Operating Stories: What Private Equity Taught Me by Never Investing in My Family’s Business
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Private equity never wrote us a check.
They did something far more valuable.
They told me everything that was wrong with our business.
For free. Repeatedly.
Over several dozen meetings across a period of years.
This is the story of R.G. Brewton, Inc.
My family’s industrial distribution company that I helped optimize, grow and scale more than 3X from $25 million in revenue before we sold to a strategic acquirer in August of 2021. It is also the story of how a string of private equity rejections became the most expensive education I never had to pay for.
Hope this helps.
- j -
The Business
R.G. Brewton was an MRO distributor. We sold indirect materials into manufacturing plants. Cutting tools, abrasives, coolants and lubricants, welding supplies, safety products. The stuff that keeps a factory floor running but never shows up in the finished product.
We were not a supply house taking phone orders. We installed and managed industrial vending and RFID systems inside our clients’ facilities. We controlled their indirect supply chains and managed their inventory. We we expert at creating documented cost savings programs. Every engagement required quantifiable proof (to the penny) of the spend we were reducing relative to production run rates year-over-year.
The model worked. Clients loved it.
But it had structural problems that would define the next decade of my career.
The Margin Trap
Beginning gross margins on new client engagement ran between 19% and 25%. Healthy enough. But as relationships grew and three-year agreements stacked renewal over renewal, margins compressed. The better we performed for a client, the more leverage they had at the negotiating table.
We were rewarded for excellence with tighter economics.
On top of that, we competed exclusively against companies five, ten or even twenty times our size (think Grainger and Fastenal). They were global players with purchasing power and brand recognition we could not match. Their presence put constant downward pressure on pricing.
Additionally, the business was capital intensive. Clients did not buy the vending hardware. We owned every machine. We financed every installation. That meant we needed a minimum of $750,000 to $1 million in projected spend just to justify engaging with a new customer. Add the inventory carrying costs for a business of that scale and you had a model that easily grew revenue faster than it grew earnings.
The PE Education
Between 2010 and 2012, private equity firms started calling. The thesis was straightforward:
Industrial distribution was fragmented.
Roll up regional players, build scale, compete with the globals.
We fit the profile on paper.
But every conversation ended the same way:
Our margins were too thin.
Our sales cycle too long.
We were too committed to the integrated supply model.
Not enough diversification across a base of smaller, traditional buyers.
And the embedded labor component, full-time employees placed inside client facilities, made the cost structure heavier than PE wanted to underwrite with leverage.
I knew after the first meeting or two that PE was not going to invest, ever. But I took every meeting anyway. There were at least a dozen firms and family offices over the years that reached out to me.
Each one was a masterclass in what a sophisticated financial buyer sees when they open your books. Each one sharpened my understanding of the gap between where we were and where we needed to be. It also gave me an extraordinary, first-person masterclass in debt structuring and restructuring strategy. Super interesting stuff.
I used every meeting to build relationships. These were people who would eventually be doing deals in my space. If I could not be their portfolio company, I could be in their network. I could find ways to help them. They were also buying manufacturers who could become clients.
Side Note
Most people are cosplaying with technology they’ve opened twice.
84% of humans have never used AI.
0.3% pay for it. Actual adoption is a fraction of what the tools can do. And yet the feed is full of “AI-native founders” who couldn’t build an automated workflow if their revenue depended on it.
The gap between what the technology can do and what people actually do with it is the biggest business opportunity of the next decade.
That’s exactly what we work on inside the Operating Founder program:
4 1:1 (60 Minute) Strategic Operating Sessions w/ John
Weekly Cohort Zoom Working Sessions
Access to a private Skool community filled with all of the tools and frameworks we’re building along the way.
That’s less than two dollars a week to be in the room with operators who are quietly building the most efficient businesses on the internet while everyone else is arguing about which chatbot is better.
We’re at 187 members.
At 200, the program is closed.
The people inside aren’t posting about AI.
They’re building their futures with it.
