Episode 1336: How to Double or Triple EBITDA with Eric Wiklendt

A great business strategy is only the beginning. Real value comes when the right people, processes, and systems execute it. In this episode of Sharkpreneur, Seth Greene interviews Eric Wiklendt, Managing Director at Speyside Equity, who shares how his hands-on experience as a CEO and operator has shaped his approach to private equity and to creating business value. He explains how his firm identifies manufacturing and value-added distribution businesses where operational improvements, growth initiatives, and stronger management teams can significantly increase profitability. Eric also breaks down his “fix and build” approach, the importance of human capital, and why clear, consistent communication is critical to transforming a company. Key Takeaways: → Hands-on operating experience can provide investors with deeper insight into how businesses create value. → Private equity value creation can come from improving EBITDA, reducing debt, or increasing the business’s exit multiple. → The “fix and build” approach first focuses on creating a scalable operational foundation, then on accelerating growth. → Assessing whether a management team has the human capital to execute a value-creation plan is an important part of the acquisition process. → Sustainable private equity growth requires balancing the desire to scale with the need to maintain investment quality and protect long-term reputation. Eric Wiklendt is a Managing Director at Speyside Equity, where he sources, executes, manages, and exits investments. Eric has previously held senior leadership and operational roles, and he currently serves on the Boards of several portfolio companies. Before joining Speyside Equity, Eric was President & CEO of Kelix Heat Transfer Systems. Prior to that, he held leadership roles at Eaton and Hilti Corporation, where he oversaw M&A activities, established a manufacturing plant in Mexico, managed a large marketing team, and directed industrial sales operations. A graduate of the University of Notre Dame, Eric obtained his MBA from the Wharton School at the University of Pennsylvania. Connect With Eric: Website: http://www.speysideequity.com/ LinkedIn: https://www.linkedin.com/company/speyside-equity/ All expressions of opinion provided in this podcast are subject to change without notice and are not intended to be a forecast of future events or results. There is no assurance that the trends highlighted in this podcast will occur in the future or that the projections, if any, will be met.

• 0:00Speaker 00

  Welcome to the Sharkpreneur Podcast with Kevin Harrington and Seth Green. Kevin Harrington is the inventor of the infomercial, one of the original sharks from the hit TV show Shark Tank, and has generated over $5 billion in TV and digital direct response sales. Seth Green is the world's first trusted authority on cutting-edge direct response marketing, a bestselling author, and the only three-time marketer of the year nominee. On the podcast, Kevin and Seth interview sharkpreneurs who share straight talk on what it takes to explode your business.

• 0:38Speaker 01

  Forty-nine faces looked to him in triumph. Over the last 12 months, they had each taken turns and promoted his business for a week at a time, driving over $987,342 in revenue. What if you had a network of 50 centers of influence who promoted your business every week for a year? Grab your copy of the number one Amazon bestselling book, The Ultimate Guide to Growing Your Business with a Podcast. It's 33% off the Amazon price by going to ultimatenpodcastbook.com. Again, that website for 33% off the Amazon price is ultimatenpodcastbook.com. Welcome to the podcast. This is your host Seth Green. Today, I've got the good fortune to be with Eric Wiklendt, Managing Director for Speyside Equity. Eric, thanks so much for joining us.

• 1:22Speaker 02

  Thanks so much for having me, Seth. It's great to be on.

• 1:24Speaker 01

  Our pleasure. So, let's go back in time a little bit. How did you get into the business?

• 1:30Speaker 02

  Yeah, I grew up in the Detroit, Michigan area, and I started my career after Notre Dame in consulting and really liked that. But I didn't want to change the world one PowerPoint slide at a time for my whole life, so I decided to go back to school because I knew that I wanted to become either a CEO in the manufacturing industry or invest in businesses in the manufacturing industry. But I kind of felt like to do it well, you needed to actually know how manufacturing companies ran. So I was like, all right, I need some extra education to get those kinds of jobs, to get me that experience.

• 2:10Speaker 02

  So, got my MBA, then worked at Hilti and Eaton both for several years, did all kinds of interesting, what I would call, you know, some people call change management, I would call chaos management, starting up a plant in Mexico, fixing a $3 billion supply chain, doing a turnaround for Salesforce, running a large marketing department. And that ultimately landed me as a CEO of a middle-market manufacturing business, and sold that off back in 2012, and then started working at Speyside after that, and been at Speyside ever since. And so, it's a little bit of a different path into private equity than, you know, a lot of folks have.

