s a clean exit for owners, founders, and their investors.
Today, I’m joined by John Block, co-founder and CEO of Unity Partners. Unity Partners is a principal space middle market private equity firm, that partners investors and operators to build better together. So I’m really excited to have you. John, welcome to the show.
John Block: Thank you, Patrick, excited to be here with you.
Patrick: Now before we get into Unity Partners and building better together, let’s start with you. Can you share with us what brought you to this point in your career?
John: That’s a great question. I do love to start with that question. I think it’s important to set the table and go back from the beginning. If I think of my experience said, If I think back to childhood, I remember looking out to people who were entrepreneurs as the people that I thought were the most successful people around.
People who had lake houses or cabins, second homes were all entrepreneurs. So I start there, because that kind of spirit of entrepreneurship, that spirit of building is something that has always been something I’ve thought about, something I’ve aspired to, something I’ve dreamed of.
You then fast forward from that spirit to the early stages of my career, I started my career at Bain and Company and I’m forever thankful for the time I had there where they do a great job of teaching people how to think. How to break down a big problem, a complex problem into simple bites.
The hypothesis-driven approach is just so taught and embedded into thinking there that’s extremely powerful, and also had the chance to see more of culture. I think they do a great job of recruiting for culture, recruiting for fit, and emphasizing and building culture. I moved on from Bain after a couple of years and joined HGGC.
Decided I’d learned how to think like a finance professional. So joined HGGC as an associate on the investment team, and had two awesome years there. Couldn’t scratch that desire to do something entrepreneurial, though. Thought I’ll go build a business, my business, do a search fund.
And I actually applied to business school and spent my first year of business school at the University of Chicago, doing a search, learning how to acquire a business. And I did a lot of soul-searching. And I realized I love listening, I love the people you could work with, and loved the ability to drive a big impact across a lot of different businesses.
So I put a pause on the entrepreneurial vision at the time and returned to HGGC. Where I had a chance to spend almost a decade partnering with a lot of amazing executives. A lot of amazing leaders. Teammates at HGGC, as well as executives that I partner with at operating companies.
And that is I think the thing that shaped me the most and gave me the biggest, had the biggest impact on me is the chance to partner with with some amazing leaders. I think that’s been the bedrock to what’s gotten me to where I am today. Which is reflecting on the journey after 10 years at HGGC.
Realizing that I still had that entrepreneurial itch in me, still had that desire to build within me and build something that I could be a part of from the beginning. But having done it now, or having had a long experience at HGGC where I could get a bunch of reps partnering with awesome leaders, had that realization that it was time to branch out and time to launch Unity Partners
Patrick: Well it was a nice laboratory too, because it’s a large firm with a lot of resources. And it sounds to me that you had this energy in you. And it was just okay, how do we focus and direct it. And sometimes you don’t want to put it all in one spot. Partially because if you pick wrong, that’s always the fear. But when you’re in a good environment that’s culturally supportive, go here, go there, there’s no failure.
Just what are you learning? And I think that’s great because that feeds into what I sense from you is you’d like to constantly learn. And so you go ahead and you have these experiences, then you decide to go off and form Unity Partners, which first of all, let’s talk about that is, why didn’t you name it Block Partners?
John: That’s a great question. We joke a lot at the Block household about Building Block Partners would have been a perfect name for a firm and perfect other than and this is not to be offensive for anyone that goes down this route. I’m not a big, big proponent of putting my name on the business because it’s not a firm that I built, it’s a firm that we built.
And the idea of unity, of coming together, unique individuals coming together to form one hold that stronger. That’s representative of the firm we’re building and representative of the partnerships we try to form with our platform companies and the leaders who want to back. The ethos and vision of coming together to build something stronger, we think it’s perfectly captured with our name Unity Partners.
Where we have two words, both unity and partners that capture that spirit of togetherness of partnership. And so it just fit like a glove, if you will when that I came up. And as we were searching around, didn’t find anyone that was similar with that name and so got really excited to jump on the name Unity Partners.
