The interview discusses:
- The differences between the current business climate and the one at the start of his career in the 1980s.
- His views on when share buybacks are appropriate.
- Why capital allocation was so critical for shareholder returns at Jarden.
- Executives he believes are good capital allocators.
- How he managed to gain control of the company that eventually turned into Jarden.
- The acquisition strategy he employed while running Jarden (that he still employs today).
- How he evaluated brand equity when making acquisitions of consumer products companies.
- Why he believes he would have had the same success today even with the growing popularity of private label brands from Amazon and Costco.
- His current views on Newell.
- His latest SPAC (which he is partnering with Viking Global on) and what his acquisition strategy will be.
- And much more…
About Sir Martin E. Franklin:
Sir Martin E. Franklin is the Founder and CEO of Mariposa Capital, a Miami based family investment firm focused on long term value creation across various industries. Mr. Franklin serves as Founder and Executive Chairman of Element Solutions Inc., Co-Founder and Co-Chairman of Nomad Foods Limited, Co-Founder and Co-Chairman of APi Group Corporation and Chairman and controlling shareholder of Royal Oak Enterprises, LLC. He is a principal and executive officer of several other private investment entities.
Prior to founding Mariposa Capital, Mr. Franklin founded Jarden Corporation in 2001. Under his leadership, Jarden grew from approximately $300 million in revenues to more than $10 billion, comprised of over 120 global brands and 35,000 employees before it was acquired by Newell Brands in April 2016. He served as Executive Chairman of Bollé, Inc. from 1997 to 2000 and Chairman and Chief Executive Officer of Benson Eyecare Corporation from 1992 to its sale in 1996. Jarden and Benson generated over 5,000% and 1,800% stock returns to their investors respectively.
Mr. Franklin received a BA from the University of Pennsylvania. A father of four, he resides in Miami, FL with his wife Julie. He is an avid endurance sports enthusiast and an active supporter of a number of charities including the Challenged Athletes Foundation and Wounded Warriors Project.
Click Here to Read the Interview Transcript
Transcript Of The Interview With Sir Martin E. Franklin:
[00:00:11] Jonathan Boyar: Welcome to The World According to Boyar, where we bring top investors, best-selling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Today’s very special guest is Sir Martin Franklin, whose business career dates back to the 1980s, where at the age of 24, Martin and his father took control of DRG, where he became CEO of a company with over 13,000 employees and was tasked with the job of breaking up the conglomerate.
In the early ’90s, he pivoted to an investment style where he wanted to build companies and purchased a small chain of eyecare stores that was merged into a company called Benson, where he completed the successful roll-up of the optical industry, earning his initial investors more than a 23 fold return on their investment when he sold the company in 1996. Martin is probably best known for his success at Jarden Corp, where through a series of successful M&A transactions, he built an empire he sold to Newell in 2016. For the 15 years, Martin was Chairman of Jarden, his investors earned a compounded annual return of well over 30%. Martin, welcome to the show.
[00:01:22] Martin Franklin: Thank you for having me, Jonathan.
[00:01:24] Jonathan: Before we discuss your truly remarkable career, I just wanted to briefly talk about your love of extreme sports. You completed the Badwater Ultramarathon in 41 hours and 29 minutes, five hours ahead of your goal time. The race I believe, covers 135 miles starting in Death Valley in July. I mean this in the most respectful way possible. What were you thinking?
[00:01:48] Martin: To get to the stage of wanting to do Badwater was a progression, a journey of going on to do more and more extreme things and then I met an individual fellow Vito Bialla who owned a brand called Zoot Sports, which I ended up partnering with him on, who said, “I could take you to a place where very few people have ever been in terms of taking athletics to the extreme.” I was intrigued.
Then he explained to me what this race was, and I said, “You’ve got to be crazy. No one does that.” He said, “No, no, there are 90 people a year who do it or at least who try to do it.” I just decided that’s what I wanted to do. It was instinctive and I just liked the idea that you could do something that was almost a spiritual journey. It’s beyond athletic because it’s all about mental discipline and that really appealed to me. That’s why I decided to take it on.
