As the CEO of Orange Tree Employment Screening, Renee Ernste brings a passion for client care and teamwork to the business, values that have been the foundation of every decision in her 16-year tenure with Orange Tree. Renee joined Orange Tree as their VP of Customer Care and earned the role of President before becoming CEO in 2018. Orange Tree was sold to Tonka Bay Equity Partners in January 2021. After doubling the company’s revenue through organic growth initiatives, technology innovation, and acquiring three businesses, the company sold to a strategic buyer in May 2024.
Renee and Mark sat down for a conversation that dove into the company’s exceptional growth trajectory following its acquisition by Tonka Bay in January 2021, highlighting a threefold increase in revenue and EBITDA over three years, alongside a strategic M&A approach that saw Orange Tree acquire three businesses within 18 months.
Key Takeaways
- Building relationships with potential investors and investment bankers early can provide valuable insights into market expectations and investment criteria.
- Evaluate different private equity firms’ styles and focuses when considering partnerships.
- Prepare financials early for third-party audits to attract potential investors.
- A “try as you go” approach allows employees to implement plans, gather feedback, and adapt quickly.
Links & Resources Mentioned
- Orange Tree Employment Screening
- Tonka Bay Equity Partners
- How to Grow Revenue Quickly and Sustainably in Transformations
Full Episode Transcription
Introduction and Background
Mark Coronna: Well, hi everybody. This is Mark Coronna, your host for “What’s Your Deal?” a new podcast series focusing on private equity, deal makers and transformative technologies. Interesting combination, but there are some really interesting intersection points between those topics. And those are the ones that we’re going to explore in today’s podcast and through the rest of the series.
It’s great today to have Renee Ernste join me. Renee is the CEO of Orange Tree Employment Screening and Renee’s just had some unbelievably interesting experience and I think outstanding results, working with a private equity company to increase the scale of Orange Tree and then ultimately successfully sell the business to a larger competitor.
So, Renee, welcome this morning. I appreciate your joining me. I think it would get great if you could just provide a thumbnail of what your experience has been. I know you’ve been at Orange Tree for what, 16 years? And you came from a large company before that.
But let’s focus on kind of your recent experience with Tonka Bay today, and maybe we can go back and cover some of the other things and potentially other podcasts. But I welcome, what would you like our listeners to know about you today?
Renee Ernste: Well, Mark, thank you for asking me to join you. It’s great to be here. Like you said, I’ve been at Orange Tree for 16 years. I joined the business as their leader of their customer care team. I am truly a service person at heart. Over the years, I earned the role into President and Chief Operating Officer and then eventually became CEO in 2018. And just to kind of get people caught up to the discussion today, our board at the time, we were owned for 17 years by three entrepreneurs. And in 2019, they decided they would like to exit the business. One owner had been silent that whole time. The other two had been leaders in the business for a period of time, but they decided they wanted to pursue an exit. And so we started into the process.
We interviewed investment bankers and I eventually sold to Tonka Bay Equity Partners in January of 2021. Interestingly enough, we were in our final stages of management presentations when Covid broke out. So we put our process on hold before picking it back up in the fall, and Tonka Bay became our owner in January 2021, and we just transacted again here May 28, 2024. So Tonka Bay is no longer our owner. It was a really quick turnaround.
It was an inspired relationship from the very beginning. There was really great cultural synergies, business synergies, between Orange Tree and Tonka Bay. Now, in this case, they were located here in Minnesota with us, just down the street. Really. I don’t know that it would have had to be that way, but it did offer some really great opportunities. We could have board meetings in person. They assigned me an operating partner out of the gate, Brian Kippers. And he and I became good business partners and friends in that process. So he was someone that was a Tonka-based success story. He’s already sold his business, I think, four different times, a little bit further ahead on the path. And so a few things that were really different about being owned by private equity versus entrepreneurs is they have a very defined hold period.
