Boyar’s Ideas for the Year Ahead & Thoughts on Big Tech Stocks

Jonathan Boyar was interviewed on Yahoo Finance where he discusses some of Boyar’s research best ideas for the year ahead and catalysts that will make them beat the market.

 

Special Sample Reports

 

Act Now for a Special Bonus Offer on the 2022 Forgotten Forty:

Purchase the 2022 Forgotten Forty by February 15, 2022 and save $500 off the list price of $4,995.

You’ll also get two pieces of bonus content with your order (over $5,000 in value):

  • February 2022 (featuring three full-length reports on companies we believe to be undervalued)
  • April 2022 (featuring three full-length reports on companies we believe to be undervalued)

Order The Forgotten Forty Today!

 

 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change without notice.  Additional information is available upon request.  No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this video should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable.   Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors.  This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research.  Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this email.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions.  Clients of Boyar Asset Management own shares of Berkshire Hathaway, Scotts Miracle-Gro, Madison Square Garden Sports, Bank of America, Callaway, Uber and Discovery. 

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The Grass is Greener. Uncovering Value: Scotts Miracle-Gro

In a recent interview penned in Value Investor Insight, Jonathan Boyar explains why the Scotts-Miracle Gro shares deserve a closer look.

Jonathan Boyar argues that the investor concern around Scotts has been overdone. He considers its U.S. consumer business a uniquely strong franchise, which will continue to thrive beyond any short-term negative comparisons as millennials increasingly move into homes and continue to show a greater propensity to spend on lawn and garden products than their parents. The company estimates that 20 million people have bought Scotts’ products for the first time since the pandemic started. After a modest reset this year, Boyar expects high margin revenue growth in the consumer business to resume.

To read the article in its entirety, please click here.

 

 

 

 

Special Sample Reports

 

Act Now for a Special Bonus Offer on the 2022 Forgotten Forty:

Purchase the 2022 Forgotten Forty by February 15, 2022 and save $500 off the list price of $4,995.

You’ll also get two pieces of bonus content with your order (over $5,000 in value):

  • February 2022 (featuring three full-length reports on companies we believe to be undervalued)
  • April 2022 (featuring three full-length reports on companies we believe to be undervalued)

Order The Forgotten Forty Today!

 

 

 

 

 

 

 

 

This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change without notice. No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this article should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable. Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors. Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management clients and its employees own shares of Scotts Miracle-Gro.
This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions. Clients/employees of Boyar Asset Management own shares in Scotts Miracle-Gro.

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Unlocking Value In The Cannabis Market Jim Hagedorn Has A Strategy For Navigating Legalization

Value investors rarely get a chance to participate in fast-growing trends. The momentum behind areas poised for rapid growth—say, artificial intelligence, electric cars or battery technology—typically means a higher valuation than a value investor can justify.

Cannabis stocks are no exception. Even after a substantial correction in cannabis share prices, many of the available opportunities in that space are still selling at sky-high multiples based on traditional valuation metrics.

We’ve previously highlighted situations where value investors are able to invest alongside expert capital allocators. Doing so helps investors take advantage of these experts’ foresight and strategic positioning. If you’re a value investor looking for an entry into the cannabis market, you might want to look toward Jim Hagedorn, who serves as the CEO of Scotts Miracle-Gro SMG +0.4% (SMG), as a guide. Jim has built Scotts into a juggernaut in the lawn and garden industry with iconic brands (Scotts, Miracle-Gro, etc.). He has also been quietly assembling a formidable cannabis business, which investors can essentially acquire for free: At the current SMG stock price, investors are purchasing shares in Scotts Miracle-Gro’s traditional gardening business at a fair valuation and receiving the fast-growing cannabis business at virtually zero cost.

Click Here To Read The Full Article

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This Home-Shopping Preferred Stock Offers a 7% Yield

In a Barron’s article,  Andrew Bary quotes Jonathan Boyar on a potentially compelling preferred stock that happens to be owned by John Malone. “The risk reward relative to other fixed-income investments is pretty compelling.”

He mentioned that Boyar liked the same preferred after it was issued in 2020 and traded at a discount from face value at 94. The issue traded as high as 108 in the past year.

To read the full article, please click here.

 

 

 

 

 

 

 

 

 

 

 

*This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Asset Management (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change.  Additional information is available upon request.  No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Nothing in this interview should be construed as investment advice of any kind. Consult your financial adviser before making any investment decisions. Any opinions expressed herein represent current opinions only and no representation is made with respect to the accuracy, completeness or timeliness of information, and Boyar Asset Management and its affiliates assumes no obligation to update or revise such information. You should not assume that any investment discussed herein will be profitable or that any investment decisions in the future will be profitable.   Past performance does not guarantee future results. Certain information has been provided by and/or is based on third party sources and, although believed to be reliable, has not been independently verified and Boyar Asset Management or any of its affiliates is not responsible for third-party errors.  This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by affiliates of Boyar Research.  Any information that may be considered advice concerning a federal tax issue is not intended to be used, and cannot be used, for the purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter discussed herein. Boyar Asset Management, its employees or affiliates may own shares in any of the companies referenced in this interview.

Any results mentioned, do not necessarily represent the results of any of the accounts managed by Boyar Asset Management Inc., and the results of Boyar Asset Management Inc. accounts could and do differ materially from any of the results presented. While the results presented show profits, there was the real possibility of a permanent loss of capital. This information is for illustration and discussion purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions. Clients of Boyar Asset Management and their employees own shares in QRTEA & QRTEP

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James Hagedorn, Scotts Miracle-Gro Chief Executive Officer and Chairman of the Board, on the tremendous opportunity in the cannabis space, potentially spinning off the fast-growing Hawthorne division and more…

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The Interview Discusses: 

  • How their cannabis division Hawthorne has grown over 100% over the past two years.
  • Why he decided to enter the cannabis business.
  • His thoughts on the current regulatory environment for cannabis and what he believes needs to change.
  • Where the biggest money will be made in a post cannabis “prohibition” world and where they are investing.
  • The logic of potentially spinning out the Hawthorne business.
  • The demographic shift that is greatly helping their traditional consumer business.
  • A meeting he had with Henry Kravis in ~2007 and what he did in response to that meeting.
  • Why Scotts has been a “pandemic beneficiary.”
  • His thoughts on inflation.
  • How they have changed their marketing to target millennials.
  • Their innovative weather partnership with IBM that could greatly enhance their marketing.
  • Why he believes private label is not a threat to his consumer business.
  • How they incentivized employees during the pandemic.

About James Hagedorn:

Jim became chief executive officer of Scotts Miracle-Gro in 2001 and was named chairman of the Board of Directors in 2003. Prior to this, Jim helped to orchestrate Miracle-Gro’s merger with The Scotts Company in 1995, creating the leading consumer lawn and garden business in the world. He held the role of president from May 2001 to December 2005 and from November 2006 to October 2008. Jim also served in the United States Air Force for seven years, where he was a captain and an accomplished F-16 fighter pilot.

Jim is a graduate of The Harvard Business School Advanced Management Program and holds a degree in aeronautical science from Embry Riddle Aeronautical University, where he is a member of the Board of Trustees.

Please click here to download the Scotts Miracle-Gro report.

Click Here to Read the Interview Transcript

Transcript of the Interview With James Hagedorn:

[00:00:00] [music]

Jonathan: 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 guest is Jim Hagedorn, chairman and CEO of the Scotts Miracle-Gro company. Jim became chief executive officer of Scotts in 2001 and was named chairman of the board of directors in 2003. Prior to this, Jim helped to orchestrate the Miracle-Gro’s merger with Scotts company in 1995, creating the leading consumer lawn and garden business in the world.

Jim also served in the United States Air Force for seven years where he was a captain and accomplished F16 fighter pilot. Jim, welcome to the show.

Jim: Hey, thanks for having me.

Jonathan: I’m super excited to have you on The World According to Boyar. Scotts is a company that Boyar research began following in 2011 when shares were trading around $50 per share. We’ve owned it in certain accounts for almost a decade and one of the characteristics we look for in companies are ones that have great consumer franchises and the Scotts Miracle-Gro with its Coca-Cola-like market share, certainly fits the bill. We also like investing in companies, operated by people with skin in the game, as they make decisions that are in the best interests of long-term shareholders and not simply to meet wall street short-term targets.

You and your family owned about 30% of the company and have in our opinion, done a great job for shareholders utilizing a mix of dividends, buybacks and special dividends. Most importantly, though, you’ve invested in the business. In less than a decade, you created a division called Hawthorne that today is the world’s largest vertically integrated hydroponics company serving primarily the cannabis industry and generates about a billion and a half dollars in sales in fiscal year 2021 and grew revenues almost by 40%.