[00:02:42] Jonathan: Do you think any of the qualities especially the mental discipline that makes someone able to do these super endurance challenges translates to business success?
[00:02:51] Martin: Yes, I do. I think mental discipline is fundamental in business, and I think that the journey– I could tell you from, personal experience, this journey, it was a spiritual as it was athletic. Given one time to think and learning that you really can push to another level. I think that’s some relevance there to one’s business life. I do think it’s quirky, I will be the first to admit that I always think that a lot of the ultra-people that I know are slightly strange. I don’t think of myself as slightly strange. Then again, who knows, probably other people perceive me a different way.
[00:03:35] Jonathan: I read an article and I think it’s great. Your son, Robbie, followed you into the love of extreme sports and the two of you completed the St. Croix Half Ironman Triathlon together. Robbie was 16 at the time. As a father, what was that like?
[00:03:51] Martin: I think of all the races I’ve done that the two most enjoyable races I had were the two Half Ironman’s I did with two of my, I have three sons and a daughter but two of my sons did these races each at 16. Robbie did St. Croix and my son Mikey did one in Show Low called the Show Low Arizona Half Ironman. Yes, those were the two most enjoyable races I could have had.
They are good athletes, great athletes. They didn’t choose to pursue what I pursued. The truth is I picked up doing extreme sports in my 30s. I played soccer till I was about 32. They may yet decide to do that. That was something that grabbed me later on in life. It’s really not for the young, they prefer to play, go skiing, play tennis and play basketball.
[00:04:39] Jonathan: Let’s shift gears to your career and interestingly, you started at Rothschild where you were the youngest Vice President in the firm’s history. Then you started working for your father, who was the former partner of James Goldsmith. What was it like working with your dad?
[00:04:56] Martin: I loved working with my dad. I was probably one of those few sons that regretted my father retiring. I was the youngest of six. For me, it was a bit of a catch-up opportunity to spend a lot of time with my father. I got to see another side of him as I partnered with him and it was a great experience, one I’ll never forget.
My father was 94. I’m very thankful for those years that I had to be under him. He taught me a lot, particularly how to treat people and what priorities were and never to take oneself too seriously or never to believe that just because he had some success that you were any better than anybody else. Those were things I learned from him.
[00:05:36] Jonathan: He had an interesting style, and I think it was a style of the time of breaking up companies, and it worked quite well in the ’80s. It seemed like a perfect time to execute such a strategy, especially after all the excessive conglomerate building in the ’60s that made corporations bloated and inefficient. Do you think if he was working in the ’90s or today, he would have done things differently?
[00:05:59] Martin: I think the reality is my father was a banker. That was his real background. He got to know Jimmy Goldsmith because he was his banker at the time. I think that what they did was, as you said, important for the time and I think these things do go in cycles and based on economic need. Because of the inefficiencies that were created by the conglomerations that were made in the 1950s and ’60s and early ’70s, having some catalysts like my father and Jimmy was essential for industry.
They served an important role, but it became irrelevant at some point because the efficiencies have been found and the market had adjusted. That was really when they retired. I think that today, people are doing similar catalytic things, but they’re doing them in a very different way, but much more appropriate for the times today. You always have to have some engine there in order to drive towards efficiency and making sure that inefficiencies don’t exist for very long in any place in the capitalist system.
[00:07:09] Jonathan: What are some of the catalytic trends that you think are worth exploring today?
[00:07:15] Martin: Well, I think that you have to look at the things that have been happening. First of all, you go back to the activists so that you like the takeover artists and think conglomerators of yesteryear are the activist investors of today. They’re trying to push companies to find initiatives within themselves, rather than making takeover attempts and ask them to bust them up. Some of that’s because of the laws have changed. Some of it is because it’s really a better way to go because, in a way, you’re bringing all those benefits to all shareholders as opposed to just the buyer.
