February 6, 2023
Gustaf: Hi Chris! How did you end up starting PieLAB?
Chris Rolls: Hey Gustaf, I've built and sold four businesses over the last 20 years. And it was while I had my previous company, which was a large manager of residential property here in Australia, that I decided that when I sold it, I wanted to spend the rest of my working life investing in other people's businesses.
So, I stepped aside as CEO of that business and spent two years doing “middle-aged work experience” in the private equity industry and travelling the world taking courses on venture capital and private equity. When I finally sold my last business, I felt that I knew enough to start a private equity fund, which I did, seeding it with my own capital.
That fund, which we started about six years ago, has performed very well. We’ve returned over half the capital, and it will likely return an IRR of between 30% and 35% when all businesses are exited.
The first fund has some great companies, but since it was structured as a traditional closed-end private equity fund, we must undergo the process of exiting them.
As someone who has spent their life building businesses, I had a view that long-term ownership is a much better model to compound wealth. And I concluded that it doesn't make sense to sell growing, profitable businesses only to start another fund and buy others.
So, I started looking at business models where organisations acquire many smaller, cash flow-positive businesses and hold them for the long term. That's when I came across organisations like Constellation Software, Danaher, and Transdigm.
I really liked the serial acquirer model and quickly realised there weren’t any Australian-based serial acquirers. So, I set up our second fund, “The PieLAB Council Capital Fund”, as a serial acquirer.
When I started PieLAB, I set out to find world-class talent to join me on the journey, and I feel that we've ended up with a team that is more likely to execute on this than anyone else in the Asia-Pacific region.
Our team are all deeply experienced leaders and entrepreneurs with years of experience across various sectors and industries as both investors and operators. Many of us have started, led, and ultimately sold businesses. Our hands-on operational experience has given unique insight into the Australian SME space.
Gustaf: What is PieLAB? And what's the opportunity in Australia?
Chris: Once we finalise the exit of our first fund, which will happen in the next couple of years, PieLAB will solely be a long-term buyer and holder of businesses. Structurally it’s an evergreen fund where we can raise capital over a period of time into the fund. But instead of exiting businesses individually, like a traditional private equity fund, we intend to list the vehicle to create liquidity for our investors.
We acquire majority stakes (or 100%) of businesses that have between $3 million and $15 million (AUD) of revenue annually, generate more than $1 million EBITDA in annual profits, and have a stable revenue model, such as recurring or subscription revenue or a strong repeat customer base.
We prefer never to sell the businesses we invest in because building successful companies and developing leaders takes time and patience. We run the businesses in a decentralised manner and focus on providing training and development to help our managers be the best they can be.
It's called the PieLAB Council Capital Fund because we have a CEO Council, made up predominantly of Australian CEOs who have also invested alongside us. The CEO Council provides mentoring, assistance in due diligence, and introductions to assist portfolio companies or refer investment opportunities.
And the opportunity in Australia is huge.
Australia has 2.4 million small and medium enterprises (SMEs), accounting for almost 60% of the country's GDP. Additionally, there is a large ageing population of elderly entrepreneurs, many of whom are baby boomers. Over the next nine years, experts predict that 90% of Australia's baby boomers will retire, leading to over 400,000 Australian SMEs needing to change hands...
This presents a significant opportunity as there are few sophisticated buyers for SMEs in Australia, allowing for acquiring good businesses at reasonable prices.
Gustaf: How do you work with the subsidiaries?
Chris: We do not rely on the traditional buy-and-sell model to drive returns. Instead, we hold asset-light businesses for the long term and focus on helping them generate free cash flow.
Key to helping them perform is our PieLAB Operating System. This approach begins with assembling the right leadership team and challenging assumptions about who truly deserves to be on that team.
Next, we help set a 10-year vision, a 3-year goal, and a 1-year plan and break it down into quarterly goals to focus on execution. The system also includes educational elements. And our company-wide purpose is "to develop people and help them build great businesses."
But while we offer training and development on improving cash flow generation, understanding value-based pricing, and financial reporting etc., all decision-making remains with the team who are running the business. We believe you can’t keep people accountable for results if you make decisions for them!
We run a lean head office and reject bureaucracy and red tape. Anything that does not help one of our portfolio companies increase their prices, decrease their costs, or sell more stuff is just a waste of time.
Gustaf: When do you expect to list the group?
Chris: Under our fund model, we need to provide a liquidity event for our investors by 2030, and the preferred scenario would be a public listing. But it could be in another form. I think there’s a lot of evidence to suggest that well-run serial acquirers do well in the public market.
Gustaf: How can business owners and investors contact you?
Chris: We are always open to speaking with business owners, investors, and others in related fields. One of our values is "Lifelong Learning," so we welcome conversations with those who are interested or have expertise in this space.
I rarely leave a conversation without learning something new, so please feel free to reach out to us.
Phone: +617 3036 1420
Disclaimer: This is not investment advice. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. Any reference to or omission of any reference to any company should not be construed as a recommendation to buy, sell or take any other action with respect to any security of any such company. The author may hold positions in securities discussed. Any forward looking-statement is subject to risks and uncertainties. Read further disclosure in the Terms of Service.