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Doug Braunstein on Investment Banking (Podcast) · Masters in Business

0:02
Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg
0:06
Speaker 1: Radio this week on the podcast. I know I say
0:10
Speaker 1: it every week, but I have an extra special guest.
0:13
Speaker 1: His name is Doug Brounstein. You may recognize the name
0:17
Speaker 1: from his years at JP Morgan Chase, where he not
0:21
Speaker 1: only served as Chief Financial Officer, but he was also
0:25
Speaker 1: head of Investment Banking Global M and A a member
0:28
Speaker 1: of JP Morgan's executive committee. Doug is currently founder and
0:33
Speaker 1: managing partner of Hudson Executive Capital. UH. They are, for
0:38
Speaker 1: lack of a better word, an investment firm, private equity firm,
0:41
Speaker 1: a little bit of an activist firm. They manage about
0:44
Speaker 1: one point six billion dollars UH, and they have recently
0:48
Speaker 1: become quite the active spack underwriter. Their first spack UH
0:54
Speaker 1: did really well. It's up about twenty eight percent or so. UH.
0:58
Speaker 1: Their second spack launched last year, and their third spack
1:01
Speaker 1: is coming out shortly. Dog has just a unique background
1:07
Speaker 1: in the world of finance and M and a um
1:11
Speaker 1: an incredible network. He's from First Boston to Merrill Lynch
1:15
Speaker 1: to more recently JP Morgan Chase. Just just an incredible
1:19
Speaker 1: network of of people in contacts and company executives and
1:24
Speaker 1: finance people. Gives him just a unique perch to look
1:27
Speaker 1: out at the world of what companies are attractively priced,
1:32
Speaker 1: where can mid sized companies find a way to obtain
1:38
Speaker 1: capital to turn around UH their fortunes, and how does
1:42
Speaker 1: the spack structure work in in those areas. Really just
1:47
Speaker 1: a master class on the intersection of of corporate finance
1:53
Speaker 1: and company management and how to produce value for shareholders.
1:59
Speaker 1: I found this to be absolutely fascinating, wonky, UH and informative,
2:03
Speaker 1: and I think you will also so, with no further ado,
2:07
Speaker 1: my interview with Hudson Executive Capitals managing partner Doug Bronstein.
2:15
Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
2:20
Speaker 1: This week I have an extra special guest. His name
2:23
Speaker 1: is Doug Bronstein and he is the founder and managing
2:27
Speaker 1: partner of Hudson Executive Capital, a private investment firm that
2:33
Speaker 1: engages in private equity, public offerings activist investing, managing about
2:39
Speaker 1: one point six billion dollars. Previously, Doug was the chief
2:44
Speaker 1: financial officer for JP Morgan Chasing Company. Doug Bronstein, Welcome
2:49
Speaker 1: to Bloomberg thanks, Berry. Good to be with you. So,
2:53
Speaker 1: in addition to being CFO of a major public bank,
2:57
Speaker 1: you were you were head of JP Morgan's American Investment
3:00
Speaker 1: banking group, you were head of the Global M and
3:02
Speaker 1: A group, you're a member of the executive committee. Tell
3:06
Speaker 1: us a little bit about where you began your career
3:10
Speaker 1: and how you rose to those positions at JP Morgan. Yeah, So, Barry,
3:16
Speaker 1: in some sense, it was a little bit circumstance. I was.
3:19
Speaker 1: Actually I went to law school and I had planned
3:25
Speaker 1: actually be a law school professor. That was my objective.
3:31
Speaker 1: And UM, I read this remarkable article in the New
3:36
Speaker 1: York Times Sunday Business Sunday magazine section on lawyers becoming
3:41
Speaker 1: investment bankers. In it, it sparked my interest, and UH
3:46
Speaker 1: that year was the first year. UH First Boston came
3:51
Speaker 1: to campus to recruit directly, and I dropped my resume
3:57
Speaker 1: into a box because that's what you did back in
3:59
Speaker 1: the ninety eighties, and UM, and I interviewed with a
4:04
Speaker 1: bunch of bankers in the M and A group at
4:07
Speaker 1: First Boston thought it sounded incredibly exciting, and so that's
4:12
Speaker 1: where I went. I spent close to eight years at
4:16
Speaker 1: First Boston, working originally for Bruce Wasserstein and Joe Prell
4:20
Speaker 1: in the M and A Group and UH, and just
4:24
Speaker 1: had an extraordinary start to my career. Yeah, you could
4:28
Speaker 1: do a lot worse than cutting your teeth with with
4:31
Speaker 1: those two gentlemen. How did you end up at JP Morgan? Well,
4:35
Speaker 1: I took a my boss at the time at first Boston,
4:39
Speaker 1: who's running NAM and A Group, brought a bunch of us,
4:43
Speaker 1: about six senior bankers to Merrill Lynch to help build
4:48
Speaker 1: out their M and A practice. And I was there
4:51
Speaker 1: for you know, four very good years. UM. But I
4:57
Speaker 1: got a call actually from from the the late Jimmy
5:03
Speaker 1: Lee and UH. He was at Chase and they wanted
5:07
Speaker 1: to build out their investment banking businesses and he and
5:11
Speaker 1: Bill Harrison convinced me that UM I could come and
5:15
Speaker 1: make a difference. So I joined that organization UH in
5:21
Speaker 1: UH in early to run at the then time their
5:27
Speaker 1: their healthcare investment banking practice and UH to co head
5:32
Speaker 1: their M and A group. And I think the year
5:35
Speaker 1: before I joined UM, the Chase M and A Group's
5:41
Speaker 1: revenues were about thirty five million dollars UM. Yeah, I think,
5:49
Speaker 1: I think, actually Joe's Pizza Shop and M and A
5:53
Speaker 1: group probably ranked higher in the league tables. Um, and uh,
5:59
Speaker 1: you know, we we I had a wonderful We'll talk
6:01
Speaker 1: a little bit about it. I had a wonderful, close
6:03
Speaker 1: to twenty year career at JP Morgan. But you know,
6:06
Speaker 1: when when I left the role of the head of
6:10
Speaker 1: M and A, the business was doing about a billion
6:13
Speaker 1: six M about seven or eight years later. So it
6:18
Speaker 1: was a remarkable run in building out that business with
6:22
Speaker 1: the firm. Yeah, say to say the least. And you know,
6:26
Speaker 1: it's funny coming from a legal background. You you went
6:29
Speaker 1: to Harvard Law and then you spend time doing banking.
6:32
Speaker 1: That's not the usual career path to CFO at a
6:37
Speaker 1: publicly traded company. Usually it's some combination of accounting and
6:42
Speaker 1: m b A and and that side of the company.
6:46
Speaker 1: How did you end up at as JP Morgan Chase's CFO. Yeah, well, um,
6:52
Speaker 1: my first to be fair, my first exposure to Jamie
6:58
Speaker 1: was was I was helping Bill Harrison as advisor to
7:03
Speaker 1: JP Morgan in the merger discussions with Bank One and uh,
7:10
Speaker 1: actually I can I can remember distinctly, uh A quite
7:16
Speaker 1: a quite forceful conversation around the exchange ratio at a
7:22
Speaker 1: conference room table with what I knew would be my
7:24
Speaker 1: future boss, and you know, I think we UH we
7:28
Speaker 1: got to know each other quite well during that process. UM,
7:32
Speaker 1: I was fortunate enough to be UH in addition to
7:36
Speaker 1: the advisor to the company, I had the opportunity to
7:39
Speaker 1: run a number of the important businesses in the investment
7:43
Speaker 1: banking business. So at the time I was running both
7:47
Speaker 1: M and A and the coverage units. UM. I later
7:50
Speaker 1: took on responsibility for running UH number of the capital
7:54
Speaker 1: markets businesses, and I think during that time frame, the
8:01
Speaker 1: businesses I was working with did very well. You know,
8:05
Speaker 1: I think we had the opportunity to demonstrate a fairly
8:08
Speaker 1: high degree of rigor as a business matter, and I
8:13
Speaker 1: got to develop an even stronger relationship with Jamie and
8:18
Speaker 1: quite a number of the members of the Operating Committee
8:22
Speaker 1: and so UM I think when I was approached to
8:28
Speaker 1: do the CFO job, as you might expect, I spent
8:34
Speaker 1: a lot of time talking actually to my Kavanaugh, who
8:37
Speaker 1: was my predecessor in the role, speaking to literally all
8:42
Speaker 1: of the operating Committee members UM before deciding that it
8:48
Speaker 1: would be a great opportunity for me and hopefully the
8:52
Speaker 1: right decision for the bank. Huh. And I assume it
8:56
Speaker 1: turned out to be your CFO not only of a
8:59
Speaker 1: giant company, but of a publicly traded one. What is
9:05
Speaker 1: that like? Being public gets a bad rep these days.
