(piano intro) - Hello, I'm Nido Qubein.

Welcome to Side by Side.

My guest today is building businesses that create value and make a difference.

He's the founder of Garden City Equity, a private equity firm with a mission beyond profit.

Today we'll meet CEO and investor Michael Arrieta.

- Funding for Side by Side with Nido Qubein is made possible by Coca-Cola Consolidated makes and serves over 300 of the world's best brands and flavors locally from 13 facilities and 4,500 hardworking teammates.

We are Coca-Cola Consolidated, your local bottler.

- The Budd Group has been serving the Southeast for over 60 years.

Specializing in janitorial, landscape, and facility solutions, our trusted staff delivers exceptional customer satisfaction, comprehensive facility support with the Budd Group.

- Truist, we're here to help people, communities, and businesses thrive in North Carolina and beyond.

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(upbeat music) - Michael, welcome to Side by Side.

I have so many questions for you.

I need to understand how does a first generation American like you, your family came from Puerto Rico.

- Sure.

- And you had a very hardworking family in retail and furniture.

You grew up in an entrepreneurial family, one would surmise.

But you had this idea that you're gonna get some people to invest in a fund, and together you're gonna go out there and buy companies.

And now you call it Garden City Equity.

What is Garden City Equity?

And what kind of companies are you buying?

- Yeah, thanks, Nido.

Garden City Equity is a people first holding company.

We don't wanna call ourselves a private equity fund.

We're a people first holding company that seeks to honor God by buying or investing in family owned, founder owned companies in your local communities.

The way it came to be, and the way I got these families, I have about 225 families that are our shareholders.

They're our investors.

- 225?

- Different families all across the country.

- That's a lot of families.

- A lot of families.

And the traditional model in private equity is you go to institutions.

You go to endowments, pension funds, insurance companies.

You ask them for money, you use their money, and you buy companies.

- And you exit in three to five years.

- And you sell it in three to five years, and you put as much debt from the bank as humanly possible.

We said, let's slip the model on its head.

Let's go ahead and let's go to families and tell them about this great opportunity and see if they want to invest.

So those are the 200 families, the who's who.

We have athletes, celebrities, CEOs, et cetera, governors.

So we use their capital, and then we go find the businesses.

And instead of using as much bank debt as we can, we use literally none.

So far we've used very minimal.

And then we try to hold the business for as long as we can.

- So these families are shareholders.

They're investing in these specific companies or they're investing in the total fund?

- They're investing in the overall holding company.

Think about it like a Brookshire Hathaway, or Warren Buffett.

So they're investing in the overall parent company.

- And give us an idea, what would be the range of investment, from what to what?

Like, for example, can I give you $25 today and invest in Garden City Equity?

- Maybe only you can, but nobody else.

No, the minimum investment for an investor is $1 million.

We have investors from one million all the way up to many eight figures.

And so the way that it works is they commit a certain dollar amount.

So in order to be an investor in a private equity fund, they give you a commitment.

They say, "I'm in for $1 million."

And now me and my team, as a private equity holding company, when we go look for deals, we say, "This company costs us $40 million.

Hey, Johnny, Susie, Billy, give me 20% of your money that you committed."

So 20% of a million, 200,000.

And that's the way it works over five years.

- Yes, I understand.

So you call in the funding as needed.

How do you find these companies that you buy and why do they wanna buy?

Is it to liquidate some of their equity?

Is it to get out of the business altogether?

You said family businesses.

Is it because they have no offspring that might take over?

What is it?

- Yes, it's all of that.

The way that we find these businesses is the traditional model in private equity is that you go and you contact intermediaries, investment bankers, business brokers, just like a realtor of a home.

They send you a one-pager.

They go, "Here's this air conditioning company or roofing company or plumbing company.

Here's their revenue, how much money they make per year, their management team, et cetera."

And the way it works is you make a bid on the business, just like you make a bid in an auction.

We don't participate in that.

The way we find all of our deals is through our 200 plus shareholders.