So you start a relationship with them, and not only do you know it’s going to be three to five years, most likely, but you also have an influx of capital. And so those were things that were different from the previous. I was there for 13 years, and we wanted to grow. We wanted to grow at a certain percentage, but it didn’t have to occur a certain way or at a certain time frame. But with private equity, it does. And as part of the sales process, you get to know the private equity firm, and so they share things like they’re going to want to grow through acquisition. And so I was prepared for that. In addition, I was in a peer group CEO roundtable, and I had a peer that had sold to private equity several years before. I asked him, what should I expect in the first 90 days? And he said, they will ask you to start looking at businesses to acquire within the first month or sooner. So you need to have your house in order.
So before you close, make sure you have the operational leaders you need to have. Or if you don’t, you’ve created scalability for yourself, and the business is ready to go, and then you have a strong financial arm because you’re going to need that for M&A work. And so I did those things. I was prepared, and I wasn’t on the job for a week in Tonka Bay. I said, hey, we have someone we’d like you to talk to. They had someone in the industry, another background screener they wanted me to chat with, and so we started right out of the gate. And then in addition, I had several colleagues in the background screening industry that were brokers that could start bringing us leads. So that was super helpful.
Our first meeting was kind of a swing and a miss. It wasn’t the right fit for us, but it opened the door because it was really fun to talk to another background screening company. I don’t know if I’d ever call myself a background screening expert, but I’ve been in the industry a long time, so I can ferret out what might be a good fit for us. But what really happened is it just opened the door. And at that time, the market was really hot. So a lot of people were trying to sell because they were having their peak years. So our best year ever in business was 2021. 2022 was also really good. And then the market started to soften a little bit. So a lot of other background screeners were having that same experience. So there were a lot of businesses that we could talk with during that time.
Growth and Acquisition Strategy
Mark Coronna: From an acquisition view, it became kind of a target rich environment for you because you had lots of different options and companies to consider. I want to just take a step back and full disclosure, I worked with Renee and her leadership team on a couple of projects through the years. One was sort of a business repositioning and a new product introduction review. And probably the longer term project was doing a horizon growth planning exercise for Orange Tree to figure out their growth opportunities.
We always knew there were growth opportunities, but what you do with horizon growth planning is you try to quantify and prioritize those opportunities, one against the other, so you can say, oh, well, this is, you know, we’ve got five opportunities that will help us grow by X amount year over year. If that’s kind of how you set your targets. You know, some companies go, I just want to double in, you know, five years. Okay, that’s another version of target setting. But, you know, during, and I think the team did a really good job at that exercise. Your team did. I think that, I’m not sure we actually had any M&A conversation when we did that horizon growth model. It was pretty much driven by our view of organic opportunities, was it not?
Renee Ernste: It really was. And our focus was on organic growth until being purchased by Tonka Bay. But in addition, we had a very aggressive organic growth plan. We have a pretty strong marketing engine. And Mark, you did help us start to solidify our brand and our brand voice, and our sales leader continued to do that work. And so we were really bought into the inbound marketing program and creating demand.
We thought having fewer sellers, always busy with leads, was the right thing for us and it really was the right thing for us. So at the same time, we were looking to acquire, we were also having our very best organic sales years too, with a small marketing and sales team that we just really refined by having a really strong lead generation program. So we invested a lot in that lead generation program. And we also started the path of developing some really interesting technologies around engaging the background screening process completely through a self service model. It really designed your program.
So it was a really exciting time because not only were we focused on M&A for growth in the background screening industry, it’s a mature industry, it’s really the best way to continue growing. But we were also growing organically. We had a really high retention. We’ve always been a very service focused organization, and then we were able to start accelerating some technology innovation. So when you have all those things coming together at once, obviously to support that, you need a pretty strong leadership team, which I have just been incredibly blessed with really talented, good people around me, which is what really made the M&A possible, because that became a lot of my job. And we did hire, about a year into it, a Chief Operating Officer. So my duties were no longer split.
So there’s a few things that kind of had to come into play there. We needed to have the right talent and leadership. We needed a lot more support to run the business. But every conversation was just focused on growth. Mark. And it just turned out to be M & A. It was during our tenure with Tonka Bay. It was the right time.
