How PE-Backed Canopy Service Partners Buys Tree Care Companies

TRANSCRIPT

Monica Hemingway: Welcome back to the Tree Care Business Show. I'm Monica Hemingway with Tree Care Marketing Solutions. In our last episode, David Mitchell from Hoss Tree Advisors walked us through the seller's side of an M&A deal in the tree care industry; what's your business actually worth, who's buying, and how to get the most when you sell. Today, we're flipping it around to the buyer's side of the table.

Joining me is Jonathan O'Connor. He is the Chief Financial Officer at Canopy Service Partners. Canopy is one of the more active consolidators in tree care right now. They're backed by Alpine Investors, and they've brought together 19 local tree care brands just since 2023 - all the way from California to Massachusetts, coast to coast - and they are still actively buying.

Jonathan and I go back a little bit, sort of. I've known Sam Cubeiro over at Canopy for years (he's the head of partnership development) and I invited him onto the show. He pointed me to Jonathan instead, saying that Jonathan's really the right person to dig into the finance side of things, the deals, and what Canopy really does. So, Jonathan, thank you for taking the baton from Sam, and welcome to the show.

Before we dig in, let me just say a few things about Jonathan. His path here has been a little different than your average PE-backed CFO. He was Chief Financial Officer at OGD, a nationwide garage door company, right before coming to Canopy. And before that, he was on the advisory side, doing M&A for home service and commercial service companies at BlackArch Partners. And before any of that, he did something most of us would never have dreamed of — he spent several years in Burundi, East Africa, where he co-founded a healthcare nonprofit called LifeNet International.

So we've got a guest today who's sat on the advisory side, the operating side, and a very different side entirely.

Today, we're getting into what Canopy looks for in a tree care company, how their process works from the very first point of contact to the close of the deal, what changes for you and your team after the deal is signed, and how Canopy says it's different from the other platforms that are circling in this industry right now. And with that, let's just dig right in.

Monica: Why don't we start with Canopy Service Partners. In your own words, what is Canopy and how is it different from all the other PE-backed platforms out there?

Jonathan O'Connor: Yeah. So a little bit of the backstory. Canopy was started in 2023, backed by Alpine Investors, which is a private equity firm based in San Francisco. Since then, we've built a partnership of about 20 tree care companies across four regions — literally coast to coast at this point. We've got a little over 500 employees, and we've really reached some scale pretty quickly.

I always start with our values. We have three main values at Canopy: a growth mindset, collaboration, and integrity. We try to make those more than just words on a wall. In team meetings, we'll call out examples of living out our values — it's something we try to take seriously.

For example, we were chatting with a seller who was in a removal-heavy business. We were talking to him about PHC, and he wanted nothing to do with it. Then a year or so later, we followed up on that conversation and he said that the PHC stuff was really actually selling and helping his business. That, to us, is an example of a growth mindset. Nobody's got the best idea, but we let the best ideas rise to the top over time, and we're all willing to figure out the better way together.

We also tend to give our operating partners a lot of autonomy. We're there to provide support — whatever they need to win in that local market: sales coaching, marketing help, pricing help, back office support. But we really rely on those local leaders and allow them to thrive in their market. If I were to sum it up, we're really committed to building a good business and a good platform of the best tree brands out there.

Monica: You're competing with a lot of other companies that sound remarkably similar. We'll come back to the "why you" question at the end.

Jonathan: Okay.

Monica: So you mentioned that you were at OGD — Overhead Garage Doors — and you've also been at BlackArch, more on the advisory side. You've seen different aspects of this process from the buyers, the sellers, the operators, the people bringing them together. How has that shaped how you personally think about deals now that you're on Canopy's side of the table?

Jonathan: At BlackArch, I sold businesses and specialized in essential services — HVAC companies, restoration, all that sort of stuff. The majority of our clients were private equity-backed companies, but about a third of them were founder-owned. That let me see a lot of what it looks like on the other side of the table from a seller's perspective, and that's shaped a lot of what I do today.

