Authentic voices #5

The history of an industry in one man's tale, that's what it was. My friend Doug Cassidy hooked me up with Ed Latek in the summer of '03. I turned on my digital recorder and Ed took it from there.

It was 1959, in the south suburbs of Chicago, when Ed's dad started a rental business on the side while finishing his career working on telephone equipment at Illinois Bell. "I'm a senior in high school," Ed says. "Mom runs the store during the day. I get out of school at 2 o'clock and go straight to the store. I run it the rest of the day and close up. Dad runs it on weekends."

Ed ran the store all that summer and then went off to St. Joseph's College in Indiana to major in accounting. In the middle of his sophomore year, the American Rental Association (ARA) brought its annual convention to Chicago and Ed cut classes to attend. He roamed the exhibition floor with lust for a Cub lo-boy tractor and an air compressor, among other things. His wish list grew to $10,000, which was about $10,000 more than he had. So he arranged a second lien on his dad's house.

After graduating with an accounting degree in 1963, Ed attacked the rental business for real. As he grew his dad's business into a multi-branch Chicagoland franchise, he was irritated by one thing: no one would let him borrow money using future revenues as collateral-- not the banks, not the finance companies, not the equipment manufacturers themselves. To Ed, there was not a surer bet in the lending business; if you bought $10,000 worth of equipment this year, you'd make it all back the next year, and that same equipment would continue to make money for you another 10 or 15 years. In the early 1970s Ed sold the family business and got ready to become the banker for the industry himself.

He started Reli Financial Corp., where he borrowed money from banks and loaned it back out to rental companies. At the ARA conventions, Reli was the only finance company on the exhibition floor. Ed describes it:

I had a booth that looked like a bank. When they opened the doors, everybody lined up at our booth. Every year I would take some of my bankers to the convention so they could see what we were doing. Every manufacturer in the world was there. And we were putting millions of dollars on the floor. By the time I got back to Chicago, I would have messages from the banks upping my line by two million, three million dollars.

In 1985 he sold Reli to a major insurance/financial services firm. He was ready to slow down, but the third phase of his business life was already kicking in. Before he knew it, he had structured a merger between two rental companies in Salt Lake City, done a couple of acquisitions in Southern California, found a buyer in upstate New York for a renter who wanted to retire, put together a deal in Houston. He was starting to look like an investment banker, and in 1990 he made it official it by forming Latek Capital Corp. In short order, he became the man in the middle of the consolidation wave, connecting the roll-up interests with the fragmented owners. In many ways he was undoing what he had spent decades putting together. But he was a money guy, and he understood how money worked:

It took us 40 years to get where we were as an industry, and in three years it turned upside down. All the leadership of our industry was taken off the table. No matter how much you wanted to hang onto your business, you couldn't do it. You had to sell. There was just too much money on the table.

It hasn't been the happiest of times for Ed, but he has a healthy respect for extracting value the founding generation never imagined.

When I started out, everybody in the business was my father's age. And they were all like fathers to me. Now, someone I've known a long time calls and says why don't I stop by the next time I'm in the neighborhood. I know what that means. So a few weeks later I give him a call and tell him I'm coming to town. We go to dinner. We talk. We think out loud. We pull his financials together. We figure out what we think the value of his business is. We compute the tax implications of selling. We consider how it's going to affect the rest of the family. We both know he wants to sell. That's why he called in the first place. But now we have it all laid out and he says let's go ahead. So we develop the buyer. We educate the buyer on our industry. Then we finally bring them together. Those transactions take a long time. We're closing on a deal next week. I started talking to the owner over a year ago. After about six months I felt like I had a good reading on it. I put it together about a month after that. Here we are now, eight months later, finally ready to close. And I started financing this guy in 1981. I know him. I know his family. I find a buyer who's a good match. And that's what it's really all about.