I bet we met 25 different businesses or more in the first twelve months. And in the first 18 months of our ownership cycle, we purchased three. And we got more sophisticated in how we looked at businesses and what we needed. After buying the first one, we started with a smaller firm and absorbed them completely and their employees. It was a much smaller firm. We learned a lot by buying and integrating them completely into Orange Tree, but it changed our model moving forward in terms of size and what we were looking for, because it’s one thing to buy and buying is fun and it’s amazing to meet with business owners and go through the process. Integrating is another story.
Mark Coronna: Oh, totally. You know, it’s kind of like, I know you’re a football fan, Renee. We like different teams, so we’ll keep that out of the conversation today. But in fact, we like competitive teams. So, Renee, I think you actually lost a bet to me one year during college football season, but we’ll just kind of leave that one there, right. I mean, you had a lot of good things happening that were really manufactured by the business team itself. Right. Like the product innovation, you know, coming up with that self service model that would allow cost of sales to be reduced, cost of servicing to be managed differently. Right. Was really important. You know, I saw a huge step up in the quality, I think, and quantity of marketing.
I mean, I always felt like there were so many experts within Orange Tree, and to be able to put voice to that and have a really strong media program and public relations program, I mean, that had to be a component of accessing some of that growth opportunity. I don’t think a lot of companies, though, when you’re in that holding period, after you’re acquired by a private equity firm, that holding period can be a couple of years. It can be three years, five years, seven years. Some people today, the data actually sounds like it’s extending. Holding periods are getting longer. But I don’t know that companies come to that point where it’s like, oh, we need to go buy somebody. Right? So I think it sounds like talent was just that kind of catalyst and maybe an agent to help accelerate Orange Tree’s growth.
And when we talk about growth, Renee, I know you and I would easily add the word profitable in front of the growth every time we say it, right? Because it’s never been about growth for growth’s sake. It’s about adding profitable growth revenue to the business. But it seems like it took Tonka Bay to sort of come in and say, well, hey, wait a minute. Okay, we like what you’re doing. Otherwise, they wouldn’t have made that investment in the company in 2021 and then provide some of the arms and legs to make the acquisition side of growth a real possibility?
Renee Ernste: They really did. So they had it in their mind because, you know, truthfully, we did need to have the M&A to double in size and triple in size. Like, that’s just, I don’t know that we could have done that organically, at least not in three years. I don’t think that’s very likely. And when they had those growth goals in mind, we just kind of got started. We just kind of got after it. And then we realized, hey, we really have a lot of businesses in our space. Many of them are interested, and we probably could have even bought more.
But the reality is, you have to think about a few things. One is what capital investment can you make? How do you decide that the business that you’re buying is going to be a good synergy or profitable for you in these cases? We were looking more for revenue and for client revenue and then compatible cultures, because just because we’re both background screeners doesn’t mean we’re all the same. And we don’t even use the terms the same. We have a place to start, but we really needed businesses that could come together. We are always operated very leanly. We weren’t looking to just roll things up without employees of these businesses. We were looking for how we can all become one business?
So really, after that, we bought the three businesses, then it’s four businesses trying to become one business unit. And we did successfully integrate into the third. We hadn’t, but then we went to the market. It was just the right time to go to the market to sell. Otherwise, we probably would have wrapped up that third this year. So we’d have been truly one Orange Tree brand by the end of this year. So there were just a lot of components there. But Tonka Bay absolutely accelerated the M&A.
We didn’t talk about M&A, that discussion was never really had prior to Tonka Bay, but I think those special pieces of, well, one, that’s what they do. So private equity buys and sells businesses, so they have that expertise. But two, they have equity, they have money to put into the business, and they have a defined hold period, and they have their own investors they have to pay back. So all those things. And then the industry being so fragmented and having lots of people to buy, I mean, that’s a lot of things that have to be right. But they were. And then we had a management team that was mature enough from a business perspective to be able to figure out how to do that, how to make room to add businesses, buy businesses, and add them in. We had a CFO that was strong enough to help me do a lot of the due diligence. Then we had Tonka Bay that helped us do all the due diligence on the back end.