Patrick: Yeah, because you didn’t set it where okay, let’s start with the letter A or something, should we can be first on the word search or something. So we can come here. I think that you are very conscious with your words, which I really appreciate. Just the specificity of it. And so I often will ask my guests, what are you bringing, what is Unity Partners, bringing to the table for the middle market, lower middle market? But for you, it’s essentially these three words. And if you could expand on this, I’d appreciate it. It’s build better together.
John: Absolutely. Absolutely. Those three words capture the heart and soul of what it is we’re trying to do with Unity. And as you said, we’re very intentional about having concise ways to introduce the firm. Concise ways to describe our reason for existence, our why, if you will. And it is those three words that capture that spirit, that heartbeat for our firm. If you think of each of the words, again, very intentional about them.
The first word is building. Everything we do is about backing ambitious leaders and building world-class platforms. And we want to roll up our sleeves and get to work from day one. We have a team of investors and operators, and we love that connotation of being value-added of partners to the leaders that we back.
And really being true partners in the journey of building. The second word, better. Big believers in being the best and getting better. Waking up and dreaming of perfection is paralyzing. Waking up and thinking about getting better allows you to take action. We talk a lot about being better financially, operationally, and strategically, which I think is kind of table stakes in a lot of ways for private equity investing.
Where we talk the most though is about better culturally. Big believers in ownership cultures. We invest in people-based businesses, and we do everything we can to help these platforms establish an ownership culture, high degrees of communication, accountability, transparency, and a spirit of abundance. We put in place employee ownership plans in all of our businesses.
That’s a big component of not just building bigger, but building better. And then finally, together. Again, the idea of unique individuals coming together into one hole that’s stronger. It’s why we chose our name. That kind of spirit all ties together in those three words, building better together, or build better together.
And it is the heartbeat that allows us first to attract amazing teammates to Unity. And when we first launched the firm, I often say we set out to build a firm, not to do a deal. And from the beginning, we wanted to build a firm that had a heartbeat that would attract similar like-minded people.
And I think, getting that why down, that building better together down early, it allowed us to build our team and attract the right teammates at Unity, the right leadership teams. We went back and really set the foundation for the business we’re building at Unity.
Patrick: What’s great about what you’re offering here is and I’m assuming that the companies you’re targeting, the owners and founders are not necessarily looking for an immediate exit, they’re looking to get to the next level.
And when you’re in that inflection point, unless you know where to look, you may either default to a strategic, one of your competitors, or you’ll look at some other institution that doesn’t necessarily have your best interests involved. And so I think that’s great that you’ve given this outlet for people that can find their higher and better use in giving them that platform.
John: Absolutely. We find leaders we partner with, our spirit of why resonates with them. And we often joke of, when we introduce our firm, we start with the why and that can be a little bit softer. And some owners that want just the numbers. They just want the numbers. Give me the number.
That’s not going to be the right partner for us. We want the person who hears our why and says, now I get it. I want to know more. I want to learn more, how does that cascade down into your strategy? How do you build off of that? Tell me more. Those are the type of people that we look at and say, those are the partners we love. And they can instill that same spirit in the business you’re building.
And our kind of standard partner, if you will, is exactly what you describe. Someone who looks out and says, I don’t want to just sell to a strategic. I see a long runway and I want to build for 10 years, 20 years, 50 years. I want this to be a lasting platform. And that’s where we get really excited and decide to roll our sleeves up and help.
Patrick: Well that’s fantastic. That’s why I wanted people to hear about Unity Partners because there are a lot of folks out who are just looking for that exit number. And there’s so much more to it. And there are so many companies out there that could give you that check.
But when it plays out post-closing with integration and so forth, if you’re beginning with that end in mind, and the short end, that gets problematic. And you guys don’t have that at Unity Partners. Let’s talk about some of the principles. I mean, one of them that I really want to highlight, we could talk about all of them, but the big one is propel.
Which I think is a way for owners and founders to sit there and say, I can see the next chapter. Not only can I see the next chapter, but it’s going to be exciting, and it’s going to be just a rocketship rise. So talk about that, please.
John: Yeah, absolutely. So we start with our why, building better together. We then cascade down into our how, which is our six foundational principles, building blocks if you will. They all begin with P because even in investing, marketing matters. So we’ve got our six principles that are all aspirational statements with real action orientation behind them.
