Transcript – How EBITDA Adjustments Impact The Value Of Your Business

Transcript – How EBITDA Adjustments Impact The Value Of Your Business

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John Warrillow:                Hey this episode of Built to Sell Radio is brought to you by the Value Builder System. I had the opportunity to interview Stephanie Breedlove the other day. She sold her nine million dollar payroll company for a cool 54 million dollars. How did she do it? She focused on the eight things that drive company value. Things like what we call the Switzerland structure, monopoly control, recurring revenue, all things you’re going to evaluate in your own business using the Value Builder Score. Takes about 15 minutes to complete the survey. Go to

John Warrillow:                You know as entrepreneurs we always talk about multiples of EBITDA and Bob got three times EBITDA and Jane got six times EBITDA, and we talk a lot about these multiples as if that’s the only thing that’s driving the value of your company and remember that there’s another number that’s, arguably, even more important than the multiple and that is what is being multiplied, meaning, your profit.

John Warrillow:                Now we all have profit that we express to the government in terms of doing our tax return at the end of the year but profit in the way that a buyer will look at your company, may be different than what you report to the government because of a process called adjusting. Essentially, you are going to adjust your EBITDA to reflect how your company will perform as a division of your acquirer. Now, as a division of an acquirer, of course, there may be things that you pay for today that you won’t need to pay for as a division of an acquirer and it’s that process of making those adjustments that can actually really increase the profitability of your business, at least in the eyes of an acquirer, and therefore improve the overall value of your company.

John Warrillow:                My next guest, Ari Ackerman, played this to a T when he went to sell his business to Together Work, a company that was backed by a billion dollar private equity group who told him that they wouldn’t go above a certain multiple so instead of focusing on getting them to increase their multiple, he got them to focus on the number that was being multiplied and in the process got a much better value for his business Bunk1. So here to tell you the rest of the story is Ari Ackerman.

John Warrillow:                Ari Ackerman, welcome to Built to Sell Radio.

Ari Ackerman:                   Thank you very much. Nice to be here.

John Warrillow:                So tell me about Bunk1. How did this thing get started?

Ari Ackerman:                   So Bunk1 got started back in 1999. I was in graduate school at NorthWestern Kellogg Business School and I wrote a business plan for a venture capital class that I was taking and the name of the company that I was writing about was Ackercamps at the time and it was essentially rolling up the summer camp industry. I was very excited about it and it was my last semester of school and I presented my business plan to Chicago based venture capitalists who were coming in to sort of judge it and maybe even invest in it, and of course they told me it was the worst idea they’d ever heard in their entire lives and being the entrepreneur, the confident entrepreneur that I think is good in terms of a quality for an entrepreneur, I said thank you very much but I think I’m gonna start this anyway so I literally got in my car after I graduated and in my [inaudible 00:03:40] style, drove around the country visiting summer camps and developing initial relationship with summer camp owners which is a very important piece to Bunk1 and to the summer camp industry, developing those relationships. At the same time [crosstalk 00:03:55]. Sorry?

John Warrillow:                So the idea was actually to do a roll up of summer camps, nothing to do with software. It was to sort of buying these camps. Interesting.

Ari Ackerman:                   The very initial idea, the very initial business plan when it was Ackercamps, was an actual roll up. Leveraging economies of scale and buying cheaper products, essentially, for the summer camps but that very, very quickly turned into a technology concept, even before I finished the project, to be honest with you. I’m like wait a minute, this doesn’t make sense. I can do the same thing and provide websites and provide technology to summer camps that they couldn’t afford to do on their own or really didn’t wanna do on their own essentially. Especially back in 1999, you have to remember the 1999 2000 landscape. Dot coms were sort of the rage and especially in the summer camp industry which is a very slow to adapt industry.

Ari Ackerman:                   So here I was coming in and meeting people-

John Warrillow:                Yeah, no, I wanna pick up on this and especially for people who don’t know what a summer camp is, I live in Toronto, Ari, you’re in New York so kind of a right of passage in a 12, 13, 14 year old kid is to go away to summer camp, skin your knees, learn how to canoe, and sail and it’s sort of a right of passage. People outside of North America maybe aren’t totally aware of this kind of summer camp idea but I think, in your case, you’d gone to summer camp, knew what a profound impact it would have, and sort of decided to make this a space you wanted to play in.

Ari Ackerman:                   Right, I mean when I started the business I was in business school and I had a business concept but it was also a passion of mine. I mean summer camp and the experience I had there and the comradery and the growth and sort of the magic that you experience at camp, I loved. And when I was sort of in business school I wanted to do something entrepreneurial and all right, so I was looking at different types of industries and what I could maybe do that I liked that has an opportunity as well and I’m like, wait, summer camp. Mom and pop industry that really hasn’t changed over the years. I can do something in that industry that they can’t afford to do on their own, they don’t wanna do on their own. I can make an impact and still do something that I have a passion for.

John Warrillow:                So you turn it into a technology play. Maybe walk us through what the early days of the technology look like.

Ari Ackerman:                   Sure. So there I was driving around the country, essentially, presenting. At that point it really was already a technology play where I was gonna give camps websites, essentially. And the reason, really, camps didn’t even have a website yet back in 1999. Most didn’t, at least. The ones that did were sort of archaic and part of the website concept were the two initial big Bunk1 products.

Ari Ackerman:                   The first of which is an online photo gallery where the parents, in a password protected area, can log in and see the pictures of their kids and sort of feel that connection even though they’re away from their child and again, it’s password protected so it’s a safe environment for the parent to log in and see what’s going on.

