Annotations (27)
“For the first seven or eight years of doing this, we felt like we were in the wilderness. We cared a lot about purchase price. We use very moderate amounts of leverage, tons of liquidity, and we sell things; we sell companies. All of our funds have been top 5% in each of the fund vintages in terms of DPI, and DPI is returning capital. At the first board meeting, we write the SIM exercise.”— Alex Sloane
Why Focus on Multi-Unit Categories · p. 19
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Write the sale memo at first board meeting
“For most of our consolidations, we're actually starting with 100% equity. I think it's unusual. It's also just because we've done 27 of them and learned more from the one that didn't go well than the other 26. By the way, had we used more leverage over the last ten years, at least in Microsoft Excel, our returns would be a lot higher. But we probably wouldn't have the sub-1% loss ratio that we have today.”— Matt Perelman
Benchmarking and Measuring Performance · p. 22
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
Start 100% equity, lever after scale
“The majority of our investments is thematic, and in order to qualify for an industry, the industries have to be highly fragmented by number of units, not percentage. They have to be organically growing for not just our hold period, but the next buyer's hold period. There has to be real industrial logic to the consolidation. So it can't just be more is more, it has to be more is better. It has to be done successfully before by other private equity or strategics.”— Alex Sloane
Why Focus on Multi-Unit Categories · p. 18
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Six criteria for industry selection
“There are different incentives. The franchisor cares a lot about growing the top line because they're taking a royalty which is tied to the top line. The franchisee cares a lot about driving the bottom line.”— Matt Perelman
Structuring a Franchise Deal · p. 4
Strategy & Decision Making · Business & Entrepreneurship · Economics & Markets
DUR_ENDURING
Franchisor wants topline, franchisee wants margin
“Everything we've invested in, every multi-unit business we've invested in over the last few years, has been the number one highest average unit volume sales per box in its category. Every concept has at least 20% store-level margins. This is true of the last five or six years, which is top decile for multi-unit. Everything we invest in has sub-three-year paybacks on new builds. And on the consumer side, they all have the number one Net Promoter Score in their category.”— Matt Perelman
Why Focus on Multi-Unit Categories · p. 17
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Five quality filters for multi-unit
“If you buy something at a really high in-place free cash flow yield to generate a really attractive return, you don't need to believe that you're taking it to new markets and convincing consumers to try it. If you buy something at 12, 13, 14, 15 times cash flow, and you're underwriting making 3x, you need to really grow that business to make that return.”— Matt Perelman
Lessons on Brand Building · p. 20
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
Low price reduces growth burden
“I think liquidity in downside scenarios is always worth more to you over a longer period of time than max leverage is in an upside scenario. That means entering with low leverage. That means never maxing out first lien debt capacity. In the downside case, first lien debt is by far the easiest thing to raise, particularly if you have baskets and caps and availability for it.”— Matt Perelman
Maintaining Great LP Relationships · p. 35
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
Downside liquidity > upside leverage
“We lost money on it. In some ways, it was the best thing that ever happened to us. We call it tuition. At the time, we did a consolidation of an auto services franchisee. It ended up being a terrible deal that was really eye-opening for us. Roll-ups are really hard, and if you look over time, roll-ups are not a great place to invest, the zero-rate world notwithstanding. It's tough to make less than five times your money in Microsoft Excel in a roll-up.”— Alex Sloane
The Stressful Auto Services Business · p. 10
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Every deal must stand alone; no Excel math
“A lot of operators will base labor just based on what their anticipated dollar sales is. If you actually double-click on that, we're less focused on the dollar of sales; we're more focused on the number of transactions, because transactions is what drives labor, not sales. If you take price up by 10%, you don't need 10% more labor. And then there's factors that go into a labor matrix that are impossible to do by hand, but with technology you can do that pretty easily.”— Matt Perelman
The Unit Economics of Franchise Businesses · p. 8