9:09
Speaker 1: What was it like being JP Morgan Chase's chief financial officer? Yeah,
9:15
Speaker 1: you know it. I mean, to be Fairberry, I think
9:18
Speaker 1: it was in aggregate are remarkable privilege to be the
9:22
Speaker 1: CFO JP Morgan. It is a I think one of
9:26
Speaker 1: the world's great companies, and obviously I got to work
9:29
Speaker 1: directly for what I believe is one of the world's
9:31
Speaker 1: great business leaders in Jamie. Um. You know. It was
9:37
Speaker 1: The remarkable part about it is the what I believed
9:42
Speaker 1: was this in this awesome sense of personal responsibility because
9:47
Speaker 1: the company had, you know, two hundred and fifty thousand employees,
9:51
Speaker 1: and while we had you know, bankers and deal doers,
9:55
Speaker 1: you know, we had literally thousands of people in alert
10:00
Speaker 1: jobs and back office jobs, and the security teams that
10:04
Speaker 1: you know greeted you on your way into the office,
10:08
Speaker 1: and so you just you you came in every day, uh,
10:12
Speaker 1: with this feeling of responsibility to make sure that the
10:16
Speaker 1: company was both safe and secure in a good place.
10:20
Speaker 1: For them to work. We had millions of consumer customers,
10:24
Speaker 1: you know, millions of small business customers, and obviously we
10:28
Speaker 1: were you know, banked to many of the largest businesses
10:31
Speaker 1: in the world. And then of course you have a
10:34
Speaker 1: two trillion dollar balance sheet and at the then time
10:38
Speaker 1: six independent lines of business. So it was you know,
10:43
Speaker 1: it was a privilege to serve in that role. Um.
10:48
Speaker 1: You know, you worked every day to make sure that
10:52
Speaker 1: we were maintaining a Fortress balance sheet. Obviously, my responsibility
10:58
Speaker 1: in communicating with the external investors was to make sure
11:02
Speaker 1: that what we said was accurate, transparent, that we were
11:09
Speaker 1: clear and consistent with that reporting, both to the public
11:12
Speaker 1: and obviously to our regulators. UM. And the last thing
11:16
Speaker 1: that was really fascinating about the job was, you know,
11:21
Speaker 1: I took on that role right on the heels of
11:25
Speaker 1: the implementation of Dodd Frank. So, you know, at the
11:29
Speaker 1: early days of you know, a post global financial crisis,
11:34
Speaker 1: if you will, you mentioned the Fortress balance sheet. JP
11:39
Speaker 1: Morgan Chase probably came through the financial crisis better than
11:44
Speaker 1: any other bank, certainly better than any major money center
11:48
Speaker 1: bank you want, the CFO during the crisis. But I
11:52
Speaker 1: assume because of your role in M and A. Um,
11:56
Speaker 1: you were witnessed to what you know, that quick bear
12:00
Speaker 1: Sterns deal, did you pure? And what on earth was that? Like? Yeah,
12:06
Speaker 1: so it was it was Actually I did get to participate.
12:10
Speaker 1: It was an extraordinary experience. At the time I was,
12:14
Speaker 1: I was in my role of running banking and M
12:17
Speaker 1: and A, and so I ended up doing the what
12:22
Speaker 1: was a very short lead advisory assignment for our work
12:28
Speaker 1: at the company. So we knew, you know, midweek that
12:35
Speaker 1: you know, bear Stearns was having uh what ended up being,
12:39
Speaker 1: you know, a devastating liquidity crisis, and um, we originally,
12:44
Speaker 1: as you may recall, we're called by the said to
12:47
Speaker 1: provide bear Stearns alone and then literally over the course
12:51
Speaker 1: of that you know, Friday, Saturday, Sunday, we I helped
12:57
Speaker 1: to organize and lead teams around diligence and then obviously
13:04
Speaker 1: helped Jamie and the senior management in the negotiation of
13:10
Speaker 1: the actual transaction. So, you know, the process itself, given
13:17
Speaker 1: the time constraints and the risks involved, was you know,
13:21
Speaker 1: one of the most fascinated ones I've been involved with.
13:24
Speaker 1: I can imagine and then I assume a similar shotgun
13:30
Speaker 1: romance a year later with Washington Mutual. I assumed that
13:35
Speaker 1: was sort of similar, although given the overlap between regulators,
13:39
Speaker 1: I would imagine you're going into that with a little
13:42
Speaker 1: more confidence that there were no surprises than perhaps you
13:47
Speaker 1: saw at bear Stearns. Yeah, I mean bear Stearns obviously
13:51
Speaker 1: we had you know, we had this weekend they had
13:55
Speaker 1: there were businesses we were quite familiar with. But but
13:58
Speaker 1: we knew in part that if we didn't act over
14:03
Speaker 1: the course of the weekend and bear Sterns filed for bankruptcy,
14:07
Speaker 1: which they were preparing to do, UM, that there would
14:11
Speaker 1: be this cascading effect that could potentially impact many others.
14:16
Speaker 1: So were it was a counter party, right, Yeah, it
14:20
Speaker 1: was less, Yeah, there was, but that was less at
14:24
Speaker 1: issue actually for us um UH again because of the
14:30
Speaker 1: Fortress balance sheet and the vast amount of liquidity we had,
14:35
Speaker 1: you know, it had others incurred problems. We you know,
14:40
Speaker 1: we we thought we would be fine, but it wasn't
14:43
Speaker 1: necessarily a good thing for both UH, the economy and
14:47
Speaker 1: the country. And so at the time there was there
14:49
Speaker 1: was a real sense that, you know, if we could
14:53
Speaker 1: do something that was good for our shareholders and also
14:57
Speaker 1: good for the for the country that we would do
15:01
Speaker 1: that Washington Mutual was was a different set of circumstances
15:06
Speaker 1: and a different process and different regulators, as you said, Barry,
15:10
Speaker 1: and is it is it? It turned out we had
15:12
Speaker 1: taken a hard look at Washington Mutual previously and it
15:17
Speaker 1: was also, to be fair, a simpler business um and
15:22
Speaker 1: a less complicated balance sheet. And so that process was
15:26
Speaker 1: you know, less time constrained, though obviously important, and it
15:32
Speaker 1: was really run in a very different way. Interestingly at
15:35
Speaker 1: the time, if I'm recollecting correctly, the f d i
15:39
Speaker 1: C which round that process, they actually required you to
15:42
Speaker 1: bid over a fax machine, which you know, even even
15:47
Speaker 1: at the time was was unusual um. And so we
15:51
Speaker 1: actually had to put our bid bid letter in over
15:53
Speaker 1: the fax machine. UM. And you know, both of those transactions,
16:00
Speaker 1: obviously the opportunity set arose because you know, we were
16:06
Speaker 1: a fortress balance sheet and we were able to take
16:08
Speaker 1: on those businesses and I think in hindsight both have
16:12
Speaker 1: created you know, a lot of value for the JP
16:15
Speaker 1: Morgan shareholders. Yeah, quite quite interesting. Let's talk a little
16:20
Speaker 1: bit about Hudson and what they do. What what motivated
16:24
Speaker 1: you after working in a series of giant banks, to
16:28
Speaker 1: launch your own from UH, thanks for asking, Barry. It Actually, UM,
16:38
Speaker 1: it was a function of some of the most extraordinary
16:44
Speaker 1: people I had met over a thirty year career on
16:47
Speaker 1: Wall Street had been successful entrepreneurs. In fact, my wife
16:54
Speaker 1: had been a very successful entrepreneur, and and I thought
17:00
Speaker 1: that it would be an exciting and invigorating opportunity to
17:06
Speaker 1: to launch out at you know, and start my own
17:11
Speaker 1: business and UM and I wanted to do something different
17:17
Speaker 1: and exciting and energizing. And I came up with the
17:21
Speaker 1: idea of building an investment firm around the notion that
17:30
Speaker 1: I could tap into this remarkable network of current and
17:36
Speaker 1: former chief executive officers and other senior executives that I
17:41
Speaker 1: had built over that thirty year career and try and
17:46
Speaker 1: offer that wisdom and expertise and mentoring and judgment UH
17:53
Speaker 1: two small and MidCap companies where we could make an
17:56
Speaker 1: investment and and try and help those companies to improve
17:59
Speaker 1: their performance. So that was really it was. It was
18:03
Speaker 1: the excitement of doing something entrepreneurial and um and and
18:09
Speaker 1: really sort of leveraging those capabilities and relationships I had
18:15
Speaker 1: built over three decades. So so when I think of
18:20
Speaker 1: Hudson capital. I kind of think of it as one
18:24
Speaker 1: part private equity, one part underwriter, one part activist investor.
18:30
Speaker 1: Am I oversimplifying that? How would you describe it? You know?