I first would like to talk about Hawthorne and the traditional [00:02:00] business, but first, you were a fighter pilot until at least the pandemic hit you live primarily on Long Island and actually flew yourself to Ohio each day to go to work. What was that like? I imagine it gave you a lot of time to think.

Jim: I love being in a metal tube by myself. The answer is, if you want to think about stuff, I’m not sure the FAA would want to hear all this, but it’s a great place to read. Yes, prior to COVID, I traveled back and forth on a daily basis from Long Island, Farmingdale to Marysville, Ohio, which is a couple of miles from the office here. They were early days, be home in time for dinner. We had a tragedy, lost a 24-year-old daughter who was killed and our family became unstable enough that coming home at night was important to maintaining the survivor family. Once I did that for a year, I actually liked being able to come home at night. I fly a single engine citation jet single pilot is a really great place to reflect on the business and think and read.

I get to be able to read all the papers, send a lot of emails to my team on that hour and a half each direction, back and forth. Not really from a time-wise much different from commuting into Manhattan. I really liked it. Now since COVID, I get to take that commuting time, mostly spend it on a treadmill running. Lately, I’ve been coming out here once or twice a week, and we’ve been running the business via Google Meeting used to be a Hangout. It’s been a really interesting couple of years. By the way, in regard to Hawthorne, it’s up 100% in two years, not just 40%. It was 60% in 2020 and 40% last year.

Jonathan: The business is on fire. It’s a fantastic business, which I definitely want to talk about. I don’t know if it’s true. I read in my research, 1994, SC Johnson offered your family a [00:04:00] lot of money to buy the company. Instead, you decided to buy Scotts, which was six times the size of Miracle-Gro. It got about half the value, but you took it in equity and warrants. Obviously, things turned out more than fine. Looking back at it, was this a crazy decision?

Jim: I put myself in the slightly, from a personality point of view, unusual. This would’ve been 1994 I think it was. Sam Johnson wants to meet with my dad. I wasn’t invited. Miracle was making about 100 million. Sub S company, we didn’t pay federal tax. It was great because it was Reagan time, where it was 28% federal rate and they were on the pay $400 million for call it 100 million of pre-tax earnings. My father said, “It was great meeting you, we’re not for sale.” My father went on vacation to Europe and people brought me in Scotts the big dog in this space. We had spies, so we had a bunch of people who work for Miracle-Gro who are ex-Scotts people.

We always wanted to see the retail programs where if we could get intel on programs that Scotts was offering, it kind of gives us some insights on how they operate. This is back to early days. This is when CompuServe and AOL. I went on the AOL and checked Scotts stock price. Remember SEJ offered 400 million for Miracle-Gro. Scotts’ market cap at the time, $600 million of sales compared to our $100 million. We make $40 million just so be clear. Made $40 million, they offered us $400 million. Top Line was about $100 million. Scotts’ market cap was $265 million. My father was traveling, my father was the right-hand man with his dad in the Virgin Islands.

I said to myself, “We’re worth more than Scotts is?” We didn’t know anybody. We didn’t know any lawyers or anything in this kind of world. I called my father’s estate lawyer [00:06:00] at Skadden, a guy named Bob Vincent. He was the chairman or something at Barclays. I said, “Hey, Bob, if Miracle-Gro was worth more than Scotts, I wonder if we could just take over Scotts?” There was no real shareholder and that had been a LBO from Clayton Dubilier and when they went public on the Nasdaq, first Boston and Goldman took them back public again out of Clayton Dubilier, [00:06:25] it really had no shareholding.

There was like a bunch of inside ownership because of the LBO and Singapore, completely passive investor only 10%. That was it, there was no concentration of the shareholdings and the company had not performed. When the two or so years that they’ve been public since Clayton Dubilier took them public again, they never made the number, not once. You miss call 10 quarters in a row, people just get discouraged and say, “XXXX this,” and analysts stop covering the stock and that’s where Scotts was. He said, “I think maybe you could take them over.” He said, “What you need is an investment banker.” The guy running First Boston’s Investment Bank is a guy named Allen Wheat.

Bob introduced me to Allen Wheat and he says, “I think it’s definitely possible.” Remember they took Scotts public again out of Clayton Dubilier and he said, “The banker who did that work is a guy named Brian Finn. Now Brian Finn is on our board today. One of the really fabulous strategic bankers I think in the world ever is Brian Finn. We met with Brian and he and I came up with a script. Now, I met my father. He came back on the QE2 or whatever the hell it was back in the day. I picked them up in the hand and said, “Dude, if I told you we could take over Scotts but the currency would be Miracle-Gro.”

He just looked at me and said, “I am in.” That was it, “I’m In.” Our script was [00:08:00] pretty simple. This is to Scotts, “Miracle-Gro is not for sale, if it was for sale, you couldn’t afford it. Good news is we would be willing to merge the companies but it will have to be pooling as opposed to purchase accounting.” Now we didn’t end up doing that because my old man at the last minute, said he wanted to leave and that’s where he set up his charity. If you go back two years and go forward one year, Miracle-Gro people were there in about 42% of the combined equity and it’s pretty consistent over time.

We would make a suggestion, we pull, we get 42% of the equity and we don’t want any cash. We ended up with a little bit different deal because late in the transaction, my old man comes into my office and he says, “I’m out,” and this is how I think about age. My father was probably this most powerful like 75, which makes you wonder why people leave so early but seriously, I’m a student of my dad’s, I would say the most powerful intellectually as a business person at probably 75. At this point, he was probably 79 and he said, “I’m out,” and I said, “What do you mean?” My mother had died of cancer, he remarried this excellent woman who’s also gone now named Amy. He said, “Amy and I are starting a new business.”

Now, I’m thinking to myself, “What the XXXX does my old man know? Does he want to compete with me?” This is all going through my head in a second before he told me the answer. I said, “Oh, what do you mean?” and he said, “Amy and I are going to start a new business, we’re going to be co-CEO’s and it’s going to be giving away every single dollar I have, 100%, everything I’m going to give away. My father was not a usual charitable person. My father would love to give $20,000, $50,000, $100,000, be on the board, participate. It wasn’t a big giant check where he gives all his money away.

It’s lots of bets where [00:10:00] he participates, and Amy participated. At that point, he gave me a number and said, “This is what it’s going to cost.” Now probably I’ll argue with my own man. We didn’t actually pay for business we got. When my mother got cancer, my father wanted to step up the basis of Miracle-Gro so he gave 100% of it to my mother, with the idea you step up the basis to whatever the current value was, but she had to live a year for that to work. She didn’t. He basically renounced my mother’s estate, and it went to the kids. He maintained 20% of the business, 40% of the voting stock.

What you do when your old man says, “This is what it’s going to cost.” I called our lawyers at Skadden, really great guys and women. I told him. I said, first of all, he’s XXXX this whole deal up, we’re going to lose the pooling, and we’re going to go purchase accounting and they just said, “Dude, what are you going to do? It’s your own man, get a grip. He’s given it away.” I was like, “Fine.” We established a preferred equity to pay the dividend and that dividend was used to buy my father out. Prior to the deal, he gave his equity to the New York Community Trust, and then they had a capital stake that we closed out two or three years ago.

A couple of things. My wife during the whole thing, because the company is in Ohio, we live in New York. My wife’s like, “What the hell are you trying to build, Jim?” I said, “I want to create Procter & Gamble’s of Lawn & Garden. She said, “What the hell’s that mean?” I said, “Anything of value I want.” That effectively was the vision. My brother Peter, he was on board. This is my older brother, 12 years older than I am. He’s like, “What’s the plan here?” I said, “Peter, this is the truth. I’m not exaggerating. It’s not going to sound great, maybe to you,” but I said, “Peter, I can take Scotts,” and he said, “You sure it’s the right thing?”

I said, “No, but my urge to hunt here is so high that I feel like I have to take them [00:12:00] and I want to do this.” We made that presentation in Pittsburgh airport because my father was like, “No, we don’t want to do it in Columbus, we don’t want to do it in New York, we’ll go in between.” We agreed we’re going to meet a club in Pittsburgh. The first time we came here, I never been discussed before in Marysville. We drove in the parking lot and Tad Seitz, the chairman of the board is driving the car. My father is in the front seat. My father’s partner, John Kenlon, president of Miracle-Gro is in the backseat and me, the two of us in the back.