Internally at Canopy, that experience really helps me think like an investor. I've got that mindset of, hey, when we go to find our next investor, what are the questions they're going to ask? What are they going to be looking for? We can embed that into how we're operating today.

From an investor's perspective — just to make it a little more tangible — there are things like your CapEx strategy, your net working capital, how you think about the types of revenue that you generate. A dollar of revenue is not the same. If you have a dollar of recurring revenue in a PHC contract or a commercial contract versus a dollar of reoccurring revenue — a customer that calls every 12 months — versus a one-time removal job where you'll never see that customer again, those are very different types of dollars, and they get valued differently on the back end.

On the other side, that shapes how we do M&A. Because I've worked on the seller's behalf for a big chunk of my career, I can — while representing Canopy — also understand their point of view and where they're coming from. If you take something like net working capital, which is a very confusing concept for a lot of people — even people with fancy MBAs don't understand it — I can go talk to that seller and really help them understand what the legal agreement is actually saying in nuts and bolts. I can see their point of view and sit on both sides of the fence through some of that experience.

Monica: You mentioned investors several times. For people who may not be familiar with private equity and the role it's playing in our industry right now with organizations like Canopy, what do you mean when you say investors, and how does that fit in? Can you break that out for us?

Jonathan: Sure. Let's say I'm in a tree care business, and there could be a variety of reasons — I want to retire, or I want a partner to take me where I know I want to go. So you want to sell your company. Who do you sell it to?

Let's break up the different buckets. You could sell to a larger competitor. You could sell to another entrepreneur. You could sell to a family office — somebody that has already made a lot of wealth and is investing privately. But your biggest pool of buyers outside of another competitor would be somebody backed by private equity.

What private equity does is raise money to make investments. We have teachers' endowments, firefighters' endowments, a lot of service worker retirement funds that will invest in a private equity fund. That private equity fund turns around and makes investments in companies. That's what Alpine is — our partner here. As a seller, you're not going to see them very much along the way. I do a lot of the interfacing with them, but as a seller, they're kind of behind the curtain writing the checks. They do help us get the resources we need to make investments wisely.

Monica: That was actually really helpful, because there are a lot of terms thrown around that the typical person in the tree care industry might not have come across before. Anything we can do to demystify it, the better. So you've got this fund and you're going out looking for ways to invest it. I'm assuming you're looking for a return at some point. What are you looking for? What are the characteristics of a company that would be attractive to you?

Jonathan: At Canopy, we actually have a pretty big strike zone of companies that are attractive to us. That can range from smaller companies that might be a tuck-in — a smaller acquisition that we roll into a company we already own. But where we really start to get excited is right around $5 million of top-line revenue. Usually at that scale, our platform can be really powerful for that owner. But it's not just the size of the business — it's also the quality of the business underneath it. You might have a really well-run $3 or $4 million revenue business that would still be attractive to us.

We think about that in terms of the quality of the people — at the owner level, but also your GM, your production manager, your office manager — and the quality of your systems and processes. When you walk a yard, you kind of get a feel for how well-run the business is. Are they following repeatable processes? Are folks wearing their PPE? What does their equipment look like? Is everything clean and maintained, or is it all beat to hell and in rough shape? That tells us about your culture and the things you value.

Probably the number one thing that really gets us excited goes back to that owner or that GM — and sometimes it's the same person. Finding somebody who really has a vision for their market, who wants to grow, who is excited and energized about what they're doing and wants to take it to the next level — that's the thing that gets us most excited. We have a lot of resources we can bring to help you. But if you don't want those — going back to our values — if you don't have a growth mindset and you're just fine with the way things are, we're about winning. We want to grow and build great companies. Finding that cultural alignment is really important for us.

Monica: That's interesting. You say growth mindset, you're looking at the owner or the GM. That's very much what we work with as well — tree companies looking to grow. If they're not, they're not a good fit. So I understand what you're looking for. Are you expecting then that the owner — or the GM if the owner wants to leave — would be staying on to help guide things forward and manage that growth?

