Brent Beshore - Learnings from a Year of Unexpected Events - [Invest Like the Best, EP. 226]

Episode Summary

Executive Summary: Patrick O'Shaughnessy revisits Brent Bishore of Permanent Equity to examine how COVID, government stimulus, inflation, and labor shortages reshaped small-business investing and operations, while also exploring deal structuring, talent pipelines, and long-term ownership.

Main Topics: Post-COVID market whiplash (Priority: 5/5): Brent describes a swing from risk-off panic to record deal demand and frothy valuations. Government stimulus and inflation (Priority: 5/5): Massive money supply growth and policy shifts intensified asset prices and seller urgency. Operating lessons from crisis (Priority: 5/5): COVID forced better communication, deeper relationships, and more margin of safety. Labor scarcity in the real economy (Priority: 5/5): Trades labor is constrained by pay, immigration, aging workers, and weak training pipelines. Permanent Equity's deal process (Priority: 5/5): The firm uses specialized roles, deeper pre-LOI work, and relationship-driven negotiation. Talent as the next bottleneck (Priority: 4/5): Permanent Equity is building an in-house recruiting function to create internal career mobility. Technology as selective leverage (Priority: 3/5): Brent favors proven software and process tools over frontier tech experiments that may be premature.

Key Arguments: Government intervention and money supply growth drove much of the economic rebound. Risk appetite flipped from extreme caution in early COVID to unusual exuberance by mid-2020. Permanent Equity prefers low-debt, long-term ownership and treats crises as tests of resilience. Labor shortages and weak apprenticeship pipelines now limit growth more than demand does. The firm's edge is specialization by deal stage, not one generalist partner doing everything. Great deal-making starts with understanding seller psychology and interests, not just price. Creative deal structures can align long-term upside, but too much complexity can backfire. Permanent Equity is investing heavily in recruiting because talent access is now a core advantage.

Data Points: Money supply dilution: 20, 25% - Brent says the money supply has been diluted this much since the prior year. Portfolio-company check-ins: at least every day - During COVID, the firm called each portfolio company daily or more often. Phoenix pool sales decline in 2008 crisis: off like 91% - Used as a prior-cycle comparison for pool demand shock. Seller carryback example: 60, 70% - Permanent Equity often buys this share of an organization, leaving partners rolling forward. Free cash flow target range: 2.5, $3 million to $10, $12 million - Brent describes the company's core size focus for acquisitions. Typical current target: $5, $6, $7 million of free cash flow - Most opportunities now fall around this range. Largest deal discussed: $35 million of free cash flow - The largest deal Permanent Equity has worked on so far. Initial fund deployment: $50 million - Brent references the firm's first external fund deployment pace. Current fund size: $300 million - The later fund gives the firm much greater activity capacity. Expert-call platform price: $300 per call - Mentioned in the Tegas sponsorship pitch. Expert-call archive size: >10,000 calls - Tegas claims access to this many expert calls. Institutional users: over 300 institutions - Canalist is said to be used by this many institutions.

Pivotal Quotes: "COVID was an incredible gift. It's a gift I'd never want to get again, but it was an incredible gift." — Brent Bishore: On how the crisis improved communication, relationships, and operational discipline. "The honest answer is it's messy." — Brent Bishore: On adapting to a sudden surge in deal flow and market velocity. "We're trying to build a best-in-class in-house recruitment firm, in essence, with what I would kind of say, talent's everything." — Brent Bishore: On the firm's push to make recruiting a strategic capability.

Implications: The open question is whether inflation, taxes, and labor scarcity will persist; firms should build margin, talent, and flexible capital structures now.