Cold Bore Capital is a veteran-led private equity firm based in Chicago that uniquely specializes in small-cap buyouts, targeting businesses within the lower-middle market with EBITDAs ranging from $500K to $5 million. The firm’s Operations Group is fully staffed by veterans from elite military units, including Navy SEALs, Green Berets, Army Rangers, Air Force PJs/CCTs, Marine Raiders/Force Reconnaissance, Navy SWCC, Strike/Fighter or SOF Aviators, and Navy EOD. Pulse 2.0 interviewed Cold Bore Capital co-founder and partner Matt Schachman to learn more about the firm.
Matt Schachman’s Background
What is Matt Schachman’s background? Schachman said:
“I grew up in the suburbs of Chicago. I was a hockey player and played for a couple years between high school and college. Then I went to West Point, followed by 5+ years active duty, spending 24 months in Iraq and Afghanistan during the surges. When I returned, I did a two-year program at Kellogg for business school. Afterwards, I got the entrepreneurial itch, thought about doing a search fund, but went into investment banking for a few years to hone my finance chops. Then I started my own human capital staffing and placement company — no employees, no sales, no nothing. Kind of started that from scratch.”
“At that point, I met Sergio Zepeda, who is now my partner in Cold Bore. He was born in Mexico, raised in Michigan, 13 years in the Navy, ten years in the SEAL teams. Sergio was at Booth right before I was at Kellogg and went directly into private equity from the military and graduate school, which is pretty much impossible. He pitched his firm on the small cap buy and build, but his firm at the time said, ‘no way.’ That’s really when the idea for Cold Bore was born.”
“The reason those firms said ‘no’ is because in the micro-cap, lower-middle market space, the quantum and quality of boots on the ground human capital needed really defines winning or losing. That wasn’t something that their organizations were set up to do. But, we knew from our experiences in the military and our network of high performing veterans: SEALS, Green Berets, Rangers, fighter pilots, etc. There was an opportunity to source, screen, and deploy people that had the grit and finely honed problem solving and execution skills to meet the needs of scaling small businesses into a middle market platform. So that’s basically the origin of Cold Bore Capital. And, not quite a decade later, here we are. “
Outlook And Military Background
How does your outlook and military background play into the company? Schachman shared:
“I think having shared values and perspective on key parts of who we are: servant leadership, problem solving, grit, detailed planning, and execution.”
“You don’t need military experience to have those qualities. But, when I met Sergio, it was obviously easier for us to move further, faster, and develop our relationship, thesis and trust because of our shared background. Plus, my experience building a business from scratch and understanding the human capital, staffing and placement world helped with the evolution of the vision for our operations team.”
Evolution Of Cold Bore’s Technology
How has your thesis of the company evolved over time? Schachman noted:
“At the beginning, we looked at B2B2C healthcare services and business services. Today, we’re more specifically focused on B2B services. So, I’d say that’s been an evolution. Why that evolution? First, re: the sourcing of deals and our ability and connections — because of our background, culture, servant leadership, etc. — B2B services has been really, really strong and the market’s really big — meaning the total addressable market of those kinds of businesses. And then on the execution side, I think within healthcare services, there’s a lot more niche industry expertise that you need to build out your team in order to be successful in those areas. Within B2B services, there’s a lot more general overlap, whereas people’s experiences on our team aren’t exactly the same. It’s still important to have the industry expertise, but a lot more overlap and synergies there.”
Favorite Memory
What is your favorite memory of working for the firm so far? Schachman reflected:
“My most meaningful memories are about people relationships and our impact on those involved. Whether it’s helping a small business owner get the upfront liquidity and win of being able to sell their business, or the opportunities that are created for the people on their team, and then getting a second bite at the apple and being able to work together and celebrate when we ultimately exit. It’s such a large part of our culture.”
“Internally, with people on our team — both learning from them and with them, and seeing how the opportunities have not only helped my development and growth, but theirs as well. And whether they’re still here or have moved on to something else, the satisfaction of how helpful the whole experience has been for everyone involved in accelerating people’s careers is very meaningful to me.”
Significant Milestones
What have been your firm’s most significant milestones? Schachman cited:
“I think fully realizing Fund I in the middle of COVID was a significant milestone. Also, exiting our landscaping platform last year to a traditional middle market private equity firm. And from everything we know, it’s going very well — because we built something really valuable. Part of our job is to hand these companies off to the next layer of growth and that’s gone well. And now we’re raising for Fund III. So the next big milestone will be closing that fund.”
Investment Success Stories
Would you like to share any specific investment success stories? Schachman highlighted:
“Closing Fund I during COVID and exiting our landscaping are our two biggest wins. More specifically, the feedback we got in the process from middle market private equity firms on the landscaping sale was quite encouraging. They were really pleasantly surprised about how well put together the platform was given the timeline — that we had gone from basically nothing to the size that we were at the time of selling. Like I said — our thesis from the beginning was that by bringing this quantum and quality, boots on the ground human capital, we could build a better platform faster. But there’s a big difference between thinking you’re doing that versus complete third-party validation — where their job is to point out everything that’s wrong in order to try and drive the value down. meline and the size.”