So every day I get a text message or my team gets an email from one of our shareholders to say, "Hey, here's a great neighbor of mine or someone in the country club or someone in my community that wants to sell their business."

Why do they wanna sell their business?

It's typically for one of two reasons.

Either A, they need liquidity or they desire liquidity.

Maybe they wanna fill in their trust.

Maybe they just wanna diversify, right?

Or the second thing is succession plan.

They don't have offspring.

Or this business owner here in High Point has been successful for 20 years and they were successful, so they sent their children to High Point and now they're gonna go be a great engineer or they're gonna be a doctor or dentist.

So they don't wanna go run a janitorial company.

So they say, "I need someone to take it over."

Those are the two examples.

- So when you take an equity position in a company, are you buying 100% of the company or are you buying a position in the company or both?

- Both, whatever.

We back the person.

So if you owned a business, we would say, "Nido, what is it that you desire?

And how can we come alongside you to make it happen?"

So you might say, "Michael, I'm only 40 years old and I still have a long runway, but you know what?

It would be nice to bring on a partner and get all these families that you have to help me grow my business and your team could help me with culture and technology and leadership and finances and governance.

How about I sell you 25% of my business so you could help me get to the next stage?"

We're great with that.

Or it might be, "Michael, my time is done.

I wanna sell you 70%.

Me and my family will still own 30% and we'll do this together."

Whatever's best for the business.

- So you're not trying to get a majority position.

- Whatever's best.

- You take a minority position.

- Typically, I would say 80% of the time, it's majority.

20% of the time, it's minority.

- And what is it you look for?

I mean, what are the foundational principles, operational and otherwise, in that particular business and how does that relate to the sector itself?

'Cause in my life, I have worked with some businesses that were thriving, but in a dying sector, if that makes sense.

So I suspect you look at both that particular business and the sector in which it operates.

- Absolutely, and the people, exactly.

So something we look for, it's called the Lindy effect.

And what the Lindy effect is, the past seven years is the best indicator of the next seven years.

So what we look for are enduring companies.

How have they withstand and withheld during the difficult times?

So we say, have your past decade produced good years, good years of earnings?

Do you have good, healthy net profit margins?

Do you have a good product or secret sauce?

Do you have a strong non-owner management team?

That's the number one issue with small business in America.

They're owner hustles.

If you take out the owner of this plumbing company or this accounting company, there is no company.

They have a secret sauce.

They know all the customers.

They know all the processes.

It's not yet scalable.

- Tell me about a miss in all of this.

You're very fluid and flowing in your explanation.

It's intriguing to me what you do.

Tell me about a miss.

Company you bought and you both missed the projections and you really messed up and you had some people upset with you.

- It was my first acquisition.

First acquisition and we raised a lot of money and I was hungry to deploy the capital, which is lesson number one.

Patience is the greatest return.

Patience is the greatest IRR.

- What does that mean?

- Patience that when you have capital, do not be hungry to go deploy it.

- I see, don't place it very quickly.

- Wait, wait, wait, wait, wait for that perfect opportunity.

And it was about two years and we did not yet do a deal.

So finally, I was desperately looking to put this money out there.

So there was a construction company that came and they were around since 1981 and they made money every year, but there was a couple big things I missed.

One is the owner wanted out.

And now what we do is we say, if you want out, great, but we're not your partner.

If you want to still own 20, 30, 40%, we're your partner.

- How long do you insist the owner stay in the business?

- We want them to stay as long as they want to stay, but ideally about two to four years.

But this owner got out quickly.

And the other thing is we didn't realize that their contracts were fixed contracts, AKA when Nido bought this project and he signed it out of line, it took us about a year to deliver and something called COVID happened and a rebar and all supply chains skyrocketed.

So now we're held with these contracts we have to deliver on and we lost money for about two years.

It was really difficult.

- But you're still alive.

- We're still alive.

- Your shareholders did not come after you.

- We got through it.

- Yeah.

- We got through it.

- So when you look at a potential investment, you told me you look for, you know, the health of the business the last seven years.