The PE Playbook
The PE feedback gave me a clear operating thesis:
Revenue growth alone would not get us to an exit.
We had to expand EBITDA without the luxury of raising prices or cutting client-facing headcount.
Clients saw our on-site teams as the core of the value they were paying for. That was untouchable. So we went inside.
We consolidated purchasing, sourcing, and inside sales into two streamlined groups.
We aggressively automated billing, receivables, and payables management.
We optimized our ERP systems and built a data warehouse that could house all of our ERP data alongside client inventory data. We also built internal applications to improve the integrity of all new data being entered into our systems.
Then we layered analytics on top of the whole system to automate purchasing decisions, and client inventory and cost savings analysis.
The other critical move was people.
We used industrial and organizational psychology testing to understand the strongest skill sets on our team. Then we got everyone into the right seat on the bus (thanks Jim Collins).
But executing all of this inside a family business going through a transformation is something else entirely. Promoting from within and placing people where they could do their best work created stability. That stability is what made the next part possible.
We reduced headcount from 102 to 61.
Revenue more than tripled during the same period.
We were winning.
The Exit
Just before COVID, we connected with a strategic acquirer, as opposed to a financial buyer looking for a return on leverage. The buyer wanted what we had built:
Our expertise in industrial vending.
Our geographic footprint.
Our customer relationships.
And yes, the operational efficiencies we had spent years engineering.
COVID paused the conversation. They came back. Nine months of due diligence and negotiations later, the deal closed in August of 2021.
The efficiencies were the essential financial factor.
Without the EBITDA transformation, there is no deal.
Without a dozen PE meetings telling me exactly where the gaps were, there was no transformation and no deal.
Five Lessons for Operators & Builders
1. Every “no” is a free diagnostic: PE firms spend millions on due diligence. When they pass on your business, they are handing you a detailed assessment of your weaknesses at no cost. Most founders take the rejection personally and move on. Take it as a consulting engagement you never had to pay for.
2. Revenue growth without margin expansion is a trap: We more than doubled revenue and the business still was not sellable until the EBITDA profile changed. Acquirers buy earnings. Not revenue. Growth is seductive. Do not let it distract you from profitability.
3. Automate the back office. Protect the front line: Know which costs are load-bearing and which are redundant. We could not cut client-facing headcount because that was the value proposition. So we consolidated internally, built data infrastructure, and automated everything behind the scenes.
4. Put people in the right seat before you reduce headcount: IO psychology and talent assessment gave us the map. Getting the right people in the right roles and promoting from within created the organizational stability required to absorb a 40 percent reduction in headcount without losing institutional knowledge or morale. Sequencing matters. Optimize talent, then resize.
5. Know whether you are building for a financial buyer or a strategic one: PE could not buy us because of our margin structure and capital intensity. They couldn’t find a fast enough path to getting their money out. And then by the time a path could be discerned, the strategic deal was more attractive to us as the seller. A strategic acquirer wanted our expertise, geography, and customers. Understanding which buyer type your business actually serves changes every operational decision you make and most every element of how you negotiate your deal. Build accordingly.
Hope this one helps. Would love to hear more about the pieces you found most helpful, so I can create more work telling my personal business building stories.
- john -
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John Brewton documents the history and future of operating companies at Operating by John Brewton. He is a graduate of Harvard University and began his career as a Phd. student in economics at the University of Chicago. After selling his family’s B2B industrial distribution company in 2021, he has been helping business owners, founders and investors optimize their operations ever since. He is the founder of 6A East Partners, a research and advisory firm asking the question: What is the future of companies? He still cringes at his early LinkedIn posts and loves making content each and everyday, despite the protestations of his beloved wife, Fabiola, at times.
Great educational experience John. Many times, an outsider can see things you are too close to. I had a similar experience years ago when we were preparing to sell our mortgage banking company that I had cofounded. The lessons learned from the deals that didn't happen, made all the difference in the deal that did happen.
Nothing teaches more clearly than experience. Thank you for sharing yours.