ETA Spotlight // Trevor Lwin, MBA ’12

Trevor Lwin, MBA ’12, and his partner Bruce Mosczcelt worked together for nearly a decade at BMO Capital Markets prior to pursuing the traditional search fund career path. The two formed Gestalt Equity Partners, which in turn acquired T-Base Communications, a company that leverages proprietary software to ensure enterprise customers and education organizations can provide accessible documents for their low-vision and blind (LVB) customers, in November 2014. Over the past five years, Trevor and his partner grew T-Base substantially, culminating in a recapitalization with new private equity investor Thompson Street Capital this past November.

Trevor shares some of the incredibly valuable insight he’s gained from the experience with the Polsky Center.

Polsky Center: Now that you’ve experienced the full life cycle of a search fund entrepreneur, from search to recapitalization, how would you characterize your experience? Would you do it again?

Trevor Lwin: Before jumping into the questions, I’d love to put my responses into context. Since selling the business, I often get asked for insights, however I always remind people that my experience is a sample set size of one. My path worked out well, but it certainly doesn’t mean other approaches won’t also work. Ok, with that obvious observation out of the way let’s get into this!

The seven-year journey from resigning from my position at Bank of Montreal to selling the company is a bit of a blur. So much happened in a relatively short period of time. It’s not that the hours were more intense than in my prior career, but there was just so much more to learn and so many more decisions to make. No doubt it’s a rewarding experience, but it’s certainly not suitable for someone preferring predictability or mastering a narrow skill set.

To your question about doing it again, yes and no. If the question is, with hindsight, would I have made the same decision 7 years ago? Yes. However, if the question is would I do another search fund journey today? No, for two reasons. Firstly, my time with T-Base is not yet finished. As with many search fund exits, Bruce, my search fund partner, and I have been asked to stay on as Co-CEO’s and we also rolled some equity back into the business. T-Base still has a lot of opportunity and I’m quite excited about it. Secondly, I’d like to explore making small investments into future search funds rather than running another one.


PC: How did it align with your expectations? What made it different?

TL: To be honest, I wasn’t exactly sure what to expect. Going into the acquisition, I wondered about a lot of things. Would existing management be resistant or cooperative? Would the board micromanage or be hands off? Would I feel like an employee or an owner? Would investors be fragmented or aligned with one another? Of course, I hoped and strategized for the latter part of all those questions and we were fortunate in that they all played out well. T-Base was relatively consistent in its upward momentum which always makes things easier. However, we did have one year of negative growth and we found our board and investors steady at the wheel with no signs of panic. Traditional search fund investors have deep enough experience to detect if declining sales are secular in nature and if not they don’t get distracted by quarterly variances. I’d say the level of autonomy provided by investors was probably the biggest surprise.


PC: What improvements did you make to the business during your tenure?

TL: The first couple of years were more tactical in nature, but thereafter we identified a list of 12 major things that would materially grow the business. We called this “The 12 Blocks”. From there, it was just a matter of keeping focus on those items. We didn’t have to accomplish every block, but even hitting half of them would yield significant benefit. The list primarily included specific customer prospects or lines of business and a couple of potential acquisitions. Each block was listed in an Excel spreadsheet which had monthly columns showing the probability weighting of each item. This way we could track if we were getting closer or further away from each goal. It allowed us to figure out when to adjust strategy, which employees to assign to each task and when we needed outside assistance.

In addition, we looked at which internal processes were manual in nature and would benefit from technological innovation. As an example, in converting really complex documents like STEM textbooks into braille we used to rely on subject matter experts (SME’s). Our CEO suggested taking some of the technology from one of our other software platforms and tweaking it to automate 70%+ of the process. Later we introduced machine learning and today we have the most advanced tool for the conversion of complex documents not only into Braille but other accessible formats with minimal need for SME’s. This made the business more cost effective, but more importantly, improved scalability and quality consistency.


PC: What were your biggest challenges?

TL: In a Search Fund model you always hear the IRR clock ticking. The longer it takes to grow the business the harder it is to earn your full carry. In light of this, our biggest challenge was dealing with our very long sales cycles. I wish I had some brilliant insight on how to shorten sales cycles, but for us it was just persistence. We rarely took “no” from customer prospects as a complete “no”, but just as a “no” as to how the initial solution was pitched. Again, this isn’t rocket science, but we tried our best in putting ourselves in our customers shoes and asking enough questions to truly understand and mitigate any barriers.


PC: Are there things you would have approached in other ways, if you did it again?

TL: Bruce and I are a bit old school and in that we focus on growing EBITDA. I think in hindsight this slowed growth a bit. Many other searchers focus more on sales growth even at the initial expense of EBITDA. If we were to do this over again, we would probably still be biased to protect EBITDA but would have loosened the purse strings a bit more to drive growth.

The other thing I’d revisit relates to partner led search funds. The benefits of a partner led search versus solo is that you consistently have someone to bounce ideas off, debate various issues and share workload. However, the unintended consequence is that you tend to decrease your engagement with the broader senior management team because of the inherent support a partnership brings. So in doing things over again, Bruce and I would be more conscious about bringing senior management earlier into strategic discussions. Not only would they have felt more engaged, but they would have brought a lot of great ideas.


PC: What advice do you have for people that are contemplating the search fund path?

TL: It can be a very rewarding path and you’ll find yourself surrounded by a very supportive search fund community. Will every day be great? Nope. You’re hit with daily challenges and there may be some stretches where things just don’t seem to go right. If you have difficulty bouncing back from bad news or are prone to making setbacks seem bigger than they really are, it may not be the right path for you. However, if you have some resilience and crave unpredictability, a search fund is a great opportunity.

Final advice. When searching for a company, you are often told an ideal business has recurring revenue, scales well, has a large total addressable market, is economically resilient, has low customer concentration, has strong unit economics and has industry tailwinds. When I was in the search phase this list used to frustrate me. During my M&A career I saw a lot of really successful businesses that didn’t have all of these attributes. However, after going through the full search fund cycle, I see much more clearly why these characteristics set you up for success. If you’re targeting a company that doesn’t check many of these boxes take a harder look at the opportunity. Most likely you should move on, or ask yourself if you can realistically change the business model so that it does check most of these boxes. You are going to be involved with your acquired business for 5-7+ years. Make sure to pick one with odds in your favour at the outset as this decision more than any other will likely dictate your future success. This advice may seem obvious, but when you’re in the thick of things and pressured to make a timely acquisition, one’s objectivity isn’t always at its best.


PC: What’s next for you? Where do you see your career going from here?

TL: The immediate future has me focused on the continued success of T-Base. However, both Bruce and I are strong believers in the Search Fund model and will consider investing in future funds.

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