What You Learn About Business Deals After: 12,000 Deals Reviewed, 1,500 Deep Dives, 125 Site Visits, and 7 Portfolio Companies with Brent Beshore - [Invest Like the Best, EP.100]

As a third-party independent analyst, I have analyzed, distilled, and reorganized the transcript of the interview with Brent Beshore on Episode 100 of Invest Like the Best, strictly adhering to the rules and principles you provided.

At a Glance

Guest Brent Beshore is the founder of Permanent Equity, a fund focused on permanently owning small family businesses. The core theme of this episode is dissecting the framework his team developed for evaluating business models, deal structures, and risks in small enterprises after reviewing over 12,000 transactions. The most impactful judgment in the entire episode is: Brent Beshore believes that for investors planning to hold forever, high cyclicality itself is not dangerous; the real peril lies in operating such a business with high leverage and a heavy asset model. Conversely, a low-leverage, asset-light, high-cyclicality business can become a "buyer" during industry shakeouts, creating enormous value.

Thematic Sections

1. Capital Structure: Anchored by "Permanent Ownership," Defaulting to All-Equity

Brent Beshore argues that capital structure design should serve the ultimate goal of "permanent ownership," not short-term return maximization. The core principle is to avoid high leverage, as leverage merely amplifies business value and, during economic downturns, can rapidly push a "decent" operating situation into a crisis, forcing managers to make short-sighted decisions that harm long-term value.

• Default to All-Equity, Use Bank Debt Sparingly: Beshore's team almost defaults to not using senior debt in transactions, which is extremely rare in private equity. They prioritize seller debt, typically not exceeding 2x EBITDA. This not only provides moderate leverage but, more importantly, deeply aligns the seller's interests. When problems arise, the seller (often the original operator), driven by emotional attachment to the business, will actively help resolve issues.
• Opposes "Dividend Recaps": Beshore is negative on the common practice of "dividend recapitalization," where debt is added to the company to distribute cash to shareholders. He views this as essentially "trading the future for the present." If an investor does not plan to walk away from the company during a crisis, this operation is meaningless beyond accelerating cash flow and actually endangers the company's future.

2. Industry Selection: Focusing on "Blue-Collar Direct-to-Consumer," Betting on the Macro Trend of "Buying Time"

Beshore believes the most attractive investment opportunities lie in the "blue-collar, direct-to-consumer" space, driven by the powerful macro trend of "people spending money to buy time." As wealth disparity widens and homes grow larger, people are increasingly unwilling to maintain their properties themselves, creating persistent growth demand for home service industries.

• Core Industries: He is particularly bullish on Home Services, such as HVAC, plumbing, lawn care, and pest control. These businesses align with the concept of "house as a service" and have inelastic demand.
• Why Not Invest in HVAC? Despite liking the sector, Beshore notes that finding the right team is the biggest obstacle. Most HVAC businesses are "small operations" built around the founder's personal capabilities, lacking scalable systems and culture. More critically, these businesses often bundle installation (construction) with service. During market booms, resources shift towards the highly cyclical installation business, starving the service department. He looks for service-dominant teams that already have a degree of professionalization.
• Another Direction: Small-Market Property Management: Beshore is bullish on property management companies in population inflow regions like the Sunbelt. Unlike big cities, these areas have lower community density, allowing one property manager to oversee many dispersed homes. Customer relationships are extremely sticky, involving issues like neighbor disputes and common area maintenance.

3. Business Model Anatomy: The "Triangular Interaction" of Margins, Assets, and Cyclicality

Beshore emphasizes that the three variables—margin, asset intensity, and cyclicality—cannot be viewed in isolation; their "interaction" reveals the true moat and risk of a business. His analytical framework aims to look beyond single-period data to understand the business's real return over a full cycle.

• Margins: High margins may indicate a moat, but they can also be an illusion of cyclical prosperity. Low margins might accompany high turnover and significant scale advantages. The key is to judge whether the margin trend is expanding or compressing. He uses the printing industry as an example, noting that while it appears profitable, it requires continuous heavy reinvestment in new technology (the "Red Queen effect"), and margins have been compressing over the long term and through cycles—a dangerous signal.
• Asset Intensity: Heavy-asset businesses provide "downside protection" via liquidation value, but they also mean continuous capital consumption and low incremental returns on capital. Beshore prefers asset-light models that generate substantial free cash flow that cannot be fully reinvested internally. He contrasts two models using construction contractors:
• Asset-Light Model: Only handles sales and logistics, outsourcing all work. Cash flow is excellent, but reinvestment is difficult.
• Heavy-Asset Model: Vertically integrated, owning construction crews and equipment. Profits are phenomenal during boom cycles, but capital intensity is high. When the market turns cold, massive operating leverage can lead to disaster.
• Cyclicality: Beshore has a unique view on cyclical businesses. He believes that as long as they are low-leverage and asset-light, high cyclicality is actually a huge advantage. The combination of low specialization (blue-collar) and high cyclicality creates a "shakeout effect" during downturns, forcing many competitors out of the market. A well-prepared player (with ample cash and no debt) can then become a "buyer," acquiring market share and talent at rock-bottom prices. He analogizes this to "mosquitoes and nudists"—when the market is most desperate for cash, the one holding cash is king.