• 2:54Speaker 02

  But I think it's while it took a little bit longer, it was a little more circuitous, it was really beneficial because when we talk about, you know, how do you generate alpha in investing world, a lot of that's a function of actually having deep knowledge of a space. And so, I got deep knowledge by actually hands-on experience, and that's worked out really, really well for me over the last 15 years working in private equity.

• 3:19Speaker 01

  Awesome. So, you were president and CEO of a heat transfer company, you had leadership roles at other companies. What did sitting in the CEO chair teach you about what you would have a private equity career that like you couldn't learn from just an investment committee?

• 3:38Speaker 02

  Yeah. That's a great question. And the answer is, the short answer is people. You know, there's, there are a lot of people in investment and/or fund management world that think that there's a magical Microsoft fairy in their computer that what they put on their spreadsheet, what their spreadsheet can conceive, the, you know, the management team can achieve, sort of a thing. And that's not how the real world works. I wish it did. I'd be a gazillionaire, right? If I could just write stuff in Microsoft and PowerPoint and it happened in the real world.

• 4:17Speaker 02

  But the reality of the world is like oftentimes, like solving business problems is not really that complicated, right? We're not, we're not even, you're not even really using any complicated math, you know, for most business solutions. The challenge is like, how do you get people to execute that in an enthusiastic way? And so, again, it comes back to people, and it's like, you can engineer or come up with the greatest business strategy in the world, that's 1% of it, 99% is actual execution. And that execution happens through people. So, the thing, I would argue that I learned a lot in those management roles, you know,

• 4:57Speaker 02

  whether it was managing a 300-person manufacturing plan, or, you know, a 20-person M and A team, or, you know, 70-person sales team, or whatever, or, you know, being CEO of a whole business. It's like, how do you take those, those solutions and manage them through people, processes, and systems? And that's, that's the hard part of business, in my opinion. It's, you know, most of the stuff we learn in business school is, you know, pretty applicable, and it works. But like, understanding how to, which thing to apply, in which case, at which company, with which core competencies, and which set of people, that's the hard part.

• 5:43Speaker 01

  Who is an ideal acquisition candidate for you? What's your sweet spot?

• 5:47Speaker 02

  Yeah, we're looking to buy 100 million to $500 million revenue manufacturing businesses, or value-added distribution, where there's some sort of improvement we can make with it. And that can be, you know, one of two things, or sometimes both, but it's either we're operationally improving it and improving the EBITDA margins, or we're growing it. Like, sometimes we'll buy a business and we're, you know, we're looking to go, hey, look, we can improve how the business is run, and that will operationally improve it, and, you know, improve the margins ultimately. Or, maybe it's something that's already running pretty well operationally, but we're like,

• 6:26Speaker 02

  ah, we can either go out and grow it by acquiring bolt-on acquisitions, or doing organic actions like launching new products, entering new end markets, new geographies, new channels, things like that. But the goal for us is always, in the hold period, which is usually five to seven years, we want to try to like double or triple the EBITDA or profitability of a business, so that it's worth more when, you know, in our hold period, at the end of it, than, you know, what we bought it at.

• 6:57Speaker 01

  You talk about a creative approach to doing that. What does fix and build mean, and how do you tell if a company can benefit from that before?

• 7:05Speaker 02

  Yeah, great question. It's part of our underwriting that we do. We have a very integrated deal-making process. One thing that's a little bit different about us as a firm versus maybe some other PE firms, a lot of times you see bifurcation of the investment team and the operating team. We don't do that. We try to integrate it all. But we have what we call our Portco Value Creation System, which is 27 frameworks and tools for improving a business, mostly focused on EBITDA improvement, although it could be, you know, free cash flow focused, or capital efficiency focused as well. And Phase One is the fix part, Phase Two is the build part.