Ari Ackerman:                   And we also had this concept of bunk notes which is the ability to email your child in a one way system where the parent basically writes a note on the computer and then it’s printed out to a child when they’re at camp so the kid is not on a computer when they’re at camp, they’re still experiencing what they should be at camp, the magic, the comradery, the friendship, not on a computer, but they’re getting contact from their parents, essentially.

John Warrillow:                I love this. My kids go to summer camp, right? So they’re 11 and 9 and as a parent you wanna know what’s going on, right? You wanna communicate. Hopefully they write back to you, they never do, but you certainly wanna let them know you’re thinking about them.

Ari Ackerman:                   Right, exactly. And this was like as soon as we introduced it into the world, so ’99 was my first summer where I drove around the country. 2000 we had about 50 to 75 camps. In 2001 we already had like 250 camps ’cause once a camp heard about this, and the parent heard about this and they told their camp how do you not have a password protected photo gallery area where I can see what’s going on at camp? They called me and they’re like oh my God, Ari, what are you doing here? I need to get on board.

John Warrillow:                And what are they paying to get on board? So the business model, does the parent pay or is it the camp that pays?

Ari Ackerman:                   So initially we sort of had both options. We had where the parents would pay us a fee, both to see the pictures and to, by the way, to buy the pictures as well and then to send the emails it was a credit based system so you would buy, essentially, 50 credits for $55 for the summer and you’re able to send the notes and every time you send a note we deduct a credit from your account. We became very creative with the notes in terms of what you could do with them so we would charge more credits for that as well so like a one credit note would be just a plain text email. If you wanna add a photo to your note you would add a credit. If you wanna add the box score from the baseball game from the night before you would add a credit. To make the notes more fun and more interesting because basically what they’re doing is they’re sending emails to their child at camp so we sort of made it more interesting and more fun for both the parent and the child to send these emails to their kids at camp.

John Warrillow:                And how did that evolve over time? The pricing model in particular.

Ari Ackerman:                   Yeah, so initially it was either the parent paid for it or the camp paid for it, sorry. And what we found is we really preferred the parents paid for it because we could only charge the camp a certain amount of money. They had a threshold for what they thought they’d be willing to pay us for the service essentially but the parent, we learned, had a more agreeable threshold in terms of the Bunk1 revenue model in that they were willing to spend whatever it took to stay in contact with their child so it was kind of this win win for us and for the camp owners in that they didn’t have to pay for it. Their parents paid for it to use the system and by the way we would also give them commissions on the emails that were being sent to their kids at camp for the ink, for the paper, for all the labor they had to do to make sure the bunk note got to the child when they were there as well.

John Warrillow:                Got it. And so the camp lets its parents know about the Bunk1 service and then the parent decides whether they want to use it and they pay to pay, basically.

Ari Ackerman:                   Exactly. So essentially every camp sort of has a website and when initially I was giving a website in order to have the camp have a photo gallery and a bunk notes service. Once the camps grew a little more sophisticated and they had their websites that they were building on their own, Bunk1 became a link on the camp website that the parent would log into, and again, a password protected area where it was a safe environment, where they could see the pictures that were posted from the camp for that day or that week and then log into their bunk note account to send the emails as well.

Ari Ackerman:                   You asked about creativity, how did the product change a little bit. We kept adding services essentially and one of the very popular services we added over the years was something called Bunk Replies which is the ability for the kid to write back. Now we didn’t want to have the child on a computer so we had to come up with a creative way for the child to write back without disrupting what they’re doing at camp. So we came up with a system where the child basically had a letter with a barcode on top of it, they hand write their letter on that barcode, the camp owner collects all those notes, faxes them to a toll free number that we gave them, and from that barcode we’re able to read what child it was ’cause that letter was given from the parent to the child before they went to camp, and insert it into their Bunk1 account, the actual hand written letter from the child back to the parent.

John Warrillow:                Awesome. And who’s paying for Bunk Replies?

Ari Ackerman:                   Again, that’s a credit based system so every time they sent a Bunk Reply or received a Bunk Reply, we would subtract a credit from their account.

John Warrillow:                Love it. What’s the staff model you’ve got for this business? Employees there in New York, who’s doing what? You got product people, sales people, like how have you staffed for this?

Ari Ackerman:                   Yeah so we basically broke it down between sales, technology, obviously I had an operations person, marketing. Most of the people were either involved in technology or sales and customer support, essentially.

John Warrillow:                Got it. And then bring us up to present day. How is Bunk1 the product suite evolved to present day? What’s the current product suite look like.

Ari Ackerman:                   So I’ve always been very proud that we’re kind of the leader in the tech space in the camp world so we kept evolving and literally I tried to introduce a new product just about every year we’ve been in existence and I told you about Bunk Photo Gallery, Bunk Notes, Bunk Replies. We introduced the staffing service where you could find a job for your camp. You can search for a camp that you wanna send your child to. Then we became more sophisticated in the online registration space when you register for camp. We have developed a whole Bunk1 database system where you register and it goes into basically a program where you can keep track of all your finances and your medical reports that you need for camp and basically everything you need to run the camp we built the system for it for the camp owners.

Ari Ackerman:                   So that was kind of how we evolved into a one stop shop, essentially, for the summer camp owner and the parent.

John Warrillow:                It sounds like, to me, you’ve done something really which is obviously found a very, very, very specific niche, learned it really, really well and just evolved the product sphere around that. Were you ever tempted along the way to take what you learned serving summer camps and apply it to another industry?

