This interview covers how the small-business M&A market is booming post-COVID, but labor shortages are the real bottleneck. Brent Beshore says government stimulus made markets risk-insensitive again, and Biden's proposed capital gains tax hike (tax on selling a business) is pushing owners to sell fast. Key holdings: a pool company seeing record demand but can't find workers; Pentair (pool equipment maker) struggling to keep up; an aerospace firm that actually improved during the pandemic; and an unnamed medical-tech firm repurposing old tech for mobile use (e.g., sports fields, police cars).
Brent Beshore reflected on his investment experience since the pandemic in the Invest Like the Best program. His core view: the pandemic unexpectedly fueled a bull market, but current inflation and labor shortages have become key challenges. An important conclusion: investment should focus on compan
Brent Beshore (Founder of Permanent Equity Fund) and Patrick O'Shaughnessy review investment lessons from the past year of the pandemic. Beshore's core assessment is that the small business M&A market is currently in a phase of "the highest transaction velocity in history," but labor shortages have become a scarcer resource than capital, fundamentally altering the investment logic of traditional businesses.
Beshore argues that government intervention was the core driver behind the economy's shift from "extreme pessimism" to "risk insensitivity."
> "Everyone pre-COVID was becoming risk insensitive. I had one person in January of last year tell me that he saw signs of nothing on the horizon."
Beshore notes that Biden's proposed doubling of the capital gains tax is triggering an "unprecedented" wave of selling—small business owners face a doubled tax burden if they sell their life's work, leading a large number of sellers to rush to complete transactions before the policy takes effect.
Beshore observes that labor shortages have become the core bottleneck for traditional business growth, with an impact far exceeding capital allocation issues.
| Factor | Impact |
|---|---|
| Young people unwilling to enter skilled trades | Continuous contraction in skilled labor supply |
| Government subsidies (during the pandemic) | Some workers chose not to work |
| Reduced immigration | Further compression of labor supply |
| Aging existing skilled workers | Retirement wave approaching |
Beshore believes that corporate training capabilities will become a long-term competitive advantage — companies that can "recruit from other industries and teach them the skills" will prevail.
> "One of the opportunities that we're getting ready to partner on... have a very robust training program. We think that's a huge long-term competitive advantage is they can out-compete because they can out-train."
Beshore elaborates on Permanent Equity's unique "phased specialization" transaction model, which stands in stark contrast to traditional PE.
| Dimension | Traditional PE | Permanent Equity |
|---|---|---|
| Staffing | Partners handle the entire process | Specialists dedicated to each phase |
| Leverage | High leverage | Minimal use of debt |
| Holding Period | 3-5 years | Indefinite holding |
| Deal Sourcing | Casting a wide net | Precision targeting after deep research |
1. Relationship Building: Deeply understand the seller's psychology, fears, and aspirations
2. Preliminary Offer: Based on sufficient information, commit to "if what you say is true, we will not change the offer"
3. Due Diligence: Distinguish between "exploratory" and "confirmatory" due diligence
4. Negotiation: The core is "setting the right framework for the best long-term outcome," not squeezing out every penny
5. Post-Closing Incentive Design: Tailored to the company's culture, avoiding "overcomplication"
Beshore emphasizes that the worst negotiation mistake is "overcomplicating things" — he shared a lesson learned: once designed a structure where the seller became the largest creditor, only to see the seller start running the business like a creditor (risk-averse, prioritizing debt repayment), ultimately forcing a buyback of the debt at a discount.
Beshore believes the greatest improvement over the next five years lies in talent acquisition—Permanent Equity has established a dedicated talent role, treating it as an "internal top-tier recruiting agency."
Beshore states that his excitement about the current opportunity set is "far greater than five years ago"—despite higher absolute valuations.
| Position | Guest Stance | Key Data |
|---|---|---|
| Pentair (Pool Equipment Supplier) | Risk Warning | Difficulty meeting delivery demand |
| Permanent Equity's Pool Company | Bullish | Phoenix market, sales down 91% in 2008, current demand "unprecedented" |
| Permanent Equity's Aerospace Company | Bullish (Long-term) | Team efficiency improved by "two levels" during the pandemic, expected five-year financial performance positively impacted by the pandemic |
| Unnamed Medical/Defense Technology Company | Bullish (Under Negotiation) | Repurposing century-old technology for the mobile era, applicable to sports fields and police vehicles |
1. Beshore believes the current small business M&A market is experiencing "the highest transaction velocity ever" — the shift from "virtually no deals" to "being able to pick almost any number of deals" is unprecedented in its intensity.
2. Beshore points out that labor shortages are more severe than capital scarcity — in the pool business, "revenue could quadruple if labor were sufficient," but skilled technicians require 8–12 years to train.
3. Beshore argues that corporate training capabilities will become a long-term competitive moat — companies that "can outperform competitors through better training" will win, requiring the establishment of an in-house "quasi-vocational school" system.
4. Beshore emphasizes that the core of negotiation is not squeezing out every penny, but "setting the right framework for the best long-term outcome" — he shares a cautionary tale: an overly complex debt structure caused the seller to run the business like a creditor, ultimately forcing a discounted buyback.
5. Beshore believes the pandemic was a "gift" for some businesses — his aerospace company saw team efficiency improve by "two levels" during the crisis, and the five-year financial performance is expected to be positive as a result, prompting the reflection: "Why do we need a crisis to become excellent?"
6. Beshore proposes that Permanent Equity's "phased specialization" model is fundamentally different from traditional PE — the deal process is broken into stages such as relationship building, negotiation, and due diligence, with each stage handled by specialists rather than a single partner overseeing the entire process.
7. Beshore judges that Biden's capital gains tax proposal is triggering an "unprecedented" wave of sellers — small business owners face a doubling of tax liability if they sell their life's work, leading a flood of sellers to rush deals before the policy takes effect.
8. Beshore believes that Permanent Equity's talent system offers a unique career path — from VP to COO/CFO to CEO to managing one's own portfolio (one current partner oversees revenue ranging from $60 million to $200 million), a trajectory extremely rare in traditional PE.