So that’s a lot of things that had to go right. I would have never guessed, to be honest with you, Mark, that we would have bought three businesses in that short a timeframe. I wouldn’t have guessed I would enjoy it. I wouldn’t have guessed that the whole management team would enjoy it. But it was a lot of energy and fun for the whole business. Like, we were all thrilled to participate, have new things to try, new things to learn, meet new colleagues. These businesses were all over the country, lots of different ways of doing things. It was just a lot of fun. We stretched in ways we didn’t even know we needed to stretch. And sometimes too far. Sometimes too far. But that was fun, too.
It was really fun for the business to stretch but not break and then learn how to protect the core business at the same time. I can’t say enough good about it because it was just such a blast, but it was a lot, a lot of hard work, too, so I don’t want to pretend that it wasn’t.
Mark Coronna: And you didn’t have a history of M&A before that, right? I mean, you had no sort of operational muscle or discipline, you know, to do due diligence, to kind of get a good deal done, do the closing, the negotiation, and then you use the I word about integration, right? If you get the first part of it done, often it’s the integration phase that is the real challenge, because you’re like, okay, well, who takes this seat, right? What system are we going to use for that, right? When you’re a large company? And this is from my experience at US Bank, which was a pretty aggressive acquirer during the time I was there. Large companies like that, they have due diligence teams. It was, you know, I did a big acquisition for the bank when I was there, but I had a due diligence team. They were representatives of each operational area and, you know, went down and spent time on site and wrote a proposal, came back to the vice chairman and signed off on it. And it was a pretty seamless process. But the bank had muscle. They had resources to do this right. They’d done it before. They were pretty good at it.
And so when you’re doing it for the first time, you’re sort of learning as you go. I’m sure Tonka Bay helped through some of that process. Maybe. I think you used the word discipline was one of the values that they brought to Orange Tree along the way. Whether it’s planning discipline or financial discipline or more accountability, however you kind of define that. I guess I wanted to just highlight this for the listeners.
2021, Orange Tree gets an investment from Tonka Bay. 2024, Orange Tree gets sold to one of the privately held largest competitors in the employment services area. But by that time, Orange Tree was three times the size it was three years before. Right. Three times revenue, three times EBITDA. That is, Renee, that’s just, you’re very cool and collected sort of talking about it, but it’s kind of like that had to be. I can see where it would be a lot of fun, but I can also see where it’d be pretty intimidating for your team. They have to do that and figure it out as they’re doing it. Right.
Renee Ernste: You know, it’s interesting you say that. I think that we just had a really collaborative spirit at Orange Tree, the whole team. We’ve got a lot of people that have been around for a long time, and then some. We have some new blood, too, which is great. You always need new eyes in the business. It’s invaluable. Sometimes not knowing what’s going to happen and how things are going to go is a huge blessing. So we weren’t intimidated. We just figured it’d be a lot of work. And I think we’re kind of a try as you go culture. Let’s create a plan, but then let’s put the plan in action, and then let’s get feedback. Let’s just keep getting a lot of feedback. So we just were, we had a lot of daily huddles that were very specific and so we could monitor the progress we were making or not making.
We made a ton of mistakes, especially on the integration side of, and then we would just calibrate them and we would say, okay, this is not working as we thought. This is working better. Our second one, we retained 90% of the revenue. I think our first one, we retained 70% of the revenue. So we got better. And then also, you want to keep as many employees as you can. And as time went on, too, we also chose companies that could run very effectively themselves on third party platforms. We have our own proprietary technology, but many people in the screening industry that are smaller players don’t. We intentionally then chose a third party that they could stay on longer to give us more time for the integration and be more planful. The first one was smaller, but the second one was double that size, so it took us longer. And then the third one was three times the size.
So our acquisition targets got bigger for good reason. Right, because it’s all a lot of work, so you kind of have to figure out the right EBITDA. We haven’t talked much about EBITDA, Mark, but as you know, with private equity, that’s really the only word that matters is EBITDA. So back to profitable growth. And then how do you do that? How do you create profitable growth? And so a few times we were stretched. So we had our same team that manages our current business, managing integration. We didn’t hire someone additional to how we hired the COO who could help. But then he had a whole job, too. So I don’t know what the right word is. Mark, maybe we are a little ignorant about how much work it would be, despite how much information there is about integration.