We’re driving the parking lot and this is like a 600-acre campus here, manufacturing R&D, office complex built when ITT was in conglomerate phase. I looked at John and said, “This is going to be ours?” The weird thing is, nobody ever said, “No.”

I had this view of noses in, fingers out. I think that’s a terrible idea. For one reason, I am the leader that the board could wake up and say, “Are you kidding me? What did he say and all this XXXX? What’s he up to?” Let’s just say you’re a merchant for Home Depot and you said, “I think you should make this product.” If I say yes, you know what? You’re going to carry the XXXX out of it because it’s your project.

If I let the board engage in management of the business, they’re much more comfortable with what I’m up to. I run the board way different than I used to. We meet more frequently now, six-plus times per year, we do all the nonsense, which is important and a lot of it the committee’s. We do that during the week, but before the board meeting by telephone, or video now. When we show up in person, we’re strictly talking about the business. Now the board, especially my chairman, I’m much more involved in business so there’s not this educational process that has to occur all the time and I have a board that is really functional.

The problem is I got pretty high tenure, Mike and I are getting pretty [00:14:00] old and so there’s change afoot, not because anybody’s threatening to leave or anything like that but both from the board, especially if we say this, another board going to have to happen for Apollo. I got a whole new leadership I got to groom, it’s taken up a lot of time. Our last board meeting– I’m not making this up. I’m usually pretty happy when my board speaks with this foul language as I do, but we had a subject item on this schedule at our meeting where it was like, “If you’re going to do all this XXXX, your five pillars, this was the subject, you would want XXXXing army.”

That’s taking up a lot of our time right now, especially complicated if you say maybe SMG today is two businesses with two boards, two management teams, and do you have the people to do this? We’re in a very expansion-centric mode right now too so it’s a really cool time.

Jonathan: Your traditional consumer business which produces fertilizer, grass seed, et cetera has unbelievable brand recognition, as I said earlier, Coca Cola-like market share, and anyone who gardens know your product. You were a huge pandemic beneficiary, and as your son, Chris, who also works in the business said on a conference call, we joked when all this started, not that it’s a joking matter, but you got to find levity where you can, that what were people going to do when quarantine hit the whole country is they’re going to go sit at home and smoke pot and garden.

I think in all seriousness, there’s a lot of truth in that statement. One of the reasons you were a pandemic beneficiary was millennials moving to the suburbs. How big of a deal has been the exodus from the city to the suburbs been for your business?

Jim: It’s been huge. We had these dark fears, the weirdness about the financial community, the investor community, particularly short-term investors, there was a lot of discussion about work, people are going to move inside the beltway, have condos, no lawns, and that’s what young people wanted. [00:16:00] We weirdly started to believe that, that maybe the growth is done in consumer lawn and garden. I had this conversation with Craig Menear, from Depot, who’s a good friend and a fabulous CEO. Craig said, “Do you think anybody knows homeowners better than we do, Jim? We spent a lot of money on research, and I think you’re completely wrong. If you look at the demographics, there’s a huge bubble of young people who are now having families.”

He said, Jim, “Our research shows that when they have kids, they want a home, a yard, a dog, or a pet. They want all the things that people traditionally wanted.” Even before COVID, we started to become very much believers that if you look at the huge number of our kids, this is my age kids. I’m 66. They’re all buying homes, and even before COVID, buying a home around here in central Ohio, you better do it quick because there’s going to be bidding wars on it, and there’s just a lack of supply here. Homes are just being built and sold. There’s a big article today in the Journal on homeownership and where it’s headed and what the numbers are looking like, but clearly benefited from low-interest rates.

I think generally, a lack of supply and a big group of people who want to be homeowners that are bigger even than people like us that are retiring and downsizing. Even before we were very positive that lawn and garden was a business particularly if we kept up, meaning, innovate market to people the way they want to be marketed to that we could grow that business, at least kind of a GDP. That was where we’re at. Unlike Peloton, who I think is struggling hard right now, that was a big issue for us coming out of COVID, what are people going to do? [00:18:00] We saw a double-digit increase in consumer sales last year, in ’21.

Our fiscal year ends at the end of September, on top of growth 23 or 24%, in ’20. A 33% increase in two years on a business that we viewed is pretty mature. It gets back to the demographics wanting to have a home, a yard, and garden. What happened during COVID was this issue, we didn’t know what was going to happen. This issue of essentiality– remember that whole argument, only essential businesses could be open, you only could go out to do something essential. People early on said gardening is essential, and not every state agreed. There were two states that didn’t. Michigan and Vermont, both said, “Really? Buying plants? That’s essential?”

Consumers argued the point, and both those states had to back up and say, “We agree, lawn and garden is essential.” For us, having a business– and the same was true with the cannabis business. People both from a medical point of view and most states recreationally, it was deemed to be an essential business. That, to me is some kind of confirmation that we’re not on the wrong track, that people say, “Your business is essential.” Last year was not– if you live in New York, it was not a fabulous weather year. Mother’s Day sucked, Father’s Day sucked, Memorial Day sucked, and Fourth of July sucked. Even with no brakes on this sort of Midwest, Northeast weather, we were still up 10%.

We didn’t lose anything coming out of that. I think it’s a real positive for the business. We also got an opportunity to do because when COVID hit, retailers didn’t want to advertise. I think everybody was pretty happy if their store was deemed to be essential. [00:20:00] They didn’t want to advertise and be criticized. You’re bringing people together and you’re going to get people sick. They didn’t promote at all. What happens then? First of all, retails went up by at least 10%. Meaning, everything that would have been promoted wasn’t, so the actual price that the consumers went up double digits and take away was up a quarter call it.

They weren’t afraid of a little bit higher prices, which I think is important right now, but also because they wouldn’t market because the retailers didn’t want to be criticized, we started taking over and doing a lot of work with this guy, Gary Vaynerchuk. I don’t know if you know Gary. Gary’s at VaynerMedia. We basically said, “Look, we’re on our own. We’re going to take the money that we would have given the retailers to market. We’re going to market ourselves.” That really gave us a lot of confidence that we could change how we market. Remember if you say, “To do this, we can’t be the old company we were, we’re going to have to innovate. We’re going to have to sell to that younger group that they do want a garden.”

That’s what the research tells us. They just don’t want to be a slave to it like their parents were. How many people actually watch TV commercials these days on commercial TV, unless it’s sports or news? I think not much. Therefore, we’ve got to figure out how to use social media and influencers. We’ve made a ton of progress on how do we communicate to younger people today. COVID, I think both on the Hawthorne side and then on the consumer side, in spite of the tragedy that I think it was for America, in the world, it was very gratifying to know that this is business that people actually, when this XXXX was happening people said, “I’m going to garden.”

Jonathan: You actually did something that was really interesting. You have something with the weather channel or Watson, you’re able to advertise more when the weather is predicted to be more favorable for gardening, is that something?

Jim: Yes, [00:22:00] this was a criticism. If you look at how marketing happen in lawn and garden pre-COVID, it was falling apart. I’m not sure the retailers agreed with me on this. I thought it was falling apart, that if you looked at, call it, the marketing hit rate, let’s just say you had three or four Black Friday events throughout the lawn and garden season. I’ll bet you, 70% of your marketing and promotional dollars get spent against that. They want to get out early. The retailers want to get out early to get the lawn and garden consumer in, because if they buy certain things on Black Friday events, they tend to buy a bigger basket of stuff. This may be a global environmental change that’s happening, which is we tend to have really good weather up through March.

Then it becomes unstable April, May and then summer hits and you have a decent normal season. We were seeing 80% miss rate on weather. If it’s cold and raining and you go into a Home Depot or Lowe’s when the weather sucks and it’s cold and wet, it’s like crickets in there. This is nobody there. We know the phasing of how people buy stuff. It tends to be because it’s a good promotional item, lawn fertilizer, and grass seed. Then you get into the bug season, pesticides and weed killers. We know the flow of it, but what’s the value of advertising when the weather sucks?

The business we’re in is a t-shirt business. If it’s not going to be t-shirts and people are in a down jacket, don’t expect them to be in a store. Can we pull the advertising either forward up to maybe two weeks or push it back based on weather forecasting? The weather channel data part of it is owned by IBM and it’s a big data deal. I don’t know that they can predict the weather a year in advance, but they can predict the weather two or three weeks in advance pretty well. If [00:24:00] you know you’re going into a weekend, just don’t advertise, push it off or pull it forward.

What we’re learning is if you promote into good weather where you have the promotions, the inventory, the weather, all in your favor, it’s just so much easier to have good business. Yes, we’re pretty careful on the data and learning how to be flexible to move promotions. Now, retailers, it’s harder because the retailers are doing Black Friday events a year out and getting the merchant teams to say, “But you got to be flexible just plus, or minus a week or two. If you’re flexible, then we’ll just promote in a good weather.” It turns out we think weekends are important and they are, but good weather, in season, even if the middle of the week is okay.

