This Billionaire Bought Over A Thousand Small Businesses And Never Lost A Dime

Forbes

Staying small is working out big time for Shore Capital. Their average internal rate of return on its 14 exits, all in health care, is 53%, net of fees. That’s nearly triple the average net IRR of U.S. buyout funds raised since 2009, according to data from Cambridge Associates. After Shore took its 20% to 30% cut of profits, its exits multiplied investors’ money by 5.5 times on average, also nearly triple the average total value to paid-in capital multiple of U.S. buyout funds raised during that period. Shore has never unloaded a company for less than three times cost before fees, nor, it says, has it ever suffered a loss. “Those are top 1% returns in private equity,” marvels one investor who asked not to be identified, citing his organization’s press policy. “That’s rarefied air, right? That’s more like venture capital than a traditional buyout firm.”  Ishbia and his team have acquired more than 1,000 mom-and-pop shops across the country (average cost: $15 million) since Shore’s 2009 founding and rolled them up into 61 larger chains of things inclu­ding autism treatment clinics, bakeries and exterminators. “We’re buying businesses in Akron, Ohio, and Pittsburgh, and Birmingham, Alabama,” Ishbia says. “There’s more low-hanging fruit for me. It’s Joe Schmo on Main Street.”  Shore then invests in computer systems and equipment, stacks the businesses’ boards with industry veterans and hunts for complementary companies in adjacent markets. “We’re just buying and buying and buying,” says Ishbia, who insists Shore doesn’t take on as much debt as other private equity firms and doesn’t cut servi­ces or head count. “The private equity world gets a bad rap for ‘buy this, slash that.’ We are growth—we have almost 35,000 employees and hire thousands per year.”  Read the full story on Forbes: https://www.forbes.com/sites/mattdurot/2024/04/08/this-main-street-billionaire-bought-over-a-thousand-small-businesses-and-never-lost-a-dime-justin-ishbia/?sh=3140aa9e39ee  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 [MUSIC]

00:03 >> We at Shore Capital love partnering in industries where there is much more

00:08 demand than there is supply.

00:10 And our formula is, if there's much more demand and supply,

00:13 go and become the supplier of choice.

00:16 [MUSIC]

00:19 >> Justin Nishbia is the founder of Shore Capital, a private equity firm.

00:23 It's based in Chicago and it invests in Middle America,

00:26 smaller mom and pop businesses, 20 million in revenue or less.

00:30 In areas like veterinary or autism clinics, bakeries, companies all across

00:35 America, and then it buys those companies and it buys companies like them and

00:40 rolls them up into larger and larger businesses.

00:42 First talked to Justin because he'd opened a new fund that invested in

00:46 industrials, which is an area that I cover.

00:49 And that was a big change for him versus investing in healthcare,

00:51 where he'd had his early success.

00:53 And in talking to him, I thought his strategy was really interesting about how

00:57 he had bought these smaller companies,

00:59 which is very unlike what private equity typically does.

01:02 And then rolled them up into bigger businesses and just started talking more

01:06 about that and his broader strategy and found it fascinating.

01:09 >> I was a senior in high school.

01:13 It was the summer before I'd gone off to college and

01:17 my best friend's father was a partner at a private equity firm.

01:21 And I didn't know what private equity was.

01:23 I just know my friends had a big house.

01:25 So that's all I really knew.

01:26 And over a summer, this gentleman explained to me what private equity was.

01:29 He said that we buy companies, we help them grow,

01:32 we help them bring new resources to them.

01:34 And over a period of time, they'll eventually sell those companies.

01:36 I heard that story and I said to him, that sounds like an amazing career.

01:40 I said, how do you do it?

01:41 He said, look, it's hard to get into this industry, but here's the pathway.

01:44 And so it was literally from the age 18 years old,

01:46 I knew I wanted to do it from right then.

01:47 Once I realized I could not play baseball, that was a bummer for me.

01:50 But once I realized I couldn't play baseball, I said, okay,

01:52 that's what I want to do.

01:52 Because I felt like you help bring people together, build companies, and

01:56 bring resources together, build something pretty special.

01:57 And so that was the origins of it.

01:59 And the early days of sure, I think when you go through hard things together,

02:05 you look back on them very fondly.

02:06 In those early days, we had a 1,200 square foot office.

02:09 The rent was $1,200 a month.

02:11 We had a website that was called the 2009 Recession Special.

02:14 But I look back on those days, I long for them.

02:16 I miss those days when it was four guys in a relative sweat box.

02:20 I was 31, my parents were 29, 28, and 27.

02:23 We were kids and we would tell people, we're to go build this and

02:26 we want to buy this.

02:26 And they said, where's your money?

02:28 Where's your track record?

02:29 Who's the gray hair in the room?

02:30 And we said, we had none of those things.

02:31 But it's the heart, the grit, young, humble, and hungry.

02:35 I think all those things together.

02:36 And that's what we built in the early days.

02:37 And over a number of years, the track record grew, the results grew, and

02:41 then it became more and more clear.

02:42 But those early days, those were the fun days.

