From Private to Public Company

Darren Lampert

Darren Lampert, CEO at GrowGeneration Corp, joined Kison for a discussion on how M&A transitions from a private to a public company. Learn about GrowGeneration's aggressive roll-up strategy, how Darren determines in which markets he wants to acquire versus open his own, and how his acquisition strategy is shifting.

Jeff Desroches
VP of Corporate Development at Atlas Copco
Ivan Golubic
Former VP Corporate Development at Goodyear
Erik Levy
Group Head Corp Dev and M&A at DMGT PLC
Kison Patel
CEO at DealRoom

From Private to Public Company

24 May
Darren Lampert
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From Private to Public Company

From Private to Public Company

Ever wondered what it's like to go from a private company to a public company? Darren Lampert, CEO at GrowGeneration Corp, has lived through this transition and has shared his experience in our interview. Here are some of the highlights:

"You're on display at all times. Everything you do is transparent. So if you're not looking to be transparent, stay out of the public markets." - Darren Lampert.

Life as a CEO

As a CEO, one of the most significant changes is your privacy when transitioning from private to public. Darren feels like his life is on display all the time. In a private company, you can be as transparent as you want. But in a public company, you're an open book, and your book has to be clean. 

However, the biggest difference between a public and a private company is the perception of the leaders. In a private company, your primary concern is what's best for you as the owner. In a public company, your primary concern is the best interest of the company.

M&A Deals

When it comes to M&A, being public has a lot of upsides. Because you are now a public company, you have more leverage in M&A deals. However, doing M&A as a public company requires more reporting. They need to report any acquisitions that they do, and they also need board approval before they can continue with any deal. 

Why Go Public

Despite the many difficulties of running a public company, it's a chance to build something that will potentially be around for many years to come if done right. Going public is also a great way to create wealth. 

Having said all this, Darren has advice for people who want to bring their company public; Run the company public before you go public. Set up a board, have financials every month, understand the process before you start going public.

special guests

Darren Lampert
CEO at GrowGeneration Corp

special guests

Darren Lampert
CEO at GrowGeneration Corp

Hosted by

Kison Patel

Episode Transcript


Joining me today is Darren Lampert CEO at GrowGeneration Corporation. A NASDAQ traded company under GRWG. Today, we're going to talk about how M&A transitions from a private to a public company.

Can we kick things off with a little background and your M&A experience? 

I got out of law school in 1985. So I'm a securities attorney by trade. Got my 763, I think in about 2001. Spent about 10 years on Wall Street. 

I come from a family of four securities attorneys. I'm the fourth, my dad, my two brothers. So I've been in the public markets, my whole life. 

GrowGen has implemented a pretty aggressive roll up strategy.  What are you looking for in these operators that determines whether or not you're going to bring them under the GrowGen umbrella?

This is a little background, the hydroponic industry, as we see it as tremendously fragmented. It was an industry with about 2000 stores. 

And they're really from the old days, it's kind of equated way back when in the 1980s and ‘90s when we saw the real estate boom with all these little hardware stores that couldn't service the bigger builders that were building condos and developments.

And you're seeing that right now in the hydroponic space. You're seeing a lot of little stores fragmented in this small segregated area or in the mature markets around the country. 

So really what GrowGen has done is we're taking these mob pastors and bringing them under our umbrella or bringing in the best of breed.

So really what we're looking for is scattered amongst 20 stores in a given area. There’s usually one or two that are newer stores that come with what we believe to be a tremendous employee base, customer base. 

Stores that are really size-wise that can handle the commercial growers around the country. When we first started in 2014, our stores were 2000 square feet.

Now you're seeing GrowGen building stores 20 to 70,000 square feet. And we certainly take a hard look at the inventory, the customer lists, the balance sheet and the income statement, and understanding the EBITDA levels. 

But also taking those numbers and equating it back to the growth within the region that we're buying these stores. In cannabis right now it's state-by-state. So there are different laws in every state. 

So it's certainly extremely important for GrowGen, when looking at what we want to buy, we're first starting at what states we want to be in. 

How do you determine which markets you want to acquire stores versus open up your own? 

GrowGen understands licensing around the country. So when you take a look at our 50 states, there are some mature markets. 

We also take a very hard look at licensing laws within states. There are certain states that are tremendously restrictive in licensing that they're giving out maybe two licenses in the whole state. We also look to see if the state is medical or adult use.