And then as we got into it, it was, I think this was just a team with a lot of fighters and a lot of heart and a lot of skill who just kept going. And sometimes we did co in a phrase, I don’t know if you’re familiar with the phrase from Winston Churchill, if you’re in hell, just keep going. And sometimes it did feel like that we got in a little over our skis a few times and. Yeah, but that’s what you did. We just kept going. And so it’s fun to be in the bunker together as a team. Like you learn a lot, and the mistakes weren’t too costly, but some more than others.
Integration and Team Dynamics
Mark Coronna: Yeah, well, you know, and working with your team, I mean, there are a lot of very positive people on your team and a lot of expertise, not just in the market area that Orange Tree is in, but in business overall. And so I think that’s important. You also talked about, you know, the integration of employees from another business. You also have to pay attention.
How do your own employees look at these acquisitions? Right. Do they see it as a growth opportunity? Do they see it positively? Are they threatened by it? Potentially? Right. How did you sort of deal with the internal cultural aspects? And one company I worked with years ago, we laid out a growth plan, and they’re like, okay, now it’ll take us a year to sort of go through the change management process to make sure that everybody thinks that growth is positive. And I was like, really? It’s going to take you. Well, they were a bigger company, but, so it’s like, okay, scale aside, the whole idea that it was going to take a year to sort of enculturate or bring this sort of growth culture to the staff, it was a kind of surprise, but for them, it was necessary.
How did you deal with that in the Orange Tree environment?
Renee Ernste: We are regular communicators, which helped. Like, we already had a cadence of at least quarterly, all company meetings, and we have different weekly leadership meetings or huddles. And our key leaders knew what the strategy was going to be. We communicated that to them. And I think there was a lot of excitement about the growth and what that would mean, because it’s not something we’ve done before. So I think, like, initially, it was mostly just excitement because it sounds like, who doesn’t want to get bigger, right? Who doesn’t want to be a bigger company? Who doesn’t want to start to get some of the secret sauce in the industry?
It’s just one of the industries where it’s hard to find out a lot of information about how other people do things. So the curiosity to meet with someone else, another business that does background screening and learn about that. So we had a lot of our staff that were key people to be part of the post process. Like in the front end, it was really myself and Jared, maybe Heidi, or one or two other people in Tonka Bay. So really, the rest of the business didn’t get as involved until after the fact. You know, when you’re.
The first thing we would really work on was kind of the HR integration. You need to have people on the same payroll and the same benefits, then financial integration with systems and invoicing and eventually email, all those types of things before you start actual client integration. So there were a lot of things there that then the whole business started to become part of and started to learn how to make plans about that. Do we know how to do that? Who can assist us with that?
We had some pretty strong board members in technology or in business that could also assist, that we could meet with. We would put those plans together, and then we would just start moving in. So I think that overall, the business really bought in. After we finished the first integration, I think the business thought, okay, this is exciting, but, oh, my gosh, it’s a lot of work. How many more are we going to do? So when we announced the third acquisition, I think people were a little like, oh, wow, are we going to bring on more people? Because now this is a bigger thing. But the same people that did the first integration signed up to do the second, and we knew better how to do it and how to approach clients. The tech team got really good at the back end, and the financial team got really good at the back end. By the third time with HR systems and financial systems, we were a lot better at it.
There is also a process improvement thing, too, mark, that you do one and then you do sort of the post mortem of everything that went well and didn’t go well. So you’re like, you can’t wait to get to try the second time, because then, you know, it’ll get better and then the third time. So there’s some things we got really good at. I think, for the business, for some of those people, it’s a huge sense of accomplishment. It’s a really nice resume boost. You get these experiences you didn’t think you might get at a small company. Like, the beauty of a small company is that you can do any job that you just show interest in, really. And so I think those were the things that were a lot of fun about it.