Operations & Execution · Technology & Engineering
DUR_ENDURING
Transactions drive labor, not sales dollars
“Labor is the most important part of these businesses. They're people businesses. Getting labor right is the key not only to the middle of the P&L, but it really is the key to top-line guest satisfaction, net promoter score, intent to return. And in any one of our markets, our consumer typically is our team member. And the customers are typically family members of the teams, cousins of the teams, teachers of the teams, nephews of the teams.”— Alex Sloane and Matt Perelman
The Unit Economics of Franchise Businesses · p. 9
Operations & Execution · Leadership & Management
DUR_ENDURING
Labor quality drives customer flywheel
“Most people look at rent and they see a fixed expense. But the reality is it's just a contract. It could be renegotiated. It's an area where you can create tons of value. If our brand doesn't work there, it's unlikely that another brand is going to work there. So you actually have a fair amount of negotiating power with the landlord. These are just contracts. They're typically 20-year contracts, but things happen and they change. Perhaps the Walmart moved away, but maybe they've moved closer.”— Alex Sloane
How Franchise Businesses Innovate · p. 27
Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Rent is a contract, not a fixed expense
“We rarely buy businesses that have real estate upfront because it's a perfect market. Sophisticated sellers are pricing that appropriately. What we do oftentimes is either we're figuring out through diligence how many of the leases are perhaps below market in terms of what their rent level is. Maybe the Walmart moved closer to you five years ago, and now your sales are $2 million instead of $1 million, and so the rent looks lower than it could or should be.”— Matt Perelman
How Franchise Businesses Innovate · p. 28
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
Buy-back arbitrage: 18x vs 6x
“We invested $3 million of equity. We borrowed another $5.5 million, $6 million to buy 16 MAACOs throughout California. And then we 100% debt financed the next $6 or $7 million to go buy another 20 locations. The problem was because we had no technology to operate these things in a multi-unit way, as the owner of these individual locations left, there would be an unbelievable amount of theft. It was a mostly cash-based business.”— Matt Perelman
The Stressful Auto Services Business · p. 12
Operations & Execution · Strategy & Decision Making
DUR_ENDURING
No tech plus leverage equals death spiral
“We were certainly guilty of value traps and buying things because they were cheap, and cheap for a reason. Although we still very much believe purchase price matters and we're very value-oriented, we also really believe quality matters. And we have a saying: you don't get paid for degree of difficulty. So if we're going to do a roll-up and do a consolidation, we're only going to do it in industries and businesses where they're high quality. I would say we've missed Taco Bell.”— Alex Sloane
The Unit Economics of Franchise Businesses · p. 10
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
No pay for degree of difficulty
“One of our mentors who built a big investment firm taught us that early on. This is a repeat game for us. We really do want to be known as someone: when you buy a business from us, you're going to do well with it. And it's set up for success and to win because we plan to do this for the next 50 years. Not every business is meant to be grown to the sky. Not every business is a hundred bagger.”— Alex Sloane
Alex & Matt's Relationship · p. 26
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Reputation as good seller matters long-term
“Standing in our office on Sunday, March 13, 2020, we had a portfolio that was 100% foot-traffic dependent. We don't use a lot of leverage, but when your portfolio goes to revenue zero, any leverage, a dollar of leverage, is over-levered. We didn't lose a single company. We didn't have to put in a dollar of rescue capital. We didn't breach a single covenant.”— Matt Perelman
Portfolio Impact of COVID · p. 14
Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Liquidity enabled offense during crisis
“We've found over the years the best predictor of success in a multi-unit business is the tenure of the general manager. That is in part why firing people and hiring new people or having a culture like that—that's really not the answer in our experience. So much of what we believe good management is focusing on our people, focusing on training. Our best CEOs have industry-leading turnover statistics. And part of their KPIs and bonus is related to their underlying businesses' turnover.”— Alex Sloane
How Franchise Businesses Innovate · p. 29
Leadership & Management · Operations & Execution
DUR_ENDURING
GM tenure predicts success