Ari Ackerman:                   I actually did do that. So we tried it in other industries. We tried it in nursing homes where I had a company called Care Letters which is essentially, we didn’t do the photo gallery necessarily but we did the Bunk Note concept where you could send a note to your loved one who’s in the nursing home and that was [inaudible 00:14:05] successful but it really didn’t have the attraction that we have when the child’s away from camp. It was kind of an interesting phenomenon, for lack of a better word, in that it’s really the same clientele ’cause it’s either you’re sending a note to your child at camp or your sending your note to the parent who might be in a nursing home, essentially, and for good or for bad we found that the parent was more willing to spend money on sending a note to their child as opposed to their parent who was in the nursing home.

John Warrillow:                That could be a statement of society at large today so that’s really bad thing, so did you shut down the Care Letters?

Ari Ackerman:                   I’ll let people draw their own conclusions on that. I’m just saying from a business model it worked a lot better at summer camps and I also thought about other industries, believe it or not, including jails. I had a little content called Jail Mail where I was trying to incorporate the Bunk Note system into jails but there were a lot of government and legal restrictions that I was sort of facing that made it a little tougher.

Ari Ackerman:                   But the camp industry was just so perfect in that this was this place where the child is away from any technology, the only way a parent can access their child is through a company that I started that they have to pay for and to log in to see what’s going on and to send a note to their child. So when we signed up a camp which was the way we sort of signed up our customers, we then got access to every single one of their clients so it became very popular for parents, obviously, and we had close to 100% participation in a lot of the camps.

John Warrillow:                What was the privacy thing there because obviously as a parent, all of a sudden this third party company Bunk1, I know nothing about, starting to email me all these, like wait a minute. I just signed my kid up for summer camp, I didn’t agree to be marketed to by this third party company. How did you guys handle that?

Ari Ackerman:                   Right, so on a legal level we did make sure that they signed documents when they signed up for camp essentially, part of what they signed up for when they’re sending their child to camp is the ability for the camp owner to market their image and that was signed by every parent. But it’s more than just a legal restriction. As you say, it’s your child and you wanna be very careful that your child is in a safe, protected environment and that’s something that I’ve been very, very conscientious about over the 17 years we were in business to make sure that the brand name of Bunk1 was always one that the parent felt very safe in. And every time I was interviewed, every time I talked to any camp owner and just me personally, ’cause I actually have my niece who was in one of the camps for many years, they used Bunk1, I wanted to make sure that we had a safe environment for the parent. That they knew that whatever was going on there is password protected and Bunk1 was a place where the brand name was a place that they could trust.

John Warrillow:                How did you guys deal with cash flow? Because I think of, obviously, summer camp is a summer thing, right? So huge inflection of revenue or injection I should say of revenue in the summer but then how did you handle November and December?

Ari Ackerman:                   Right, so it was definitely a seasonal type of revenue flow and we made a lot of money during the summer. We did very well in terms of parent sign ups as I had mentioned before, but then we always tried to find ways to monetize what we were doing over the winter months and online registration was a way we could do it because we were collecting payments and that was a service we were providing essentially and we would sell photos during the off season where we would have deals on Christmas and Hanukkah or Valentine’s Day where you can go back and see the pictures of when you’re at a camp and buy those pictures before we remove them this year’s photos essentially. But that’s was always a challenge to try and see how we could monetize during the off season.

Ari Ackerman:                   Now in the same respect, my expenses were also lower during the off season because I would actually hire 10 to 15 additional, really educated college students to provide the customer service for the parents during the summer. That’s one of the things we did for the camps. We not only provided a service but we also did if any parent had a question they could call or email Bunk1 directly. They didn’t have to deal with the summer camp and the camp owner appreciated us for doing that.

Ari Ackerman:                   So I had extra staff during the summer which was more expensive, obviously, and we had server costs and other technology related costs that were seasonal as well so we were able to sort of manage the revenues and expenses in a good way even though we were a very seasonal business. And I was very careful in terms of how much money I would sort of keep within the business, that I wouldn’t distribute, in order to make sure we were funded for the entire off season.

John Warrillow:                Got it. You know it’s funny, it strikes me as interesting that you were able to stay still for 17 years with one business ’cause from what I know about you, and we’ll talk about Tribes in a moment, you now have a new business, you had the Care Notes, you had the jail idea, you sound like a pretty entrepreneurial guy. How did you stick with one business for 17 years?

Ari Ackerman:                   Well I sort of did and I had other businesses that I was always starting on the side but Bunk1, I was really so proud of and it was really, we created an industry. We were the first ones to sort of say we can bring technology into this old school world of summer camp and for me it was one business but it was an exciting business ’cause it was constantly evolving and I had these amazing clients that we had for 17 years now a lot of them, and we always wanted to make it better for them and for the parents so yes, I’m definitely a serial entrepreneur and yes, I’d be happy to talk about what I’m doing now that I sold Bunk1, but I was always very proud of what we were doing and it was exciting enough that it kept me interested for as long as it did.

John Warrillow:                So what changed? Why sell after 17 years?

Ari Ackerman:                   So in order to answer that question it’s really a business life cycle answer in terms of where we were at at Bunk1 so maybe I step back for a second and tell you how we got to where we are today, it might answer your question.