Jonathan: Absolutely. We like it when everybody is staying — that's our preference. Everybody's energized, everybody's staying, everybody's excited for the new opportunity. That's the most exciting scenario. There are some select deals we've looked at where the owner is aging out, but they've got a really solid GM who has been functionally running the business and that person is excited. But if you don't have at least the GM, that's probably not the deal for us. There are people out there who will buy that situation, but we're not in the business of running your business. We want you to do that in your market. You know the market, you know the customers. In certain situations it could be a fit if you had a really strong GM sitting behind you, but that's the exception.

Monica: So you're looking for leadership that's going to stay.

Jonathan: Absolutely.

Monica: What about geography? A lot of companies will focus on a geographic area. It doesn't seem that's the case with Canopy — you've covered both coasts. Any particular areas you're most interested in, or is it more opportunistic?

Jonathan: It's a little bit of both. We can invest anywhere — there's no rule that constrains us. But my first priority is building density in the regions where we're already operating. We've got a couple of clusters there. Once we build that density, we look at where we want to build next. Sometimes that's something you can plan for and sometimes you can't. I might get a great call from the best tree company in Arizona, and I'm going to take that call and have that conversation even though we don't have anything in Arizona right now.

But if I'm going into a new geography, it probably needs to be a somewhat larger asset, or I need to see a path to — say, five deals in two or three states — where I could build density pretty quickly. Part of our model is that for each region we have, there's corporate-level support sitting behind it: sales, marketing, operations. We want to make sure we have enough companies in that region that we can adequately support them and give them what they need.

Monica: When you say support — sales, marketing, processes, operations — that's one of the areas where we see a lot of companies that could be more profitable or more successful, even at $5 or $10 million, but the processes aren't fantastic. Would that still be attractive to you? And what kind of support are we really talking about?

Jonathan: It gets back to that leader and their growth mindset. If they're saying, hey, I've been on paper forever and I'm not changing — that's probably not the right fit for us. But if they're saying, hey, maybe I'm second generation in this business, my dad did it on paper, I see the future, I see where we're going, we need help doing this — because it can be scary as an independent operator to convert to electronics, to the iPad, to all that stuff. It's financial risk. It's operational risk. It's a lot to take on by yourself. But if you see that's where you want to go, well, it makes a lot of sense to partner with somebody that's done it 20 times. We know the hiccups. We know how to run that process.

We use a CRM designed for the tree industry. One of the first things we do in integration is get you on our operating system and our financial system so we can keep better financial records and have visibility into how the business is performing. But it's also about introducing you to our operating rhythms. On one hand, we don't want to change your autonomy — you're still running your business. On the other hand, we want to align the way we operate together.

That could be weekly meetings with your regional president, some larger monthly team meetings, and regional summits — which are one of my favorite things we do. We bring together owners, GMs, and office managers and get everybody into the same room. The ideas that come out of those sessions are just incredible to me. Maybe you have a business challenge in your market — you're trying to figure out your pricing strategy, your labor management, your CapEx. I'm not an expert in all those things, but I've got 20 other people with a lot of experience in this industry. Bring everyone into one room and the knowledge sharing that comes out of that is pretty special.

Monica: That is fantastic. There are so many owners who feel alone. They may have other contacts in the industry, but they're still running their own business. When you get a bunch of people together in a room to talk about their businesses, the issues, and the solutions they've found work — and then being able to share all of that — it ends up as so much more than just the sum of its parts. There are some networking and mastermind-type groups around, but with them all being part of Canopy, that's a really nice added benefit. 

So one of the things I've found is that companies are pretty attached to their CRM, or they hate it — it seems to be one or the other. What if they don't want to change some of those things? Is that a deal-breaker?

Jonathan: On the CRM, we do operate two, so there is some flexibility. If you're more PHC-heavy, we have one that's a little more catered to that. Otherwise, everyone is on the other one. But that is table stakes for us, because we want everybody defining our KPIs the same way. If we talk about revenue per man hour, the number of estimates written that week, the number of estimates closed, average ticket — we want everybody defining those things the same way. If you're not including something in your average ticket calculation and it makes yours look way higher than mine, then we're not talking apples to apples. And talking apples to apples across everyone is what enables us to help each other — to identify who's performing well, who's not, and how we can bring everybody along.