We’re trying to run our sales and our advertising, have the weather on our back, not blowing and freezing cold in our face.

Jonathan: One of things I think about in your consumer business– it’s obvious you have a fantastic product but I think about, let’s say the food industry as an example, were over let’s say, a past decade roughly, many of the supermarkets and other places where people purchased food, decided to compete against the established brands with decently high-quality private label brands and they took away market share. I know you do have some private label business, but what gives you the confidence that that’s not going to happen in lawn and garden?

Jim: Well, we start by saying experience. First of all, if you look at dollars spent and units sold, they’re different and you said 50% of the units and 68% of the dollars are the brands, but 50% of the units are private labels. Without private label, it’s going to be very challenging for retailers to make money in lawn and garden. Private label is key to it and we don’t resist that. We try to manage that alongside the retailers. I think that [00:26:00] makes it helpful. Chuck Berger, that was the CEO before me. He’d always tell me, “Don’t tell me what you think. Jim, tell me what you know.”

This is a little bit what I think, I think if you go to store managers and maybe you’ve done that, I know some of our analysts do. I think they’d say, Scotts and maybe Behr paint are the best vendors in the chain. They are some of the very few vendors that a store manager will give his personal cell phone number because they trust us. We’re all about helping them. I think that what you get with Scotts is not only access to very integrated private label programs. By the way, just so headline, we’re not losing share at private label and we haven’t over the last decade, but it’s a very integrated program where we’re delivering everything on the same trucks, which remember, a Depot doesn’t have a lot of bays.

A lot of times you’re just pulling stuff off in a parking lot. When you can reduce the number of trucks arriving by half by integrating private label with this national brand, that is a big benefit to them. We service the product, we counsel on the weekends. Meaning, we have thousands of people in these stores. We own the concrete. I think that the difference between food to some extent and lawn and garden is lawn and garden is a once or twice a season purchase. It’s not something you’re doing every day. Personally, I’m a brand freak. I don’t buy a lot of unbranded food.

I think we’re doing our job to innovate on the branded side especially, offer competitive programs on the private label side, but really try to reserve our big innovation for the branded product, at least initially. I think it’s working out pretty well. I’d start by saying, we are very much believers that a blended program of private label and national brand matters. To the extent we can and be competitive, we want to do both.

Jonathan: [00:28:00] The brand is clearly your biggest competitive advantage but you did spend a lot of money on your supply chain and you have one of the best ones out there. Clearly, for most businesses, they’re experiencing issues, but I can’t help, but wonder is it as bad of a problem as people say it is? Or is this an excuse for companies really just to kind of raise prices?

Jim: I’m going to talk to you the way I talk which is, it’s pretty up out there, seriously. Commodities, we don’t see much easing a little bit, I think right now. I think mostly in plastics and other things, it’s just a really tight supply and there’s no choice. Certain stuff we buy; bags and some containers. We’re a major customer, but they’ll say, “It’s a courtesy call, dude. This is what’s happening with pricing. If you don’t like it, I’m moving down the phone list and I’ll call the next person. Everything’s going to be sold. This is what’s happening with the price.” If you look at our Q3 call, our last third-quarter call, we ate XXXX on that call.

I think it was like for 500 basis points of margin decline in a quarter. I don’t think people were happy with my view on pricing. I think that everybody would’ve been happy if I’d taken 10 but I said 5. It was largely because I was believing this transitory nature of what the Fed was saying. I was hopeful. Now we told retailers, “If it ain’t transitory, we’re coming back,” but I don’t think the street heard that. I think they looked at margins. I think the view of the pot industry as being a little bit oversupplied at the moment and freaked out, but is it bad out there? Yes, I would say it’s pretty bad.

It was The Journal or The Times yesterday, the question is, is there easing happening right now? It’s this whole discussion of, you go from famine to feast. I don’t know if you saw that article yesterday. I think that’s probable, but if you look at right now, that was another thing. We’ve gone from half a billion of free cash flow to 165, I think, we ended last year at– [00:30:00] A couple of things. We had a great year in ’20, so we paid our incentive out at the beginning of ’21. That cost $100 million right there. Inventory is probably up $500 million. That’s us making sure we have the product.

Now, we thought we lost. I think the number we use publicly was $200 million, but I think reality is we think we lost in ’20, business we couldn’t fulfill, $300 million.

Jonathan: Just from not having enough supply?

Jim: Correct. Probably $100 million in Hawthorne, maybe $200 million in the consumer side. We didn’t want that to happen again because people accepted it because it was ’20 and everybody was screwed up then. Going forward, we can’t live like that. It’s not just that, we paid premium pay here during COVID and we didn’t get beaten into this.

We led with this. Meaning, from day one, we said people who have to work in hazardous areas, which we defined as infection rates of more than 45 per 100,000, we’re going to pay a 50% premium. What did we learn a year into it, was that people were tired.

They were working 12-hour shifts, because anybody gets sick, the whole shift goes bananas, and you end up where you have got three shifts, but you never could really feel three shifts. We’re working two shifts, 12 hours, and you do that for months and months, it doesn’t matter people getting paid a lot.

We just couldn’t operate basically on the margin like that. We’re going to burn out the people in our machinery and everything else. We had the investment inventory and then we had a $100 million in cost increases just based on cost of goods. You got $100 million there, $500 million, plus another– it’s about $700 million of investment, called $600 million if you pull out the incentive that was from ’20, that got paid in ’21.

[00:32:00] That’s the way of solving the issue right now is very much a dull instrument of a lot more bullXXXX so that you don’t run out of stock. It is not a super fine way of running a business, but it’s what we did. I think the answer is, I think it gets better over time. I think it starts with something as simple as the entire global supply chain shut down for a month at the beginning of COVID.

You lost 1/12 of the capacity of the world because everybody was shut down. Then when it came out of it, everybody had all this money and the government was stimulating and everybody wanted to buy XXXX. I fundamentally think that solves itself over time, but I am not a major fan of the policy of the United States at the moment, which is that I think stimulating the economy more with build back better, whatever the hell it’s called.

When people can’t get materials and labor right now, I don’t quite understand it other than politically, maybe it makes sense to Democrats. I think this probably continues for a year or two until it’s settles out.

Jonathan: I just want to shift gears just a bit to Hawthorne, which is your hydroponics business and it’s under the leadership, I believe, of your son, Chris. You built this into an almost $1.5 billion business in less than a decade. First, I just want to hear, how did you decided to get into this category in the first place and did he get a lot of pushback?

Jim: It’s a cool story, but the answer is, yes, on the pushback side. It started out where I was in a pizzeria  with two young women reporters for the Wall Street Journal. I think people can always trick me into saying stupid XXXX that gets me in trouble later. I didn’t have any babysitters with me. I got these two young women from the journal who were actually good reporters.

They said, “What do you think about marijuana?” I said, “What do you mean?” They said, “Do you think it’s a business you guys should be in?” I said, “Do I think it’s part of lawn and garden? Yes, it’s growing plants [00:34:00] and we sell XXX to help people grow plants. Why wouldn’t it be included?”

That was probably like a decade ago at this point. I showed up at the next board meeting and my chairman of the audit committee and my lead independent director pulled me aside and said, “Hell, Jim, have we ever said no to you before?” Actually, I have a very supportive board. I love working with them.

I said, “I don’t think so.” They said, “This is the time. The answer is, no. You’re not doing pot.” That lasted for a couple of years until I was making West Coast trips. I’m talking California, Colorado, Washington State, all the West states that are big and marijuana today, but it was all essentially illegal back then.

You’d start to see lawn and garden apartments that were being taken over by these niche brands. You talk to people and they’d say, “Dude, it’s giant. These people are coming in once a month. They’re paying cash. They don’t negotiate. They buy huge quantities and it’s getting to the point or for some of the independence, it was as big as lawn and garden to them. I kept coming back to Ohio and saying, “Yo, this business is happening.”

The crazy thing today, is it still a Schedule I narcotic, which is insane how anyone can defend that. You’d ask people, “What are people growing with this XXXX?” They’d look it right in the eyes and say, “Tomatoes.” That was not that long ago but it was clear that tomato business was getting to be real and Chris said, “Come out of an advertising agency in New York after college.”

We set him up running basically an indoor urban gardening business that was selling stuff where people live in New York city and urban young people, how they garden and it got to the point where we said,” You know what? You should include this hydroponic.” [00:36:00] That’s what people called it, hydroponic but it’s really cannabis supply for cultivators.