4. Counter-Cyclical and "Weird" Businesses: The Surprising Economics of Pet Cremation

Beshore believes that finding counter-cyclical businesses or those with unique psychological pricing power is key to achieving excess returns. He shares a memorable case—pet cremation services.

• Counter-Cyclical Case: Fast Food: During economic downturns, people have less time and more stress but still need to eat. The low-end fast-food market benefits, and its high standardization makes it more like manufacturing than food service. However, Beshore admits the food service industry overall is brutally competitive, and he has not invested.
• Pet Cremation: Beshore calls it "one of the best businesses I've ever seen." Its business model is incredibly simple: one storefront and one oven. But its core advantage lies in immense psychological pricing power. When a pet owner faces saying goodbye to a long-time companion, emotion completely overrides price sensitivity. From "private cremation" to "urn selection," every step offers enormous room for premium pricing. Startup costs are minimal, and profit margins are "enormous."

5. Fund Structure: Making "the Seller the Client" to Build a Differentiated Moat

Beshore argues that Permanent Equity's greatest competitive advantage is not stock-picking skill, but its unique, seller-centric structure, which allows it to attract the highest quality, non-auction deal flow. This structure is designed to resolve the fundamental conflict between traditional private equity funds and family business owners.

• Structural Advantage: The fund has no traditional 10-year life or forced exit mechanism. Its capital comes from family offices and individuals with no "career risk." This allows Beshore to promise "permanent ownership" to sellers and offer all-cash, no-senior-debt, structurally simple deals. This starkly contrasts with the traditional PE model of "leverage, fast in, fast out," making it highly attractive to risk-averse family business owners.
• Path to Scaling: Horizontal, Not Vertical: Beshore plans to handle capital growth through "horizontal" expansion—increasing the number of transactions completed annually (from 2-3 to 10)—rather than chasing larger single deals. He insists on focusing on the "sweet spot" of businesses with pre-tax profits between $3 million and $8 million, avoiding the pressure to do larger deals due to capital scale. He admits his team is not a top-tier "slicing and dicing" investor; they only want "obvious" opportunities, and the only way to get them is to have a massive, positively screened deal flow.

Position Moves

Position	Guest Stance	Key Data
Pet Cremation Services	Highly Bullish	Startup cost is just "a storefront and an oven"; profit margins are "enormous"; possesses immense psychological pricing power.
Home Services (HVAC, Plumbing, etc.)	Bullish on the sector, but high investment bar	Driven by the "buying time" macro trend; requires finding "service-dominant" and already professionalized teams.
Small-Market Property Management	Bullish	High customer relationship stickiness; structural advantage in population inflow regions (e.g., Sunbelt).
Fast Food / Fast Casual Dining	Neutral (Attractive but not invested)	Low-end market has counter-cyclical properties; can be standardized like "manufacturing"; but the industry overall is "extremely brutal."
Printing Industry	Risk Warning	Requires continuous heavy reinvestment ("Red Queen effect"); margins compress over the long term and through cycles.
Construction Contractor (Heavy-Asset Model)	Risk Warning	High cyclicality + high operating leverage = a disastrous combination; one case saw a company swing from a -$4M loss to +$22M in free cash flow over three years.

Judgments Worth Remembering

1. "Leverage is just an amplifier of business value, not a creator of it." (Brent Beshore) — If the business itself is mediocre, leverage will push it towards disaster. For permanent holders, the default should be an all-equity structure to avoid short-sighted decisions driven by debt pressure.

2. "High cyclicality + low leverage + asset-light = a massive competitive advantage." (Brent Beshore) — This combination allows you to become a "buyer" during industry shakeouts. He analogizes it to "mosquitoes and nudists"—when the market is most cash-strapped, the one holding cash has infinite opportunities.

3. "We optimize everything from the seller's perspective because the seller is our customer." (Brent Beshore) — The fund's structure is designed to serve family business owners, attracting high-quality off-market deal flow by offering simple, "all-cash, no-debt, permanent ownership" solutions.

4. "Pet cremation is one of the best businesses I've ever seen: a storefront, an oven, and immense psychological pricing power." (Brent Beshore) — When emotion (saying goodbye to a pet) overrides price sensitivity, profit margins can be astonishingly high. This is a perfect example of a "counter-intuitive" business model.

5. "We are not great 'slicing and dicing' investors; we only want 'obvious' opportunities." (Brent Beshore) — The only way to get these opportunities is to have a massive, positively screened deal flow. The fund's strategy is "horizontal" expansion, increasing the number of deals, not their individual size.

6. "In home services, the installation business will 'starve' the service business." (Brent Beshore) — Most HVAC businesses bundle highly cyclical installation with stable service. During boom times, resources flow to installation, neglecting the service department. He looks for "service-dominant" businesses.

7. "The biggest enemy of any new structure when raising capital is 'career risk'." (Brent Beshore) — Only ultimate decision-makers without career risk (e.g., heads of family offices) dare to invest in non-mainstream fund structures. Professionalized middle layers instinctively reject innovation for fear of making mistakes.