Ari Ackerman:                   So I started Bunk1 in ’99 and it was sort of a well known company within the venture capital, private equity space so I really was always getting emails from people like can I invest in your company? Can I buy your companY? And I was very happy for a while to kind of ignore that but in 2008 I really fielded an offer that was very interesting to me. We were flying high at the time but the guy gave me a really good offer and really was about to sign it and at that point just wasn’t ready and turned it down at the last second. Little did I know a year later I would have sort of a personal situation in 2009 where my mom got sick and I stepped back in 2009 and from the business at that point and I promoted my lead sales guy who had been with me from the start, to basically be the president of the company. I was away for about three years sort of not really involved in the business as much as I had been up to that point and the business took a hit. Competition got a little stiffer and the guy that ran the company really wasn’t equipped to be the leader that I had hoped he would’ve been.

Ari Ackerman:                   And so we weren’t in a great place necessarily in 2012, 2013 when I actually came back to the business I tragically did lose my mom in 2012 and then I stepped back into the business in 2013 to say okay, what’s going on here? At that point I had to fire that president that I had appointed but I had a guy who had been hired a year before in the business that I had known for many years in the camp world ’cause he was a camp owner so I appointed him to be the new president, essentially, of Bunk1 and he completely turned around the business. Literally the first day he got into the office he painted the office and put new carpets down and it was just a complete change of attitude within Bunk1 ’cause at that point we were already a 13, 14 year old business.

Ari Ackerman:                   Again, I still was fielding offers from private equity people and in about 2014, 2015, I thought about potentially taking somebody up on that but we weren’t quite ready yet but in 2016 we actually turned the corner again and we were on that U shape, we were coming back up in terms of becoming profitable. We were always profitable but our revenue was moving back in the right direction so I felt it was a good time to at least field an offer that would be palatable, that I would say okay, it’s time to maybe move on from Bunk1. And in that business life cycle I didn’t wanna do that until we were at a point where we turned it around and this gentleman that I hired to run Bunk1 at that point did do that so I felt we were ready.

John Warrillow:                What have you learned about hiring a president from going through a bad experience and going through a good experience? And while you think about that I’ll just give a little bit more context. Obviously a lot of our listeners will be at one of those sort of inflection points or I should maybe say a fork in the road where they’re considering their options and one of the options on the table is bring in a president and let themselves as the owner sort of kick themselves up to the chairman’s office, sort of become a more hands off owner of the business. Treat it like it’s an asset as opposed to their day to day job. Maybe start a couple of other businesses as our attention gets sort of diverted to other things. You’ve done it twice, once it worked and once it didn’t. What was the difference?

Ari Ackerman:                   I think the first time for me it was more I wasn’t invested in who I was really hiring and I did it as an emotional decision as opposed to a business decision. Someone who had been with me for a long time and sort of, okay, he was next in line to run the company. When I hired the guy after who is currently still the president of the company, he wasn’t the next in line. He had just been hired at Bunk1 a year before but I saw real potential and promise in him and he cared and he wanted to add value and he wanted to increase profitability and he wanted a fully engaged team. I could see where his head and his heart were and so I promoted him over other people that frankly got upset when he got promoted.

John Warrillow:                It’s interesting because, I gotta push on this because what I hear is your reasons for liking the second guy were very emotional like you could see that he cared, you could see that he wanted to drive the business, and you could see he was bringing a fresh attitude and what I’m mostly hearing you say is the first guy, the one who didn’t work, it was a very emotional decision. You sound like a pretty emotional guy. Which is it, you know what I mean? If you were coaching an entrepreneur who is just about to hire their first president, what should they be looking for?

Ari Ackerman:                   I think my wife would appreciate that you think I’m an emotional guy. Appreciate that. But from a business perspective I disagree with, maybe I wasn’t explaining it well ’cause the second decision was really more of a business decision ’cause if I had been more of like, okay, Ari’s a nice guy, he’s promoting the guy that’s next in line, I would’ve hired somebody else for the more recent hire but I didn’t. I made a business decision and I said, yeah, I liked the guy, obviously, but he was also the best business mind to run the company, to bring Bunk1 into the future, and grow revenue by 30% and add value and increase the number of clients, expand overseas. All the things that we wanted to do with the business he was the right guy for it. And it’s really kind of an interesting question that you ask because Bunk1 itself was kind of an emotional business for me as opposed to maybe a purely business business. So I’ve always had my emotions on my sleeve in terms of Bunk1 ’cause it’s a passion that I had summer camp.

Ari Ackerman:                   So it was hard for me to separate it in a lot of moments during the course of the business but I feel like I really did it in hiring the guy in 2013, 2014 to really step up and do it over people that were next in line to the point where actually people that were next in line we actually had to fire pretty quickly after the guy that got promoted because they were so upset that they really couldn’t be a part of the new organization.

John Warrillow:                Those must be tough conversations. Go back to the, what’s the guy’s name that is the current president?

Ari Ackerman:                   Current president’s name is Rob Burns.

John Warrillow:                Rob. Okay. So what is it like obvious or demonstrable that you saw in Rob? Like you said that he was a camper so he kind of got camp. He was a customer as well as being a business person. I mean did he have a degree? Did he have an MBA? Was there anything outwardly that you would see on his LinkedIn profile or on his resume that you think was important to see?

Ari Ackerman:                   Well as I sort of mentioned earlier, the camp business is a very relationship driven business and one of the things that made Bunk1 so successful over the years was that I would go to every conference and I became this expert tech guy at the conferences and I would speak at all the camp conferences on technology and summer camps and you have to sort of shake everybody’s hands and when you go to the conferences I always went to the happy hours and always went to the bar at night because these guys were my clients but they were my friends and sort of goes along with the conversation we had earlier about the security and making sure that they knew who I was and who they’re giving their parent information to and that’s what this guy Rob is kind of all about.