So there's certainly a lot of planning going into where we're bringing stores and where we could open stores and we're going to buy stores. 

Really for GrowGen right now we're buying stores in mature states best to breed stores in new states coming on board like in Oklahoma, we greenfield with five stores in Oklahoma. 

Almost a hundred million dollar business will be green fielding in Mississippi. Will be green fielding in New York. With new states coming on board, there really aren't best-of-breed stores for GrowGen to buy.

So these are states that we will be building out and really using our employees from other states that are looking for promotions, that are looking to move up the ladder into GrowGen, that are moving from state to state for us and helping us build out these new locations as we continue to build out the country.

A regulatory environment really shapes that position, whether you're buying or building there?

It does, in a lot of ways, when you start looking at some of the new legislation coming down, even look at the Moore Act that just got through the house recently, certainly not the Senate. 

Well, looking for social justice issues that are coming up right now, letting the underrepresented, starting to grow opposed to giving three licenses to the wealthy. 

What you're seeing right now in New York, where I am from, is a tremendously broad licensing coming out of Governor Cuomo's office last month.

t's also allowing individuals to grow. Each individual can grow up to six plants up to 12 plants per family. 

So it's starting to open up the markets, but you still have markets right now where you live in Connecticut, there are five licenses, there are two licenses in Minnesota. 

These are states where they're just too restrictive for GrowGen to have vibrant stores. We have over a hundred thousand people walking through our gardening centers every month right now. 

So GrowGen is looking for states with open licensing. And less restrictions on the individuals and more CREF growing.

How do you go about integrating stores that you acquire into your organization? 

Where GrowGen has succeeded and why we've become so successful is really because of our integration, integrating grassroots, which is really the cannabis industry as a whole into corporate America. 

And it's certainly not an easy integration. We have lost some employees and when we do buy companies that just don't want to work in a corporate environment. But GrowGen has spent a lot of time with our employees that come from me. 

I've taught most of our employees how to read a balance sheet, income statements. I now know how to grow. So we've given each other tremendous learning on both sides of it.

But integration starts from the beginning. We usually bring in our ERP system which is much more complex than your normal QuickBooks at forecasts. You understand your customers, what they need to buy every day. 

Two weeks before closing, we send both our technology team and we usually send a minimum of three of our senior employees to these stores. 

To really, as a buddy system to spend time with the employees to go through books and records, to teach them our ERP systems.

First day, we purchased where these individuals are booking sales, our ERP systems. We bring our accounting staff and we bring our marketing, purchasing our commercial team in. 

So we bring this whole host of new corporate initiatives to these stores and it's worked out tremendously. Last year, our same-store sales were up 63% the year before they were up 37%.

The integration process is working because we're buying mature stores and you're seeing tremendous growth after we buy these stores a year later. So what we're doing is working, we're going to continue and do it. 

For each store we buy, there are two ways for GrowGen. The owners have stayed on with GrowGen. Sometimes they have not. We know prior to purchase open, the owner is not staying on. 

We're certainly looking for a manager that's been with this store for four to six years that understands every one of the customers. We're certainly not looking to buy something and everyone disappears the following day. 

The most important part of what we're buying is employees’ continuity of business. And then in this industry, a lot of the growers look towards their sales reps in their grow pros at these stores as the doctor of their plants. 

So the most important part we're buying again is the employees. And if we don't have a good feeling for the employees. The store's not going to come under our umbrella. 

GrowGen can open a store anywhere. Within three to six months and usually take business from anybody. We have the best selection in the country. We have the best service in the country and solutions. 

We're a technology provider to the growers, so we can go wherever we so choose and with a very vibrant online division and a commercial team.

So if we're not buying employees that we need for the future and customers, we just as well open stores. 

Are your target company CEOs pretty transparent on their plans to stay or leave, or do you get surprised? 

No, we have not been surprised to date. It's part of the initial conversations. It's a part of every one of our APAs, asset purchase agreements. We have employment agreements prior to purchase. 

So we certainly understand who wants in, who wants out, who's going, it's pretty spelled out in the non-competes we have with each and every owner and top employees of stores we buy. 

So we're very careful from a legal vantage point, we're pretty buttoned up when it comes to that.