18:34
Speaker 1: I think the way to think about it is, I
18:38
Speaker 1: think we try to take a private equity like approach
18:42
Speaker 1: to public market investing. And what I mean by that
18:46
Speaker 1: is we we invest in companies where we think we
18:52
Speaker 1: can add value by helping them from an operational standpoint.
18:59
Speaker 1: We can add you by helping them allocate capital efficiently.
19:04
Speaker 1: And that doesn't, by the way, means share repurchases are dividend.
19:08
Speaker 1: That means for small companies, you know, how do I
19:11
Speaker 1: put a dollar of investment to work in my business
19:15
Speaker 1: to optimize my return on investment for my shareholders. We
19:20
Speaker 1: we look at how to help the company reposition themselves
19:25
Speaker 1: in the capital markets, attract better long term investors, get
19:30
Speaker 1: better coverage from research analysts, tell their stories succinctly and clearly,
19:36
Speaker 1: and then perhaps the most important thing we end up
19:39
Speaker 1: doing is helping the company position themselves strategically. For a
19:43
Speaker 1: lot of these small companies, you know, they participate in
19:48
Speaker 1: businesses where scale ultimately can be a real competitive advantage
19:53
Speaker 1: and and oftentimes our investments, and the companies we invest
19:58
Speaker 1: in end up being acquired by a much larger strategic partners.
20:04
Speaker 1: So that's the that's the way our philosophical approach. It
20:08
Speaker 1: is very active, UM, but much of what we do,
20:13
Speaker 1: almost all of what we do is typically behind the scenes, UM,
20:19
Speaker 1: you know, out of public view, UH, consultative with both
20:24
Speaker 1: the CEO and the management team and the board UM.
20:29
Speaker 1: And we find if we can do that, it usually
20:32
Speaker 1: gets to the the place we want to get too
20:35
Speaker 1: faster UM and more efficiently, and it ends up working
20:38
Speaker 1: out much better for the shareholders. Interesting. So I'm going
20:43
Speaker 1: to guess with your background and your experience doing M
20:49
Speaker 1: and A for all these you know, August companies that
20:53
Speaker 1: have fantastic reputations, you develop a sense for what makes
20:58
Speaker 1: for a good acquisition and what deals work out well.
21:02
Speaker 1: Where is the value hidden that perhaps the market um
21:06
Speaker 1: is missing. But the thing that makes it even more
21:10
Speaker 1: interesting these days is then you then take that background
21:14
Speaker 1: and say you use this spack structure as the shell
21:19
Speaker 1: to make acquisitions. Hopefully that brings unlocked some of that
21:23
Speaker 1: value from the marketplace. Why SPACs. Yeah, it's it's a
21:29
Speaker 1: great question, Barry, And you know I began Hutson a
21:34
Speaker 1: little under six years ago, and we were simply you know,
21:38
Speaker 1: investing principally in public companies. Companies are already public where
21:44
Speaker 1: we could go and acquire their their shares, and and
21:48
Speaker 1: I was to be fairer. Over the last several years,
21:51
Speaker 1: I was somewhat skeptical of SPACs. The history for me
21:56
Speaker 1: with spacks was, you know, one that typically involved very
22:00
Speaker 1: troubled companies. And and UM, some very dear banker friends
22:05
Speaker 1: of mine worked very hard to convince me that this
22:09
Speaker 1: market was changing and that the skills that I just
22:14
Speaker 1: described that we use in Hudson to help position public
22:19
Speaker 1: companies would be directly applicable to these private companies and
22:26
Speaker 1: the spack structure um in going public. So UM, we
22:32
Speaker 1: launched our first spack in June of so right on
22:39
Speaker 1: the heels of you know, the turnaround in the markets
22:44
Speaker 1: following the pandemics, uh, you know, initial impact, and UM,
22:51
Speaker 1: we've been very fortunate. We we announced a merger for
22:55
Speaker 1: that first spack early in January with a company H
23:02
Speaker 1: called talk Space, which we're really excited about right that
23:06
Speaker 1: that deal is now up more than since uh spack
23:12
Speaker 1: was launched. Talk Us through the experience. What is the
23:15
Speaker 1: process like looking to emerge a company into a SPAC
23:21
Speaker 1: compared to the traditional M and A type of transaction. Yeah,
23:27
Speaker 1: it's it's actually remarkably similar in many ways to a
23:31
Speaker 1: traditional emit a transaction. So the the the important part
23:39
Speaker 1: of UH ultimately finding a successful transaction is identifying businesses
23:48
Speaker 1: in our view that have long term sustainable competitive advantage, right,
23:54
Speaker 1: because you're going to be merging with a company that ultimately,
23:58
Speaker 1: for us, we think we want to we want to
24:00
Speaker 1: look out and be successful shareholders not just at the
24:04
Speaker 1: transaction but two years, five years, ten years out right.
24:10
Speaker 1: So it's important as part of an M and A
24:13
Speaker 1: process to identify companies that you think are going to
24:18
Speaker 1: create long term value. The second piece of it is
24:22
Speaker 1: you actually have to find a great management team right
24:25
Speaker 1: to help execute that vision um. And then the third
24:31
Speaker 1: piece is is this a business that you can be
24:39
Speaker 1: an effective partner with? Right? And do you do you
24:43
Speaker 1: share a common vision, do you share a common mission?
24:47
Speaker 1: Do you think about how to build that business and
24:50
Speaker 1: create value for shareholders consistent with the management team? And
24:54
Speaker 1: you know in talk space, we you know we found
24:58
Speaker 1: each of those three opportunity sets were fantastically filled by
25:07
Speaker 1: the company. Both it's it's management, the core business, which
25:12
Speaker 1: I'll happily talk a little bit about, and UM, you know,
25:17
Speaker 1: and our shared vision of what the opportunity said is
25:21
Speaker 1: for the shareholders over time. So so you mentioned, um
25:26
Speaker 1: the first SPAC h g I one was filed in June,
25:32
Speaker 1: the second version, a g I two, came out later
25:36
Speaker 1: in the year, and you just filed for h G
25:39
Speaker 1: I three for a five million dollars back. Is there
25:44
Speaker 1: something to the rhythm of this, uh to keep a
25:48
Speaker 1: full pipeline of future SPACs tied up? Or is this
25:52
Speaker 1: just you know, a land rush these days and everybody
25:55
Speaker 1: is uh looking to do what they can do. Yeah,
25:59
Speaker 1: you know, I it is. Certainly there's a lot of activity.
26:02
Speaker 1: I can't speak to the logic behind others. For us,
26:07
Speaker 1: you know, one of the things that we have found
26:10
Speaker 1: is that our business model has created uh really even
26:16
Speaker 1: for me, I thought it would be a good level
26:18
Speaker 1: of transaction flow, it's been an extraordinary level of transaction flow.
26:23
Speaker 1: And we we source the businesses from really a multitude
26:29
Speaker 1: of sources. We have this network of my founding CEO
26:34
Speaker 1: partners almost thirty five executives that are out looking for
26:40
Speaker 1: opportunities for us to to merge with. In the back,
26:45
Speaker 1: we have a full research team that's doing bottoms up
26:50
Speaker 1: work UM that's part of the Hudson Executive Investment Team.
26:56
Speaker 1: We have what turns out to have been, you know,
27:00
Speaker 1: the benefit of thirty years on Wall Street is, you know,
27:04
Speaker 1: we've got wonderful relationships with the m and a banker
27:09
Speaker 1: community on Wall Streets, so we are getting more than
27:15
Speaker 1: our fair share of opportunities that we look at. And
27:18
Speaker 1: then my partner and I, Doug Burger on we've we've
27:21
Speaker 1: got you know, longstanding historical relationships on both the East
27:25
Speaker 1: and the West coast into the venture community, in the
27:28
Speaker 1: private equity community. So for us, raising capital is really
27:34
Speaker 1: reflective of the opportunity set we see in front of us.
27:40
Speaker 1: And we've been very purposeful in sizing those two SPACs
27:47
Speaker 1: quite differently to reflect the different size of the opportunities,
27:51
Speaker 1: so that we've got you know, the appropriate level of
27:55
Speaker 1: sponsor capital UH to really help effectuate you know, smaller
28:01
Speaker 1: and larger transactions. So for us, you know, we think
28:08
Speaker 1: this is this is a new and I think long
28:13
Speaker 1: lasting corporate finance tool that private companies are going to
28:19
Speaker 1: look to utilize. It won't be perfect for all companies,
28:23
Speaker 1: but it will be really an excellent capital market solution
28:27
Speaker 1: for many. And we think we're going to be you know,
28:30
Speaker 1: we're we're built to be successful in this asset class.