Ari Ackerman:                   First of all he was a camp owner, a camp director I should say. He worked many years in the camping industry and was really, really well loved in the industry and I felt lucky, actually, that we were able to hire him away from being a director at a camp to come work on the business side of camp for Bunk1 essentially.

John Warrillow:                Got it. What were your revenues in 2008 when you got the first offer that you really seriously considered?

Ari Ackerman:                   I don’t talk revenue but our margins, we always had very high margins in terms of my business and we were basically at the peak, essentially, of our revenue at that point.

John Warrillow:                Okay the actual number’s not as important but I want to understand what’s the trajectory. So 2008, you’re kind of peaking. It sounds like 2012 you hit a trough in terms of top line revenue. Like what would the difference be on a percentage basis from the peak in ’08 to the trough in ’12? How much down were you in top line revenue?

Ari Ackerman:                   Yeah we lost close to 35% of our business at that point. We’ve regained, obviously, some of it since then but from the 2008 to 2012, we really, really took a hit.

John Warrillow:                Got it. And then from 2012 to the acquisition, what would your top line growth rate have been?

Ari Ackerman:                   Again, we turned it around and we sort of regained about 20, 25% of our business.

John Warrillow:                Got it. Got it. Got it. Okay. So I’m really getting that you were growing on the top line at the time of the acquisition sort of somewhere in the kind of five to ten percent range per year?

Ari Ackerman:                   That’s about right.

John Warrillow:                Ball park. Just so you get a sense of-

Ari Ackerman:                   Yeah, ball park. I think it’s more the story. The numbers, yes, are important that we actually turned it around five ten percent over the, but it’s really that okay, Bunk1 took a hit but look, we still have this brand name within the industry and we were able to use the brand name which we built a very strong reputation, a very solid reputation on, and say listen, we had our troubles but here’s why we’re back. Here’s the improvements that we made. Here’s the new app that we have in the summer camp world for parents, essentially. So we did a lot of improvements and people were willing to listen because of the grand equity that we had built up over the years.

John Warrillow:                How did you get Rob to join what he must’ve seen as somewhat of a sinking ship at the time?

Ari Ackerman:                   We’re having this interview so you’re hearing sort of the back end of Bunk1 but it was hardly a sinking ship. Bunk1 is an incredibly well known brand within the industry and I was fielding a lot of people who wanted to work for Bunk1, we didn’t hire. It wasn’t like that as maybe you just said. It was definitely a very strong brand with a good name that everybody did want to work for. Wasn’t a tough sell.

John Warrillow:                Okay, got it. Okay so some of the dip in revenue you’ve been able to mask, not mask it but it wouldn’t be obvious to the public, per se. Everything was, by the way, dipping in between 2008 and 2011. Companies were losing a lot more than 35% of their revenue in that three year window.

Ari Ackerman:                   Right, that’s a fair point.

John Warrillow:                And I think camp is a discretionary spend for a lot of parents, right? So that’s one of the things that gets dropped when mom or dad loses a job, I would think.

Ari Ackerman:                   It is a discretionary spend but I will say that what I’ve learnt is that parents will spend their last dollar on their children so if they can afford to send their kids to the camp, they will. And by the way if they do send their kid to their camp, they’re not skimping on signing up for the Bunk1 service so we didn’t really lose clients because they wanted to save the $10. Yes, we lost a few clients because camp were down a little bit but even camps weren’t really hurt as much as the overall economy was.

John Warrillow:                Isn’t that interesting. It’s interesting. I, again, I don’t know the market so clearly you know it intimately. So 2016 came along and you turn this corner, you kind of moved in the right direction, then what? Did you take the business to market? Did you hire an advisor? How did you sort of take the next step to the acquisition?

Ari Ackerman:                   Yeah so at that point we were in a good place and I kept getting emails and we had an interesting email from Together Work, the company that eventually bought us, saying they’d love to meet us and I had heard about them ’cause they were sort of active in the camp space in terms of looking around and stuff like that and I knew what they were doing and I sort of admired and thought they were on the right track so we fielded the phone call and we had a meeting in the office and they came in and we sat down and they signed an NDA and we started talking about Bunk1 and what they wanted to do in the summer camp industry.

John Warrillow:                What was it about the first email that, did you know from the first email that it was a veiled acquisition conversation that they wanted to have?

Ari Ackerman:                   You know those first emails, I’m sure a lot of entrepreneurs get them like they always wanna come talk. They don’t tell you right away that they want to, they usually say they want to either invest in the company or wanna talk to you about the company.

John Warrillow:                Or a strategic relationship.

Ari Ackerman:                   Strategic relationship. We all get those. So I knew what the intent was. Even though it wasn’t stated so obviously, it was pretty clear what they wanted.

John Warrillow:                Got it. And do you remember how they actually made the first suggestion that it was an acquisition? I mean did they say we’d like to buy you or were you forced to say hey guys, let’s come clean here. You’re here ’cause you wanna buy the business, isn’t that right?

Ari Ackerman:                   No, I think it was more on their end. Or maybe I would say both. I mean when they came in for that first meeting, we’re adults. We’ve been through this. We sort of know kind of without having to say what the meeting was gonna be about kind of right away what the meeting was about. After that first meeting I have to say we tried to move pretty quickly ’cause I did like what they had to say even in that first initial meeting about how they combined resources within the summer camp industry, how they’re buying other summer camp companies and I really liked the guy, frankly, from the personal, as you say I’m an emotional guy, so part of my emotion I guess was that I really liked the guy that came in to talk to us initially and I trusted him and I felt like he was a guy I could, this is a long way away into the future, but he was a guy like if I sold the business, okay, I could turn my 17 year old baby over to this guy.