What's it like finding these opportunities? Do you have a team that's outsourcing stuff? Are you using bankers? Are you doing it yourself? 

We have not used bankers on any of our acquisitions to date. It's a lot of word of mouth, it's recommendations from certain of our manufacturers and distributors that we deal with.

But it's also pounding the pavement at this juncture now everyone knows GrowGen. So it's more inbound calls than outbound calls. We know the environment well. We know each and every store in the country, we go to all the trade shows. 

It's just a matter of being around since 2014, which is pretty much, again, a lot of this started the industry. It's back on 4,20 in Colorado, back in 2014. 

Which was legalization on the adult-use side, and that's when GrowGen got started. So we've been in business since 2014. 

Once you identify some of these companies, you're cultivating a relationship, trying to get a deal done.

We're always cultivating relationships and we have relationships around the country. Start to finish, usually, when we want to go further or they want to go further, NDAs are sent out and that's the start of every transaction and from an NDA.

Usually,  we need to see two-year balance sheets, income statements in a year to date. We want to see a long-form income statement. So we understand every line item on them.

One of the interesting parts because we've been in this industry, we understand the income statements and balance sheet. What's true, what's not true? What belongs on an income statement, what doesn't belong on an income statement? 

I can look at an income statement and see a company that tells you that they're making a certain amount of money and I can look at the margins and I can say, there's not a shot in hell your margins are that high. 

Because we understand the margins of every store in the country, in the different regions. Again, it's repetitive. It's just, we've seen so many balance sheets, so many income statements. And we know where we are. We know what rebates in the industry are. We know what pricing is.

We can do a dig and I can go look at someone's ERP system or even their QuickBooks system. And I can tell you straight out whether they're selling things for the right price, for the wrong price. 

We understand when we purchase a store, what margin percentages we will increase because we buy better than everyone in the country. We have private label products, but we get better deals on the street. We buy containers, not pallets. 

We have a pretty decent understanding when we're buying with integration. When you look at our forecast, we keep a very detailed forecast as a public company. 

Is there anything that you’ve seen evolve from the early days of doing acquisitions from your actual operation of the end-to-end M&A process from early days until now? 

With all that, it’s “ practice makes perfect”. And it does in a lot of waves, what I've seen now, we had a very talented chief operating officer who started a year ago, November. 

So he's been with us for about a year and a half. Tony Sullivan, Senior VP of Operations over at Footlocker, 2,500 stores. 

He's been tremendous on the integration process. So really, if you ask me what's different from GrowGen now than two years ago, it's how quickly we're integrating.

It's how quickly we're integrating our ERP system. And how quickly we're making these stores better used to take six months to a year, now it's taking three months. 

So seeing an immediate accretion around the margins around sales, we're seeing fewer complaints from employees in the stores that we're acquiring.

We're spending more time, more boots on the ground. We have a bigger staff now. We've added 26, 27 stores to GrowGen in the last seven months. So we've almost doubled our store count. We've done it effortlessly. 

And I give credence really to Tony's again, SLPs on purchasing stores and integrating. The easy part is purchasing. The hardest part is integrating and making these stores better. 

IIt sounds like you really beefed up the operations that support integration activities over the years. 

It's a new industry. So the one thing that when you're dealing with unsophisticated sellers sometimes, it's different.

It's the first time they've ever sold something. So it's just getting them comfortable really with dealing with stock in a public company is something that we do in every pre-transaction. We usually take 50% of the Goodwill portion and use our stock. 

Explaining what a VWAP is and explaining the public markets and explaining valuations, it's challenging. I still do a bunch of our acquisitions on the legal side. So that's what I did for a living. 

And people always ask why you are wasting your time doing that. It's given me a tremendous opportunity to spend more time with the owners of the stores prior to purchasing, just getting a better feel, firsthand knowledge.

One of the things that I always say is any better off learning firsthand opposed to your attorneys second or third hand. 

When I'm dealing with these transactions, besides dealing with their attorneys, I'm also dealing with the individual owners on a personal basis.

I think it's been pretty dynamic in a lot of ways, and it's also given us some tremendous leads in buying new stores. Every time we buy a store, that store wrote a note to somebody and it's like, well if John sold to me, you know, I'm sure this guy will sell to you too. 

I like how you get referrals from the acquisitions that you do. Is that part of the model? Do you ask for referrals? Do you incentivize it? 