And the team, I think sometimes they thought, was this going to end? But there was more excitement about will it continue? Because we were getting more efficient and more skilled, and it was like a real sense of winning together. And we really have a strong culture about winning together as a team. We’re a very team oriented culture. So we got to have a lot of wins.
Mark Coronna: Yeah.
Renee Ernste: Not just ourselves wins or technology wins, always wins, but we got to win in a way that we’d never won before.
Mark Coronna: Yeah, well, sort of like developing new muscles. Right. And being able to say, okay, you know, this wasn’t a one time thing. We didn’t just get lucky. We did this purposefully. Here’s what we do. Here was the plan, here’s the execution, and a couple of years into it, you’re starting to see great results in terms of increased revenue. And more importantly for Tonka Bay, increased EBITDA, right?
Renee Ernste: Yep.
Mark Coronna: And I think it’s both Boston consulting group research that shows that over time, over a period of three years, five years, seven years, ten years, if you’ve got strong, new, profitable revenue streams, that’s the best way to increase the value of a business. Right. Nothing else has that kind of impact. I think that’s worth 70% of the increase in valuation. If you’ve got. If you created a situation where you’re doing that, you know, in Orange Tree, as you said earlier, you guys are already pretty efficient on the front end. You know, a lot of business owners or CEOs think private equity comes in and they’re just gonna, you know, rip costs out of the business and whatever. Well, they do look for operational efficiency, but you guys were already pretty efficient for my observations.
And so starting to layer on incrementally profitable revenue streams through organic, because you didn’t stop the organic things while you were doing these acquisitions either. Right. I mean, your marketing actually got stronger during that period. I’ll be the first one to testify to that. And then the technology, the new product introduction with us with proprietary technology, that’s a pretty significant component of what you did too. I mean, you’ve got, this wasn’t, you’re making it sound like this was easy and everybody should try it, right? But you’ve created a business to start with that was pretty well equipped with the skills and capabilities to grow other than organically. I mean, you were going to do that anyway, but this, just as you used the word early on, just allowed you to really accelerate your growth in a way that was pretty remarkable.
I mean, I’d really, honestly, outside of a big company, you know, like US Bank that used to acquire little banks all the time and suck them up, and just 90 days later they were rebranded. They had new products and everything, right? I mean, they had real discipline for this. I don’t know any business your size that’s done this level of activity and gotten these results. I mean, you and your team deserve a ton of congratulations. And that’s why I really felt like your story would be really good for this podcast because it’s sort of exceptional to what other businesses’ experiences might have been.
And it’s, I don’t know if you’d say, well, go out and find a good private equity partner to begin with, but I think you’re really saying do what you can to ready the team and the culture for this so that when you do get the opportunities, you can start to add them in. And then over time, if you believe in continuous improvement, you’ll just do it. Second one will be better than the first and the third will be better than the second. And you know, you just keep going. I mean, is that, is that a fair but simplistic summary of a good set of recommendations? Or maybe there’s some other learning you’d like to share with the audience, too?
Renee Ernste: Mark, I couldn’t have said it better, actually. I think there’s the blocking and tackling of a business. You just have to be good at what you do and you have to be solid and there has to be discipline and there needs to be commitment from the team. And I think those things had occurred and we just, we had some good talent and we really liked working together and we have some really great clients. So you’re right. Like, there were a lot of pieces that we had to work at getting, and then private equity acceleration is really the best way to put it. And then hiring a COO and then we had a pretty high performing board that was focused only on growth and that was a difference, too, from previous ownership is growth is all we talked about, and we were ready for that.
And I think, thanks to, you know, business coaches of my own or experts that consulted our business, like you, over the years, we’d also had that fortune of just some other. And then I was in a peer group. We had good knowledge going into the business. We weren’t afraid to ask questions, and we weren’t afraid to make the changes, to have a stronger and stronger team. And so when Tanka Bay came along, it was. I’ve always called it an inspired partnership because that’s really how it felt. We hit the ground running, and we never really stopped, and we had a lot of fun, and it was hard work. We made mistakes, too, obviously, but we just kept moving.