Eventually, that business got shed a couple of years ago. The urban, indoor organic gardening business went back into consumer and Hawthorne just kept the cannabis supply business. It’s been tremendous fun and it’s a real vision. It’s a lot of what I wanted to do in consumer lawn and garden, which is consolidate and be the vendor that I told you about like Depot person would say,” No, Scotts is like the best vendor I have.”

I’ve heard this from a lot of people when they’re being edgy with me on the consumer side, it’s like, “Why would they let you get this big, Jim?” They let us get this big because we’ve got the big brands, we advertising bring consumers in this store, we service the product, we do it pretty flawlessly.

We’re kind of the perfect vendor. The question is on the hydroponics side, what businesses would you have to be in? How would you show yourself to be this great partner to marijuana cultivators, where they say, “No, I love doing this with these guys. They bring technical support. They have all the brands I need. They combine it all in one delivery. They give me good pricing,” and we’re probably 70%, 80% of the way where I’ve wanted to do it.

The gratifying part is a compliment to Chris and Mike Lukemire, as a compliment to both of them, I have said to myself over the years, “I’m a crazy XXXXer at work.” I’ve surrounded myself with good technical operators but it gets tiring where you’re the only source of strategy thought in the business because everybody else is very much a technical implementer.

Where Mike has gotten to and Chris is they’re really good strategic partners to me today. That not only makes me [00:38:00] happy as a father to Christopher but very comfortable with Mike Lukemire. Our biggest issue, honestly, is that we’re both in our 60s. We are doing so much cool stuff right now that I just wish I was 20 years younger.

I mean, seriously, it’s one of those things where I don’t have a plan to leave but I also don’t want to be assassinated in my bed by the next generation who wants to take over. It’s not that important to me but I think I’m adding value right now but it’s just– I got a really good team to lead right now.

They’re really up in their game to include strategic game work that they’re definitely on the right track. I’ve always wanted that to be where my leadership team would come to me with ideas that would take my stuff as the beginning and then say, “Yo, not only do we think that’s a cool idea, here’s how we’re thinking we’re going to implement it.”

You say, “Well, that’s even better.” I think we’re getting to that point. I think we’re really seeing it in Hawthorne and this other project we’re calling Apollo, which is a super interesting part. I’m hoping that the investment community tries to understand what we’re up to there.

My end-of-year call, which I think has been good for the equity. I’ve been trying to be much more strategic about trying to help people understand what it is we’re up to because a Q3 call only people want to talk about margin and what’s going on in Q1 in Hawthorne. Seriously, I don’t think it was any questions other than, “What’s going on with your margin rate? Why didn’t you take more pricing? What’s happening in Hawthorne in Q1?”

We never really had a chance to say, “You have any idea how much cool stuff we’re up to?” Apollo was a part of that.

Jonathan: The one, I guess, big headwind I see and it’s obviously outside of your control is the regulatory environment. How is that impacting the growth strategy at Hawthorne?

Jim: [00:40:00] I have a point of view, I’ll tell it to you, but the answer is, I don’t know. If you could deal with safe banking 280E, which is taxation, according to the IRS code, if you’re engaging in a federally illegal business, you cannot deduct your business expenses, which means your taxable income is your revenue and which makes your federal rate nearly 80%. Effectively, anybody who’s gone legal can’t make money.

This issue of what do we consider legalization or major progress, and we’ve defined it because a bunch of deals we’re doing some of which are known, and some of which aren’t, basically said restructuring these as effectively loans that upon certain things happening, convert to equity.

Our lawyers were happy with this. JP Morgan is happy with this. Wells, Deloitte is happy with this, that we’re not stepping on a third rail issue, which has been really important for us as we pioneer a business that, five years ago, people weren’t that cool with it.

Today, I think people are cool with it, but the banks are super sensitive I think both on reputational and compliance issues on pot. We’re saying the right to make these conversions occurs when two things happen. One, you can bank with national banks and I don’t think that’s going to take that long.

Two, is the major stock exchanges in the United States, NASDAQ, and Nyse, except they’ll list companies that are directly touching pot. When those two things occur, we have the right to convert. I’m not really talking about legalization right now.

I have to say, other than a very few states like Oklahoma, most times when politicians touch this, they screw it up for years. I’m not [00:42:00] sure I need the feds to do anything other than don’t enforce, which they’re not enforcing anyway. Then you have banking and taxation, and those would be big steps forward. I don’t know what my expectations are.

Jonathan: If tomorrow you wake up and the taxation and the banking issue were gone, besides switching debt to equity, how does a strategy of Hawthorne change?

Jim: I’ve said from Mike and me, how do we want the business to be managed? We’ve decided there’s these five pillars, but call them business lines, that we want to play in. They’re really all cousins and nephews have two lines. One, is consumer. One, is marijuana, but all plant-based called.

You got our existing consumer legacy franchise. You have live goods, which we think is really important. You have direct to consumer, which we think needs to be a standalone, free-standing business, selling directly to consumers. Within that, managing the retail direct to consumer to where, whether it’s Amazon or homedepot.com does that. That’s three.

Then Hawthorne on the pot side plus Apollo. It’s two businesses, but five different business lines that we want to play in. We think in the world of, if you believe that prohibition on marijuana ends, I think our view is that is nearly certain. Now, this was the conversation. Why is it senators can easily change this when both Republicans, Independents, and Democrats all support this?

How hard is that from a risk point of view as a politician? It shouldn’t be that challenging, but they make it challenging. I think that’s all the dysfunction that occurs in there. Our view is if prohibition ends, where’s the big money going to be earned? [00:44:00] Well, what we know in consumer, consumer brands. Ready to consume consumer brands.

If we knew alcohol prohibition was going to end, houses that own a bunch of distilled liquor brands or beer brands would be where we’d invest. That’s what we see on the consumer side is that if you put a pie chart as the money up there, that ultimately, consumer brands are we think where the biggest money is going to be in a post-prohibition world and that’s where we want to put money.

The part that’s confusing about that is today, these are mostly, particularly in the East Coast, state-by-state limited monopolies permit holders. If you own the permits, especially the early legacy permits in a state like New Jersey or New York, these early medical permits were completely vertical, cultivation all the way to retail. You could argue implicit within that is brands. We’re right now trying to build a portfolio of brands and licenses that allow us particularly east of the Mississippi. My view is, there’s an old-world, a new world of marijuana, the old world is called west of the Mississippi. The new world is east of Mississippi, create a map that we can exploit with brands, cultivation, retail.

I think we’re very far down the road I’m just trying to understand. Now, we’re trying to implement it. It’s not for the faint heart, I’ll tell you that.

Jonathan: To use an analogy, cannabis legalization is like the gold rush. You’re the pick and shovel guy with Hawthorne. The real money, the gold rush was made with the pick and shovels. Mining for the most part for gold really wasn’t that profitable except for some people. Is growing cannabis where you want to be?

Jim: No, I think that the answer is what Hawthorne offers us virtually every [00:46:00] cultivator in the United States is our customer. We know the really great growers out there. I would say, I don’t think it’s an exaggeration to say that’s probably 10% or less of the population of cultivators are highly skillful at what they do. They’re all expendable. They want to participate.

We’ve talked to a lot of these people who own these great businesses but remember, the way at least the United States is organized today, it’s state by state. People who are powerful from California, aren’t powerful from Colorado, but they’re all state by state. When we talk to them and say, “We want to create long-term and equity,” the best equity in history in the space.

If you look at the MSOs, to some extent or the competition here, I got to say, it’s not that they don’t get it, but I think brands, they feel are less important. If you look at the quality of their product, I think we would argue some of these highly specialized people that already buy our stuff that we go in their growth facilities. We know who they are and they want to play with us.

I think cultivation is not crazy important except to say, the quality of the product is pretty important. I think in today’s world, if you’re not cultivating it, it’s pretty hard to get to the quality you want by outsourcing the production. I’m not sure long-term that owning retail and cultivation is important.

I think in the short-term if you look at the map, that’s what I call it, you’re forced into saying, if you want to play in New York, you need a permit. You need a license. You want to play in Jersey, you need a license.

I’ll tell you one of the big losses in election day, Steve Sweeney. Steve Sweeney is the senate leader in Jersey, was probably the most advanced politician I’ve ever talked to about marijuana strategy on a go-forward basis and its importance to the state of New Jersey. [00:48:00] It’s pretty screwed up that he lost to a truck driver who only spent less than $20,000 on his campaign.