John Warrillow:                Interesting. And he was the president of Together Work?

Ari Ackerman:                   No, he’s more of the business development guy but I met him, I liked him. I felt like he would be working with people that I liked and trusted as well.

John Warrillow:                Got it and so what was the next step? Did they put an offer in front of you?

Ari Ackerman:                   So we signed the NDA and they asked for, obviously, some high level figures like our revenues, expenses, client lists, sort of some stuff that they would sort of, so they could evaluate the business a little bit and pretty shortly after they did say okay, thank you for this information. Here’s sort of what we’re thinking if we were to sort of acquire Bunk1.

John Warrillow:                So that’s what we typically call like an expression of interest. It was sort of a vague two pager kind of idea?

Ari Ackerman:                   Exactly.

John Warrillow:                Got it.

Ari Ackerman:                   Exactly. It wasn’t even and LOI yet, really just an expression of interest and saying okay, here’s what I think Bunk1 is worth at that point.

John Warrillow:                Got it. Had they asked you what do you want for the business?

Ari Ackerman:                   They didn’t but I sort of had a number in mind and I can tell you that the first offer I absolutely said this is not gonna work and they came back-

John Warrillow:                The first offer they gave you in the expression of interest.

Ari Ackerman:                   Or the first range I should say, it wasn’t really an offer. It was like okay here’s what we think we could value the company at and I said sorry, that number would never work for me and I meant it. It wasn’t like a threat. I didn’t have to sell the business. I really, as I said earlier, I loved the business. I’m proud of it so I feel like I was in a good position where if they gave me an offer I liked, great, ’cause I like them but if they don’t, this business is turning around and I feel the future is great and the potential is still great. I’m gonna keep it and see what we can do with it.

John Warrillow:                What was the first offer range on a multiple of revenue?

Ari Ackerman:                   Well they did the first offer as a multiple of EBITDA because basically they’re funded by a 1.1 billion dollar private equity shop and so they’re very, very numbers driven and they just basically took the EBITDA number and said okay, here’s the multiple of EBITDA we can give you and for me-

John Warrillow:                [crosstalk 00:38:17] Were you kind of like four, five, six times? That kind of like class PE multiple?

Ari Ackerman:                   Like a classic, yeah. I believe the initial one was five times EBITDA but I can’t say for certain that’s what it was but it was something like that.

John Warrillow:                In that sort of range, okay.

Ari Ackerman:                   But either way that wasn’t enough because again, you sort of heard the history of Bunk1 and where we were at in terms of EBITDA so it wasn’t at the ideal place but not only that, it didn’t value the brand that I had built and the summer camp industry, I can’t stress this enough, is such a relationship driven industry that to have access to the amazing clients that I did was worth something that they weren’t valuing and that can’t be valued in the current EBITDA number.

John Warrillow:                How did you know that?

Ari Ackerman:                   I knew that because I looked at the number and I go I’m sorry, this just isn’t enough for what I’ve built over the last 18 years. Not just me, I say me, but when I say me it’s really everybody that’s helped build the company to where it is and it just didn’t feel right. I mean I guess we go back to me being an emotional guy, that it just wasn’t the offer I thought I could say okay, I’m turning my baby over to you and this is something that’s fair.

John Warrillow:                But I guess in the context of how did you know what was fair, I mean did you have friends that were selling businesses that were selling for higher multiples? Was it the total number wasn’t going to make a big enough lifestyle impact for you? How did you come to the conclusion that it wasn’t enough?

Ari Ackerman:                   Again, ’cause it’s just all the sweat equity I had in the business and the relationships I had and yes, I did, because of my Kellogg friends, I would rely on them and I would say okay, here’s my offer. What do you guys think of this? And they gave me really thoughtful, great answers in terms of like what they thought the number really should be and I relied on them and I also relied on my instinct on this one and said this doesn’t feel right. This is a pure multiple of EBITDA, it doesn’t value what Bunk1 brings to the table.

John Warrillow:                So this is a conversation you eventually have with the acquirer, they throw this expression of interest out there saying, you know, it’s about five times EBITDA in our mind, you’re like yup, that’s not gonna work boys so we’re gonna move on. How did that conversation go?

Ari Ackerman:                   Well I didn’t say it, the conversation went well, to be honest. It’s an initial offer in some way, right? So I knew they were really interested in it which was to my advantage but I also knew from what the person who came in kept saying is that they’re really a number driven private equity shop so they have to justify the number somehow. So in terms of back and forth conversations we eventually got to a point where we played with the EBITDA number, the multiple that they were using that made it good for me and for them.

John Warrillow:                When you say played with-

Ari Ackerman:                   [crosstalk 00:41:34]. Okay, what does that mean? I can answer your question. So basically what we did was we ended up doing, this is over a long back and forth, I’m summarizing many, many months, but we ended up coming up with a really interesting approach in that we used the trailing 12 months revenue number but then we did an adjusted expense number and we took out expenses that because of our, as if we had been acquired by Together Work, what expenses wouldn’t be there essentially anymore and they took out those expenses to the point where it became a very attractive net profit number and that multiple of that profit number was then a much more palatable number in terms of selling Bunk1.

John Warrillow:                Awesome. So you didn’t get them to move on the five times number but through the adjustment process, you got the aggregate number much higher.

Ari Ackerman:                   I take it back. So I also got them to move on the five times number as well.