I think the second if you like, trend today and I’ve been a part of that is towards bringing companies back to the public markets. You see all of these SPACs. They are, if you like, the LBOs of today’s environment. They’ve become quite a trend. People go into market using equity for doing transactions, but in some other scenarios might have been private equity deals. That’s just, I guess, a couple of examples of things that are going on, but I think it keeps on shifting over time. I’m sure that in 10 years’ time, there’ll be something else.
[00:08:23] Jonathan: One of the things in the activist playbook is, lever up the balance sheet buy back a lot of shares. It’s great for a short-term potential pop in the stock. Its appropriate today’s the day that Sumner Redstone passed away. Viacom is a perfect example of, yes, you could spend a ton of money buying back stock or CBS Viacom, but if you don’t invest in content, or whatever you’re building, you’re not going to have a good long-term results. Do you have any views on share buybacks?
[00:08:55] Martin: Yes, I’m a believer in share buybacks when it’s appropriate. I think the mistake that a lot of companies have made is they’re not very good at them. You take a company like Teledyne over the years, maybe in the book Outliers, you’ll see a number of examples. The great thing about being a public company is if you’re a good capital allocator, you know when it’s a good time to issue shares, you know when it’s a good time to buy them back.
When you go back and look at Jarden’s history, we bought companies and there were periods of time when we bought shares back, and we had periods of time when we issued shares. The reason we had a 34% compound return for investors over 15 years was because, with the benefit of hindsight, of course, we timed those things correctly. I think just when activists come in and their only playbook is, I think you should lever up buy and bunch of shares back no matter what the price, I completely agree that that’s not a good thing to do and particularly if it sacrifices necessary investments in the future of the company.
Again, a management team that leveraged up the company to the sacrifice of investments they need to make isn’t doing their job. I’m in the middle of a buyback for Nomad Foods today, a company which I’m a founder and Co-Chairman. It’s the largest frozen food company in Europe and we’re returning capital to investors for specific reasons, but not to the detriment of any acquisition opportunities, we have assessments that are going to be made in our own business, from a marketing support or anything else, for the future of the business.
There are times to do it. I think to say that buybacks should never be done is a big mistake. In fact, it surprises me sometimes with the politicians starting to talk about things like that. What people should do is make the right decisions for their companies. It’s not a question of whether it’s black and white, whether one thing is a good idea or a bad idea.
[00:10:46] Jonathan: To be clear, I think in certain instances buybacks are quite appropriate. For our asset management clients and for our research service, we do a lot of the John Malone companies and he’s a big believer in them and does a fairly good job of it. He was in the Outsider book as well, I believe. Are there any other executives that you think have done a good job with this?
[00:11:12] Martin: Yes, I think the Rales brothers who built Danaher, I think they would be a poster child example of good capital allocators and understanding how to build a business.
[00:11:21] Jonathan: Yes, and they’re doing it a second time, I believe with Colfax.
[00:11:25] Martin: That’s correct. We’re people who understand how to do these things, the skillset is transportable to any industry. Okay, not to toot my own horn, but I’ve had success in multiple different sectors, but I’m following the same playbook and the same disciplines because they are agnostic to what particular industry you’re in.
[00:11:46] Jonathan: Your first big success was actually in the optical business. It was in the early ’90s and you started rolling them up. You had all the areas you could have invested in. What attracted you to the eyes?
[00:12:00] Martin: I have to confess, I’d be lying if I told you it was because I did some huge industry analysis at the time, I was looking to do something when my father had retired and somebody came along and offered me 11 optical shops, and a company that looked to me when I looked at the numbers that it was going to go bankrupt. I saw an opportunity to buy a very small business, get an opportunity to get my foot in the door, and have hopefully the opportunity to buy the rest of it when into financial difficulty.
Like so many things, the old saying 80% of success is showing up. I put myself in an industry where I suddenly realized that my thesis was probably a poor one but I liked the business I was in. I’d called in all the suppliers to my stores and what I learned when I really sat down to talked to them is the people that made frames just made frames, the guys that made lenses, made lenses, the guys that made distributed contacts, and it was a very, pardon the pun, but a very myopic business.