02:44 Those were the days when we were a team.

02:46 And we still are a team, of course, today.

02:48 But we were a team that we knew we had three chances to succeed.

02:51 And if we didn't get it right, there was no future.

02:53 [MUSIC]

02:56 >> One of Shore's biggest wins is Brightview,

02:58 which runs addiction treatment centers and it's based in Ohio.

03:01 Another is Southern Vet,

03:02 which is a chain of veterinary clinics that's based in Birmingham, Alabama.

03:06 In both cases, the original business was small, Shore bought it and built it.

03:10 In the case of Southern Vet, for example,

03:12 it now runs 400 locations with 1.2 billion in annual revenue.

03:16 >> So I originally met Jay Price through one of my best friends from law school,

03:21 was his best friend in undergrad.

03:23 And so I started with a text.

03:25 And I said, hey, do you know anybody in the veterinary space?

03:27 He goes, actually, my college buddy is a veterinarian in Birmingham, Alabama.

03:30 And we flew down there to meet Jay.

03:33 And literally the definition of Southern gentleman and humble.

03:35 He's humble as they come, as smart as they come.

03:37 And we had just closed our first fund.

03:40 So it's 2014, we'd raised $112 million.

03:42 So we were relatively modest in the big picture of the private community.

03:45 And I think what Jay and myself, my partner Mike, aligned on was a vision where,

03:50 how do we create an environment that was a best in class place to work?

03:54 Professional upside, professional training, financial opportunity, culture.

03:57 And I think other clinicians, other veterinarians wanted to partner with

04:00 not the business guy from New York who looks like this.

04:03 They wanted the guy who's in the weeds, actually delivered a dog,

04:06 who's actually done a surgery,

04:08 actually told someone that their loved one won't be going forward with him any longer.

04:11 He did those things and he was fortunate enough.

04:14 We were fortunate enough to have him pick us.

04:15 And he picked us and it was the beginning of a journey and

04:17 start out with just three locations.

04:19 And today there's over 400 locations and we've done dozens and

04:22 dozens of acquisitions.

04:23 And he's been, Jay Price is I think one of the most respected people in the industry.

04:28 And it's because he is a clinician at heart and training.

04:31 So we're big believers if you can't measure it, you can't manage it.

04:34 Our belief is that short capital process.

04:36 The system is a star.

04:37 It's not about any one person.

04:38 Our job is to create an amazing system where we can put relatively good inputs in,

04:43 but have extraordinary results.

04:45 And we tell our investors and

04:46 our partners we say I don't promise you the outcome, I promise you the process.

04:49 [MUSIC]

04:52 >> Private equity, especially in healthcare,

04:54 has come under substantial criticism for increasing costs and decreasing services.

04:59 Justin argues that his company shouldn't get tarred as it doesn't cut services.

05:03 And that in fact, it's expanding and its scale allows it to invest more money in

05:07 technology and to provide better services at the companies that it buys.

05:11 >> If you see one private equity firm, you see one private equity firm.

05:14 Everyone's a little bit different.

05:15 And I always like to think about my mom and I are super close.

05:18 My parents were married for 50 something years.

05:20 If you can't articulate your story and why you're doing something to my mom,

05:24 who's a really smart, talented individual,

05:25 then you can't break it down appropriately to be able to write partners.

05:29 And so people think of that as a private equity, Wall Street, big deals,

05:33 cover Wall Street Journal.

05:34 It's a whole part of the ecosystem where we're partnering with Main Street.

05:38 We're partnering, our average partners have 100 employees when we start.

05:40 These are relatively modest businesses where they have great individuals.

05:44 And I think people think about private equity as all is one size fits all.

05:47 And I think like a restaurant, there's fine dining, there's fast food,

05:50 there's quick service restaurants.

05:51 There's carry out private equity.

05:53 I really encourage anyone, not just with us, any private firm,

05:56 get to know the people.

05:57 If I was ever considering a private equity firm as a potential seller,

06:00 do references, talk to their former partners.

06:02 We're pretty confident in our results with our partners.

06:04 But my dad always taught me one thing, and I think it applies to private equity.

06:09 You get one reputation, use it wisely.

06:11 And when you do hundreds of transactions like a firm has done,

06:14 if your reputation isn't viewed as being honest, transparent,

06:16 doing the right thing, you won't last very long.

06:18 And so if I had one thing to say about people wrong at private equity,

06:22 they assume before they know.

06:23 Take the time to get to know.

06:25 Reputations matter.

06:26 Do your homework, and I think you'll find out the right outcomes.

06:28 And you'll find the right fit for you.

06:29 What may be right for you may be right for me and vice versa.

06:31 I believe that money follows success.

06:33 Give me success, give me good people, success, money will take care of itself.

06:36 [MUSIC]

06:38 For us, everything starts with picking the right sector.

06:40 We want to look at an industry that has kind of 15 years of sunny skies,

06:44 tailwinds, demand trends.

06:46 A simple example is the consumerism of healthcare.