Jonathan: That was an insane story, that loss. Going in terms of the regulation, you are the biggest player out there. You’re a publicly-traded company. You have a big target on your back. Does Hawthorne in some ways have a competitive disadvantage because you’re now under a regulatory microscope?

Jim: No, I think it’s an advantage. I’m a big fan of the industry. I’m not sure what I expected 10 years ago. You’d meet people, you’d go to these shows like MJBizCon, and early days like eight years ago, and the people in the industry, they were young, mostly male, mostly white, and still that’s pretty much the case.

I would say they reminded me, I’d come back to Marysville and people say, “What was it like?” I’d say, “It’s like somewhere between a motorcycle gang, and elite special operations. That’s what it feels like.” The people who are really good at it, remember, they suffered through the industry when it was highly outlawed, and suffered from arrests and all kinds of XXXX and harassment.

I’ve told a lot of CEOs, “If you ever want to have faith in young people,” and this is not true of all cultivators, but a lot of these cultivators, they run really good businesses. They didn’t go to business school. They’re self-taught, they’re young, and you know what they do with their money? They buy home next to mom and dad. They invest in your communities.

All of a sudden you say this is a great entrepreneurial business, who the government has been such a pain in the ass. Remember, just think about that. You want to invest in a state like Florida and build-out? It’s going to be at least $50 million to build out your cultivation facility. You can’t borrow from a bank.

You’ve got to borrow from weirdos and listen, it’s a business model. [00:50:00] You can borrow money in New York and Los Angeles. You know what they’re paying? Over 20% per year, with a covenant package that’s really scary when you read it, “You pay, or I get your entire business.”

It’s a real challenge where you don’t have access to normal capital. Then your tax rate basically means you can’t make money. I think that the young people who are running this business in spite of everything being stacked against them are some very, very cool business people. It’s been a lot of fun to partner up with them.

Jonathan: One of the things you mentioned on the last earnings call, someone asked, “Do you ever separate Hawthorne from Scotts?” You said, “You can go on for an hour on why that would make sense.” That was, and I just love to hear why you think that makes sense.

Jim: I’ll give you the reasons why it doesn’t make sense. If you look at the balance, you’ll figure it out. Why it does make sense to be part of SMG is R&D, supply chain, IT, general management, access to capital, and it’s a legal business.

Unlike a lot of the difficult we talked about on the plant-touching side, Hawthorne is completely legal. The banks are comfortable with it. The government’s not trying to enforce against us. We have all the synergies of being involved with the core, where the core has all these things that they can use and Hawthorne gets access to that.

There was a lot of struggle early on where Hawthorne wanted to do everything themselves, but the more we said, “Guys, some of that stuff you’ll never be big enough to be better than Scotts. We can give you that stuff nearly for free,” that’s why it makes sense.

The synergies of being part of it, actually, I know the numbers, and they’re pretty significant. Separating the de-synergies of separating Hawthorne are our material. Lots of reasons to stay part of it. If you believe the bullXXXX I told you about Apollo, [00:52:00] which is where we think the majority of the money is going to be, which again, is consumer brands.

This is not inconsistent with where we are on the SMG side. There are some of these guys from the West Coast that if they sold their business today, they could sell it for $1 billion. We’ve put $150 million at the RIV, we’ve had $200 million. Plus, to say, we got $350 million to play with RIV.

If one of those people said, “We’ll join. We become the minority shareholder, serious minority shareholder,” some of these people are really good, but they’re not going to run a multi-billion dollar business. They don’t think they could. They want to be partners. They want to ride with it. All of a sudden, you say to yourself, “I need poker chips to throw in, or we end up a minority partner.” That’s where Hawthorne.

Hawthorne is the most valuable business in the pot industry in the world. If we aren’t willing to use Hawthorne as a currency, we’re going to be overwhelmed and not be able to maintain control of it. I do think that there probably are investors who say, “Why are you making it so hard for me?” I know that we’ve had interest in some of these sovereign funds from the Mid-East who have basically said, “I’m not investing in a pot business.” I love the Scotts business, but I’m not investing in the pot business.”

I think there’s arguably some, if you separate the business that makes it easier from an investor point of view to say, “I know what I’m buying here. I’m interested in the pot business, or I’m interested in the consumer branded business.” If you listen to our call, it’s not that I’m chasing growth right now, but there are a lot of opportunities that we have visibility to right now.

I wouldn’t be surprised in five years of business, it’s twice the size of this right now. Therefore, even if there are some of de-synergies, if strategically we need Hawthorne to be part of it so that we don’t lose control of it, that’s the argument that I would make.

Jonathan: I think doing something because Wall Street tells you to do something is generally a bad [00:54:00] idea, but why not spin out 20% of it get a value?

Jim: This is not because Wall Street says. This is I love the people we’re talking about partnering with on the Apollo side. Do I want those guys to be the foster and they’re telling us what to do? I just don’t think it would work. I think there’s a lot of disciplines you’d get within Scotts, access to capital markets, the discipline, accounting, all the things that just go with every day being here.

I would be afraid, honestly, if we said we’re going to take a bunch of young guys who are 35 years old, and they’re going to be the majority shareholders. I just think that that’s a business that I’m not sure I’d want to be a part of. This is not because the Street is telling me anything.

This is because I’m a much better manager, I think Chris, as well, where we understand our authority. I think we need authority in Apollo. I think the upside is big enough that I’m making the number up right now but if you said there are $50 million of de-synergies, actually, I don’t think it matters in the big scheme of things. If you could actually create what you’re talking about, which is the finest pot equity, remember, a lot of stuff has to happen so we’re map building right now. If you could do that, does $50 million of de-synergies really matter? I don’t think so.

Jonathan: Not at all. As I said, doing things because Wall Street says to do so is generally a bad idea, but one of the things that they really have a tough time is SMGs top to value for a couple of reasons. One, it’s a two-quarter business, and then you have the weather issue. Is this a business that really needs to be public at this point? Why deal with annoying Wall Street analysts?

Jim: Henry Kravis came to visit with me. This is ’07, I think it was and the stock was probably less than $50 at the time. We can [00:56:00] privatize the business. You’ll make so much goddamn money. I think Doug Braunstein was the CFO over JP Morgan and a great banker.

I said, “You’re going to go borrow a bunch of money from Doug for free because interest rates are jack XXXX and we’ll buy the company. Now, I’m going to have a shareholder with a large appetite for making money, and I’m going to have to report to you guys. Then I’m going to have to go public again to get rid of you.”

Why can’t I just go and do a big dividend to our shareholders and I’ll borrow the money from Doug for nothing and distribute it to shareholders? Which we did and in today’s market, I’m not completely satisfied, but I think at this price, I don’t think the family would want the risk.

I think you’d say to yourself, “Do I like that world where I would have to have financial partners help me out, I think? Do I want to let them in?” I don’t know. If it was your family, would you do it?

Jonathan: I think you got a great business and I’m confident in the long-term aspect of Hawthorne.

Jim: In regard to challenging it and having a calendar that’s subject to not only weather but is effectively a six-month business, I think we’re a pretty consistent earner. I think we have a much more consistent business than it sounds. I think difference between good weather and bad weather is probably a percent or two.

That’s not that huge. I don’t think it’s that hard to value. I think if you look at our debt, we tend to issue debt at investment grade cost when we’re a non-investment grade issuer. What do I think? I think we get a lot of credit for being pretty reasonably run company with pretty consistent earnings.

I would add, we tell the Street what we’re going to do, and we do it, which I view as usually a good thing for the investment community is I think if we tell the Street clearly what we’re up to and we do it, even if the results involve degradation of some of the quality of business metrics in the short-term, [00:58:00] I think the Street buys into that chip and says, “I think this team can solve that problem.”

Hawthorne is a little bit different because the problem with Apollo right now is with 280E called an 80% tax rate on the federal side and then throw state taxes and local taxes and all the burdens that go along with that, you effectively can’t make money legally in the pot industry at the moment. It’s the weirdest thing.

Who makes the most money in pot right now? The federal government. That’s XXXX up. The problem is there’s not visibility to financial returns on that money in the short-term. You have to do it based on what you think the value of the franchises and I think the Street can handle that. I think my family can handle that, but time will tell on that one.

I think that’s a more challenging valuation metric is to say, “Well, wait a minute, how much money are you bringing in? What’s the cash flow?” That’s a harder one because then you got to talk to Chuck Schumer and say, “Solve this problem dude. America is in favor. 75% of America lives in states where this XXXX’s legal. The feds need to get on top of this.”