Monica: That makes a lot of sense. The clients we work with use — we're probably working with 20 different CRMs and everyone defines everything differently. It can be a hot mess, basically.

Jonathan: That's right. And I'll say — we have a team dedicated to this that knows a lot about how it works. Every CRM has their help desk, and that's great, but I always found those people are kind of half helpful. You really need somebody who's living it day in and day out, who knows how an operator uses the CRM, to understand the nuances and help you troubleshoot and integrate it the right way. And really, the goal of all this is to get that GM and the team more broadly data they can see and use to improve their business. That's what we're doing.

Monica: Data is so important and it's not always a priority when you're deep in running the business, so it's good to have that support to back it up. So we've talked about a couple of things that sound like red flags — you would not be interested in a company where leadership is looking to exit, one that doesn't have good processes in place or isn't willing to adopt more modern approaches, one that doesn't have the processes to support the business and isn't willing to change. Any other red flags — things that would make you say “that's not really what we're looking for”?

Jonathan: Yeah. And with all of these, a red flag is not a no — it just means we need to talk about it. The one that's probably the closest to a hard no — and actually it is a hard no — is if you have a lot of non-verified labor in your workforce. That's something we can't work with given our structure. We don't think that's the best way to run a business or care for people. But we can also work with you on it — there's one company we met with that did have significant non-verified labor, and over time they worked to get those people verified, or to replace them with verified labor. So that's probably the biggest hard-stop item.

Subscale businesses — or what I'd call business maturity — would be another. That gets back to people, processes, and systems. 

Some others are more yellow flags. If you have a lot of recent storm work, it becomes really hard to value your business. You might say, I've got this massive profit — pay me for that. But from my side, that's not going to repeat itself; it's going to go right back down next year. Those are hard to work through.

Safety is another big one for us. Do you take that seriously? Do you have a culture around it? What's your record? CapEx is another — we can talk about it, but if the day after I close I've got to buy $3 million worth of equipment, well, that's cash out of my pocket that you should have been putting into the business over the last few years. And probably the last one: utility work is not really for us. Commercial, residential — all fine. But utility work is a sector we don't play in. You have to be pretty specialized to work in that segment.

Monica: So it's as important for somebody to know that maybe they're not a good fit as it is to know what is a good fit. Hope is not a business strategy. 

What does the process typically look like? Somebody hasn't triggered any red flags — they've approached you, or do you approach them? How does that work?

Jonathan: Both ways. We'll have folks reach out to us, and we also have teams that are reaching out to owners on our behalf. And sometimes if a seller has an advisor — a small investment bank or a brokerage — they all know who we are, so we get a lot of calls that way too.

Where we typically start is building the relationship and building trust. Trust is a very important factor. Going back to my banking days — all deals are hard. It's really hard to sell your business. It's demanding of your time. It's emotionally very demanding. This is one of the biggest decisions of your life — you've been building this business for a decade, maybe more. It's a really big deal. We really value building that relationship up front — you getting to know us just as much as we're getting to know you. Sometimes we'll start that conversation and it might be a couple of years before you're ready to transact. That's totally okay. If you already have an advisor or a banker, it might be a more accelerated process — but that's really the start of it.

Once we get to a point where you're ready and you say this seems like a good fit, we usually ask for a couple pieces of information. Your last three years of financials, some high-level information about your service mix — how much is residential versus commercial, how much is general tree care versus PHC. We like to come visit, too. With some data from you, we can come out, walk your yard, chat for half a day. Then we go back and do some analysis on our end — looking at the trends of your business: what has your revenue done, what has your gross margin done, what does your OPEX look like. Those sorts of things.