John Warrillow:                Nice.

Ari Ackerman:                   So I can’t tell you the numbers in terms of the sale but what I can say is that what I got them to move towards was a fixed cash number up front which was essentially a multiple but we actually fixed the cash number and then we did one and a half time EBITDA number in notes up front in the business and we did another one and a half times EBITDA when Bunk1 does double EBITDA at any point over the 12 month period into the future. So I see it as a seven times EBITDA at that point because the cash number was basically about five times up front, sorry, the cash number was four times up front and then another three times in notes now and into the future.

John Warrillow:                Great. Love the detail, by the way. Explain, if you would, the notes piece. So just kind of for folks, you’re essentially financing the acquirer to buy the business? Is that what you mean by a note?

Ari Ackerman:                   Sorry, no. It’s a note in the larger Together Work business.

John Warrillow:                Okay. And so how does that work?

Ari Ackerman:                   So, essentially, it’s a note that has a present value, one and a half times EBITDA note that has a present value, whatever that EBITDA number is times one and a half, that is cashed out at any transition point in the future when Together Work either sells to somebody else or goes public.

John Warrillow:                Got it. And until either of those [inaudible 00:44:21] events you basically get the coupon. Or did you just-

Ari Ackerman:                   We get the coupon and I can’t tell you the number exactly but it has a certain interest rate and a value to that number that I think was a good, it was good for them and it was good for us in terms of where we came out on the deal.

John Warrillow:                Got it. And then the one and a half times you get that when the company doubles in size whether that’s next year or five years from now or ten years from now.

Ari Ackerman:                   That’s correct. It could be at any 12 month period at Bunk1 where we doubled EBITDA from, by the way, not the adjusted EBITDA number but the actual EBITDA number. So it’s a double of the actual EBITDA number right now, we then get the extra one and a half times on the note.

John Warrillow:                Got it. And the adjustment process where you’re trying to tell the acquirer how the business would perform in their hands meaning once you scrubbed out all these expenses that they won’t need, that adjustment process like how much did you grow the EBITDA through those adjustments? Would it be 10% improvement or like a 50% improvement? Just a sense of-

Ari Ackerman:                   That I can’t address but it did grow.

John Warrillow:                Okay, materially grow. And from your perspective, the things that you kind of worked through with them was mostly around the expenses that you were incurring as an independent business that they would not necessarily have to pay out ’cause they had shared resources ’cause they’re a huge company.

Ari Ackerman:                   Yeah, that’s why it was a very reasonable negotiation ’cause there was things that they really wouldn’t be responsible for in the future, essentially, but it wasn’t really our current EBITDA number but they were adjusting the expenses to make the overall sale price a number that I would be willing to do.

John Warrillow:                Got it. So I wanna go back to something because I think we, as entrepreneurs, could potentially overplay our hand, so to speak, with the expression of interest, when the original expression of interest came in at five times, you knew you weren’t prepared to sell for that. Some people would have reacted, perhaps, negatively to that and thrown up their hands and said how dare you insult me with such a crappy offer. You didn’t do that, though. You kept them on the line. Maybe walk through what your sort of tenure was, your negotiation posture was with them when you knew you had an offer that you were not prepared to accept. How did you keep them at the table willing to sort of keep, like, do you know what I’m asking?

Ari Ackerman:                   Yeah, I think the question is almost backwards ’cause I don’t think I kept them at the table. I think I had this personal, credible threat of walking away like if I didn’t get a deal I liked. So if they didn’t stay at the table, I was moving on with my business and I think they knew that so I was able to get the deal that I wanted because my credible threat was okay, I’m not gonna sell to you.

John Warrillow:                Was there any time that you thought okay, I’ve got to get another offer here from a competitor so I’m not getting sucked into this proprietary deal with one potential buyer?

Ari Ackerman:                   Yeah, I mean it’s interesting you say that ’cause that was maybe one of the things if I could do it again, I would have more offers simultaneously but frankly I really liked these guys and I trusted these guys. And, again, I didn’t have to sell so if I was gonna sell I wanted to sell to these guys so I almost hurt my posture a little bit by not having another offer simultaneously but to be honest with you we also signed the letter of intent fairly quickly where there was an exclusivity period so those would’ve been tabled at that point anyway but maybe initially I should have fielded a few more offers but I don’t think it would’ve really changed the outcome really in any way, to be honest with you.

John Warrillow:                Got it. How was the diligence process for you?

Ari Ackerman:                   Oh my God. They sent us, I mean, you know like any good company and I actually liked that it was a complicated due diligence process, they sent us a list of like 120 items that they wanted us to go through. Everything from corporate documents, customers, our ops, our finance, the HR, the IT stuff, the legal stuff. I mean you name it, they looked through it and they called our customers and they did their due diligence and I liked that they did their due diligence ’cause I want them to know what they’re buying.

John Warrillow:                How did you talk to your customers about, I mean did you tell the customers that you had the reason these guys were calling you is ’cause we’re thinking of selling the company to them?

Ari Ackerman:                   Well they had given us a list of maybe 25 customers that they were thinking of calling and so we had contacted those customers just to say like, it wasn’t like an infinite list of the customers. It was a very specific list and they did that for us in case the deal didn’t go through and for privacy concerns, essentially. Or even if they did buy the company everything is above board. Wanna make sure they know that this is a good company and we’re selling to a good company so we were able to call our customers and say okay, just so you know, this is what’s going on. We would love it, whatever you say about us you say about us, that’s up to you but we want you to know what’s going on essentially.