Jonathan: Jim, I want to thank you for being on The World According to Boyar. I really enjoy learning more about your fascinating story. How the pandemic has provided a significant tailwind for the consumer business and the tremendous opportunities at Hawthorne. I look forward as a shareholder to watching your progress. Thanks for coming on.

Jim: Thanks, guys.

Jonathan: I hope you enjoyed the show. To be sure you never miss another episode of The World According to Boyar, please follow us on Twitter at @BoyarValue. Also, if you would like to receive the Boyar Value group’s latest report on Scotts Miracle-Gro, please email info@boyarvaluegroup.com or click the link in the show notes. Until next time.

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David M. Rubenstein, Co-Founder & Co-Executive Chairman of The Carlyle Group, on how private equity deals are evolving and his recent book “How To Lead”.

 

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The interview discusses:

  • How Zoom and other technologies will change how we conduct business going forward.
  • David’s views on how the pandemic has impacted the global economy.
  • How the private equity world is changing in terms of the types of deals they are doing.
  • Key skills needed to be an effective fundraiser.
  • How The Carlyle Group almost went out of business early in the firm’s existence.
  • The reasons behind writing his latest book: How to Lead: Wisdom from The World Greatest CEOs, Founders And Game Changers.
  • Key qualities of effective leadership from interviews with many of the world’s most accomplished leaders including: Justice Ruth Bader Ginsburg, Dr. Anthony Fauci, Jamie Dimon,  President Bill Clinton, President George W. Bush and more.
  • Which historical figure he would most like to have as a guest on his show and what would he ask.
  • And much more…

 

About David M. Rubenstein:

David M. Rubenstein is a Co-Founder and Co-Executive Chairman of The Carlyle Group, one of the world’s largest and most successful private investment firms. Mr. Rubenstein co-founded the firm in 1987. Since then, Carlyle has grown into a firm managing $221 billion from 31 offices around the world.

Mr. Rubenstein is Chairman of the Boards of Trustees of the John F. Kennedy Center for the Performing Arts and the Council on Foreign Relations; a Fellow of the Harvard Corporation; a Regent of the Smithsonian Institution; a Trustee of the National Gallery of Art, the University of Chicago, Memorial Sloan-Kettering Cancer Center, Johns Hopkins Medicine, the Institute for Advanced Study, the National Constitution Center, the Brookings Institution, and the World Economic Forum; a Director of the Lincoln Center for the Performing Arts and the American Academy of Arts and Sciences; and President of the Economic Club of Washington.

Mr. Rubenstein is a member of the American Philosophical Society, Business Council, Harvard Global Advisory Council (Chairman), Madison Council of the Library of Congress (Chairman), Board of Dean’s Advisors of the Business School at Harvard, Advisory Board of the School of Economics and Management at Tsinghua University (former Chairman), and Board of the World Economic Forum Global Shapers Community.

Mr. Rubenstein is an original signer of The Giving Pledge, a significant donor to all of the above-mentioned non-profit organizations, and a recipient of the Carnegie Medal of Philanthropy, and the MoMA’s David Rockefeller Award, among other philanthropic awards.

Mr. Rubenstein has been a leader in the area of Patriotic Philanthropy, having made transformative gifts for the restoration or repair of the Washington Monument, Monticello, Montpelier, Mount Vernon, Arlington House, Iwo Jima Memorial, the Kennedy Center, the Smithsonian, the National Archives, the National Zoo, the Library of Congress, and the National Museum of African American History and Culture. Mr. Rubenstein has also provided to the U.S. government long-term loans of his rare copies of the Magna Carta, the Declaration of Independence, the U.S. Constitution, the Bill of Rights, the Emancipation Proclamation, the 13th Amendment, the first map of the U.S. (Abel Buell map), and the first book printed in the U.S. (Bay Psalm Book).

Mr. Rubenstein is the host of The David Rubenstein Show: Peer-to-Peer Conversations on Bloomberg TV and PBS, and Leadership Live with David Rubenstein by Bloomberg Media; and the author of The American Story: Conversations with Master Historians, a book published by Simon & Schuster in October 2019, and How to Lead: Wisdom from the World’s Greatest CEOs, Founders, and Game Changers, a book published by Simon & Schuster in September 2020.

 

Click Here to Read the Interview Transcript

Transcript of  the Interview With David M. Rubenstein:

[00:00:00] Jonathan Boyar:  Welcome to The World According to Boyar, where we bring top investors, bestselling 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 guest is David Rubenstein, co-founder of the Carlyle Group, a private equity firm that now manages well in excess of $200 billion.

David started his career as an attorney at Paul Weiss but quickly decided the legal world was not for him. He was able to get a job on the Carter campaign. When President Carter took office, David, at the age of 27, became Deputy Assistant to the President for Domestic Policy. After Reagan won, David went back to practice civil law briefly before co-founding the Carlyle Group. David has been quite generous with his success and is an original signer of The Giving Pledge.

David has made significant donations to organizations too numerous to name. He’s best known for being a leader in the area of Patriotic Philanthropy and has made transformative gifts for the restoration of the Washington Monument, Monticello, Mount Vernon, and the Kennedy Center among others. David has also provided, to the US government, long-term loans that his copies of the Magna Carta, the Declaration of Independence, the US Constitution, the Bill of Rights, and the Emancipation Proclamation.

David has recently published a fantastic book called How to Lead: Wisdom From the World’s Greatest CEOs, Founders, and Game Changers. On a more personal note. David has a show that airs Bloomberg, which was a major inspiration for starting The World According to Boyar. David, welcome to the program.

[00:01:53] David Rubenstein: Thank you very much for having me.

[00:01:54] Jonathan: I certainly want to talk about your latest book, How to Lead, but first I wanted to discuss your career as well and hear your thoughts on the current business climate. You’re a self-described workaholic. I heard you mentioned in a speech that in a normal year, you’re on the road about 240 days out of the year. During COVID, I imagine like most people, you’ve been spending a lot of time at home. What has that experience been like for you? Have you realized you like your house? Are you itching to get back on the road?

[00:02:22] David: Well, it’s an eyeopening kind of situation because I was spending 240 days a year on the road for such a long time. Now I’m not doing that. I’m wondering whether I wasted 30 years traveling that much or whether I could’ve done everything just the way I’m doing it now by Zoom. Now, of course, Zoom wasn’t quite invented 30 years ago, but it has given me a chance to actually do more than before because now I can do four or five, six Zooms a day in parts of the world that I otherwise could not be in, in one place.

In many ways it’s different. On the other hand, human contact, civilization has shown over many millenniums, is a plus. Having human contact would probably be better than just doing this forever on Zoom. I’m happy to have rested a little bit, happy to learn the Zoom technology, but I would like to go back on the road a bit, maybe not 240 days a year but maybe a lot more than I’m doing now, which is 0.

[00:03:16] Jonathan: You led right into my next question is, will things change forever as a result of the pandemic and with the Zoom technology? How much do you think, I know you said you were going to probably travel less, but the typical person in your organization, are they going to be traveling as much as they did pre-pandemic or you think a lot will be accomplished via Zoom?

[00:03:38] David: It’s always dangerous to say because something happened in the last month, two months, three months, one year, that the world will change because of that because, often, the world reverts to the mean and goes back to what it’s been doing for a long time. On the other hand, I do think, in this case, this is a transformative way that people will conduct themselves for at least 5 or 10 years, which is to say, I don’t think people will travel quite as much.

I don’t think that people will go out to eat quite as much. I don’t think they will go to movies quite as much. It will take time for people to ease back into what they did before. I do think that we will change the way we work, which is to say a lot more people will work remotely. A lot more people will feel that they don’t need to go into the office more than maybe one or two days a week. Things will change.

The interesting thing about this is that when you think about how the world changed through the industrial revolution, it took about a hundred years where the industrial revolution had its impact on the way people conducted their lives. The internet probably took about 20 years or so before people really changed the way they live and act and transact business. This has taken about a year or less. Think about it. Last January, we were doing business the way we always have been doing it. When this came along, we, all of a sudden, learned Zoom technology. We, all of a sudden, learned the value of working at home and the way you can do it. People, I think have found it’s a lot easier in many ways. I think we will change the way we live and work for the future. I can’t say 20, 30 years from now, something won’t change it back, but on this, at least the next 4 or 5 years or so, I do think things are going to change.

[00:05:16] Jonathan: Do you think if this happened five years ago, the economic ramifications would have been much more severe because we didn’t have this technology?

[00:05:25] David: Absolutely. Well, let’s say 20 years ago, there was no internet to speak of. It would have been much more disastrous then. Five years ago, there was internet, not quite Zoom technology, but you probably could have done some things orally. There was a lot of teleconferencing, just not video teleconferencing. Video teleconferencing, which is, in fact, what Zoom is, makes things a lot better.