I don't know, is it true that the last seven years are predicted the next seven years in a very mobile global marketplace in which we all operate?

Is it true that the last seven years can predict the next seven years?

I mean, you look at geopolitical issues, you look at economic issues, you look at what's going on now with the discussion of tariffs and so on.

I think data shows it is with the Asterix.

Nobody could take it to affect the power of AI.

So we take it with a fine tooth comb.

- Yeah.

- Yes, the last seven years of an amazing accounting firm in Atlanta, Georgia that on average does $70 million a year revenue and makes $8 million a year profit.

And they have 7,000 customers.

How they've performed on average the last seven years is likely how they will perform the next.

But how do you forecast with AI?

AI can make the entire accounting industry go obsolete overnight.

So to your point of what you said, you have to look at the industry.

An industry I love, for example, is septic installation or septic service.

- Septic?

- Septic tanks, underground.

- That sounds messy.

- It sounds messy.

And boring businesses are beautiful, right?

'Cause someone has to service them.

So a business like AI cannot ever impact a business like septic, right?

So we look for industries that what cannot be disrupted by AI, but could maybe help the back office people become better.

- You speak with in a very fluid manner.

You're a very clear thinker, obviously.

But when you grew up, you had some stuttering challenges.

Am I right on that?

- You were correct.

- How did you overcome that?

- By two things.

One is something unbeknownst to me, which was help from God.

I didn't do anything besides it being taken away.

And two, a fourth grade teacher, Ms.

Jenny, she sought me out and there was a trailer in our elementary school.

Nobody wanted to go to that trailer.

That trailer were the kids that had disabilities.

And so she sought me out and she said, "I wanna work with you on this stuttering problem you have."

And little by little, she worked with me and she told my parents that the state of Florida just came out with a scholarship.

That if you were below a certain income level and you had a disability, the state will pay for you to go to private school for free.

- Really?

- Which my mom got the letter that I got the scholarship.

And as a proud Puerto Rican woman, what did she do?

She ripped it up.

She said, "My son does not have a disability.

I'm not gonna send him to a private school for free.

He does not have that."

So then I was forced to go to a pretty poor, not good public school district.

It wasn't good.

She quickly pulled me out of there within the first month and I started going to a private Christian school because of my stutter and that's what changed my life.

- And then you went on to college.

- First in my family, never to college.

- And you, first one in your family, first generation.

And you worked your way through college.

- I did.

- You sold what?

- I sold Cutco knives.

- Cutco knives.

- Yes, cutlery.

You go door to door and you sell people on why they should buy these amazing thousand, one, two, three, $4,000 set of knives.

So every morning at 5 a.m.

I would wake up and make cold calls.

I would call you, "Hi, Nido, this is Michael Arrieta I'm a student at Coral Springs Christian Academy.

I'm selling Cutco knives.

Would love to come to your house."

I would ask the teachers during class to go to the bathroom and I would make cold calls in the bathroom stall.

I would sit outside the cafeteria and make cold calls.

So I did that from junior year of high school all throughout until I graduated college.

- And what was the percentage of acceptance, I'll see you?

Of the calls you made, what was the percentage of affirmative, yes, come see us?

- I had such a bad stutter problem that I think they felt bad for me so they said yes.

But in all reality, probably over 50%.

- Really?

- Yeah, I became the number one salesperson in Cutco's history for many years and started making $100,000 when I was 17.

- Really?

- Yeah, I put myself through college and moved to New York City every summer, knocked door to door.

- And you went to college and you graduated debt-free from college.

- I graduated.

- What did you major in?

- I majored in business management and entrepreneurship.

I wish I came to High Point.

- Yes, but also you had to have some leaning towards finance.

- I actually didn't.

- You did not.

- Never once.

- But everything you do now, I mean, who do you have on your team who dissects and analyzes the potential acquisition?

- We have a chief investment officer that previously, he was a chief investment officer of an $8 billion company.

We have another principal of investments, another partner of investments, an analyst.

But to your point, I was called into an industry.

The reason why I started Garden City Equity is because I saw the companies my parents worked in.