28:36
Speaker 1: So so I have two more questions on SPACs. The
28:39
Speaker 1: first is, I think it was last month I saw
28:42
Speaker 1: a column on tech Front that asked, could giant SPACs
28:47
Speaker 1: be next? Raises the question how big spacts get? Are
28:52
Speaker 1: we going to see a billion or a multibillion dollars
28:56
Speaker 1: spack coming down the pipe? Yes, so Verry, there have
29:00
Speaker 1: already been several that are a billion or multi billion
29:04
Speaker 1: that have have been launched, and there is no question
29:07
Speaker 1: that there's the investor appetite for that, you know. To me,
29:14
Speaker 1: it's it's you want to have the right tool in
29:21
Speaker 1: your tool kit for the right opportunity set. And what
29:26
Speaker 1: what's really exciting for us is, you know, SPACs in
29:32
Speaker 1: that too fifty to seven fifty range plus the ability
29:38
Speaker 1: to raise capital through pipe gives you an enormous flexibility
29:44
Speaker 1: to really optimize the number of potential UH merger partners
29:51
Speaker 1: out there. You know, the larger you get, the shorter,
29:55
Speaker 1: the list comes of eligible transactions, and so we'd matter,
30:00
Speaker 1: you know, to us, it's less about the headline you grab,
30:04
Speaker 1: and it's more about finding really good businesses that generate
30:08
Speaker 1: a lot of value for our investors and for the shareholders.
30:13
Speaker 1: And that leads to the related question, at what size
30:19
Speaker 1: does an I p O make much more sense than
30:22
Speaker 1: a speck? And you sort of hinted at that a
30:24
Speaker 1: little bit. Yeah, it's it's honestly, it's less about size.
30:29
Speaker 1: And it's so let me, let me just step back
30:31
Speaker 1: for a second, and you know, from our perspective, what
30:34
Speaker 1: I've I've come to firmly believe is there are some
30:37
Speaker 1: very significant competitive advantages of a spack over an I
30:41
Speaker 1: p O. Right, it's a faster process, so speed can
30:46
Speaker 1: sometimes be important. It's actually a more certain process in
30:51
Speaker 1: terms of pricing, because you don't actually end up announcing
30:56
Speaker 1: the transaction, the actual merger, until you've raised the pipe
31:01
Speaker 1: and the pipe confirms the price. Right, so you've pre
31:06
Speaker 1: sold at that given price, um, and so you know
31:10
Speaker 1: in a relatively short period of time, not only you're
31:13
Speaker 1: going to effectuate the with the go public, but you
31:17
Speaker 1: know the price structurally. The spack gives you, I think
31:23
Speaker 1: a greater degree of flexibility to raise both more primary
31:28
Speaker 1: and secondary capital in most instances. And then the last
31:32
Speaker 1: piece is the actual disclosures of a proxy. A merger
31:38
Speaker 1: proxy versus an I p O filing means that you
31:42
Speaker 1: can actually provide your investors with projections and it allows
31:49
Speaker 1: particularly for growth companies, it allows them to tell a
31:54
Speaker 1: much more fulsome story to the investor and and the
31:58
Speaker 1: corresponding popper tunity as the investor gets a lot more
32:02
Speaker 1: information when making that investment decision. So those characteristics are
32:10
Speaker 1: offset by a SPACK can be marginally higher in terms
32:15
Speaker 1: of its cost of capital than an I p O.
32:18
Speaker 1: And you're actually a SPAC means you're choosing a partner
32:22
Speaker 1: and in an I p O you don't have to
32:24
Speaker 1: do that. So you know, each company that goes through
32:29
Speaker 1: this evaluation has to decide to the benefits outweigh the cost.
32:35
Speaker 1: For Hudson, what we articulate to our SPAC partners, and
32:40
Speaker 1: we did this with talk Space quite effectively, is our
32:45
Speaker 1: partnership because of this network of executives and our experiences,
32:50
Speaker 1: actually accelerates growth and adds value to the company. And therefore,
32:57
Speaker 1: over time, you know, the shareholders should be better off
33:01
Speaker 1: with that partnership. So we we think that's you know,
33:07
Speaker 1: and I go back to you know, the your question
33:09
Speaker 1: about is a spack like a merger. At the end
33:14
Speaker 1: of the day, many many mergers are successful or fail
33:20
Speaker 1: on the chemistry and interaction of the two companies. So
33:26
Speaker 1: this partnership concept actually matters as much, if not more,
33:31
Speaker 1: oftentimes than the underlying economics of a deal. So, Doug,
33:36
Speaker 1: I was reading a quote of yours that I really
33:38
Speaker 1: am intrigued by. You had said, quote, we like to
33:42
Speaker 1: apply a private equity approach to investing in public markets. Unquote.
33:49
Speaker 1: Explain what you mean by applying private equity to public markets, Yeah, Barry,
33:56
Speaker 1: it's it is a combination at the front and of
34:02
Speaker 1: rigorous due diligence. So before we make an investment, um
34:06
Speaker 1: it oftentimes it takes us, you know, four to six
34:10
Speaker 1: months to complete our work. So we'll we'll be following
34:13
Speaker 1: a company for a long period of time and we
34:17
Speaker 1: we try to dig in as deep as possible to
34:22
Speaker 1: that business. Now, we're aided by the fact that, you know,
34:26
Speaker 1: we have this network of current informer chief executive officers
34:32
Speaker 1: that have you know, lifetimes of experience and domain knowledge
34:38
Speaker 1: in the industries in which we invest, and so we
34:41
Speaker 1: often rely on them and their networks to help us
34:46
Speaker 1: analyze the businesses that we invest in. We you know,
34:50
Speaker 1: we only make three to five investments per year. We're
34:55
Speaker 1: very concentrated, and so we have to make sure know,
35:00
Speaker 1: when you make very few bets, you want to make
35:03
Speaker 1: sure that those bets are are good ones. Um. The
35:07
Speaker 1: other piece is after we've made the investment, how involved
35:13
Speaker 1: we are with the companies. So um, we will be
35:17
Speaker 1: involved assisting the management, providing advice, mentoring as it relates
35:24
Speaker 1: to their operational execution, as it relates to the how
35:29
Speaker 1: they position themselves in the capital markets, as it relates
35:33
Speaker 1: to how they allocate the shareholders capital to optimize value
35:38
Speaker 1: and returns, and ultimately how they position the company strategically,
35:42
Speaker 1: and so we will often get our We we will
35:46
Speaker 1: often go on boards of the companies that we invest in,
35:50
Speaker 1: will often make recommendations for board members we think bring
35:56
Speaker 1: lots of value to the company. We will, in many
36:00
Speaker 1: is actually sign n d as nondisclosure agreements and actually
36:05
Speaker 1: work side by side with the management for periods of time.
36:09
Speaker 1: We presented to all of the company boards that we
36:14
Speaker 1: invest in UM to give the board members of perspective
36:18
Speaker 1: on how shareholders view their companies. So we're, you know,
36:21
Speaker 1: we're kind of roll up your sleeves kind of investors.
36:26
Speaker 1: I will tell you it's it's not. We think it
36:30
Speaker 1: not only creates a lot of value, but it's actually
36:33
Speaker 1: personally quite rewarding to work with some of these companies
36:38
Speaker 1: and you know, see them doing a better job delivering
36:43
Speaker 1: for their customers, for their employees, and ultimately for their shareholders.
36:49
Speaker 1: Very very interesting. You have mentioned several time your limited
36:55
Speaker 1: partners and your the investors. Tell us a little bit
36:59
Speaker 1: about out these folks. It sounds like you have not
37:03
Speaker 1: only a network of ready sources of capital, but what
37:08
Speaker 1: I only could describe as smart money. Yeah, it's it's
37:14
Speaker 1: I would actually say, you're you're if you met these folks, UH,
37:19
Speaker 1: smart wouldn't do justice to the extraordinary capabilities of these individuals.
37:25
Speaker 1: So I had, you know, the the remarkable opportunity having worked,
37:30
Speaker 1: you know, running banking at JP Morgan is I got
37:33
Speaker 1: to work with many of the world great companies UM,
37:38
Speaker 1: and I developed relationships over those uh you know, thirty
37:43
Speaker 1: years with UH a lot of chief executive officers CFOs
37:49
Speaker 1: who became CEOs, heads of corporate development and UM. When
37:55
Speaker 1: I started Hudson, the first two fifty million capital that
38:00
Speaker 1: I raised was principally from that group of executives and UM.
38:09
Speaker 1: What I asked of them was not only for their capital,
38:13
Speaker 1: but I asked them to help UH to identify opportunities
38:17
Speaker 1: to invest, to help provide mentorship and guidance to the
38:22
Speaker 1: companies that we invested in, to make recommendations for board
38:27
Speaker 1: members or for management team members, and really to be
38:30
Speaker 1: actively involved. And so we use that group. They've been
38:35
Speaker 1: with me for six years as an investor. We use
38:40
Speaker 1: that group for all aspects of identifying opportunities and diligence
38:47
Speaker 1: and then execution and UM. You know, we've talked a
38:51
Speaker 1: little bit about our our new and growing spack business.