“If you look at Burger King, at the store level, you're generating somewhere between a 15% and 20% margin before paying the brand their royalty. And that royalty is usually 4% to 5%. That means that after paying them their royalty, you're generating mid to low teens in terms of store-level EBITDA margin. Take away a couple points for G&A, and you're down to high single-digit, low double-digit EBITDA margin business.”— Matt Perelman
Structuring a Franchise Deal · p. 4
Business & Entrepreneurship · Economics & Markets
DUR_ENDURING
Franchisee gets 2/3 of profit, franchisor 1/3
“Rather than looking for a deal and then seeking approval, we said, let's go to the brands themselves. Let's tell them our stories. Let's see if any of them will approve us as franchisees, maybe even introduce us to a deal, to an operator. And all of the brands rejected us, except for Burger King.”— Alex Sloane
Early Days: Burger King and Beyond · p. 2
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Flipped strategy: relationship before deal
“We're building a firm to serve as real partner capital to baby boomers and small business owners. There's $10 trillion of business value that is expected to transition over the next two decades from baby boomers. One of our mentors and LP calls us a build-to-suit firm for the Leonard Greens, Audaxes, Sentinels of the world. We're building a firm. We want to be the partners of choice to these founders, business owners, entrepreneurs throughout the country, and bridge that bridge to Wall Street.”— Alex Sloane
Why Focus on Multi-Unit Categories · p. 18
Strategy & Decision Making · Business & Entrepreneurship
DUR_CONTEXTUAL
Build-to-suit for larger PE firms
Frameworks (4)
Incentive Alignment in Misaligned Partnerships
Finding Win-Win Projects When Partners Have Different Objectives
When franchisees and franchisors have structurally different incentives (franchisee wants margin, franchisor wants revenue), identify projects that simultaneously serve both objectives. Remodels and new unit development often satisfy this condition: they drive top-line growth (franchisor goal) while generating high ROICs (franchisee goal).
Components
- Map Each Party's Incentive Structure
- Identify High-ROIC Projects That Drive Top Line
- Negotiate for Non-Economic Concessions
- Use Tripartite Structure to Close Deals
Prerequisites
- Understanding of franchise economics
- Relationship with franchisor
- Capital to deploy
Success Indicators
- Franchisor enthusiasm for capital deployment
- ROIC above 20%
- Store count growth
Failure Modes
- Franchisor pushes low-return projects
- Franchisee focuses only on cost-cutting
- No negotiating leverage with franchisor
Five-Filter Multi-Unit Quality Framework
Identifying Top-Tier Multi-Unit Concepts
A systematic filter for evaluating multi-unit franchise or consumer service concepts. Only invest in concepts that pass all five filters: (1) highest average unit volume in category, (2) 20%+ store-level margins (top decile), (3) sub-3-year payback on new builds, (4) #1 Net Promoter Score, (5) #1 intent to return.
Components
- Filter One: Highest Average Unit Volume
- Filter Two: 20%+ Store-Level Margins
- Filter Three: Sub-3-Year Paybacks
- Filter Four: #1 Net Promoter Score
- Filter Five: #1 Intent to Return
Prerequisites
- Access to category data
- Ability to survey customers
- Industry benchmarks
Success Indicators
- Clear pass/fail on each filter
- Concept is defensible leader in category
Failure Modes
- Rationalizing away filter failures
- Comparing to wrong peer set
- Using outdated data
Six-Criteria Industry Selection for Roll-Ups
Choosing Industries Where Consolidation Creates Value
A framework for selecting industries suitable for roll-up strategies. Requires six conditions: (1) highly fragmented by unit count, not percentage, (2) organic growth through next buyer's hold period, (3) real industrial logic to consolidation (more is better, not just more is more), (4) precedent of successful consolidation, (5) experienced management and boards available, (6) clear competitive advantage ('why us').
Components
- Criterion One: Fragmentation by Unit Count
- Criterion Two: Durable Organic Growth
- Criterion Three: Industrial Logic to Consolidation
- Criterion Four: Precedent of Success
- Criterion Five: Experienced Management Available
- Criterion Six: Why Us?
Prerequisites
- Access to industry data
- Relationships with operators
- Capital to deploy
Success Indicators
- Clear pass on all six criteria
- Multiple acquisition targets identified
Failure Modes
- Rationalizing away criterion failures
- Over-weighting current trends
- Underestimating competition
Reverse-Engineering the Exit at Entry
Writing the Sale Memo at First Board Meeting
At the first board meeting after acquiring a business, write the sale memo you want investment banks to distribute five years later. Include the growth story, the operational achievements, the market position, and the buyer profile. Then use that document to guide every decision over the holding period.