And the word propel it’s actually it’s exactly what you said it’s the spirit of thinking big, thinking broad, accelerating forward. And for us, the action orientation behind it is we’re big believers in the idea that partners not only lift each other up, they propel each other forward. And at Unity, we named our value acceleration, or our portfolio operations team, our propel team.
So we literally come in from day one with propel leads, and those propel leads are accountable for supporting the teams and the platforms we’re building with six common areas of value acceleration building. And these are the areas that we found that if you just simply do these well, it allows you to literally propel yourself to the next level.
And those are things like leadership and talent development, technology, and data and systems, sales and marketing, accounting and finance, capital and connecting, and governance and security. And if again, a lot of these areas aren’t rocket science, it’s basic foundational building blocks.
So things that we help to put in place, and areas that you can always be getting better in. Might even have a framework in place, but we can come in and help you accelerate that to the next level. And when doing all of those in concert, you get to a spot where you can truly create powerful magnifying effects that can propel businesses forward.
Patrick: What’s great about this is it’s almost a formula, where the future out there is unknown, business success is unknown, a lot of it can be luck. You’re taking a lot of guesswork out of it, you’re using tried and true tools that you could measure. And then you’ve taken a lot of the uncertainty out of success.
John: That’s the aim. And it’s both, if you think of the different variables and harken back Patrick to something we were talking about a minute ago if you think for a partner, a business owner, business leader that’s thinking about bringing in a new partner, they have all the different questions of what’s it going to mean to partner with this investment firm?
How is the first year gonna look? How are they going to behave? We try to take that guesswork out too. Giving them high degrees of assurance of these are the areas we’re going to help with. And this is how we’re gonna do it. So that’s a big guesswork out of the equation that we think is really important. And then secondly, and equally importantly, it’s exactly what you said.
We want to create a repeatable framework where we can attack large fragmented services markets and follow a similar programmatic approach effectively, where every situation is bespoke, every situation is a bit unique and different. And we might change the ordering of where we prioritize one of those propel practice areas, but all of them will be very consistent or very repeatable by design.
Patrick: Can you share with me any epiphanies you’ve experienced, where you sit down with your new partner and investment, and you’re having your first or second meeting and say we’re gonna work on this area, this area, and this area. And they just looked at you and you just see the light bulb go off. They’re like, you can do that?
John: I think a big area that we find a lot of the light bulb going off is when we talk a lot about early in the trust in putting in place the systems on the operating side and capturing the data. And then we start to see the light bulbs go off when we talk about the benefits of that on the sales and marketing side.
When you really get into the power of data and targeted marketing and targeted sales and the different data that’s available to subscribe to and use cases of once you have the systems in place, what you can do with intent-based data to help support and drive sales. We see a lot of light bulbs go on in those types of discussions.
And I think in a pretty cool and powerful way, we’re also seeing a lot of light bulbs go on when we talk about, we do a lot of buy and build or partnering road testing. When we talk a little bit about how we’re building an engine that allows us to proprietarily source add-ons in a pretty cool again, repeating, we see a lot of light bulbs go on when we talk about it.
And then we show up at the next meeting with an active engaged list of a couple of conversations we’ve set up in the last two weeks. And just the ability to hit go, because we’ll hit go as part of our diligence process where we’re really trying to understand these markets, we’ll start trying to source add-ons.
And just once hit go on this process, it’s pretty cool and powerful to see the response. That’s also a light bulb generator. And frankly, it’s a pretty similar sales and marketing muscle to what we do on the growth side also.
Patrick: So we’ve got the Moneyball scenario, bringing data and actionable data. And then the theory with add-ons, which I think that’s been changing with mergers and acquisitions is people think with an M&A deal, okay, there’s been a death. This company died and was acquired by another company.
No, it’s just part of the growth cycle. And you guys are epitomizing that right now. Now, as we’re looking at this, because I’m sure the audience right now is leaning completely forward, and they want to learn more about Unity. Give us an appetite. Who are your ideal targets? Who are you looking to serve?
John: Yeah, we love to, well I’ll lay out our strategy so that your listeners can get highlight of. We call it our partner and propel strategy. So first and foremost, we always start here is we want to partner with ambitious leaders. So as we build platforms, we start with the leader and start with the team.