We started in 2014. We've been through the harder times in this industry through Cole Memorandum, to the harder banking days of the industry. But what we really did is grew this business slowly. 

In the first five years of business, we grew up from zero up to 30 million. And if you look right now between 2008 coming out of 18 and 30 million this year, we have, estimates out to wall street or 430 million earning over $40 million.

So you've seen this tremendous growth. As I said, learning the industry, learning the states, learning the people, learning the players, and spending that five years pounding the pavement, really understanding the industry before really taking money from Wall Street. 

At GrowGen, we move quickly. I don't think there's been a month without acquisition and in some time. We're busy. We have a very, very vibrant pipeline right now. And we're going to continue, we're going to continue what we're doing because it's working. 

Based on your recent announcements. Your acquisition strategy seems to be shifting. There's still a steady stream of store acquisitions, but now you're mixing technology offerings and private label products. Can you talk about that a little bit? 

I think the evolution of any big chain from the Costcos, to the Home Depots, to whatever chain you look at in this country, and you speak to many CEOs, really, our model is no different, filling out the shelf space.

And then you have to put some of your own products on the shelf. It's just that evolutional growth and it's all margin accretion for us. 

So for GrowGen, when you're looking at normalized margins in the 26 to 27 and margins on private label 50 and above,  it fits that model.

We have 630 employees right now that know how to grow. We understand what our clients need. We understand what's selling every day. 

So we certainly have a leg up on the manufacturer suppliers, distribution channels. Because we're a marketing tool. We have a hundred thousand people in our stores every month. We see the tremendous growth of new products coming to market. 

Those are the products we want to buy. We want them under our GrowGen umbrella, so far in the last, I think in the last three months we bought two products and you will see more product acquisitions from GrowGen. 

But along that side of it, we also have R&D at GrowGen. And so we also are bringing on our own products to market as we speak. And one of the interesting parts is last year, our private label division did about two and a half million dollars in business. 

And this year we're forecasting upwards of 40 million in private label products coming out of GrowGen. We will be our second largest supplier this year, and that's a pretty big leap in one year. 

We're all a hundred percent confident that we'll hit that 10% mark this year. And we see that continuing through the decade and an extra couple percent every year. Hope GrowGen gets to 25% of its own private label brands.

How do you manage that? How do you manage this multifaceted strategy where you have different approaches happening. I'm curious, are you pulling in leaders to run these different strategies? What does that look like? 

We do. We have you look at our org chart. It starts with me and our co-founder Michael Solomon. That goes down to our CFO that has twenty-five people under his command. 

And then you have our Chief Op, we also have a vibrant online division. So we have our technology division. And then we also have our commercial team. 

When you introduced the private label as a strategy, walk me through that. How do you actually deploy it, make it successful?  

First, we look at the products before we even start. We look at what we sell and we certainly understand every product we sell, even though there are so many SKUs.

There are products where people are very concerned about brand names and there are products that we call product diagnostic, peg wall products, there are pots, and there are thousands of products that people come in and they don't ask for specific brands. 

So we start from that vantage point. What brands do we want to private label? What brands do we not want to private label? And we come up with brands, whether we're purchasing or R&D on our own. We give products out, we test them in the street. 

We have our own individual group that tests products for us. We send them to customers for us to test. Most growers out there right now, commercial growers they'll have a small part of their grow, where they're trying new products all the time.

So we get feedback on products to see if they're going to say, first, are they a viable product, if they're a viable product then it's marketed. And that's what GrowGen does for a living. We’re a marketing group. 

Our salespeople are dealing, we call them grow pros. You walk into our storage, our guy, everyone that works in our store knows how to grow. You don't know how to grow. You can't work at GrowGen unless you're in the warehouse.

Do you build a team around that? Are you essentially creating a new team internally to manage that strategy?

We do have a new product team at GrowGen and it starts with getting it to our store. So it goes to our supply chain out, to our stores, and end caps in every store advertising. We do YouTube videos on every one of them. 

We have a pretty talented team at GrowGen that does videos for us. Right now we have a studio at GrowGen. So “how-to” videos, we get those out. And then we have our team’s marketing, like anything else. We have end caps at our stores.

Guys, walk into our stores, they'll trip over our new products. We have the space, we have the online. I think last year we did over 17,000 transactions online. This year we'll probably be close to 50,000 transactions online. 