Components
- Convene First Board Meeting
- Write the Sale Memo
- Reverse-Engineer the Path
- Gate Every Decision Against the Sale Memo
Prerequisites
- Clear entry thesis
- Aligned board and management
- Understanding of buyer universe
Success Indicators
- Sale memo is referenced in every board meeting
- Decisions align with exit narrative
- Achieve or exceed targets
Failure Modes
- Sale memo becomes a dusty document
- Strategy drift over time
- Targets prove unrealistic
Mental Models (17)
Strategic Reversal
Decision MakingWhen a conventional approach fails, reverse the sequence or direction of the strategy. Instead of finding deals then seeking approval, seek approval first then find deals. This model applies broadly: if cold outreach fails, get warm introductions; if top-down doesn't work, try bottom-up; if push fails, try pull.
In Practice: GSP reversed their franchise acquisition strategy after KFC rejection
Demonstrated by Leg-mp-001
Stand-Alone Investment Discipline
Decision MakingEach investment must justify itself on its own merits, not on the promise of future synergies, cheaper bolt-ons, or pro forma adjustments. This protects against roll-up traps where each deal is justified by the next deal, creating a house of cards. The discipline: if this were the last acquisition you ever made, would it generate acceptable returns at the price you're paying?
In Practice: GSP learned from auto services failure that every deal must stand alone
Demonstrated by Leg-mp-001
Value Trap Avoidance
Decision MakingBeing too disciplined on price can cause you to miss high-quality opportunities that justify higher valuations. The trap: filtering out everything above your price threshold, even when quality differences justify the premium. The antidote: explicitly consider quality as a separate dimension from price, and recognize that 'you don't get paid for degree of difficulty.'
In Practice: GSP missed every Taco Bell deal by being too price-disciplined
Demonstrated by Leg-mp-001
Reverse-Engineering Success
Decision MakingBegin with the desired end state and work backwards to determine the path. This forces clarity on what success looks like and prevents strategic drift. Application: write the sale memo at entry, draft the press release before building the product, define success metrics before starting the project.
In Practice: GSP writes the sale memo at first board meeting to guide all decisions
Demonstrated by Leg-mp-001
Royalty-Based Incentive Misalignment
EconomicsWhen one party's compensation is tied to revenue (royalty) and the other's to profit (equity), their interests diverge. The royalty holder wants top-line growth at any cost; the equity holder wants margin. The resolution: find projects that serve both objectives simultaneously (high-return revenue growth).
In Practice: Franchisors take royalty on revenue; franchisees optimize for margin
Demonstrated by Leg-mp-001
Incentive Design for Dual Objectives
EconomicsWhen partners have different objectives, design capital deployment that serves both. Example: remodels that drive revenue (serving royalty holder) while generating high ROICs (serving equity holder). The key is finding the intersection of both parties' utility functions.
In Practice: GSP finds high-ROIC projects that also grow franchisor royalties
Demonstrated by Leg-mp-001
Quality-Price Tradeoff
EconomicsHigher quality often justifies higher prices. The mistake is treating price as the only variable. The discipline: explicitly evaluate quality on separate dimensions (margins, growth, defensibility, NPS) before comparing price. 'You don't get paid for degree of difficulty' means avoid low-quality bargains.
In Practice: GSP learned that cheap often means low quality and not worth the pain
Demonstrated by Leg-mp-001
Liquidity Asymmetry
EconomicsLiquidity is most available when least needed (calm times) and least available when most needed (crisis). This asymmetry creates strategic value in over-provisioning liquidity during good times, accepting the opportunity cost, because crisis liquidity enables offense when others must play defense.
In Practice: Milken's quote about liquidity being an illusion
Demonstrated by Leg-mp-001
Purchase Price-Growth Burden Tradeoff
EconomicsThe higher the entry valuation, the more growth required to generate acceptable returns. Buying at 6x EBITDA requires far less growth to achieve 3x MOIC than buying at 15x. This creates optionality: low entry prices reduce dependence on heroic execution.
In Practice: GSP explains how buying at low multiples reduces growth requirements
Demonstrated by Leg-mp-001
Cost of Capital Arbitrage via Sale-Leaseback
EconomicsOperating companies and real estate investors have different costs of capital. If you create operating cash flow at 6x EBITDA but can sell real estate cash flow at 18x (6 cap rate), you capture a 3x arbitrage by buying back properties, resetting rent, and selling to real estate buyers.