People were focused on very narrow things. That gave me the idea of creating another integrated eyecare products company. The problem I had at the beginning was I was pretty poor so I didn’t have a lot of money and I had to figure out how to go from buying distressed businesses to buying healthier ones that will go in the platform and I didn’t know that at the time but that’s really what I was doing.
I went quite quickly, actually, from being a retailer to being a distributor or manufacturer of optical product. Each acquisition got progressively better in terms of quality of business. Until we’d built the largest lab system in the United States and Essilor, the largest lens maker in the world, figured we’d built a big enough infrastructure to offer a very generous price to buy it, which is when we sold it.
[00:13:53] Jonathan: You accomplished this in your late 20’s, early 30’s. Correct?
[00:13:57] Martin: Yes, I think I started when I was about 26, 27, and I sold it when I was about 30 or 31.
[00:14:06] Jonathan: Not bad for the early 30’s. It’s funny, growing up, my father started the business and one of his big earlier successes was a company called US Shoe, not because he liked the business, but they own lens crafters.
[00:14:20] Martin: I remember it well.
[00:14:22] Jonathan: Yes, he says it’s probably one of the worst run public companies ever.
[00:14:25] Martin: If I remember, that was also a company, the Rales brothers in their early days went after to try to buy.
[00:14:30] Jonathan: Yes, a lot of people did and they finally sold to Luxottica, took a lot of patience.
[00:14:39] Martin: Yes, I remember.
[00:14:41] Jonathan: As I mentioned earlier, you’re probably best known for Jarden, when you compounded it at over 30% per year for 15 years and you did it by basically forcing your way onto the board of a former of ball court spin out, which was a horribly run company. How did you manage to get yourself on the board?
[00:14:59] Martin: If I ever write a book, that’s going to be my favorite chapter because it’s a crazy story. The craziest story is how I became CEO, but I’ll tell it to you, I got on the board because I bought 9.9% of the company and they refused to really listen to any of my suggestions we looked to try to take it private. Then I made a public offer for the company. They rejected that.
Because it was an Indianapolis domicile company, it was very difficult to, if you like, force them to do anything but in the end, they decided to run a sale process. I was the only bidder. Then when they decided they didn’t want to sell to me, they’d rather make peace, they offered me two seats on the board and Ian Ashken, who’s been my longtime colleague and partner went on the board with me and that’s how I joined the board.
I went to my first board meeting in, I think, June of 2001. I’ve been buying shares from the beginning of 2000. Then the first meeting was an extraordinary meeting. I’d promised that I would be just a listener and observer in the first meeting. Ian went to a cricket match so he left me to the wolves on my own. I’ve sat in this meeting and one of the businesses they owned was called Triangle Plastics. It was a terrible acquisition that they had made and EBITDA was supposed to be $14 million. I had done due diligence on the company when we were looking at buying it. I knew for a fact that it was not probably going to be lucky to make two million of EBITDA, which means we’d have a big P&L loss.
The company was already in financial difficulty. This would have put them in covenant default. When I went to the first board meeting, the outside director, the lead director who had never met the president of this division, I told him, I thought it was a breach of their fiduciary duties they had never met the manager. It just so happened that my first meeting, that manager was there. He gives a presentation and he tells the board that he’s going to make 12 to 14 million of EBITDA that year. Now, remember this is June of this year. Already half the year is already done.
I already knew what the numbers were so everybody listened. I didn’t say a word and then they were going to move on to the next subject. Then I put my hand up. I said, “Look, I’m sorry, but I have to ask a question.” He said okay. Then I started asking questions. I said, “What’s your EBITDA year-to-date?” His answer was a billion dollars. I said, “Okay, what’s your expected EBITDA? Two billion dollars. What’s your expected EBITDA for this month?” He said, “I’m going to lose a million dollars.”
I said, “Okay. You’re telling the board, you’re going to make 12 to 14 million dollars. You’re going to do it in the back half, the slowest quarter in this industry because this is the fourth quarter. I know for a fact you have no chance of making these numbers. Why are you telling the board numbers you all know aren’t true? Who would ask you to tell you to stand up in front of this board and effectively lie to them?” He points with his finger to the CEO and he says, “He did.”