So we have hundreds of thousands of people going to our website. So you'll see it up on our website and you'll see us advertising all over the country for our products. And it's working and this is all new for GrowGen. 

Last year was the first year we started with private label products. So this year is really the kickoff of it. We have told Wall Street that on a quarterly basis, we will break down our private label products. 

So they'll see the percentage of what we've sold and certainly the performance of our private label brands. 

What's it like going from a private company CEO to a public company CEO? 

For me, probably easier than most. Again, it's my background. I used to represent public companies my whole life. I've worked on Wall Street, and so as my partner has run a bunch of public companies. 

So for Michael and I it was a natural progression in both of our careers. I was coming out of Wall Street, certainly practicing law. And Michael was coming out of a few other public companies. So for us, certainly easier than others. 

I do believe that Wall Street is a complicated area. And if you don't understand securities laws, you don't understand the public markets. It's a tough place to be involved. And especially now, it's honestly know all the different rules and regs. 

I wouldn't recommend it to someone absent, really having a grey, a really huge understanding of what they're getting themselves into between the boards and disclosure. 

The amount of time I have to spend with Wall Street every week because I'm a public company it's 10 hours a week of additional time, sometimes more of your conferences and speaking, and you're on display at all times.

Everything you do is transparent. So if you're not looking to be transparent, stay out of the public markets. For small companies that are looking for greener pastures, Wall Street doesn't bring greener pastures. 

Wall Street brings complications. It's really important that you understand what you're getting into. I equated every once in a while when people ask is when a young couple gets married and they're having marital issues, what is that stupid young couple doing? 

They get married and then don't like each other, they have kids. What happens a year or two later, having children is a lot of work, and couples that are having problems, putting more problems in, don't work.

So I look at a lot of private companies that think that the public companies are going to be the panacea and the gateway to this wonderful future. 

It's not. It's a lot of work. It's gaining the trust of very smart individuals on Wall Street. If you don't gain the trust, you're not getting anywhere. 

I look back at GrowGen and one of the things that differentiated GrowGen was certainly, my experience and Michael's experience. What was also, we found some very big, talented funds that were cannabis-centric back in 2014, 15 that invested in GrowGen. 

So it gave this rubber stamp on our business plan, which certainly helped bring investors in getting the company public. And we brought the company public to an S1 registration to a 15C2. 

But we stayed away from the reverse mergers, which again brings even more complications to corporate structure and some people don't even understand what a reverse merger is. 

We did it the old-fashioned way we earned it. We did, we filed our S1 with our disclosure and we got the company public and we got traded. 

Tell me about disclosures because I default and think about M&A deals between announced and so forth. But are there other disclosures? 

For NASDAQ listed companies, between Q's K's audit committees, comp committees, governments, committees, there's a lot of committees. 

The way I look at it, it's again, it's all transparency, private companies, you can be as transparent as you want and transparent as you don't want.

You don't have the leeway with a public company to decide what you want to tell people and what you don't want to tell people. The rules are extremely specific, which means you have to understand the rules. You have to play by the rules. 

If not, good luck with your D&O insurance. You're an open book. And you'd have to understand that your book's got to be clean and everything you do has to be to the highest standards. 

And one of the things I always look back at in 2014, when we formed GrowGen, we did a $600,000 private placement family and friends rounds in a week, but we formed GrowGen to bring it public. 

We told our shareholders that we invested in our first private placement. This company will be public in two to three years. 

Does that always happen? No. Like anything else when raising money people sometimes will say anything. We come from a different mantra. I'm a very conservative securities attorney. And again, I used to represent small-cap companies.

So for me, by understanding the law as well, I'm overly compliant because again, the other side of it, isn't where you want to be. 

So you mentioned 10 hours a week.  That's just additional overhead of dealing with the nuances of being public. 

And I will tell you the only positive of COVID was that for a lot of CEOs around the country and CFOs, we don't have to travel to speak. One of the crazy parts of when you have speaking engagements, I have four speaking engagements in the next three weeks. 

But if you had to travel to conferences, I mean, you're talking not hours, you're talking days. There are two kinds of CEOs and CFOs. Some are marketers and some are workers. You have to balance your time. 

You just can't go to every conference your flight is about also working and running your businesses. The demands of Wall Street are tremendous and they always will be. I have a banking meeting this evening. I have to go off to dinner. 