• 7:49Speaker 02

  Generally speaking, in the fix phase, you know, if you pared out like how we created value over the last 20 years, what you would see is there kind of three things we do a lot of. Number one is aligning and incentivizing the management team and the human capital of the business. Number two would be rationalizing the revenue portfolio, and number three would be optimizing the operational footprint. And those, those three things, I call them the triumvirate of Phase One value, they work in concert a lot of times, and then you kind of have some ancillary things on the periphery that we do, you know, as well, that work a lot, like Salesforce effectiveness, or spend

• 8:32Speaker 02

  leverage, or thinking about the CapEx of a business, or working capital efficiency, or whatever. But that's Phase One, which is usually we're focused on, if a company isn't already a nice platform that's scalable, we're making it into that in the first like six to 18 months by doing those improvement actions. And then, the build part is where we want to grow the top line, and we'll either do that through organic actions, like new product launches, or market entries and things like that, or we'll do it acquisitively, or through business development. It doesn't have to just be acquisitions. We've done mergers, we've done joint ventures, we've done partnerships.

• 9:17Speaker 02

  But the point is, is like, we're doing some business development or M and A action that's going to grow the business, and, you know, as a result of growing the top line, it's also going to grow the EBITDA or the operating margins.

• 9:32Speaker 01

  When you're acquiring a company, how do you determine if the existing management team can take it to the next level that you want to go to?

• 9:41Speaker 02

  Yep. So we have a framework that we call the the H CAF, uh, which stands for Human Capital Assessment Framework. And what we'll do is, you know, in private equity world, there's really three ways to create value. One is to improve the EBITDA, so make EBITDA go up. Number two is make debt go down and number three is make the exit multiple go up. And we don't really spend a ton of time getting too worried about paying down a ton of debt. Um, we, we do it when there's excess cash flow, no doubt, but really in our underwrite, we're very much focused on improving the EBITDA and improving the exit multiple where we can. So we have, uh, the Portco Value Creation System is all about the EBITDA and

• 10:26Speaker 02

  another framework we have, which is the multiple accretion framework is all about what are the things we can do to improve the multiple on exit, if anything. And so what we'll do is we'll start with those, uh, those two frameworks and think about what actions we can take and then we'll take the top three to five of each one of those frameworks and put it into Human Capital Assessment Framework. And we'll say to ourselves, hey, do we have the people uh, in place to execute these three to five things in terms of improving the EBITDA? And these three to five things in terms of improving the, the multiple. And then we'll analyze it for all the human capital that's going to be involved with a given portfolio company. Whether it's the folks at Speyside, whether it's the operating partner,

• 11:11Speaker 02

  whether it's the management team, or whether it's boutique consultants that we like to use in certain areas. Um, we'll think through all that, think about how that's all going to coalesce into one uh, big human capital, uh, value creating, uh, team. And try to see where we think the gaps may be. Um, so that, that's the framework we use. And then there's, you know, it's, those things are assessed on, you know, several different criteria that we use to uh, determine it, but it's a big like, you know, I don't know, 200 box matrix, uh, uh, that we, we end up using. So we try, you, you can't make everything quantitative. Um,

• 11:52Speaker 02

  there's a lot of qualitative judgment in this, but we start with a, you know, kind of a systematic, uh, you know, approach to it where we're trying to be analytical as much as possible. And then, you know, use more qualitative heuristic judgment on a lot of these things, but it kind of like the, the point of the matrix, like, you know, again, you can't, it's not a situation where what your spreadsheet can conceive your, uh, your team can achieve. It, it just sort of points you in the right direction for the top three to five actions, uh, where there may be gaps in terms of human capital to fill them.

• 12:29Speaker 01

  When you take over, when you invest in a company, um, what are some of the, what, what are a couple of the ways you use to like improve internal communications? Um, communicating about the changes, keeping employees and morale up and engaged, um, despite all the things that you're doing to turn things, to change things?

• 12:47Speaker 02

  Yeah. So, uh, I, I preach often about the rule of the four, four Cs. Uh, clear, consistent, constant communication, uh, creates really good results. And so that's, that's kind of like, I guess our biggest, um, you know, cultural thing is like, let's over communicate versus under communicate as much as possible. It's, it's never a bad thing if, um, you're doing that. I, I think it's, you know, I think it was the, the statistic I read was like something like people near, need to hear the same thing seven times or something like that to before they like, kind of like it's ingrained. So we, we try to, you know, take that to heart as much as possible and

• 13:32Speaker 02

  you know, say the same things over and over and over again. They probably get boring, but, um, honestly, but uh, you know, boring's good and it goes back into the rule of the seven Ps, uh, that goes very, that's a corollary to the rule of the four Cs and prior proper planning prevents poor performance. I, I missed one of the Ps there, but no reason to say that on air, um, but bad, bad performance. So, you know, plan things out, communicate them well, and then you tend to have a pretty good result when you, when you do those two things and follow those two rules.