I know it’s a long story, but it’s worthy of telling. The CEO was going to be removed from that day forward and it took them 90 days to basically agree to give me the keys. It was one of those stories where the board did the right thing. I joined the board, the stock split adjusted was like $1.20 and we sold the company on an apples-to-apples basis of about $60. That’s really the job of the story.
[00:18:21] Jonathan: That’s an amazing story that a CEO would tell a subordinate basically to lie to a board.
[00:18:29] Martin: It was unbelievably– It was shocking and it played right into everything that I’ve been trying to explain to this board for a long time, which is that they had the wrong people running it and the underlying businesses were good businesses that had opportunity and we exploited that.
[00:18:46] Jonathan: You certainly did and primarily through an M&A strategy and you purchase brands like Coleman, Mr. Coffee, Playing Cards, Rawlings. What was your acquisition strategy?
[00:18:59] Martin: I will tell you that I don’t think our success was just M&A, I think M&A was a good piece of it. Our success was really because we ran the businesses well and we built a great culture and we really managed to attract the best talent in each of the businesses we were in to those businesses. Our criteria was very consistent across all of our acquisitions. We looked for market leaders in the respective consumer markets. I mean, obviously all consumers. We wanted businesses that were defendable, had defensible moats around them.
It’s really the same strategy I pursue today. We look for businesses that had good management teams and had generated a lot of free cash flow that we could buy for a reasonable multiple of those cash flows. That was the strategy. For the 25 or 26 acquisitions we made, there were probably 500 that nobody ever saw that we passed on, whether it be for price, culture, strategic battle, or whatever. We were very careful to make sure that the chemistry inside the company was never, if you like, tainted because I think one bad apple can ruin everything, so we were very cautious.
Did you take the Buffett handsoff approach with these businesses, or did you end up taking an active role?
[00:20:34] Martin: I think people who think that Buffett is inactive probably don’t get close enough to what he does. I think the reality is, we have a very similar view. You hire the very best people and then you give them the latitude to perform, and the incentives to perform. That we did, but what we did that I think was more important is, we gave them tools to be better than they would’ve ever been able to be on their own. For example, if we were doing shipping containers from Asia, all of our shipments were under the same umbrella agreement.
We could take a company who was doing a great job, and it saved them a significant amount of money just by them being under the tent. We did the same thing with insurance, with buying raw materials such as aluminum, and various resins, and all those kinds of things. Everything that was in the back of the house, we had the economies of scale, but we gave them the entrepreneurial freedom to build their businesses as they saw fit within the parameters of, if you like, budgets and forecasts that they would present to us on a forward basis.
[00:21:45] Jonathan: You’re a big believer in brands and that was a big part of your acquisition strategy. How did you figure if a brand was good enough to fit into your portfolio? Is it gut feeling, did you do consumer surveys, did you just simply look at cash flow and say, “Hey, if I can buy this at five times and it’s a decent enough brand, let’s put it in.” How did that work?
[00:22:06] Martin: The answer is, depends, okay. To give you some examples, I didn’t need to do a survey to know that United States’ Playing Card, that owned 94% of the playing club space in the United States had brand equity. That didn’t require a survey. When I bought Food Saver, which was the machine that made a oxygen barrier bag, I did a very full consulting study because it was a very narrow market and I wanted to understand was it a fad, or was it something that’s going to be around for a very long time?
By the way, we bought that business because everybody else thought it was a fad, and that business has produced every year substantial profits without, at least in the years I owned it, it went from 25 to over 45 million of EBITDA through the period without missing a beat. Our thesis was right, and we bought it very cheap because other people were very skeptical that it would have legs. We did the research, the consumer surveys, and everything else because we didn’t have that– It wasn’t obvious.