Industry Focus
What are some of the industries that your firm has focused on? Schachman affirmed:
“B2B services is our focus for Cold Bore’s Fund III. I’d really break that up into two broad categories. One would be business process outsourcing, shared service suite where end-market clients are small- to medium-sized businesses. For example, an MSP, an HR business, a fractional marketing business, outsourced finance and accounting, etc. – basically, the white-collar, B2B services space. On the blue-collar side, it’s route-based services businesses, like landscaping or janitorial services.”
“And again, I think one thing that makes us a little bit different is that from a size perspective, we’re establishing platforms with businesses that are 500K to five million of EBITDA and then doing organic growth initiatives plus M&A in order to build a ten to $25 million EBITDA platform. So, we start smaller and then also do more smaller deals to get to that ten to 25 than a traditional private equity sponsor would.”
Differentiation From Other Firms
What else differentiates Cold Bore Capital from other private equity firms? Schachman emphasized:
“One of our big differentiators is we’re bringing a team of people to help drive improvements for people process and technology, to both help grow organically and do accretive M&A faster. So, when we talk to business owners, I literally tell them, if all you need is money, then there’s a better partner out there for you. If you want help on the ground building people, processes, technology and money in order to fuel those things, then we might be the right partner for you.”
“Our size focus is definitely a differentiator within the private equity space, because most private equity firms are trying to find much bigger businesses. Basically, most of the money raised in private equity goes to a small number of very large companies. Conversely, the smallest amount of money raised goes after the huge segment of smaller companies. Obviously, having capital to invest in new markets, people, M&A, etc, is one way to grow.”
Challenges Faced
What challenges have Schachman and the team face while working at the firm? Schachman acknowledged:
“I think one strategic challenge is that the cultures we come from have been very much like, put your head down and do your work. But to some extent, from a marketing fundraising perspective, you’ve got to get out there and tell your story. That kind of makes us all, frankly, a little uncomfortable. I think we need to have self-awareness, build a team to help mitigate our weaknesses and accentuate our strengths. So, we’ve recently been doing more active marketing, taking us out of our shells and talking more to the outside world. I did a podcast with Justin Pugh, an NFL lineman, and had an awesome conversation with him. Felt super awkward and uncomfortable doing it and thought it went horrible. I’ve had multiple zooms with potential business owners and investors who have said, oh, I heard your podcast with Justin Pugh – and they came to the meeting with a basic understanding of what’s really inside of us and what our thesis is. That helps you get further, faster in the conversation. I think I was just always worried about being too much of a talker and not enough of a doer. But I think we’re balancing that out.”
“Another challenge, when building a team — although this has become less of an issue over time – is that most people think industry expertise first, second and third, versus hire for traits, train for skills. For example, veterans bring a unique combination of compelling traits that make them invaluable assets in the workforce. At Cold Bore, we have a CXO – a chief execution officer — who works shoulder-to-shoulder with the management team and the portfolio companies. At the beginning, when we talked to professionals who had been in their industries for decades, we would say, ‘here’s this person that doesn’t have any experience in your industry, but they’re going to be working shoulder to shoulder with you and drive a lot of value.’ They would say, ‘well, there’s no way that they can do that. They don’t understand my industry.’ At that point, we would say: ‘we’re in charge. Follow orders and do what we’re saying for six months. At the end of six months, if you think they’re bad, we’ll get rid of them.’ And every time we did that, multiple times, those same people would tell us that they wanted to hire that person in order to be their replacement to run the entire platform. Would I? Yeah.”
Future Goals
What are some of Cold Bore Capital’s future goals? Schachman pointed out:
“I know one is Fund III.”
“Cold Bore has three main stakeholder groups: our investors or our LPs, our internal team, and the businesses and business leaders that we partner with to build the platforms. We want to find awesome business owners with great businesses where we can help them achieve goals for both themselves and their businesses through growth. When we’re establishing platforms, that means people who want to continue to build their businesses but need human capital and physical capital support. As those platforms grow, that also means bringing on people who are looking more to retire and providing an opportunity for their next layer of leadership to continue to grow. For our team internally, that means continuing to give people more span and control leadership opportunities and solve rewarding complex business problems and then be able to celebrate the wins together qualitatively, quantitatively and financially. And then for LPs, continue to return capital from Fund II, raise Fund III, and have great outcomes from Fund III. “
“I think you put all those together, and a big part of our ‘why’ is really about showing the ecosystem and all those different stakeholders that applying ruthless risk mitigation, problem-solving grit and determination that skews from a strong minority of people from military backgrounds, as well as others, can drive risk-adjusted returns. And that the net benefit to society of America veterans, by doing that is a kind of long-term goal.”
Baby Boomer Retirees
Tell me about Cold Bore’s interest in the wave of Baby Boomer retirees. Schachman concluded:
“There’s about a trillion dollars of Baby Boomer small businesses that likely need to trade hands to the next generation in the next five to ten years. Baby boomers own 40% of small businesses, of which, a significant number are lower-middle market. A material portion, about 60%, don’t have a succession or transaction plan. The lack of succession planning often leads to an abundance of sellers, lower purchase multiples and more flexible transaction structures. This timely confluence of circumstances is creating a sizable opportunity to acquire companies at potentially attractive valuations. “
“It’s way more efficient for those businesses to become a part of a larger platform, or transition to someone else, rather than just go away completely because there’s no one left to run them. So that creates a huge opportunity for us to help the business owners, the next generation of employees, and our investors.”