And they had no purpose, no mission, no values.

They had no higher calling.

So I said, what if we buy those companies and we could radically impact the lives of people like my mom and dad?

Not knowing that that was called private equity, not knowing that that was finance.

So I'm the Forrest Gump of private equity.

So I had no experience in private equity, but thankfully now we've built a team to do that.

- And what is that mission and purpose?

Fill us in on what is it that inspired you?

Is it your faith?

Is it what you can do to impact the lives of those who are in the businesses that you acquire?

What is it exactly?

How do you describe it?

- Yeah, I think I chased my first, you know, I did Cutco, but then my first startup sold to Dell for a billion dollars.

Second startup, we went public, DocuSign.

We eventually hit $60 billion.

And so I tasted the success and it was fleeting.

It was exciting for the moment in time, but you still have a void.

And I think it's an intersection that we all want of purpose and mission and calling and impacting others.

But I'm a capitalist at heart as well.

And so I wanted an intersection of both.

I wanted purpose, but I also wanted profit.

And so I really thought if I could have anything, if I could do anything for the rest of my life and money were no object, what would I do?

I would buy companies and radically impact the workers that work in that company.

It could be a AV company, a plumbing company, an accounting firm.

But if we own them, we will love their people in a way they've never been loved before.

So it came from my faith and also it came from my upbringing.

- What does that mean to love their people?

I mean, give it to me in terms, for example, this company also has to be competitive.

- Absolutely.

- Which means you can only pay so much.

You can only allocate so much funding for this or that.

So how do you love these people more than anybody else?

- You can look at the Chick-fil-A model, right?

Or you can look at the Publix model.

There's many others that you could say they've done a good job doing it.

So it's not exclusive to one another.

We look at loving our people in three ways.

Let's impact their faith.

Let's impact their finances.

Let's impact their families.

So with faith, we say, hey, if you want to go ahead and do an international mission trip, we'll sponsor you to do that.

If you guys want to read a book together, if you guys want pray.com application or a subscription, we pay for that.

In terms of finances, we pay for them to do Dave Ramsey financial piece for free.

We give them a finance coach.

We help come alongside, we match their savings.

We help them get out of debt.

And the last part is on families.

We do a lot of things for families.

If they have a baby, we give them diapers for a year.

We give them an entire tutorial on how they could do their annual planning for their families.

We give them an emergency mercy fund that we say, if you get a flat tire or a dead battery, we give you up to $150 a year so that you could still make it to work.

So we really want to love on them because we feel that happy employees equal a healthy business, which will make thriving profits.

- So I read somewhere where one of your goals is to buy a company, hold it, develop it, grow it.

Have you had any exit events with some of these companies?

- Yes, we have sold now two companies.

And in the beginning, I thought the vision would be we will buy a company and we will hold it permanently.

But the truth of the matter is there's a life cycle to everything.

There's a life cycle to everything.

So the real answer should be we want to be the best stewards we can while we own the business.

If there's a better steward for this business, it's our responsibility as money managers and managing this capital for 200 families and business owner for the people that there might be a better owner.

So we owned the biggest janitorial company in East Tennessee, and we cannot figure it out.

It's a difficult business to own a janitorial company.

So we spoke to a big janitorial company and they let us know how they were loving our people and scale our operations.

We sold it and we just got the report.

They've grown the company by 40%.

So it's better with that owner than us.

- Yes, and your shareholders, those 225 shareholders, do they get a distribution when you do something like that or do you reinvest the money right back in the corpus?

- Every single year, our investors get an annual distribution, every year.

They get an annual distribution, just like mailbox money.

And so depending on the cash flows of our company, all of our investors get a check in the mail every single year.

And so when we sell a company, that check in the mail is gonna be higher, obviously.

- Yes, yes, I understand.

So when you look at America and when you look at people who really wanna be entrepreneurial like you, what do you say to someone who aspires to be an entrepreneur?

First of all, what do you think a person must possess viscerally to be an entrepreneur?