When it’s obvious, we don’t do work for the sake of doing work, we use our common sense. There are some things that were obvious, and some things that required more study, but when it required more study, we never cut corners though. I guess that was one of the things that I think we did well. We never had surprises after we bought things because we were thorough in our diligence.
[00:23:32] Jonathan: Would it be fair to say that one of the secrets to your success was making a lot less mistakes than everyone else?
[00:23:40] Martin: Yes, right. My dad said to me many years ago, he said, “You make more money on the deals you don’t do, than the deals you do.” That’s why I would be the first to tell you, I would be a great venture capitalist because I don’t think I could sleep at night knowing if I was doing 10 deals, two are home runs, they pay for everything else, and four of them go bust then the other ones are mediocre, I just couldn’t live with that because, for me, I’d be having sleepless nights about the four that were going bust, and what we’re going to do with the people? It’s just not my way of thinking. I have very little appetite for living with failures and moving on from them. This approach has always been better for me.
[00:24:21] Jonathan: How important were stores like Walmart to the success of Jarden. It seems like having good relationships with them was critical, I don’t know what percentage of sales of your products were at Walmart, but having such a concentrated–
[00:24:36] Martin: It started off as 5% and went to 15%. Amazon went from 1% and was probably 10% by the time we sold the business, and today would probably be 25%. What I always told people is, my job is to make our job, and the company’s job is to make great products, get them to wherever we want them to go on time in the most efficient way possible and to price them fairly, that’s our job.
I’m agnostic as to whether or not they’re sold in a retail store and an e-commerce platform or any other way. It’s not, to us, our job. I didn’t care if I was selling to Walmart or selling to a different kind of retailer, but our job was to make sure that we were the most efficient in doing it. They were important, but I think if it wasn’t Walmart, it had been somebody else because at the end of the day, they’re simply conduits to consumer purchasing. Our job was to make things that appeal to the consumers, and that would drive the demand.
I remember sitting with the president of Bed Bath & Beyond, who had asked me to give him help with his e-commerce strategy. What are you going to do to help me? I buy a lot of product from you, what are you going to do to help me with this? I had to explain to him, I said, “As much as I want to be helpful to you, that’s not my job. My job is to give you products that your consumers want to buy. How you figure out how you will deliver to your consumer is really your responsibility. I don’t know what to tell you.” Obviously, the ones that adapted to online strategies, and saw this coming where the successful companies.
I always reminded by management and this is the difference between Blockbuster and Netflix, was always staying sharp and adapting. That’s one of the things that Jarden did really well. We never got complacent. We never rested on our laurels. We always adapted. We tried to be the Netflix of our space, not the Blockbuster
[00:26:36] Jonathan: You had mentioned earlier that Amazon was becoming increasingly important as a few years ago, as a percentage of sales. A lot of your portfolio is branded consumables in today’s digital age where Amazon and Costco have such strong private label brands. Would it have been harder to have the success you had today?
[00:26:55] Martin: No. Private label is something that if you can’t compete with private label, you’re not doing your job because private label by definition doesn’t evolve because Walmart is not spending the same amount of time as a consumer-driven, consumer products producer to innovate. They’ll take somebody else’s product and they’ll figure out a way to make it either the same price or cheaper, but if you continue to innovate and value engineer your products, you should always be able to stay one step ahead of private label. I competed with private label all the time. One of the things, for example, at Coleman.
Coleman competed at Walmart. It was a very much a Walmart brand, but Ozark Trails was the house brand of Walmart. Walmart would be the first to admit that they needed Coleman to be successful, to drive revenue at Ozark Trails because people would come in to buy a tent. They’d see the Coleman product at one price point, and maybe they’d gone by the Ozark Trails product and the lower-price points. That was fine by Walmart because of how they sold their margins. If I wasn’t innovating and driving interest in the space, it wasn’t going to help them.
We always had an earned a place on the shelf because of the products that we produce, the innovations that we made, we drove traffic. Sometimes that’s the right strategy, and sometimes that’s the wrong one. One of the dividing lines for me with Newell after Jarden was sold to them. When they put Yankee Candle in Walmart. The flagship product, to me that unwound 50 years of goodwill and capital planning in one cynical move to try to boost revenue for the short-term, just because management wasn’t doing a good job. That’s how you kill a brand.