We might have a few follow-up questions, but it's usually pretty abbreviated. Once we have that information, that's enough material for us to go to our investment committee and say, hey, we'd like to buy this company. Coming out of that meeting, I can give you an LOI — a letter of intent. That's a more formal document saying, yes, I would like to buy, here's how much I'm willing to pay, and here are a few high-level terms and conditions. It's a little lawyerly, but it's pretty simple — a couple of pages.

If you agree to that — sometimes there's negotiation back and forth — then you sign and we enter a period of exclusivity. That's typically 90 days, sometimes 120 — three to four months. Think about buying a house: you go under contract and you have your due diligence period where you figure out if there's anything concerning. During that exclusivity period, that's where we go a little deeper. It does get a little more time intensive, but we try to make it as efficient as possible.

That's where we'll really dive deep into your financials. We'll do what's called a quality of earnings report — that's where we have an accounting firm come in and analyze all of your financial statements. They'll have questions about various trends. If you have personal expenses running through the business — say, season tickets to the Panthers — we'll add those back. That gives you more earnings for us to pay you on, so that makes the valuation go up. But there are also things that can make it go down — if you were paying half your office staff in cash off the books, that's a real cost of the business that we have to account for. We're just trying to be fair to everybody.

There are a couple of other pieces of due diligence. We'll look at your equipment in more detail — have you invested in it, have you kept it up, do you need more? And if all of that checks out, we'll start negotiating the legal document — the purchase agreement. That's the terms and conditions of the sale. 

Once we've agreed on value, completed due diligence, and negotiated the purchase and sale agreement, we're ready to close. That full timeline — we can go as fast as you'd like — but generally it takes three to four months. Could go out to six. Could be shorter. A lot of it just depends on how organized you are and how fast you want to move.

Monica: In your experience, does having a seller's representative of some sort help that process or hinder it?

Jonathan: Great question. Let's talk about the seller's advisory team — because that's really what you need. A couple of components. One: you need a really good lawyer who has done M&A work. Do not hire Chuck, who's been your real estate attorney for the last 30 years. That is the worst thing you can do — it will destroy value for your deal, and it might cost you the deal. I've seen a couple of deals almost fall apart because the seller chose a lawyer who didn't know what they were doing. Get good M&A counsel. If you can take away one thing from this, do that.

Behind that, having a good accountant in your corner is really helpful. It should not be the person who does your taxes — that's not who you want — but they could probably find you the right person at their firm. That person is going to help organize a lot of your financial documentation and make sure it's complete.

The third thing is a tax advisor who's going to help you think through your approach. You're about to receive a lot of money. A subset of that: sometimes owners want to give their GM or office manager — someone who's been with them a long time — some sort of bonus. If that person doesn't own equity at the exit, there are IRS guidelines and a bunch of tax considerations around that, and you want it to be efficient for everybody. Your personal financial situation is going to get more complicated. Having that tax advisor in your corner is really helpful.

The last one is kind of optional depending on your size. In the world of business brokerage, it is the Wild West. There are some really excellent brokers out there who can really help you through the process. There are some that are detrimental. The larger you are, the more you should seek out a real advisor. Hoss Tree Advisors was on a prior episode — they know the industry well. There are good ones out there. But you're probably looking at around $5 million in top-line revenue before you'd really be considering that. It also doesn't hurt to go have a chat even if you think you're on the cusp — a firm like Hoss or others can help guide you as to whether working with them makes sense.

Monica: And also give you a realistic preview of what your business might really be worth. As owners, we tend to think our baby is worth maybe more than it might be to an investor. I know from having sold a business myself that there can be a lot of emotion involved. How much of a role does that play in this process?

Jonathan: A ton. Going back to a couple of the points we touched on earlier — that's why it's so important to me to build that relationship up front and know you have a high-integrity person on the other side of the table. Because if you don't have that, hang on to your business.