06:48 Today, if you or I want to order a pizza, put my phone out,

06:50 it's here in five minutes.

06:51 If you want to go see a doctor, get your eyes checked out,

06:54 you have to call somebody, wait in the hole for eight minutes.

06:56 No one wants that.

06:57 The consumerism of healthcare is, I think,

06:59 an area people want it more at their fingertips.

07:02 And so we're looking for themes with strong tailwinds.

07:05 So if you get that part right, you're swimming in water

07:07 that people want to be in.

07:09 And then from there, our job, our primary job,

07:11 is finding the best in class individuals to partner with.

07:14 [MUSIC]

07:17 >> Justin and his brother Matt are very close, and

07:19 they're also very competitive with each other.

07:22 While Justin didn't want to work at UWM with Matt, the two, along with their dad,

07:26 bought a majority stake in the Suns last February.

07:29 With basketball, Matt owns the larger stake, so he calls the shots.

07:33 In soccer, where they own a minority stake in Nashville SC,

07:36 it's Justin's decision.

07:38 And Justin hopes that that will be the case in baseball.

07:40 >> Matt and I, the first time we worked together,

07:42 formally, has been with the Suns.

07:43 And that's a relatively newer thing for us.

07:45 We are very, very different.

07:47 He has some amazing qualities that I don't have.

07:48 I've learned a bunch.

07:49 Matt is a lot more, I would say, quick to act and

07:51 decisive in a very positive way.

07:53 I mean, more calculated in some respects.

07:55 But in between, I would say this, when we disagree upon something,

08:00 the midpoint usually is the right outcome.

08:02 And so I think I can hear, and I can be in a room in a business conversation and

08:06 context, and a topic comes up, and I can hear it back in my mind saying,

08:11 I think Matt would think about it this way.

08:12 And so I'm not saying I always do what he does, but

08:14 I think he's a different perspective.

08:16 He is one of the best I've ever seen on culture, right?

08:18 He played basketball for Coach Tom Izzo.

08:20 He won a national championship in college playing college basketball.

08:22 He's leading a business.

08:23 He runs it like a team, not a family.

08:25 So different things.

08:26 I think a family, you can't fire your brother.

08:27 You can't fire your mom.

08:28 And a team, though, the best team is accountability across the board.

08:33 And I think he's created a culture of accountability.

08:35 And so I think he's created a culture of accountability.

08:38 And I think him and I together have different angles and perspectives.

08:41 I think together, though, I think we're a pretty strong team.

08:44 [MUSIC]

08:49 My real focus is on is, how do we get better at every single day things we do?

08:54 A buddy of mine here, we're in a small group, we talk about things all the time.

08:57 And the word that I feel is win.

09:00 And one measure of winning is financial money.

09:03 But winning is impact on people.

09:05 I love the win here that people want to work here over and over again.

09:07 People don't want to leave the organization.

09:09 People want to partner with us.

09:10 To me, it's about winning.

09:12 Money follows success.

09:13 If you focus on the money part, I don't think it goes very far.

09:16 So we grew up, like we never wanted for food, never wanted for a shelter.

09:21 But it's not like it is today.

09:22 And I believe that focusing on the task at hand, and

09:25 people don't see the hard work that happened 20 years ago on a random March

09:28 day when it's snowing out and it's 6 in the morning and you're getting up and

09:31 going to work.

09:32 Or you don't see the days 15 years ago when your peers are going on a 10 day

09:37 vacation or spring break and you're kind of saying, I'm going to keep grinding,

09:39 do what I want to do.

09:40 That stuff isn't seen as visible.

09:42 But I think if you look back at it, you say, you put the right work in.

09:46 And to me also, my most important job is raising my kids, right?

09:50 And so people say, you have X dollars, why do you keep working?

09:54 My answer is three reasons.

09:56 One, my kids have seen me grind.

09:59 I believe that kids do as you do, not as you say.

10:02 So they're going to see dad, even though I always have enough money to put food on

10:05 the table, they're going to see dad get up every day, put on a jacket on, hustle,

10:09 be stressed about something.

10:10 Because I believe for

10:11 them to be able to be a great part of our society, they'd see dad work.

10:15 Number two, I love what I do.

10:18 I wake up in the morning, I'm the richest man in the world,

10:19 not because of dollars, because I don't work a day in my life.

10:22 I love what I do.

10:24 And number three, and one of the most important, the guys here,

10:26 the gals here, they took a chance on me when we weren't,

10:30 it wasn't clear if we were successful.

10:31 We didn't have a lot of money.

10:33 I remember we got our very first $10 million sale.

10:35 They took a chance.

10:38 And I get great joy when we do something well here and

10:41 good financial outcomes occur, seeing them buy their first house or

10:44 buy their first something, whatever it may be.

10:46 Or do things they never thought they'd be able to do in their own lifetime.

10:48 Those three things, the team, the love for the game, and also the kids.

10:53 The kids are gonna see you grind.

10:54 Those things get me out of bed every day, and that's what I focus on.

10:56 [MUSIC]

11:01 [BLANK_AUDIO]

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