[00:28:45] Jonathan: That was a perfect lead into my next question. I know you’re no longer involved in Newell today. After spending so many years building up Jarden, clearly you follow the company and you’ve been very vocal that they cant M&A their way out of the problem. Do you currently think their problems are fixable?
[00:29:01] Martin: I have to be honest, I don’t know the new management team, and I don’t keep that close to tabs on it at this point because I’m a busy person. I don’t spend much time worrying about. I always tell my kids, “If you look over your shoulder, all you will get is a stiff neck?” I didn’t spend too much time worrying about what they’ve been doing in the last couple of years, but some of the things that were done were hard to unwind.
The Yankee Candle example is a good one in the sense that I just think that once you put your flagship product on the same shelf as something that used to sell it $39.99, and it’s now selling at $19.99 bogged down, and it’s sitting next to a product that looks very similar at $5.99, that’s hard to get over. They’ve got a lot of work to do. There are a lot of good brands in there still. Some of the best ones got sold.
All things could be better. That’s the sort of, I don’t know if they’ll be is as good as they were. I honestly don’t know. What I do know is that I had a very talented group of people on the Jarden side and most of them left and that’s never a good thing when you lose your talent, because at the end of the day businesses are just people.
[00:30:14] Jonathan: Absolutely and you said you always look forward and I guess currently to talk about what you’re doing now is you’ve been very involved in SPACs and you’re one of the most successful SPAC investors around. Briefly, do you mind explaining to the audience who might not know what a SPAC is and why yours is different?
[00:00:34] Martin: Sure. These are Special Purpose Acquisition Companies. I wish what I did wasn’t called a SPAC, but I started pretty early in this. I used it as a way to diversify my own investments. I partnered up with a guy called Nicholas Berggruen and we invested in three vehicles early on and what we decided to do that was different from anybody at the time was we put a lot of our own money to work in these things rather than just being promoters.
We did them on a scale that people like City Group would underwrite them. We made them more institutional and what these vehicles do they’re very simply pools of cash that accumulated under one entity for the purposes of buying one company and taking it public and using that cash to, if you like, fund the equity offerings. Think of it like a pre-funded equity offering. The first iteration that I did, first three actually, were like the US model is today, which is you raised a bunch of money, you get 20% of the company for free, which is remarkable when you think about it.
Then you go and try and find a company and you have to have a shareholder vote and the investors have the right to either ask for their money back or vote in favor of the deal. If they vote in favor of the deal and they leave their money and you get the transaction done, and the sweetener for the investors is they get a package of warrants, usually a third of the company in warrants.
They have optionality on the upside. What I did when we bought Burger King, which was Justice, which is the fourth vehicle I raised, and now all the subsequent ones, we moved it offshore to the UK so we had a neutral tax jurisdiction. We raised it in the UK because the raising of the money cost half, as much as it costs in the US. Untold secrets about Europe versus the US, is it costs you between 5% and 7% gross spread to raise money in the US then it costs you between 1% and 2% to do exactly the same thing in exactly the same way but in the UK-
[00:02:43] Jonathan: Is there any reason for that?
[00:02:45] Martin: Yes, greedy bankers.
I don’t have a better answer for you. Probably litigation and all those other things, but the truth is the convention is a higher gross spread in America. That’s the truth. Then the second part of it is we don’t get any free shares. I’ve never wanted to make money unless my shareholders made money. We get a carry, we’re both similar to what a hedge fund that’s paid in shares on the upside but the quid pro quo is we give no vote to investors, it’s a board meeting.
These are true committed vehicles, they’re much more certain for the target companies that they’ll get a transaction completed. We are much more competitive with, let’s say, a private equity firm or a big corporate on the transaction and also we’re probably the most efficient way somebody can go public. There’s less frictional costs because there’s no upfront founder equity, and at the same time, we could deliver absolute certainty to the target. My view is, and it’s played out this way that you could do superior– If you want to buy quality companies, profitable companies that have long histories and are established and have choices as to what they’re going to do, this is a very viable, competitive structure.