Look, it is emotional. There are going to be a lot of terms — most people don't think in terms of EBITDA. There's going to be net working capital, which we touched on earlier, that can be very confusing to figure out. There's a lease, there are all sorts of things that are going to get thrown at you all at once, high intensity, and you're trying to get this across the finish line. And inevitably you still have your day job — people calling you, trucks breaking down, equipment breaking down, people wanting raises. It is a lot on you as a human. We always try to be very mindful of that. At the end of the day, people drive everything. If things are feeling too intense and we just need to pause for a week so you can catch your breath — go do whatever makes you happy —

Monica: Have a few beers…

Jonathan: Then let's do that, pause, and pick it back up. Just be mindful. See each other as people. This is not just a transaction. We appreciate that this is a very meaningful event for you, for your family, for your employees. There's a lot there. We try to be mindful of that and not get lost in what might be in Excel.

Monica: It is easy to just focus on the numbers and forget that there are real people behind that. So — you've said 20, the website says 19 companies.

Jonathan: Yes.

Monica: Any new ones coming up that we should know about that aren't listed yet?

Jonathan: None to announce right now.

Monica: Okay. So getting back to the topic — I know we're hitting the end of our time. You've gone through the process, the deal is closed. What does life look like for the owner after that?

Jonathan: The first 90 days, we're really focused on the integration basics. Converting you over to our CRM platform, getting your financials on our accounting software, shifting over bank accounts, getting payroll and benefits — all that needs to migrate over. There's a lot to do. But we have a lot of experience doing it, and having done it so many times, we try to make it as easy on you as we possibly can.

Alongside that, it's really the introduction into the Canopy operating model — the rhythms of what we do and when. Here are some KPIs we like to look at: revenue per man hour, the number of estimates sold, our conversion rate, how we look at gross margin. Educating you on the things that, when done well, really drive the growth of the business.

The second piece is the meeting cadence. We're very scorecard driven. The regional president — the person who manages an area of brands for us — will meet with you weekly and walk through a scorecard. We do red, yellow, green on all of our different KPIs. We celebrate our greens, and if something's yellow or red, we game plan together. What's the path back to green for this metric? If leads are down, let's talk to marketing and see what we can do to drive more digital leads in the next month. Or if a sales arborist seems to be struggling, let's bring in our sales manager to do a ride-along. There are a lot of different things we can do. Those weekly scorecards are the most fundamental unit of rhythm — meeting, watching our KPIs on a weekly basis, making sure we're tracking.

That builds up into monthly meetings where we'll review the business together: how did we do, where are our wins, where are our opportunities? And beyond that, our regional summits — a couple of times a year where we get the whole region together. There'll be training — sales training, approaches to PHC renewals — and it's also a space to bring your business challenges and think creatively together about how to address them. So that gives you your rhythm of what it means to be part of Canopy.

But let's also talk about what's not happening — because that's just as important. We're not coming in and messing with anybody's pay. We're not coming in and saying fire all these people. We're really not trying to disrupt the actual business itself. It's still yours to run. You're still the owner of that P&L. We're here to provide resources and accountability to help you grow and really realize your vision for your company.

Monica: So longer term — this is an investment on your part, you're looking for a return at some point. How does that work?

Jonathan: After we get out of the first 90 days, we'll start to craft a real vision together of how big you could be. That unlocks a lot of exciting opportunities, especially if your core business is performing well. That could be coaching your production manager, or maybe you need somebody with the next level of skills to really professionalize things. Maybe there's a smaller business nearby with an attractive customer list whose owner wants to retire — we could talk about a tuck-in acquisition. Maybe there's a segment of your city on the other side of town where you want to open a satellite location so your trucks aren't driving all the way back and forth across town in traffic all day. There's a lot we can unlock together once we get past the initial integration and can really start to dream about what's possible for the future.

At a bigger picture level — how private equity works: a private equity firm makes an investment in Canopy, and we in turn make an investment in our partner companies. Typically a private equity firm holds their investment for somewhere between five and seven years — some do a little shorter, some a little longer, but it usually rhymes with five to seven. 

Whenever that window comes, they'll typically sell. In Canopy's case, we would probably sell to another private equity firm. When you sell to the next PE firm, you get more capital to deploy, to do more M&A and really grow the platform. Sometimes PE firms have different specialties — digital marketing, operations management — so you get access to a new level of tools to help you and your partners grow further.