And I think that you’re right, that continuous improvement has been part of our culture, really, since I joined Orange Tree 16 years ago. And that’s some of the gifts of a small business. You get to try a lot, and you get to adapt and adapt and adapt and get better all the time. But truly, I get to represent the team today, which is a great pleasure. But I’ll tell you, Mark, you already know you’ve met a lot of the people that I worked alongside. That’s where all the magic happens.
Mark Coronna: With just good people, you learn that, right. I mean, my master’s degree is actually in counseling psychology before I got, you know, an MBA through Kellogg at Northwestern. And I thought, well, okay, that was maybe a wasted, you know, time, right. Getting a degree in counseling, then you realize, as an executive, 90% of your business is people related. Right. You know, the right people. Right. See, thing almost trivializes how important it is to get people with the right, and not just the right skills, but attributes. Right. That’s one of the things.
It’s kind of like I thought from your business view, you had a really great ability to test fit and attributes of candidates, not just their skill sets. Right. So you really were bringing in people that were right for these roles, and you didn’t misfire very often. At least I never saw that from, you know, my experience working with you and the team.
Renee Ernste: You know, we had some, but we had more luck than misfires. And. And, you know, Mark just. I have a master’s in counseling, too, and so I do think it does help with people-related things. We’ve had our share of misfires, but overall, the leadership team, once we had the right people, the right temperaments, the right skill sets, the right values to work together, we focused a lot on team player attributes, the humble, hungry smart of Patrick Lencioni. That’s a founding core principle for us. You can have an amazing player, but if they can’t play with others while in the sandbox, it just doesn’t do any good. So we really focused on that as a company. And I think over the years that paid off.
We incorporated all that thinking into our interview questions and how we did things, that teamwork was really a value. And it is like these good things don’t happen without a lot of people coming together and trusting each other and just wanting to get better and do what’s best for the client. We stayed focused always on, was it the other guiding principle? We always did what was best for the client. When you have a few of those principles, it makes these other things possible, and then you have a really great investor. So it’s fun when it all comes together.
Private Equity Partnership and Exit Preparation
Mark Coronna: Yeah. Let me ask you a question. So just one other question about fit related to an investor. You get people that come and they like, oh, we want to invest in your business. And you didn’t invite them to the, necessarily to the conversation, right. They invited themselves. My sense was pretty quickly that you all determined there was a good fit with Tonka Bay and the way that they behave as an investor. How important was that? You mentioned you kind of alluded to it a couple of times, Renee, and I just, I want to just highlight how important that was in terms of making this a successful relationship over those three years.
Renee Ernste: I think it was really important. We met Tonka Bay probably five or six years ago. The former CEO made an introduction there. What I learned from that is how important it is. A lot of businesses will have investors that want to meet with them. Maybe you’re not ready to sell, maybe you’re not thinking about selling, but everyone has an exit at some point. And so there was value in us just starting those conversations. I had no idea when I met them in 2016 or whatever it was, we’d sell to them.
Years later, I remembered Shane Slaminski and he was our deal leader. But I didn’t put any of those pieces together. And then at that time, we started to think about other things. Was the business going to be prepared financially? So we started having our financials audited and by a recognizable third party. So there’s other things we started to do that would make us more attractive to more investors. Not just growing a profitable business, but other components that would be important so that we had choices. We also worked with an investment banker.
It’s never too soon to start meeting investment bankers and incorporating them into your network, because there will come a time when having that kind of advocate will make a big difference, because the goal is like we had, you know, the first time around, we had seven different buyers. And so then, you know, you usually are going to go with the best offer, but it’s not always the best financial offer. There’s a lot of other components of a deal. And so we got to know these folks. You do management meetings, you get to spend time with them, but once you’re in a letter of intent, you have a lot of due diligence time.
So even before we closed with Tonka Bay, we had a good sense, they were a good partner for us. But each of the private equity firms, we had one competitor their first time, and the rest were private equity firms. They all have a different personality, they have a different style. Some are about growing, some are about efficiency. Some are about M&A, some have a deal where they, you know, you’re going to go into a new deal debt free. It’s just, there’s so many components, Mark, and so you do get a real flavor. And if you’ve surrounded yourself with some other advisors, the private equity world is small, too. They know different buyers. You start to have, you know, the personalities before they come. You meet them in management meetings, get to know them better, and by the time you sign the deal, you’re pretty sure how it’s going to go.