US SPAC structure tends to do more speculative transactions because the non-speculative targets won’t deal with US SPACs. From my perspective, I think you can create better long-term outcomes because you buy better quality companies, that doesn’t mean that US SPAC can’t make shareholders money. All you have to do is look at a company like Nicola, which is almost a publicly listed venture investment that’s flying because there’s no PE to market against or revenue, by the way.
That’s not a knock on it. It could be one of the great companies of the future, but this is a publicly listed venture capital effort. That’s what that is and that’s not what I do. I do a very different thing, I buy very fundamental companies that make a lot of money today, made a lot of money for many, many years before and hopefully, will make even more money in the future. It’s a hunting license to do publicly-listed acquisitions without having a foundation company prior to that.
[00:35:06] Jonathan: As you mentioned, you had Justice Holdings which ended up taking Burger King public and it was obviously a fantastic success. Bloomberg reported in June, you’re thinking of starting another SPAC to invest in consumer business. Are you able to comment on that?
[00:35:22] Martin: Yes, I actually talked about it this morning on CNBC. I did disclose it. I’m going to create a vehicle called “Harvester” with Viking Global, the hedge fund. We’re putting up $200 million between us, then we’re going to raise probably about $750 million to a billion dollars in a new vehicle. It’ll be structured with very much the same as J2 which was the vehicle we used to buy API Group which is now symbols APG is now a public company that’s performing very well. The business is doing very well. We have very happy shareholders.
My goal, personally, is to have a portfolio have a portfolio of five large nine-figure investments in great companies whose capital allocation decisions I have a say in, not a dictatorship. It’s a collaborative process but I can influence those outcomes. If I really feel strongly that the wrong decision is being made in something, I have the power to stop it. From my perspective, that’s the way I’ve wanted to invest my capital for my family over the very long-term and I have no ambition to trade those investments. I don’t trade them in and out of them. This is truly long-term stuff.
[00:36:36] Jonathan: The new vehicle that you’re starting with Viking, is there a specific mandate you’re looking at or to certain type of companies?
[00:36:43] Martin: No. I have a carte blanche to go any jurisdiction, any type of business. The truth is, I will continue to do exactly what I’ve done for the last 25 years. I stick to the same formula because it’s worked in terms of the type of profile of company as we’ve talked about. I tend to hunt more in the consumer and industrial space as I think you will know but that doesn’t preclude looking at new things. I can tell you that Viking Global, one of the reasons for me to partner with them, apart from the fact that I just like to be from an intellectual standpoint, surrounded with intelligent people whose company I enjoy. I do it because I enjoy it at this point of my life.
I think they have a set of relationships and have made investments in sectors frankly I’ve never been in. If we find things that are in sectors that fit my criteria, in other words, these highly profitable businesses that have defensible moats, good management and history of cash flows, with those two places overlap, I may do something in a totally different space from where I’ve been before which is exciting to me.
[00:37:49] Jonathan: Martin, you’ve been extremely generous with your time. I want to thank you for being on the World According to Boyar Podcast. I enjoyed learning about your fascinating career and I’m excited to hear about your latest venture. I’m sure it’ll be as big of a success as the Justice Holdings one was.
[00:38:07] Martin: Thank you.
[00:38:07] Jonathan: To be sure, you never miss another World According to Boyar episode, please follow us on Twitter @BoyarValue.
Available wherever you download podcasts
About The Boyar Family Of Companies
Boyar Asset Management
We have been managing money since 1983 utilizing our proprietary in-house value-oriented equity strategies. We manage money for high net worth individuals and institutions via separately managed accounts. To find out how we can help you with your money management needs please click here
Since 1975 we have been producing independent research on intrinsically undervalued companies across the market capitalization spectrum and in a wide variety of industries using a business person’s approach to stock market investing. To find out how we can help you with your research needs please click here