• 14:06Speaker 01

  That makes a lot of sense. You've helped so many companies over the years and ripple effect to so many people. Um, what's your biggest challenge now?

• 14:15Speaker 02

  Yeah, um, I would say, you know, I love my job in terms of what we do at, uh, Speyside Equity and um, you know, building it out. The challenge that I would say is scaling it or continuing to scale it. Um, and how, and what's the right way to do that? And there's like kind of a, you know, quality, quantity, you know, basically uh, natural tension in private equity world. Um, I'm, I'm definitely more on the quality side of the argument. Uh, you, you see some folks in fund management world where they want to be as big as fund as possible because they want to collect as many fees as possible.

• 14:59Speaker 02

  Um, I, I think resisting that temptation is one of the biggest valuable things, uh, to do. And it's, it's something that's uh, important and hard because also we have lots of, you know, we have a bit of a bigger team now. We want to make sure they get opportunities to keep growing in their careers and/or portfolio companies, uh, management teams that keep growing in their careers. And one of the ways to do that is to have more capital, but how do you, you know, continue to keep a reasonable size while keeping the quality uh, of the deals that you're doing? I think that's the, uh, a big challenge just because, I don't know, personally for me,

• 15:42Speaker 02

  um, if you said, what's the most important thing to you in life? Uh, it's not money. Actually it's reputation uh, and time. And so I, I kind of feel like, you know, if you have a good reputation, especially in the investing world, you can, you can do a lot of things and then it, it becomes a lot of question of just what do you not want to do? And so I, I very jealously guard my reputation uh, by trying to make sure I get good results, uh, in the way that I promised I would get them. So, um, that's probably the biggest challenge is continuing to get really good results, but also thinking about how do we continue to

• 16:24Speaker 02

  scale in a reasonable way that gives, uh, folks that we love working with as much, as much opportunity as possible.

• 16:32Speaker 01

  Your passion is obvious. What do you like best about what you're doing?

• 16:35Speaker 02

  I, I, I love, um, improving businesses. Like I joke around all the time. I got one buddy who he runs a really large PE firm and I tell him all the time, all the time I would, uh, I do my job for free. Because it's just super fun. It's like solving really interesting problems with really interesting people uh, in really interesting places and companies and being compensated in really interesting ways. So it's really in my opinion, like I don't, I don't think you can have a better job than uh, being a principal or MD at a private equity firm because it's, if you love business, this is like the quintessential job, uh, for doing, uh, business where you're

• 17:19Speaker 02

  thinking about, and you get to learn a bunch of different things because you're always looking at different companies and different industries. Um, so I, yeah, it's, it's the greatest job ever, but yeah, I'm a, you know, some guys in private equity world, they, they'll tell you they're a deal junkie. Um, I, I like doing deals, but I'm more, I'm a value creation junkie. I really, really love thinking about why after we buy a company, it's going to, the EBITDA or free cash flow is going to be double or triple uh, what it is when we, you know, close. So that's what I get really excited about is like, how do we improve these businesses? And then you know, along that journey, like it's pretty exciting to see good things happen to good people.

• 18:04Speaker 02

  Um, that, that's like, that gives, that gets me up in the morning, uh, pretty regularly. Uh, you know, maybe the day before was hard, but I'm like, you know what? I'm going to probably get to see something cool happen today. Let's, let's get up and get after it. So tho- those things really excite me, improving businesses and, you know, having a small hand in good things happening for good people.

• 18:29Speaker 01

  Awesome. Well, we greatly appreciate your time. We know it's incredibly valuable. This is Seth Green here with Eric Wiklendt of Speyside Equity at speysideequity.com. Eric, thanks so much for joining us.

• 18:41Speaker 02

  Thanks for having me, Seth. Really appreciate it.

• 18:43Speaker 01

  Thanks, everybody for watching or listening and we will talk to you or see you next time.

• 18:49Speaker 03

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