And we want to ensure we have that ambitious leader that looks out and says, I can be 10x this size with the right partner. We love that kind of spirit. The second prong is we partner through M&A. So we do a lot of acquisitions. So we like large fragmented markets, where there’s a lot of opportunity to come together and get benefits from scale, both growth benefits as well as operating benefits, cost benefits.
And the third thing is, we love to partner people with technology to solve recurring and essential needs. So in large, fragmented markets, where you’ve got people again services, businesses, partnering with technology, we’re big believers in implementing and using technology to drive skill benefits, ultimately supporting kind of recurring and essential needs.
So that’s the kind of top half and then the second half of our strategy, that propel part is we look to propel organic growth and propel platform integration through investments in people, processes, and systems. And the important part there is not only do we want strong, ambitious leaders in large, fragmented markets, we want people who want our help.
There are two ways you can approach things. One is an I way, which is let me figure it out. And one is a we away. We want the we way that want our help and want, we have that desire, and we’re building our firm to be value-added partners, and we want people that that want that support. We’re excited for that because we think that we can bring our experience to bear to help these businesses.
So that’s how we think. Broadly if you want to put a few numbers against it, we would generally want to invest in businesses that are sub 50 million of revenue is probably our sweet spot. We can go a bit bigger and do go a bit bigger. But that is a pretty good range for us. We like businesses that are cashflow positive and have attractive gross margins.
We think 40 to 50% gross margins. We are boring, make-money investors. So we like to cashflow positive business, we like to bring a lot of sizzle and excitement when we look out and say, the boring part is maybe what the business is the exciting part is what it can become. And we think we can 10x the business with the right leaders. And that’s the approach we take.
Patrick: Nationwide?
John: Yes. We’re fortunate to be in Dallas, Texas, which means we can cover the nation pretty effectively.
Patrick: You’re essentially right in the middle which works out very nicely. To piggyback on one of your strategies with the building the add-on strategy and so forth. And as you’ve been around for a while, one of the things that’s probably facilitated a lot of your growth and your acquisition process has been reps and warranties insurance.
Where it takes a lot of that risk away from the parties and off to an insurance company. Don’t take my word for it. But John, good, bad, or indifferent, what has your experience been with reps and warranties insurance?
John: That’s a great question. I think I’d answer that in two ways. One is, in my past life at a bigger firm, we were higher users or rep warranty insurance. For most of our transactions, we would use rep warranty insurance. I had a very good experience, and I think it’s exactly what you said. It allowed for an efficient transaction, allowed for efficient allocation of risk and I think it functioned very well.
And this is something Patrick, we were talking about the other day, in our current life, we’ve been late less frequent users. But I think that’s because I kind of had my past life view of it was more of a big market use case. And I think we were talking some about the extension of the solution.
And like all markets, markets grow and bring, enhance and mature in ways and I think this is a market that has been a, 10 years ago was a new market and it’s now a growing market. And it’s something that we are now actively thinking about how we introduce the idea to sellers of businesses.
And we got an active discussion with a potential platform right now. That conversation is coming up real-time about how we can introduce them to someone if they want to skinny up the whole back or skinny up the escrow. There are opportunities where we can talk about in a different risk trading solutions that they can think about procuring.
So I think it’s cool to see the evolution of it is my point of view, I guess, broadly. And our evolution is gone from bigger fund to smaller fund, bigger deals to smaller deals. Seeing how the market can meet us is something I’m excited to see.
Patrick: I really appreciate it because for me, and my career insurance has been one of those unfortunate necessities. Everybody’s gotta get it begrudgingly because you don’t know what could happen. What’s great is now with reps and warranties, where it’s just accelerated the larger deals, these are $50 million purchase price and up.
They have been real effective. What do you do with the add-ons that are 5, 10 $25 million? They still want that peace of mind, they want to transfer the risk every bit as much. And a lot of sellers are willing to pay for it themselves, which is nice for the buyer.
The tough thing, a product hasn’t been available until now, where one of the insurance carriers has come down and said, look, we want to target those companies that are under $30 million in purchase price. And we will offer the almost identical tool of reps and warranties.