So Canopy will probably be somewhere on that track when it's time. But we're not really focused on a particular date or deadline. We're more focused on building a really good platform in the tree care business — something that we're all proud of, that really creates value for our partner companies, their employees, our customers, and their communities. Build a good business, and the exit will kind of take care of itself if you focus on those things.

Monica: So what happens to the owners? Two questions. Do you rebrand as Canopy, or do they stay as their own brand? Sometimes you'll see a company keep their name and it'll say "A [Company Name] Company," and then two years later the name has been changed and everything is the same.

Jonathan: Yeah, I understand the question. When Canopy buys a partner company, we have not done any of that co-branding. You just keep your name — Monica's Tree Care, let's say. Nobody knows the difference. Your customers don't see Canopy on anything. And when Canopy goes to sell, everybody goes with us. We all go together when we pick our next private equity partner. As a GM or former owner running one of our partner companies, you're not going to notice much difference. There'll be an announcement that we have a new private equity partner, and that's about it. Canopy doesn't go away. You don't go away. Everybody keeps doing what they've always done. It's mostly on the back end where you see the difference.

Monica: And do the owners get anything out of that?

Jonathan: Yeah. When you sell your business to Canopy — or any platform — let's say I buy your business for $5 million. Oftentimes, not always, but oftentimes you'll have the opportunity to do what's called rollover equity, or co-invest — people call it different things. Basically, it means taking a portion of your $5 million — making up a number here, but say $1 million — and reinvesting that in Canopy as a platform. You no longer own your individual business, but now you own a million dollars' worth of Canopy. When Canopy goes to sell, that million dollars goes up in value, and you'll cash out of that when we sell to our next private equity partner. People in the industry call it the second bite of the apple — the second payday at the point when Canopy sells.

Monica: And are owners required to do that, or is that voluntary?

Jonathan: That's always done on a case-by-case basis. We look at the individual target and the individual who's selling. We see it both as an opportunity — because we think it's a great investment, otherwise we wouldn't be here — and also as your skin in the game. If somebody said, hey, I want to take all my money and run, that actually throws up a yellow flag for me, because it makes me wonder: why are you trying to get out so fast? What are you not telling me about your business? We want people who are eager to invest because they believe in themselves, believe in their business, and believe in where Canopy's going. That gets back to that idea of partnership and who makes a good fit.

Monica: You've said "partner" a lot of times. I haven't really heard you say "acquisition," which is what you hear from some people in your position — they are acquiring as opposed to partnering. Is that an accurate description of how you do things, and is it genuinely different from others?

Jonathan: Yes, it is intentional. An acquisition just kind of feels transactional — it's just dollars and cents in Excel, and that doesn't match reality very well. If I'm seeing you as just a transaction, just another business I'm buying, that doesn't feel right to me. I want to truly partner with people I want to work with — good operators, good people. That's why we think of it as a partnership. It takes both of us as part of a team to achieve the success that everybody wants. I can't go cut down a tree, and you're probably not going to close your own books. We both need each other. We both bring something to the table. There's a certain dignity and integrity to that, and it's a good form of accountability too. As partners, I need you to show up and do what you said you're going to do, and I have to do the same. We're not perfect — we're all human — and so we give grace for that, and we'll work together when we fall short.

Monica: How do we get back on track? It is a very different approach than a purely transactional — I have bought you.

Jonathan: I own you.

Monica: Exactly. You're going to do as I tell you. So — looking at all the other platforms out there, the Tree Guardians, TreeServe, SavATree — everybody's out there buying. There's so much consolidation in the industry right now. And they're all saying very much the same things, with their own spin. How do you pitch yourself differently? If somebody was considering Canopy versus one or two of these other companies, why would they go with you?