38:56
Speaker 1: They are all UM actively involved than that as well.
39:00
Speaker 1: So it's it's an extraordinary group of professionals. And you know,
39:07
Speaker 1: literally many of them have have helped build and run
39:12
Speaker 1: and create some of the world's best companies. So, so
39:17
Speaker 1: let's talk about some of your other non spack investments. UH.
39:21
Speaker 1: At one point in time, you owned a nine steak
39:25
Speaker 1: in card Tronics to where where is that investment are you?
39:30
Speaker 1: Are you still active with them? Uh? And that's a
39:33
Speaker 1: pretty substantial chunk. Tell us a little bit about that
39:36
Speaker 1: deal it is and and maybe I'll actually step back.
39:40
Speaker 1: So we we and we still do own that steak. UM.
39:44
Speaker 1: We acquired that steake a little over three years ago. UM.
39:50
Speaker 1: And the logic behind it card Tronics is it's one
39:54
Speaker 1: of these, you know, interesting small companies that many people
39:58
Speaker 1: have never heard of, but have a marketable market position.
40:01
Speaker 1: They are the leading provider of a t M machines
40:06
Speaker 1: independent a t M operators UM in the world. They
40:11
Speaker 1: don't make the machines, they actually run and manage a
40:14
Speaker 1: network of almost forty thousand a t M s in
40:19
Speaker 1: the United States and many outside the United States. And
40:24
Speaker 1: what's unique about them is that they're in seven of
40:30
Speaker 1: the ten largest retail locations. So if you go into
40:33
Speaker 1: a CBS or Walgreens, or a Target or a speedway
40:39
Speaker 1: and you see an a t M in there, that
40:41
Speaker 1: a t M is owned and operated by Cartronics. And
40:46
Speaker 1: the company at the time we invested was struggling. They
40:50
Speaker 1: had just made two very large acquisitions, levered their balance sheet,
40:55
Speaker 1: operating performance had gone south. They had lost their largest customer, UM,
41:03
Speaker 1: and you know, we invested in the company based on
41:08
Speaker 1: again months of diligence, using our network of chief executive
41:13
Speaker 1: officers and our relationships and obviously my own personal background
41:17
Speaker 1: UM in the banking industry, and worked with the then
41:24
Speaker 1: new CEO to help reposition the company and change its
41:29
Speaker 1: strategic focus. And over the last several years that CEO
41:34
Speaker 1: and his management team have done an extraordinary job in
41:39
Speaker 1: repositioning the company in the In the pandemic, the stock
41:47
Speaker 1: UH took a very significant hit, despite the fact that
41:53
Speaker 1: the company operated exceptionally well through the pandemic, and as
41:59
Speaker 1: a result of what I thought was a ongoing long
42:04
Speaker 1: term opportunity but a short term disruption, UM I partnered
42:11
Speaker 1: with Apollo Global Management UH private equity firm and actually
42:18
Speaker 1: made an offer which was ultimately accepted by the board
42:23
Speaker 1: to take the company private. And when you made when
42:27
Speaker 1: you had made that offer, it attracted the attention I
42:30
Speaker 1: believe of one of the big manufacturers of a T
42:35
Speaker 1: M S N c R who got involved. How did
42:39
Speaker 1: their role UM come about and how did that resolve? Well?
42:44
Speaker 1: As you know, Barry, I mean in UH both card
42:47
Speaker 1: Tronics is headquartered Uh. In the UK, UM. You know,
42:53
Speaker 1: public company boards have a fiduciary responsibility when selling a
42:58
Speaker 1: company to demise value, and and after our transaction was announced, UM,
43:08
Speaker 1: the board received a series of inbound inquiries from a
43:13
Speaker 1: whole host of companies, and at the end of a
43:18
Speaker 1: process that they ran, the board made the determination that
43:23
Speaker 1: the NCR offer, which was nine dollars versus our thirty
43:29
Speaker 1: five dollar offer, was superior and they therefore recommended that
43:35
Speaker 1: to the shareholders and that transaction. Now the vote and
43:40
Speaker 1: the transaction remains pending. Let's talk a little bit about
43:44
Speaker 1: the pandemic and the opportunities the market crash might have
43:49
Speaker 1: created last year. Uh. Normally, when you get a crash
43:55
Speaker 1: like we saw in the value, investors get a opportunity
44:00
Speaker 1: to go out and pick their favorite targets on the cheap.
44:04
Speaker 1: But it seemed like this was over. If you blinked,
44:07
Speaker 1: you missed it. How was last year as an environment
44:13
Speaker 1: to find either discounted or distressed assets that looked attractive? Yeah? No,
44:20
Speaker 1: it actually is remarkably different in tone nature, and I
44:26
Speaker 1: would argue over time, UM, the impact of the pandemic
44:33
Speaker 1: on the way companies do business. I think it will
44:37
Speaker 1: will be far long, far more long lasting, um and
44:43
Speaker 1: different than the global financial crisis. So the the speed
44:48
Speaker 1: at which the market recovered I think created a very small,
44:53
Speaker 1: brief opportunity for folks brave enough to step in. In
44:57
Speaker 1: some sense, it's it was similar to you know, March
45:01
Speaker 1: nine of UH two thousand and nine, right, if you
45:05
Speaker 1: if you put money into the market on the tenth
45:08
Speaker 1: and walked away, you would have done extraordinarily well. But
45:13
Speaker 1: investing isn't you know, there are some folks who are
45:16
Speaker 1: market timing investors. We really are focusing on, you know,
45:22
Speaker 1: fundamentals of businesses that have that long lasting, sustainable competitive advantage.
45:29
Speaker 1: And what is clear is that the pandemic has accelerated
45:36
Speaker 1: and highlighted trends that will make for different winners and
45:44
Speaker 1: losers in the market going forward. So on a long
45:47
Speaker 1: term basis, I think it has really changed the nature
45:51
Speaker 1: of how companies will compete effectively and be successful. And
45:57
Speaker 1: you see that for example in healthcare, in the digital
46:02
Speaker 1: delivery and acceleration of digital healthcare. So, Barry, we talked
46:06
Speaker 1: about our investment in talk Space, which is a digital
46:11
Speaker 1: behavioral health company that business in many ways is now
46:16
Speaker 1: the future of behavioral healthcare, whereas pre pandemic it was
46:20
Speaker 1: an important vehicle but not but it wasn't as clear
46:24
Speaker 1: that it will ultimately be a winner as it is today.
46:28
Speaker 1: And so I think it's really the pandemic I think
46:36
Speaker 1: forces value investors and individual stock pickers to reassess the
46:43
Speaker 1: strategic positioning for many companies. And that's what I think
46:47
Speaker 1: the long term consequence is going to be of the pandemic.
46:51
Speaker 1: So so let's talk about a specific company. Hudson took
46:55
Speaker 1: a three point one stake in German banking giant Deutsche
47:01
Speaker 1: Bank back in October. Tell us a little bit about
47:06
Speaker 1: what attracted you to Deutsche Bank. They've had a recent
47:10
Speaker 1: history of some regulatory problems going back to library and
47:16
Speaker 1: a whole run of things. What what makes them an
47:18
Speaker 1: attractive investment here? So Deutsche Bank is a really interesting
47:24
Speaker 1: um investment. And when we made the investment back in
47:29
Speaker 1: you know, we were clearly quite the contrarian investor. But
47:33
Speaker 1: you know, with the benefit now of two years of execution,
47:35
Speaker 1: in hindsight, I think the management continues, the new management
47:41
Speaker 1: continues to take this company in the direction we think
47:44
Speaker 1: is going to create lots of value for shareholders. Today.
47:48
Speaker 1: What was compelling about Deutsche Bank is it is, you know,
47:53
Speaker 1: the largest bank in one of the world's largest economies
47:58
Speaker 1: UM and and viously one of the most important economies
48:02
Speaker 1: in Europe, with a number of businesses that, if executed properly,
48:12
Speaker 1: were leaders in their in their space, and the bank
48:16
Speaker 1: was troubled by a variety of shortcomings and mistakes of
48:23
Speaker 1: prior managements UM, a lack of cultural focus, a lack
48:30
Speaker 1: of investment and leadership, and ultimately trying to compete head
48:39
Speaker 1: to head on all fronts with companies like JP Morgan
48:43
Speaker 1: when that wasn't really their strategic direction. And so um
48:48
Speaker 1: I invested. After Christian Seething was named the new chief
48:54
Speaker 1: executive officer, we were actively involved with the company in
49:00
Speaker 1: helping them think through their strategic repositioning UM and we
49:06
Speaker 1: have been working actively with the company for the last
49:09
Speaker 1: several years as they have both rolled out that repositioning
49:13
Speaker 1: and now UM executed on it. And what Deutsche Bank
49:19
Speaker 1: UM really focuses in on from an investor standpoint is,
49:26
Speaker 1: in a world in which the macro environment is very
49:30
Speaker 1: challenging for banks, much of the operating performance improvement of
49:37
Speaker 1: Deutsche Bank is driven by self help, and we believe
49:42
Speaker 1: that Christian and his management team, who have now successfully
49:47
Speaker 1: executed on their plan for close to two years, is
49:51
Speaker 1: really on a path to returning this company to both
49:56
Speaker 1: substantial profitability and UM generating a lot of excess capital
50:02
Speaker 1: they can ultimately be returned to the shareholders. So that's
50:06
Speaker 1: for us UM in an environment that's otherwise challenging for
50:11
Speaker 1: large banks given the interest rate environment we live in today.