A couple of years ago, you had to fly to California to go speak between airlines and everything else. It's for three days. It's tough to work on the road. You're on the road talking to analysts. 

You know, some people think they are productive. And some people don't. You know, there's that fine line of, I tell my analysts, it's not a productive conversation. I'll get rid of them, but again, it's time-consuming. 

You're crushing my dreams to be a public company CEO, one day. 

I've never been happy by the way. So you better make sure you get a lot of hours in the day and the same thing with the COVID there's nowhere to go.

So it's kind of why not just work, right? So it's been, it's been a tremendous villain for me over the last year and a half.

I wanna talk a little bit about the economics between being a private and public company .  How would you contrast that between the private company? 

I think it's spending a lot of time talking to Wall Street, basically putting your life on display. My kids know how much money I have now every day, along with my neighbors, between Google and going online, everyone knows everything. 

And even your proxy statements at the end of the year, and your 10Qs and your 10Ks. So, again, you have to put that all behind you and you have to be numb to it in certain ways. The other part of it is valuations between private and public. 

One of the interesting parts when you look at roll-up strategies that have worked in the past and you even can look right now, you'll look what pool is doing, look what site one is doing. It's pretty similar, you know, GrowGen is following that footprint.

One was rolling up the swimming pool industry and site one is the landscaping industry grow agendas, the hydroponics store industry. We buy for a multiple when we trade for different multiples. 

So for us return on investments is a wonderful thing. And one of the hardest parts of my job always is when we're buying something, someone would always say, Darren, you're trading at five, six times revenue, and you're buying me and a half times revenue. I don't really understand. 

And there's not that easy of an answer for it, by the way, because we're growing and we're running a Republican, we're growing at 60% and you're not growing anymore. And you know what? No one cares about private companies. People care about public companies. 

So it's all this difference of opinions. But I do believe when people ask me, what's the main difference between a public and private company? For my employees, and for again, morality companies, most of our employees are owners of GrowGen. 

And they take tremendous pride in that. We've had very little turnover at GrowGen. Making your employees owners of your company is different.

I think when you look at a lot of private companies when an owner gives bonuses at the end of the year, a good majority of them say, you know what, that's the quantity coming right out of my bank account, my pocket. 

When I make decisions, they're decisions that I think are best for the company that I have nothing to do with. When I'm looking at bonuses, when I'm looking at giving people raises, promotions, it's best for GrowGen, it's not best for me. I take myself out of it. 

I tell people when they say, well, Darren, you own this company. I don't own this company. Everyone owns this company, every one of our shareholders owns this company.

And the board of directors is the one really where everything goes through and all the different committees at GrowGen. But they don't like what I do, they can throw me out as quickly as they could throw out anyone of our employees. 

We try to explain to people I have more bosses than you do. You only have a couple of bosses. My boss is our board, it's my shareholders, it's Wall Street. The boss really wants me out. It will take about 10 minutes.  

So I answered to so many more people than most, and it's the difference between being public and private. 

Why go public? Why would a company be interested in going public? 

A lot of different reasons, one of you has a tremendous business plan. I think most people do know that in the public markets, it's the field of dreams in a lot of ways. 

It's building something that hopefully will be around for many years to come. It's a tremendous way to create wealth if you do a good job at it. Raising capital is so much easier in the public markets than in the private markets. 

People are very, very hesitant to invest money in the private markets because there's no way to get your money back. And it's just the tool that's been used in our economy for so many years, and it’s a tremendous place. 

If you build something and you build it right on the M&A side of it, if we were a private company I don't think people would be interested.

They would think our company is worth the same as theirs, so we would never have that leverage. I think public companies have tremendous leverage, especially the ones that are unpopular. 

And that's the word if I was to say differences, it's the leverage of the public markets that are so tremendous if done properly.  

Because you're public, it's something people pay attention to. What's this new ticker that's listed and all the announcements and press, PR that goes around it? 

You get a lot of free press. I've been on Kramer, the last four quarters. So for us, we get to speak and people listen but through that, it's expensive like anything else. 

Marketing is expensive and I think when looking at public companies. Between D&O insurance audits, filing requirements, the costs of being a public company, that's tremendous. 

How much do you invest? Like a million bucks a year? 