Jonathan: Look, I don't know the ins and outs of what others are pitching versus us. But what I would say to somebody thinking about selling is: really do your diligence on your partner. You can have somebody throw out the highest value — and we've seen deals like that, where somebody comes out with an outrageous number. But usually within the group of serious buyers, we're all going to be pretty close. If somebody's way out there, you need to ask: what did they see that nobody else did? And you need to make sure the offer is real. From my years in banking, it was very rarely the top bidder that actually closed the deal. People will throw out a number to get your attention and then retrade you once they get into diligence, or they'll walk away entirely.

But setting that aside — get to know them. Going back to that relational piece: is this somebody I want to work with? If I'm not here anymore, is this somebody I want my long-time employees to work with? Do they seem high integrity? Ask to talk to two or three sellers they've already partnered with. Not from their perspective — from the partners'. Don't take my word for it. Go call a couple of people we've partnered with. We're always happy to provide references. I think as an owner, the people at the top have their view of things. But digging in with actual partners is going to give you the picture you're really looking for.

In the broader home services space, there are certain platforms that came in and changed your brand entirely — scorched earth. You're going to run all our processes, do it exactly the way we want, and if you don't like it, find someone else. That works for some people — there's nothing wrong with that if it's the right fit. That's just not our approach. We want to keep your brand, your people, and you in the seat. You'll uncover through the relational due diligence what the best cultural fit is for where you are and where you want to go.

Monica: Good advice for a lot of things in life — but especially when it's something as important as selling your life's work. I know there are going to be owners out there who are on the fence about selling to private equity at all, or may not even want to take those calls. What would you want them to know? What would you say to them?

Jonathan: I don't think that's a bad answer — if you say this isn't for me, that does not hurt my feelings, and it might genuinely not be for you. But if you're on the fence, have a conversation. If you get in touch with us, we're not going to harass you. We will have a conversation. I can tell you if your concerns are real or not. We're very open to that. Some people we talk to for a couple of years before they're ready. That's totally fine.

But I will say: push yourself to have those conversations earlier than you think you need to. You see this a lot — somebody's like, I'm just going to grow just a little bit more, just a little bit more. And then they're exhausted. They've got no gas in the tank. By the time they get to me, they're like, I just want to quit and hand it over. And it's like, okay, but I need a leader. So I'd encourage folks to put a toe in the water. It takes time to educate yourself, because this is a world you don't live in day in and day out. Learning things like EBITDA, learning the trends we look at — getting your advisory team set up — all that takes a lot of time. Take it bit by bit. Start those conversations early so you can educate yourself and make the best decision for you, your family, and your business.

Monica: I like that advice. So often we're focused on how we can get the best deal and worried we're going to get taken advantage of. Doing that research and getting to know different players in the industry is hopefully going to alleviate some of that worry — that fear that you're going to get taken advantage of. The more we all know about it, the better the relationships and the outcomes are going to be for everybody.

Jonathan: That's right. I'd just go back and underscore my point from earlier: the best way to protect yourself is to have a good M&A attorney. If you hire your real estate attorney, he or she doesn't know M&A. That advice is worth every penny you pay for it.

Monica:I think that is a good place to leave things. All right, Jonathan, this has been really fascinating. It's always so helpful to look behind the curtain and see what's going on that we don't normally get to see. We covered what you're looking for, how the process actually works on your end, and what changes after the deal is completed. If people are curious about learning more about Canopy Service Partners or getting in touch, I'd encourage them to go to canopyservicepartners.com, and they'll be able to reach out from there. Thank you very much, Jonathan. This has really been a pleasure.

Jonathan:vLikewise.

Monica: Thank you so much for that, Jonathan. After this episode, if you've been getting these types of calls yourself, hopefully this has given you a clearer picture of what's actually happening on the other side of the table. Check the show notes below for everything we covered today. And if you haven't already, go back and listen to the episode with David Mitchell to take a look at what it's like from the seller's side of this same conversation.

If you liked this episode, give us a thumbs up on YouTube or your favorite podcast platform, subscribe, and we'll see you next time on the Tree Care Business Show. We've got a lot more episodes coming up, looking again at both sides of the mergers and acquisitions story within the tree care industry.