50:16
Speaker 1: Much of this opportunity set is driven by self help
50:22
Speaker 1: UH for Deutsche Bank, meaning management knows what they need
50:27
Speaker 1: to do to get the bank on the right path.
50:31
Speaker 1: You are clearly not the only one who sees Deutsche
50:35
Speaker 1: Bank this way. Capital Group just took a three percent stake.
50:38
Speaker 1: There are rumors of other people kicking around taking a chunk.
50:43
Speaker 1: Do you like to be early or do do you
50:46
Speaker 1: not think in those terms of UM having to be
50:50
Speaker 1: the first one to turn over the rock and see
50:53
Speaker 1: all the critters underneath. Yeah, well, sometimes, unfortunately you you
50:58
Speaker 1: realize that and the rock is turned over. There are
51:02
Speaker 1: lots of critters. This one, the critters had already been
51:05
Speaker 1: released UM. The question was whether or not the management
51:10
Speaker 1: was up to the task, and that's where the work
51:15
Speaker 1: that I talked about that we do on the front
51:17
Speaker 1: end leads us to you know, make investments based on
51:23
Speaker 1: the confidence of that deep due diligence and domain knowledge
51:28
Speaker 1: and expertise. So we don't we don't want to be
51:34
Speaker 1: we don't need to be the earliest, We don't need
51:37
Speaker 1: to be the first. What we don't know is whether
51:41
Speaker 1: we'll pick the bottom. But because we're long term investors, Barry,
51:46
Speaker 1: where we know when we're investing, we're not taking the top.
51:50
Speaker 1: And that to us is the important part. So you
51:53
Speaker 1: know this, this is a big, complicated global institution that
52:00
Speaker 1: had to go through a fundamental change, uh in leadership,
52:06
Speaker 1: in management and culture, and in strategic positioning. And that
52:11
Speaker 1: takes time. But if you're a patient and you've made
52:15
Speaker 1: the right bets in you know, the early parts of
52:18
Speaker 1: an investment, it ends up being, uh, you know, a
52:22
Speaker 1: very rewarding experience. So so let me stay with your
52:27
Speaker 1: expertise at Giant Money Center banks. UH. Clearly, JP Morgan
52:34
Speaker 1: Chase is a Siffy is a systemically important financial institution.
52:39
Speaker 1: I have to imagine that in Germany they're perceived as
52:45
Speaker 1: their version of Ciffy or a national champion or whatever.
52:49
Speaker 1: You wanna call the hometown giant money center bank. Um,
52:54
Speaker 1: what is going to happen across the globe with with
52:59
Speaker 1: these sorts of banks? So are we going to continue
53:02
Speaker 1: to see consolidation? We I look in France at Society
53:06
Speaker 1: General and BNP, I look in at Switzerland at Credit
53:10
Speaker 1: Swiss and ubs. Are we just going to end up
53:13
Speaker 1: with a handful of giant banks in each and every country.
53:19
Speaker 1: It's it's a great question, Barry, and I want to
53:22
Speaker 1: step back and say one of the real you know,
53:25
Speaker 1: if there are benefits that came out of the global
53:27
Speaker 1: financial crisis, is the standards that were put in place,
53:33
Speaker 1: whether it was you know, the FED stress tests and
53:37
Speaker 1: capital requirements, the Bossel three requirements, all of these designations
53:44
Speaker 1: that you mentioned, you know, systemically important financial institutions. Means
53:49
Speaker 1: that today those large banks start from a position of
53:56
Speaker 1: relative strength both in terms of their capital and liquidity.
54:01
Speaker 1: So the good news today is the in the in
54:04
Speaker 1: the course of what has been a very challenging economic
54:08
Speaker 1: environment and the pandemic, the banking system is far stronger,
54:13
Speaker 1: far more resilient um than it was a decade ago.
54:18
Speaker 1: Having said that, there is no question that there remains
54:25
Speaker 1: what I would characterize as excess capacity or suboptimal returns
54:32
Speaker 1: UM that could certainly be enhanced through mergers. And so,
54:37
Speaker 1: you know, my expectation, I think others expectation is is
54:41
Speaker 1: that there will be another round of consolidation UM and
54:47
Speaker 1: that may very well, uh, you know, it may take
54:50
Speaker 1: some time to get there, but there is no question
54:54
Speaker 1: that for a number of these large banks, gaining more scale,
55:00
Speaker 1: creating more efficiencies will ultimately over time both you know,
55:06
Speaker 1: improve returns for the investors and actually build capital from
55:11
Speaker 1: a regulatory standpoint to keep these banks safer. So yes,
55:14
Speaker 1: so I'm not sure last today, but we will see it. Interesting.
55:20
Speaker 1: So so that makes me think of two specific things. Well,
55:24
Speaker 1: we'll go backwards and and currently um, currently there's a
55:30
Speaker 1: ton of consolidation going on on the asset management side.
55:35
Speaker 1: We have SWAB taking over t d H, Morgan Stanley
55:39
Speaker 1: doing a few acquisitions, Franklin Resources and invest go. What
55:43
Speaker 1: are your thoughts on that side of the finance sector.
55:47
Speaker 1: Are the same forces driving consolidation on the asset management half?
55:55
Speaker 1: Street Berry is unique and different, and I think the
55:59
Speaker 1: forces that are driving consolidation in the asset management side
56:02
Speaker 1: is really the prevalence and the amount of capital that
56:07
Speaker 1: has gone to passive investing with far lower cost structure.
56:16
Speaker 1: And so the traditional asset management model of active management
56:21
Speaker 1: and fees associated with active management has been squeezed. And
56:26
Speaker 1: when profits and margins are squeezed, one of the things
56:30
Speaker 1: that a company can do is look to improve that
56:34
Speaker 1: profitability or margin by merging and taking out excess costs.
56:39
Speaker 1: So what you see happening in asset management is that's
56:43
Speaker 1: a different driving force than what we talked about for
56:46
Speaker 1: the global financial institutions. By the way, you know, if
56:49
Speaker 1: you think about the investments that I make in some
56:53
Speaker 1: of these small or mid sized businesses, they all they're
56:59
Speaker 1: they're targets of larger companies because there is a driving
57:04
Speaker 1: force that benefits through scale. So we've owned a number
57:10
Speaker 1: of medical device companies, great product, but it costs an
57:15
Speaker 1: enormous amount of money to run a sales and marketing
57:18
Speaker 1: organization globally, and large medical device companies have those sales
57:24
Speaker 1: and marketing organizations in place, so they're able to take
57:27
Speaker 1: a great product and put it into their channel and
57:31
Speaker 1: distribute it. So, you know, and what I will say
57:35
Speaker 1: is asset management is no different than large financial institutions
57:39
Speaker 1: is no different than medical device which is these businesses
57:44
Speaker 1: over time are increasingly global and the benefits of scale matter.
57:51
Speaker 1: And quite frankly, if you you know, you want to
57:54
Speaker 1: take the paradigmatic example of the benefits of scale, you know,
57:59
Speaker 1: my old employer, JP Morgan is the perfect example of that.