It's more than that, I would take a million and run, most private companies don't have D&O insurance. D&O insurance is out of control right now. You could talk to any public company, it's crazy. 

Same thing with audits. Auditing is expensive in this day and age. Even filing the requirement, your marketing, and your IRR, and your PR,  as a public company, you have a duty to shareholders.

If you don't want to market and have IRR and have PR and speak, you better be in a private company. You have that duty to be transparent and to be transparent and you have to speak and we're under a duty really to tell our story. And that's part of my job. 

My job is partially keeping Wall Street happy and telling the story of GrowGen so people understand it. If I don't tell the story better be in private. 

What's the size you think makes sense for a company to go IPO? Or is there a certain amount that ideally would be likable?

It's a challenging question. Again, there are biotech companies going public that don't make money for 10 years. And there are even companies that don't make money for years depending on the industry, the appetite of the investors, and really the growth. 

I think there's a tremendous appetite right now. And there always has been from compounded annual growth and also TAM which is the total addressable market. Those numbers are right when you're getting into a market that there's unlimited growth. 

Some people want to get in at the start. So it's that interesting thing. If you're selling something that's not around, that's new, and you think it's going to revolutionize an industry.

What we're doing is revolutionizing and it's making it better. Well, we saw an opportunity. The cannabis industry right now is a $20 billion industry on the plant-touching side. 

Right now, if you look at the compounded annual growth rates, people are forecasting, they're forecasting, a hundred billion by the end of the decade. And some people think that's, low-balling the expectations. 

We're growing faster than the other side of our industry because there's less competition for us and we're dominating what we do. So we believe we'll grow faster than that. 

I think there has to be a story to be told where you can bring a company public doing no revenue. You can bring a company public doing a billion dollars in revenue. Well, where are your growth rates? 

If you grow, if you're bringing a company public and it is still a billion dollars in business, and next year it's going to do 900, no, one's going to get any interest. But if you bring a company public, that's doing 20, 30, 40, and has to do 60, then it's going to do 120 and it's going to keep doubling.

It's a tremendous opportunity for people to get involved at the early stages. So it just depends on what that end-stage is, what the end game is, what the total addressable market is. 

Let's talk about M&A, how would you contrast between doing M&A deals at a private company versus public? What's different? 

We haven't done any M&A deals of public companies, so we've just, we've put all private companies, but as a public company, again, it's transparency everything else. We have to file an 8-K, which is a reporting recording every time we buy something. 

We need our board of directors to approve everything. We will never buy anything without board resolutions. We also are able to use some of our stock as purchase prices. 

So those are some of the interesting parts, but again, it has to be approved by our board in order to get our board as certainly elected to our shareholders. So it's that different process.

So if there are checks and balances, as a public company, buying something as opposed to a private company, we have certain rules and regs when we buy things, SCC rules with accounting. 

If we're buying something that's material to GrowGen. Materiality, when we’re buying something, is based upon their sales and their earnings versus our sales and earnings. So really it's a percentage. 

So as we get bigger, we won't need audits on some transactions while we may need audits now on transactions. 

So again, the rules are very defined in a lot of ways when we're buying organizations, what kind of accounting materials we need, whether we need a two-year or whether we need a one-year or whether we need no one.

How about negotiations, do people get more excited ? Hey, this is a public company. It makes it easier or does it work against you where they think your public would expect a high offer? 

We are very, very, sticky when it comes to price, and then like anything else we've stuck to our original, believe it or not, business plan back in 2014, and that has held pretty close to the vest.

Back then we came up with this multiple for every million dollars we put to work in the markets. It will buy us $3 million of revenue in the first year. And those numbers have been pretty consistent throughout what we've done. We're very disciplined. 

The word discipline I think when being a public company and when purchasing the zip paramount importance. If you lose your discipline, you buy things, you overpay for things and you get that reputation within the industry.

If I was to go buy something for five times more than I normally buy something for, Wall Street knows it in five minutes. And so do all the other stores in the country because it's disclosed within our Qs. 

So we have to be very careful in what we pay and to keep it consistent. So consistency, transparency, and discipline are all important. I think footnotes when looking at what we're buying and what we're paying.

Any benefits of being public could do in M&A? 

We have a bigger market like anything else we're using half stock of post to catch. The groups we're buying have much more transparency into our business.  