In Practice: GSP uses sale-leaseback to capture cost of capital spread
Demonstrated by Leg-mp-001
Error Amplification Cascade
Systems ThinkingIn complex systems, small errors compound into large failures. Over-leverage + n
In Practice: GSP's auto services deal failed due to compounding errors
Demonstrated by Leg-mp-001
Transaction-Based Resource Allocation
Systems ThinkingIn labor-intensive businesses, resource needs are driven by transaction volume,
In Practice: GSP schedules labor based on transactions, not sales dollars
Demonstrated by Leg-mp-001
Labor Quality Flywheel
Systems ThinkingIn service businesses, labor quality drives customer satisfaction, which drives
In Practice: GSP describes how labor quality creates a virtuous cycle
Demonstrated by Leg-mp-001
Crisis Optionality
Strategic ThinkingLiquidity and low leverage during calm periods create optionality to go on offense during crises. Th
In Practice: GSP went on offense in June 2020 due to pre-positioned liquidity
Demonstrated by Leg-mp-001
Backloaded Leverage
Strategic ThinkingStart with low or zero leverage; add leverage only after the business is scaled, professionalized, a
In Practice: GSP starts with 100% equity, levers after $10M EBITDA
Demonstrated by Leg-mp-001
Reputation in Repeat Games
Strategic ThinkingIn repeat games with a small universe of players, reputation as a good seller is as valuable as repu
In Practice: GSP prioritizes being known as good sellers who set buyers up for success
Demonstrated by Leg-mp-001
Downside Liquidity > Upside Leverage
Strategic ThinkingThe value of having liquidity available during downside scenarios exceeds the value of maximizing le
In Practice: GSP's capital structure philosophy prioritizes downside flexibility
Demonstrated by Leg-mp-001
Connective Tissue (2)
Brad Jacobs: 'I don't buy businesses from people I don't like'
Brad Jacobs, serial entrepreneur and founder of multiple billion-dollar logistics companies, operates by a character-first principle: he refuses to do business with people he doesn't like, regardless of the financial opportunity. This parallels Garnett Station Partners' explicit policy of not hiring 'assholes' or doing business with 'jerks.' The insight is that in long-term partnerships, especially in people-intensive businesses where culture and trust matter, character screening is not soft; it's a hard filter that protects long-term value creation. Life is too short, and the downside risk of working with difficult people (blown deals, cultural toxicity, reputational damage) outweighs any short-term financial gain.
Alex Sloane citing Brad Jacobs' principle as validation for GSP's own no-assholes policy
Michael Milken: 'Liquidity is an illusion. It's always there when you don't need it and never there when you do.'
Michael Milken's principle about liquidity captures a fundamental asymmetry in financial markets: capital is abundant and cheap during good times (when you don't need it), but scarce and expensive during crises (when you desperately need it). This creates a strategic imperative to over-provision liquidity during calm periods, accepting the opportunity cost of undeployed capital, because that liquidity becomes your most valuable asset during downturns. Garnett Station Partners internalized this during COVID, when their pre-positioned liquidity allowed them to avoid covenant breaches, avoid rescue capital, and go on offense acquiring distressed assets in June 2020 while competitors were in survival mode. The principle extends beyond private equity: it applies to personal finance, corporate treasury management, and any situation where optionality during stress has asymmetric value.
Alex Sloane describing how they looked at Milken's quote every day during COVID
Key Figures (6)
Daniel Schwartz
3 mentionsFormer CEO, Burger King / Restaurant Brands International
Ray and Cass Meeks
3 mentions30-year Burger King franchisee (23 locations)
Howard Norwitz
2 mentionsPartner, Capital Markets and Restructuring
Brought in as hourly consultant during auto services restructuring.
- After restructuring the auto services deal, Norwitz joined full-time
Jim Kochelka
1 mentionsExecutive Coach
Dennis Maloney
1 mentionsOperating Partner (former Domino's Digital & Technology executive)
Fernando Machado
1 mentionsOperating Partner (former Chief Marketing Officer, Burger King)