58:02
Speaker 1: They are, you know, they're a dominant player in the
58:06
Speaker 1: space in part because of the scale. It makes a
58:09
Speaker 1: lot of sense since you were at JP Morgan during
58:13
Speaker 1: the crisis, and we talked about Washington Mutual, we talked
58:16
Speaker 1: about bear Stearns. I feel like I would not be
58:20
Speaker 1: completing the whole set of collectibles if I didn't ask
58:24
Speaker 1: you about either Lehman Brothers or a I G. Tell
58:28
Speaker 1: us a little bit about what you might have seen
58:32
Speaker 1: late oh nine when everything was on fire. Did you
58:36
Speaker 1: guys look at either of those companies and what was
58:38
Speaker 1: your takeaway? Yeah? So, I think because JP Morgan was
58:45
Speaker 1: you know, a bank, if you will, to so many
58:48
Speaker 1: other banks, UM, we had you know, the either the
58:53
Speaker 1: benefit or the challenge of being you know, having a
58:58
Speaker 1: front row seat to almost every large financial institution and
59:02
Speaker 1: how they went through the financial crisis. Um, we actually
59:07
Speaker 1: were called to to to evaluate Lehman and that was
59:11
Speaker 1: a you know, a short discussion. It really didn't fit
59:14
Speaker 1: what we were doing strategically. A I G. On the
59:18
Speaker 1: other hand, actually called us to help them try and
59:23
Speaker 1: find a solution. And you know, it was one of
59:26
Speaker 1: those examples during the financial crisis. I was actually, you know,
59:29
Speaker 1: happily on my way to work one morning and I
59:32
Speaker 1: got a call from Jamie and he asked me to
59:34
Speaker 1: reroute downtown to A I G. S offices. And you know,
59:38
Speaker 1: we spent quite a few weeks working with the management
59:43
Speaker 1: team and the board to try and find a private
59:48
Speaker 1: market solution. Ultimately, we weren't able to do that in
59:51
Speaker 1: the government, as you know, had to step in. But
59:55
Speaker 1: you know, we were we were both looking at businesses
59:59
Speaker 1: as a potent to acquirer and we were actively engaged
1:00:04
Speaker 1: um with businesses as an advisor to try and help
1:00:07
Speaker 1: them manage through the crisis. See I see A I
1:00:11
Speaker 1: g Um as having some real value outside of their
1:00:17
Speaker 1: financial products division. That blew up The question with Lehman
1:00:21
Speaker 1: Brothers always seemed to be that everybody who to use
1:00:25
Speaker 1: my private to use my previous metaphor everybody who flipped
1:00:29
Speaker 1: over that rock said, oh, these this is just a disaster.
1:00:33
Speaker 1: We can't get involved in this. And it sort of
1:00:37
Speaker 1: looked like the FED had the same attitude. They were
1:00:41
Speaker 1: comfortable in letting them, you know, do the full face
1:00:44
Speaker 1: plants into the pavement. What what was your perspective on Lehman? Yeah,
1:00:50
Speaker 1: you know, to be fair, I was busy. Lehman and
1:00:53
Speaker 1: an A I G. Kind of those bombs went off
1:00:55
Speaker 1: at about the same time. So so, uh, it was
1:01:00
Speaker 1: quite an interesting period of time because there was a
1:01:04
Speaker 1: group down at the FED trying to find a solution
1:01:08
Speaker 1: for Lehman, and and many of those individuals weren't aware
1:01:13
Speaker 1: um that you know, literally a block or so away
1:01:16
Speaker 1: there was another, you know, quite frankly larger financial institution
1:01:20
Speaker 1: that was also in massive distress. UM. I think you know,
1:01:27
Speaker 1: in hindsight, UM, the markets. The Lehman bankruptcy UM obviously
1:01:39
Speaker 1: sent the markets into a material tail spin, which accelerated
1:01:45
Speaker 1: the issues at A I G. And a number of
1:01:47
Speaker 1: other companies. UM. And and you know, at the end
1:01:51
Speaker 1: of the day, uh, you know, the Federal Reserve decided
1:01:55
Speaker 1: to and the Treasury decided to step in an A
1:01:57
Speaker 1: I G. To try and put the finger and the die.
1:02:00
Speaker 1: It ended up being very important. Um and ultimately uh
1:02:07
Speaker 1: you know, financially uh uh, not necessarily successful, but at
1:02:12
Speaker 1: least financially neutral to the government. UM. But you know,
1:02:20
Speaker 1: part of the lesson Barry in all of this is,
1:02:24
Speaker 1: you know, financial institutions run it's financial institutions are a
1:02:29
Speaker 1: little bit like marathoners right there in you know that
1:02:33
Speaker 1: they're in great shape, and that shape is their capital base,
1:02:38
Speaker 1: right how how how prepared are they to weather a crisis,
1:02:43
Speaker 1: But they also need liquidity and matching the duration of
1:02:48
Speaker 1: your assets and liabilities is critically important. And for a
1:02:51
Speaker 1: marathon runner, it's the oxygen they take in in the race.
1:02:56
Speaker 1: And you know, you could be in the best shape
1:02:58
Speaker 1: of your life, but someone puts a pillow over your
1:03:01
Speaker 1: head at night and you can't breathe. It's not going
1:03:03
Speaker 1: to end well. And for many of these financial institutions,
1:03:08
Speaker 1: they they believed capital was sufficient and in the engineed
1:03:13
Speaker 1: both capital and liquidity, and you know, they the system
1:03:20
Speaker 1: starved them of the oxygen they needed at the time
1:03:23
Speaker 1: they needed it most. Yeah, that makes sense that the
1:03:26
Speaker 1: world looks differently um at mile one than it does
1:03:30
Speaker 1: at right. The world looks differently during normal times than
1:03:36
Speaker 1: it does in a liquidly crisis exactly. And if you
1:03:42
Speaker 1: aren't prepared for both, you know you're not going to
1:03:46
Speaker 1: be successful in the race. And I get back to
1:03:49
Speaker 1: you know, the the remarkable position and seat we all
1:03:55
Speaker 1: sat in a JP Morgan is you know we had
1:03:58
Speaker 1: both the capital and the liquid d to manage through this,
1:04:01
Speaker 1: and you know the our ability to try and help
1:04:06
Speaker 1: the system through the financial crisis was you know for me,
1:04:11
Speaker 1: you know one of the parts of my career I'm
1:04:14
Speaker 1: most proud of. Huh. Quite quite interesting. I know I
1:04:18
Speaker 1: only have you for a limited amount of time. Let's
1:04:22
Speaker 1: jump to our favorite questions that we ask all of
1:04:25
Speaker 1: our guests, starting with tell us what you're streaming these days?
1:04:30
Speaker 1: What are you doing to keep yourself entertained with either
1:04:33
Speaker 1: Netflix or podcasts? What do you what do you um?
1:04:37
Speaker 1: What's entertaining you? What's entertaining me? So um I am.
1:04:43
Speaker 1: I will tell you to be fair, I am happiest,
1:04:47
Speaker 1: happiest at work, and I will tell you that I
1:04:51
Speaker 1: spend the vast preponderance of my time, uh looking for
1:04:56
Speaker 1: SPAC candidates and investment opportunities. Now having at that, when
1:05:01
Speaker 1: I do have a moment Um, I loved the Queen's
1:05:07
Speaker 1: gambit and my my children would be very upset if
1:05:12
Speaker 1: I didn't also say that I kind of have a
1:05:14
Speaker 1: hankering for the Great British Baking Show. So that's that's, that's,
1:05:20
Speaker 1: that's what I do watch in moments of relaxation, you know,
1:05:24
Speaker 1: and on the on the podcast side, Berry, you know,
1:05:27
Speaker 1: I love your show. Um. I am a sucker for
1:05:34
Speaker 1: Michael Symbolists. I on the market from JP Morgan. I
1:05:37
Speaker 1: think he just he has a really innovative approach to
1:05:42
Speaker 1: uh two big global questions. So when I do have
1:05:45
Speaker 1: a moment here or there, that's what I try to
1:05:47
Speaker 1: listen to. Good stuff. Let's talk a little bit about
1:05:52
Speaker 1: your mentors and and dear lord, that's quite a list
1:05:55
Speaker 1: you've already mentioned already. Tell us who helped to shape
1:05:59
Speaker 1: your career. Yeah, so, um, I'm a big believer by
1:06:04
Speaker 1: the way, the for young people, the importance of mendership.
1:06:10
Speaker 1: I think, but for the mentors I had, you know,
1:06:13
Speaker 1: my career in life would have been really different. I
1:06:15
Speaker 1: actually go back to college. I had an extraordinary professor
1:06:19
Speaker 1: in college. Guy's been the name of Sam back Iraq,
1:06:22
Speaker 1: who really changed the trajectory of my academic and uh development.
1:06:31
Speaker 1: I worked for him for a number of years in
1:06:33
Speaker 1: research and it was just it was great training. Um.