The way I look at it, it’s essentially we’re looking at a deal and it’s you’re raising a child. Imagine if I came in and said, I’ll tell you what, I’m gonna take those teen years. I’ll take him away. So you can get them when they’re born. And then we’ll take them from age 12 to age about 17. And then you can have them back.
And that’s essentially what I love seeing is it takes a lot of that angst out of the deal. Particularly when you’ve got a buyer on a much larger side than the target company. And there can be some dynamics there. So it’s been a very effective way, and I mean cost-wise $15,000 per million dollars in limits. I mean, you could take a $10 million transaction and instead of having a $1 million escrow, you could have a $5 million policy for $75, $80 grand.
And also now you don’t need the escrow anymore. It’s one that we really like being able to go and pull that angst out of the deals. And so that’s what we’re looking forward to, as there are going to be many more of these add-on things out there. Now, John, as we look forward, what trends are you seeing out there either macro or with Unity Partners specifically?
John: Yeah, sitting here today, I’d say we see a trend towards and frankly, aligning directly with what you’re just talking about, like a trend towards a lot of folks investing in a similar way we do, frankly, where people are coming down market a little bit, looking at opportunities in the smaller part of the market where there’s bigger inefficiencies and bigger opportunities to drive scale benefits.
And so I think that will continue. I think people will continue to like the lower middle market. The part of the segment that we’re excited about, I think there are good reasons to be excited about that. I think that the nice part is the kind of development of the ecosystem around it. Where the the investor and the capital is moving that way.
And now you’ve got things like what you’re just describing, Patrick. The rep and warranty insurance solutions moving that way as well. So I think that’s a good continued tailwinds, good facilitators for that part of the market. I think the M&A market generally, I have a lot of conversations with people and I think people often compare it to 2021, which is probably a false comparison.
Patrick: Yes.
John: You need to compare it to previous periods. And then you’d say, volume is down from 2021, of course, but 2021 was pretty euphoric. So it’s probably more like past steady states. And I think that’s probably a good thought for how this year will play out is my guess. I think the markets generally are functioning.
Markets are functioning, the equity capital markets are functioning. I think that’s all healthy. So I think my perspective is this year I think will continue to be a pretty steady year. I don’t see a kind of explosive growth back half of the year of M&A transaction dynamic, but I think a continued steady year which I think is good. It’s good for the market.
Patrick: The other theories that you bring forth on your investment, or the propel processes is you bring technology to companies. Just because we hear technology all the time, is that area maturing, or are there that many companies that really need to implement technology?
John: There’s a huge company that still needs to implement technology. It’s a continued macro trend that I believe will last. The thing is, is technology is always leaping. So it’s, which technology are you implementing? Are you learning the current one? I had a funny conversation a couple of months ago with an executive and he’s bemoaning getting clients to use DocuSign.
Some of us laugh and say, oh, I don’t know how you survive without it. Some industries, they still don’t use DocuSign. They’re still faxing or scanning in signature pages, which might be appropriate for some things. But other things, DocuSign does a great job. And so those are little examples of sometimes we live on the cutting edge and forget that there’s a whole long kind of back half of later adopters that continue to work through technology adoption and migration.
So I think that continues to be impactful and real. And I think that in our case, that’s why it’s the big central part of our strategy. Partner people with technology. Most of our businesses, if we put our heads in the sand would absolutely be at risk of technological disruption.
Even frankly, a business like our pool services business. If you’re not investing in technology, the customer experience and customers are expecting to meet you in a technological way. And if you’re not doing it, your competitors are.
And Poolie, we can sign up a customer if they send us a picture from their phone using our chat interface so we can price and sign you up within minutes because everything is about that tech interface. And that’s where I say, all of our businesses, even ones that feel classically, field services based. If you’re not investing forward, you can get caught.
Patrick: Good. Well, the playing field is wide open and that’s great to hear. John Block from Unity Partners, how can our audience members find you?
John: You can find us on our website, www.unitypartnerslp.com. Feel free to reach out to me direct. Jblock@unitypartnerslp.com as well, or on LinkedIn. Those are three common areas.
Patrick: Fantastic. Well, John, it’s been an absolute pleasure meeting you and we’re going to talk again.
John: Sounds great Patrick. Look forward to it.