You know, if there’s a match, and I think often it can happen. I know lots of people hear these horror stories about private equity, and they’re probably all well earned, but there’s a lot of great success stories like this one. And I feel like I’ve heard more of them just because of ours, I hear, oh, yeah, we had a great experience with private equity, and yeah, there’s lots of ways to get investors. This is one way where they took the majority control of the business. That’s not always have to, how it has to go, but it does make a difference. There were some buyers in that process that would not have been the right buyers for Orange Tree.
Mark Coronna: Yeah. From a strategic standpoint or a fit standpoint, you were, you just didn’t get the level of comfort that you did with Tonka Bay.
Renee Ernste: Yep.
Mark Coronna: Yep.
Renee Ernste: We just, they’re just real people. And the fact that we were both in the midwest maybe, maybe helped. But I think it was just a lot more than that, I think it was a lot more than that. Right people, right time. So I think we did some things to put ourselves in a position to attract a few different buyers so we could choose who was best for us. I don’t know if that is always what happens, but it’s never too soon to start to prepare for an exit is what I learned in this process. Both sides were already preparing for the exit when we started with Tonka Bake, but that’s the find with private equity. But even before then, those steps are pretty invaluable.
Mark Coronna: Yeah, well, you’ve had so much great guidance, Renee. It’s, you know, that I think you’ve shared in this, in our podcast, our discussion today. I think that last point you made, I just want to build on. Maybe that’s a great summary, you know, because what you’ve just said is that, you know, you did a lot before you ever even entertained the idea of third party investment to make a great company. And when the right private equity partner showed up, you had a lot to offer them right away.
I look at the market potential that you had developed, the new products, the new proprietary technology that certainly had to interest Tonka Bay. Proprietary technologies are something that private equity or other buyers like to look for and value. And you had a great go to market model that you had developed through the years. You had great customer retention, which is all about customer lifetime value, which, who doesn’t like stronger customer lifetime values? I mean, it’s kind of like, yeah, even if this hadn’t happened, they were all things that would have continued to make Orange Tree a bigger, better, higher performing business. I still go back to the fact that, gosh, two sales, three purchases, three years tripling revenue, tripling EBITDA. It’s like, wow, what a story.
You’re going to take your story on the road now, you could write a book about this, Renee. You could be on any number of podcasts because this quite the story, I think.
Renee Ernste: Well, I appreciate that, Mark. Those are, those are kind words. And we had a great run. I don’t take that for granted. We had sent, we, I hope we put ourselves by working hard in a position to have good luck, but we also had some good luck in some tailwinds. We faced some headwinds as we were going into last year, but we had a lot of tailwinds pushing us into that. So, yeah, you know how it is. There, you get a little bit of luck, and fortunately, we were in the position to take advantage of the luck when it came.
Mark Coronna: And I think you’re giving luck too much credit in your story here. But. Okay, I’ll leave it there. I think you created a lot of your own luck along the way here, Renee. If someone was interested in learning a little bit more about your story, how might they get a hold of you? If you’re open to doing that?
Renee Ernste: Oh, well, they could just send an email.
Mark Coronna: Okay.
Renee Ernste: They could reach out to me that way.
Mark Coronna: All right, we’ll put that in the notes so people can figure out how to do that. Well, thanks so much for joining me today. This has been really fun. I mean, you know, we got to know each other through the interaction over the last few years, but gosh, to see the culmination of such a huge success story is just exciting. I get excited when people I work with do well, because to me, it’s all about helping people perform to their best selves, right, in business and in other ways.
So you certainly have accomplished that to our listeners. Thanks for sitting in with us today. If you like the podcast, please let somebody know. I always like to conclude with simple guidance to be well and do well. Right. If we all do that, we’ll all be better people and better organizations. So, Renee, thank you again and cheers. And as you continue on, well, thank you.
Renee Ernste: It’s been my pleasure. Great to have time with you today.
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