1:06:39
Speaker 1: And then when I you know, went to First Boston,
1:06:42
Speaker 1: I had the privilege of actually working for both Bruce
1:06:46
Speaker 1: Wasserstein and Joe Perella, my longtime boss who ran the
1:06:52
Speaker 1: M and a group Mike Konicky. I think all three
1:06:56
Speaker 1: of them gave me great advice and more importantly, they
1:07:01
Speaker 1: kind of put me in positions where uh, you know,
1:07:04
Speaker 1: I had a swim on my own, and every once
1:07:08
Speaker 1: in a while they would, you know, give you a
1:07:11
Speaker 1: nudge one way or the other. But they just gave
1:07:13
Speaker 1: me great opportunities to develop as a professional. And obviously
1:07:18
Speaker 1: I've talked a little bit of JP Morgan about, you know,
1:07:21
Speaker 1: the extraordinary experience of working with Jamie. But you know,
1:07:25
Speaker 1: I started my career working for Bill Harrison, and you know,
1:07:29
Speaker 1: I think he had an enormous influence on on my
1:07:33
Speaker 1: development professionally. So I've had a I've had a string
1:07:38
Speaker 1: of great folks to work for. Yeah, that's that's an amazing,
1:07:41
Speaker 1: amazing list. Let's talk a little bit about books. What
1:07:44
Speaker 1: are you reading currently and what are some of your favorites. Yeah,
1:07:49
Speaker 1: so right now. Actually, I haven't read a book in
1:07:53
Speaker 1: the last couple of months. It's just been really busy,
1:07:56
Speaker 1: I would say on the favorites front, Um, probably my
1:08:00
Speaker 1: all time favorite book is UM Team of Rivals by
1:08:04
Speaker 1: uh Uh Doris Kern's Goodwin. I love the story behind
1:08:12
Speaker 1: Lincoln building out the cabinet. It's just it's extraordinary lessons
1:08:17
Speaker 1: in leadership. I have to give a shout out to
1:08:20
Speaker 1: UM Andrew Sorkin for Too Big to Fail. Um. You know,
1:08:25
Speaker 1: we spent a lot of time talking about the global
1:08:28
Speaker 1: financial crisis, and having had a front seat to most
1:08:32
Speaker 1: of it, I think Andrew did a remarkable job with that.
1:08:38
Speaker 1: And then I am kind of a sucker for, you know,
1:08:40
Speaker 1: a bunch of Michael Lewis books I love. I love
1:08:44
Speaker 1: Moneyball for example, and Uh. I try to read uh
1:08:51
Speaker 1: periodically books that my children are are are reading so
1:08:57
Speaker 1: we can have some interesting discussions. So you know, I
1:09:00
Speaker 1: probably have to give a shout out the Lord of
1:09:02
Speaker 1: the Rings. That's one of those. So that's a that's
1:09:06
Speaker 1: a good list, and you could add to your list.
1:09:11
Speaker 1: I believe Michael Lewis's book on the Pandemic comes out
1:09:14
Speaker 1: in May or June of this year. That'll be interesting.
1:09:17
Speaker 1: I'm excited. I'm excited to read it. I have to
1:09:20
Speaker 1: be fair. I have a pile of book sitting next
1:09:22
Speaker 1: to my bedside that I haven't cracked in about four
1:09:27
Speaker 1: or five months. I there's lots of uh downside, but
1:09:34
Speaker 1: the ability to be active and efficient remotely has really
1:09:41
Speaker 1: changed the work day in a way, no doubt, doesn't
1:09:45
Speaker 1: let me get to very many books these days. Right.
1:09:48
Speaker 1: There was a study out not too long ago that
1:09:50
Speaker 1: showed that the average white collar professional is working something
1:09:56
Speaker 1: like two hours more a week or a day. I
1:09:59
Speaker 1: don't remember it was, but it was a big uptick
1:10:02
Speaker 1: in time. When when you don't have to commute, shower,
1:10:06
Speaker 1: get dressed, you just roll out of bed and you're
1:10:08
Speaker 1: at your desk. It's a whole different, uh experience. It
1:10:12
Speaker 1: is a different experience, you know, And in the other pieces,
1:10:17
Speaker 1: the typical boundaries between you know, work and home get eroded. Yeah.
1:10:23
Speaker 1: So was no complaints though, because it's you know, obviously
1:10:26
Speaker 1: a lot of fun for me. Um. What sort of
1:10:29
Speaker 1: advice would you give to a recent college graduate who
1:10:33
Speaker 1: was interested in a career in either h M and
1:10:38
Speaker 1: a finance underwriting. What would your career advice be to them?
1:10:43
Speaker 1: So so I would you know, obviously, at JP Morgan,
1:10:46
Speaker 1: we literally recruited hundreds of college grads and graduate school
1:10:50
Speaker 1: students every year. You know what I would say, First
1:10:55
Speaker 1: of all, I think the training and experience uh that
1:11:00
Speaker 1: you get in any of these large programs I think
1:11:05
Speaker 1: is extraordinary and and and I think that is true
1:11:09
Speaker 1: of you know, many many of the large companies UM
1:11:14
Speaker 1: in both in finance and healthcare, in technology. I really
1:11:21
Speaker 1: encourage young people to spend a couple of years in
1:11:25
Speaker 1: one of these well run companies, to learn the processes
1:11:32
Speaker 1: that make these companies successful UM, and to be around
1:11:37
Speaker 1: senior talent that they can train and develop behind. But
1:11:41
Speaker 1: then ultimately, I think you to be successful, you have
1:11:45
Speaker 1: to do things that you're passionate about. UM. You know,
1:11:50
Speaker 1: work is hard, and you want to do something that's
1:11:54
Speaker 1: not only hard, but what you enjoy doing. So really,
1:11:58
Speaker 1: you know, spend the time I'm figuring out what makes
1:12:02
Speaker 1: you happy, because that that allows you to put your
1:12:05
Speaker 1: very best foot forward. And then the last thing I
1:12:10
Speaker 1: encourage people to do is look to go to organizations
1:12:15
Speaker 1: that reward performance. UM. You know, I think it's really
1:12:23
Speaker 1: important that you know, young people work hard, put their
1:12:27
Speaker 1: head down, do do as good a job at the
1:12:31
Speaker 1: things they're asked to do. And but the the reciprocal
1:12:35
Speaker 1: requirement is that you know, the companies they work for
1:12:39
Speaker 1: recognize that and you know, promote UM and compensate them
1:12:44
Speaker 1: for that performance. So and that's not true across the board.
1:12:48
Speaker 1: And you know, you want to be in an environment
1:12:50
Speaker 1: that you know rewards that strong performance. And our final question,
1:12:58
Speaker 1: what do you know about the world of testing, mergers,
1:13:01
Speaker 1: M and A today that you wish you knew thirty
1:13:04
Speaker 1: years ago or so when you were first getting started.
1:13:08
Speaker 1: UM Well out on the on the investing front, UM,
1:13:18
Speaker 1: I'm gonna go back to the duration of your capital
1:13:24
Speaker 1: can be a remarkable competitive advantage. And and the reason
1:13:28
Speaker 1: I say that is, you know what I've learned over
1:13:31
Speaker 1: the last thirty years is it often takes time to
1:13:37
Speaker 1: build a successful company. It's hard to really manage these
1:13:43
Speaker 1: businesses and build them and grow them and you know,
1:13:47
Speaker 1: create competitive advantage. And capital needs to be long in
1:13:54
Speaker 1: duration in order to to see that. Why cycle through
1:14:01
Speaker 1: UM And so for me, it's it's all about matching
1:14:06
Speaker 1: the asset and liability duration in In this particular instance,
1:14:11
Speaker 1: you know you're investing in companies is the asset and
1:14:14
Speaker 1: you want to have capital um that's long a duration
1:14:18
Speaker 1: to match the life cycle of that investment. Thanks Doug
1:14:22
Speaker 1: for being so generous with your time. We've been speaking
1:14:24
Speaker 1: with Doug Bradstein. He is the founder and managing partner
1:14:28
Speaker 1: at Hudson Executive Capital, which runs about one point six
1:14:32
Speaker 1: billion dollars in assets. If you enjoy this conversation, well
1:14:37
Speaker 1: be sure and check out any of the other previous
1:14:40
Speaker 1: three hundred and seventy two such discussions we've had over
1:14:44
Speaker 1: the past seven or so years. You can find that
1:14:47
Speaker 1: at iTunes or Spotify or wherever you feed your podcast fixed.
1:14:52
Speaker 1: We love your comments, feedback and suggestions right to us
1:14:55
Speaker 1: at m IB podcast at Bloomberg dot net. Please le
1:15:00
Speaker 1: give us a review at Apple iTunes. You can sign
1:15:04
Speaker 1: up for our daily Reads. You'll find that at dhlts
1:15:07
Speaker 1: dot com. Check out my weekly column at Bloomberg dot
1:15:11
Speaker 1: com slash Opinion. Follow me on Twitter at rid Halts.
1:15:16
Speaker 1: I would be remiss if I did not thank the
1:15:18
Speaker 1: crack staff that helps with these conversations together each week.
1:15:21
Speaker 1: Reggie Brazil is my audio engineer. Michael Boyle is my producer.
1:15:27
Speaker 1: Attica val Brun is our project manager. Michael Batnick is
1:15:31
Speaker 1: my head of research. I'm Barry rid Halts. You've been
1:15:35
Speaker 1: listening to Masters in Business on Bloomberg Radio.