So like anything else you heard the Home Depot stories way back when you know, every hardware store you know, you asked your kids to go down to the hardware store. They will be nuts right now.

But if you ask them about Home Depot, who wants to race? They'll go down and get your kitchen, what you need, but that's what's happening in our industry. So we're taking a mob pod, nascent industry, and we're making it better. In a lot of ways, in the gardening side of it. 

But our industry has evolved tremendously back when I started in 2014, if you walked into a grow facility, plants were on the ground, they were on rolling benches.

There were 20 people running around with water in buckets and food for the plants. Now, you walk in, facilities are run by computers. I mean, everything is. It's all technology-based, it's controlled environment agriculture. 

So the industry has evolved tremendously, which has also given GrowGen the opportunity to evolve tremendously. We got into an industry that we believed would mimic the wine and spirits industry, which is almost a trillion-dollar industry. 

We were starting in an industry that was probably back in 2014, was a 2 or $3 billion industry. So we saw this incredible, we thought that we were getting in on the picks and shovels side of an industry that was just beginning, that was in such early stages. 

But I spoke at a dinner three years ago and I still remember the question. We were so early in our growth stage, I was at a dinner, everyone was in suits and ties. 

They asked me an interesting question. Do you believe that the cannabis industry is a revolution right now or an evolution?

And the first thing I said was if it was a revolution, you guys wouldn't be here, post a suit and ties.  There'd be growers here that have earrings tattoos and people wouldn't be drinking fine wines maybe. 

It'd be a different element, a different group of people. I got Wall Street people here. So it's been an evolution, which is always good for most industries. 

It's giving people the opportunity to understand the industry on the medical side, on the adult-use side of it. Tremendous talent has come into this industry. 

And the one thing with every new industry, the passion of most people leading these industries are tremendous. They're the second, third careers of people that have usually been successful in the past. 

When I talk to CEOs of the other public companies in our space, it's usually dynamic because no one has to prove themselves anymore. They've proved themselves years ago. And this is something that they have passion for and they have love for it.

Advice for a company they're thinking about doing an IPO, or maybe it was something you would have done differently?  

I look back on everything that we've done. And I wouldn't do it differently. One thing that we always did is we left money on the table for our investors. We never tried to squeeze every dollar out of offerings.

We did care about our investors. We didn't take salaries for the first couple of years, we ran this business,  we started it on credit cards and a small offering. You have to watch every penny like it's your own. And I think it's really important. 

A lot of people running public companies have that mindset of growth at any cost. Ours is growth to make money. And I think it's a very big difference. There are two strategies for running a public company. 

One is let's just build a business. We don't care what it loses. They'll keep giving us money. And those are the companies that run into trouble. 

But for a young company going public or thinking about going public, the year or two, before you go public, run it like it's public, set up a board, have a board, have financials every month.

Do you consolidate this? Post to doing Q's and K's you don't get certified audits done. Start the process early because the process is very tedious and make sure you can do that process and understand the process. 

Hire a talented attorney that understands securities law, securities law is so specific. You can't just go hire an attorney. You have to hire a securities attorney that really understands the nuances of the securities laws. Understand the tax ramifications. 

I do believe most public companies go through certain rounds of private placements, before going public. Bring some shareholders in, build the confidence of a group of people. 

But make sure you understand the industry you're in and the growth rates of the industry, understand how much capital are you going to need?

The worst mistake people make is they go out and they raise too little capital and they're broke six months later. Don't do that, don't put yourself in a position to fail. You have to put yourself in a position to win. 

That’s the most important thing because it's hard work. It really is. It's a lot of sleepless nights, starting companies and raising capital and doing Qs, Ks, and reporting to Wall Street every day.

 You have the ability, but you have the constitution to do it. 

Ending Credits

Thank you for taking the time to explore the world of M&A with our podcast. Please subscribe for more content conversations with industry leaders. If you like our podcast, please support us by leaving a five-star review and sharing it. I enjoy hearing feedback and connecting with our listeners. 

You can reach me by my email. It's kison@dealroom.net. M&A Science is sponsored by Dealroom, a project management solution for mergers and acquisitions. 

Additional educational content is available on Dealroom's blog at dealroom.net/blog. Thank you again for listening to M&A Science. See you next time. 

Views and opinions expressed on M&A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual. This podcast is purely educational and is not intended to serve as a basis for any investment or financial decisions.

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