And second, if you're trying to guide someone, advise someone, mentor someone, what do you say to them?

- I think the only way to be an entrepreneur is relentless determination.

I mean, relentless.

I am relentless.

I would not stop.

From a young age, my dad only had $700 to go on one vacation we had one year.

And he said, "If you could figure out a way "for us to spend $700 to go on a family vacation, "we will do it."

So what did I do?

Back in those days, there was those yellow page books and they would put ads in them.

I called, my dad told me, over 90 hotels at the age of nine years old.

And I would say, "We have $700.

"If you could do a five day vacation, "our family would go there, hang up.

"We have $700, we have $700."

I was relentless.

With Cutco, relentless.

With Garden City, relentless.

With DocuSign, relentless.

To a point that it's unhealthy.

To a point that anyone would see, he won't stop.

He could cut off my legs, cut off my arms.

Right now, my voice is shot, relentless.

So I think to be an entrepreneur in today's society, especially with AI making everything a commodity, you need to be relentless.

- Where does that come from?

Is that a trait you're born with?

Is that a behavioral pattern that is a byproduct of your first generation American, the immigrant soul within you?

Is that something you learned from heroes, models, and mentors?

Is it that you read the Horatio Alger books and therefore you, what is it?

- My story is I had to.

I just had to.

- Why?

- I wanted to break the mold of what I came from.

I desperately wanted just five days with my mom and dad and my sisters just on the sand.

I would do anything.

I would make 80 calls on anything.

I just desperately, my dad was in a coma, my mom got breast cancer, he had an amputation.

I just had to sell a set of Cutco knives so I could help them.

I had to.

- Where did you go on that vacation?

- We went to St.

Pete Beach, Florida at a great hotel there called The Tradewinds.

I'll never forget that.

For me, Nido-- - Did it cost 700 or 695?

- I'm not sure.

- 705?

- He paid the bill.

He paid the bill.

- But you made it happen.

- And it was an ocean front hotel room.

So yes, we made it happen.

But for me, it's something I was born with and it's something I love.

So for entrepreneurs, I say you gotta have it and you gotta love it.

You know, that's why I love it.

I wouldn't change a single thing about it.

- Yeah.

It's the spirit that built America in the first place, right?

- Rock of it.

- It's why we celebrate Thanksgiving.

Pilgrims celebrate Thanksgiving to give God the glory because they planted the seed and they celebrate the harvest.

And sometimes we forget that.

We think it's about turkey and dressing and it's not.

- I understand what you're talking about.

And you have the energy to prove it and the determination, the resilience to do it when the heat is on, to make decisions.

How do you manage risk?

- Risk management.

Really, I think about risk in two ways.

One, if we're not risk-taking, we will die.

And people are scared of risk.

Change is the most powerful word in the English dictionary, I think.

But without change, you cannot develop, prosper, or grow.

So we have to take risk.

The way we look at risk is calculated risk.

We look at what the downside implications could be, but we look at what the upside could be.

So whenever we look at taking a risk, we start small.

We start small and we see, is it picking up traction?

If it is picking up traction, we double down.

- Go for it.

Yeah.

I understand.

- You understand risk.

- Yeah.

- Well, I've talked to you for a long time.

I'm intrigued by your ideas.

I'm intrigued by your determined results, success and significance.

And I thank you for being with me today on Side by Side.

- Thank you, Nido.

This is a privilege.

(upbeat music) ♪ ♪ - Funding for Side by Side with Nido Qubein is made possible by Coca-Cola Consolidated makes and serves over 300 of the world's best brands and flavors locally from 13 facilities and 4,500 hardworking teammates.

We are Coca-Cola Consolidated, your local bottler.

- The Budd Group has been serving the Southeast for over 60 years.

Specializing in janitorial, landscape, and facility solutions, our trusted staff delivers exceptional customer satisfaction, comprehensive facility support with the Budd Group.

- Truist, we're here to help people, communities, and businesses thrive in North Carolina and beyond.

The commitment of our teammates makes the difference every day.

Truist, leaders in banking, unwavering in care.