John Warrillow:                So you told them you were in the process of selling the company.

Ari Ackerman:                   I mean that’s like, you don’t say you’re in process of selling but we’re in the process of potentially being acquired because you don’t know if the deal’s gonna go through or not and if it doesn’t, they’re still your clients and you have to reassure them that you’re selling only because it was somebody who was gonna take Bunk1 to the next level, it wasn’t just to sell it to get out.

John Warrillow:                How did you tell your employees?

Ari Ackerman:                   So we actually, when the deal was moving forward and we felt confident that it was gonna close, we actually sat down with the employees, Rob and I together, and we sort of outlined what’s been going on and who the new company is and we assured them that they’re not looking to really change or fire anybody or make crazy changes but we just wanna make them aware that in a few months if something did go though, this is what was going on.

John Warrillow:                And how was that received?

Ari Ackerman:                   It was received well. It was received well. I think we have some great people right now who work at Bunk1 and they want what’s best for the business and we sort of outlined why the company that was buying us would make Bunk1 a better overall company and it would only help them and they were to be part of a bigger organization and there’s excitement about future roles and growth for them so I think it was actually well received by them.

John Warrillow:                Interesting. And so talk to me about your personal roles, both you and Rob, as part of this, the kind of one and a half times EBITDA tied to the note and the one and half times tied to the doubling of the company, I mean are you both required to be employed by the company or how did they structure sort of that piece to try to retain you guys?

Ari Ackerman:                   Well so actually I was, part of my criteria for selling Bunk1 is if I was gonna sell, I was personally gonna basically move on. After 17 years of running my business as an entrepreneur, I didn’t see myself working for a larger company. It wasn’t right for me so that was part of the deal. Like if you buy Bunk1, I will retire as the CEO. On the other hand, Rob is amazing, they loved, and so they were very keen, as they should have been, on keeping him and making sure that he signed a contract going forward with them and running Bunk1 for them moving forward.

John Warrillow:                And how was the relationship with Rob as you went through the negotiation?

Ari Ackerman:                   Me and Robert?

John Warrillow:                Yeah, were you guys aligned along the way or did it get rocky at times?

Ari Ackerman:                   I can honestly tell you it never for a second got rocky between me and Rob. He is just a great guy and we share the same vision of how we want Bunk1 to grow and what Together Works can do for us and for Bunk1 and I consider him a very, very good friend and just a great mind in terms of what he can do for Bunk1.

John Warrillow:                What’s been the hardest part about moving on?

Ari Ackerman:                   I built relationships, 17 years. I got married last year, I don’t have a child yet so Bunk1 was my baby, right? And to let go of your baby is never easy but I feel like 17, 18 years is kind of a funny time frame ’cause that’s when you send your child off to college and that’s kind of what I was doing, right? My child was graduating and it was moving on and it was time for me and for the child to separate and grow and it was time for me to do new and exciting things in my life.

John Warrillow:                Speaking of those, tell us about Tribe. I think this is a cool idea.

Ari Ackerman:                   Thank you. So one of my latest ventures is Tribe which is a Jewish dating app but it’s not your average app. It’s a very women empowerment app in that the guys aren’t wasting girls’ times on the app. You can’t talk to a girl until you ask her out on an actual date so there’s not wasting girls’ times on the app. It’s not a Tinder sort of hookup app, it’s a real meaningful connection app and it’s a very exciting thing that we’ve been developing.

John Warrillow:                That’s great. And so this is the next chapter, I mean is this company built to sell as well?

Ari Ackerman:                   It’s funny you say built to sell. I’ve been thinking about that since I got your note ’cause I wouldn’t say Bunk1 was really built to sell most effectively. I would say it was more built out of a passion and the sell sort of came afterwards and I learnt about during the process about how most effectively to sell the business but I wouldn’t say it was built to sell. This company, on the other hand, I feel like the lessons I’ve learnt from Bunk1, I’ve sort of taken into this company in how to build a company to sell it most effectively.

John Warrillow:                Like what would be the biggest lesson that you try to apply now in the new company?

Ari Ackerman:                   I think it’s just the way you set up the business and sort of the equity decisions you make. Just making sure all the technology is built most effectively. Yeah.

John Warrillow:                What sort of equity decisions would you make differently if you were building to-?

Ari Ackerman:                   I feel like when I started Bunk1 you kind of don’t know what you don’t know, right? And this is 1999 and I didn’t have a lot of cash at that point and so I would give out equity in lieu of cash, essentially. And I would say to other entrepreneurs, be very careful in terms of the equity you give out ’cause it could be very expensive into the future to sort of have that equity not in your hands.

John Warrillow:                So when you actually were acquired by Together Work you had people that you’d given equity to that still retained that equity to that day.

Ari Ackerman:                   I mean, yeah, some had retained the equity some I bought out before Together Works acquired the equity. It just became a little more complicated than it needed to be and I think if you can pay people at the beginning I think it’s good advice to say pay the people.

John Warrillow:                Pay the people. I love that.

Ari Ackerman:                   Pay the people.

John Warrillow:                Where do people find out about Tribe?

Ari Ackerman:                   So, yeah, I have an Instagram account, it’s Ariacker, my name is Ari Ackerman but it’s A-R-I-A-C-K-E-R and I post some fun Tribe videos and we do all sorts of fun Tribe stuff that you can log in and check out what the latest is and you can download Tribe on your iPhone as well.

John Warrillow:                Awesome. Ari Ackerman, thanks for joining us.

Ari Ackerman:                   Thank you very much for having me, John.