I just think about it 20 years ago if we’d had this or 30 years ago, I do not think we had teleconferencing that worked all that well, so it would have been  much more difficult thing to survive. The result would have been one of two things: people would have gone back to work sooner and maybe been injured more because of the virus, or the economy would have gone down even more than it went down this time because people would not have been able to conduct business the way they’re able to do so now.

Right now, people in your business and my business, which is the financial business, are basically operating as if this wasn’t really happening all that much because everything is done online. Everything can be done through phone conferences, video conferences. The financial world hasn’t been so adversely impacted, honestly, it’s the other parts of our economy that have been adversely impacted, people in the restaurant business, the entertainment business, the cruise shippers, the hotel business. Those have been dramatically impacted and will take many, many years to recover.

[00:06:42] Jonathan: You have an interesting perspective on that because Carlyle owns over 250 companies in a variety of industries, and through those companies you employ, I guess, roughly a million people. You have a real insight into the state of global business. The US stock market is close to all-time highs. That’s really reflective of how a small number of technology stocks are doing. In your opinion, how is the real economy holding up?

[00:07:06] David: You’re correct in pointing out that the stock market has done well, in part because the gigantic tech companies have done so well, they’ve dragged everything up in effect, or at least the industries, I should say. The real economy is in a much more difficult shape. Let’s suppose you own or work at a food truck, let’s suppose you own or work at a 10-person restaurant, let’s suppose you own or work at a small car delivery service or something like that, transporting people around like Uber’s, all those businesses been adversely affected and dramatically so.

Let’s suppose you work at a hotel or you work at a sports and entertainment venue. Those businesses have really been hurt and hurt to the point that we haven’t quite recognized it fully. Let me explain what I mean, we’ve had $3 trillion come from the federal government to support the economy. The fed has put in somewhere between $1 and $6 trillion. We don’t really know yet exactly how much they put in, but let’s say $1 or $2 trillion, for sure.

Congress recognizes that this money is beginning to wear off. If Congress doesn’t pass another trillion or $2-trillion package at some point in the near future, you’re going to see the economy going back to where it would be without all the support. As a result, I think we are probably going to have to do something, probably after the election. After the election when the politics are a bit out of it, I think Congress will pass something. Without that and until there’s a vaccine that makes people feel safe, this economy, it has to be propped up a fair bit. I don’t think there’s any way around it.

[00:08:38] Jonathan: How is Carlyle evaluating acquisition activities during COVID? Are there industries you would historically invest in that now you are taking a wait-and-see approach? How do you value companies amid all this uncertainty, not just COVID, what’s happening with China and all the other geopolitical uncertainties? It’s really difficult.

[00:08:59] David: The deals process works the way it did before in the sense that we have young people who do all the due diligence after getting some direction from more senior people, they come up with the analysis, we have more senior people provide their experience. We look at the deals, and we are looking at things that we think will do better in the post-COVID environment then than things that won’t, but you can’t know for certain.

Of course, there’s always the thought that you can buy something that’s been hurt by COVID and will come back in time and if you get a big enough discount on the price, you might buy it. On the whole, we’ve been investing pretty steadily, prices have not come down all that much in the buyout world. The growth capital world is even more expensive. The venture capital world, in certain areas, is even more expensive than that. You either have to say, “Look, I’m going to pay double-digit EBITDA multiples, or I’m just not going to be in the business of investing in private equity or venture capital or growth capital because the prices are not cheap.”

[00:09:54] Jonathan: Even in the non-technology world, you’re not seeing multiples go down or sellers have unrealistic expectations or–

[00:10:01] David: Well, as a general rule of thumb, sellers always have expectations that are unrealistic, except when we’re the seller, then we have realistic ones and then, unfortunately, sometimes people don’t meet them. I would say that as a general rule of thumb, people in the financial services world are saying, “Well, wait a second, why should we discount prices right now?

“The economy has gone through what presumably is the worst of it, the vaccine is not too far down the road, we buy these companies for four and five years horizons, so in four, five years, things will be back to normal.” Financing is so cheap that if you’re doing a buyout and you’re using some borrowed capital, you can basically get it for very, very modest amounts of money. I don’t really see that prices are coming down all that much. Sure, there’s something that’s in extremis and falling apart, yes, you might be able to buy it, but it’s not really that much of a discount, but it’s not going to be that much different because of COVID or not.

[00:10:54] Jonathan: You said in an interview if you look at the Forbes 400, the people who made it on their own acumen. Virtually, no one is on that list because they bought things at a discount in an area they did not know about in the recession. They generally shore up what they already had or make investments in areas they know a lot about. Is Carlyle following your advice now, or are you doubling up in areas that you have great expertise in?

[00:11:17] David: As a general rule of thumb, people in our firm and elsewhere tend to be buying things in areas they know well. Occasionally, you might take a flyer or somebody might– Carlyle doesn’t tend to do this in areas we don’t know much about, but the price is just so low. My point in the quote that you are referring to is that you always hear about a dumb luck story where somebody bought something out of bankruptcy, didn’t know anything about it, and it just turned around because of good management, but that’s rare.

As a general rule of thumb, if you look at the people in the Forbes 400, they got there by having an expertise in one area and pursuing it, pursuing it, and pursuing it, not by stumbling into something they didn’t know anything about. Now, there’s luck, of course, involved, and a lot of people in the Forbes 400 got lucky, including me, but generally, it’s a result of spending a lot of time on something and not just having something pop along that you didn’t know anything about and you bought at a discount, all of a sudden, the world went in your favor.

[00:12:11] Jonathan: Thus far, there’s $1.6, I believe, trillion of PE capital on the sidelines, financing is unbelievably cheap, there really haven’t been PE, it really hasn’t been that active. What do you think it’s going to take for private equity to really get back in the ballgame?

[00:12:29] David: Well, private equity is in the ballgame, it’s just doing it somewhat differently. For example, it used to be thought that private equity was synonymous with buyouts and that venture capital and growth capital were minority-stake transactions, but if you lump it all as private equity or private investments, you’re seeing an enormous amount of private investment activity, but sometimes, the big buyouts are not getting done as much as they used to, but you’re seeing a lot of mid-sized buyouts with a lot of growth capital.

In Carlyle’s case, we bought a lot of companies, let’s say in China, it’s very hard to do a control buyout deal in China. A lot of our investments in China and India are minority-stake transactions. We’ve bought a lot of stakes in large companies that we own a minority stake even though we put in a fair amount of money. I would say private equity people are putting out a fair amount of money, they are, they’re just maybe doing it not in control buyouts that are very large.

[00:13:20] Jonathan: In 1987, you co-founded Carlyle. Initially, as you said, in How to Lead, your latest book, which we’ll get to very shortly, you said your main focus was essentially to fundraise. How did you master that skill?

[00:13:34] David: It’s an interesting phenomenon when you think about it, many people spend a large part of their life being asked for money or asking people for money, either political contributions, philanthropic contributions, or business investments. When I make this speech to people, I often ask people, how many people have asked people for money in one of those categories or been asked over the last month or so?

Of course, almost everybody raises their hand, but interestingly, there are very few courses in college or graduate school in fundraising, it’s just considered something you learn, you don’t take a course in it. I did what everybody else does, I learned by doing it on the job, I didn’t even know a course in it and I did use my personality, such that it was, to get in to see people and try to make it interesting and try to make it a polite meeting with people

The trick in fundraising is knowing what you’re talking about, having something reasonably good to sell, following up, being polite, being attentive, listening what people say, and of course, if you have good performance, it makes it easier the next time around.

[00:14:34] Jonathan: You mentioned the word “polite,” how do you learn to balance the line between persistence, which is extremely important, and you mentioned that in your book, and polite follow-up?

[00:14:42] David: Yes, it’s a complicated thing because I’m often, now, the recipient of many requests, and still, I’m heading a lot of capital campaigns myself, so it’s a tough balance. If somebody says no to you at the outset, and they say no way in the world, I think probably persisting is probably not a good idea. If somebody says, “Well, let me think about it,” or “Send me something,” that means maybe they might be interested and then you can follow up at an appropriate time. Eventually, you have to read the tea leaves, and you have to figure out whether it’s a waste of your time and you, ultimately, will get nothing. I have been reasonably persistent in times, and our biggest individual investor for a long time was somebody who turned me down nine times.

Every time I went back to see him in this European city, I would stop in and see him and gently suggest he might look at something we’re doing. Finally, he got worn down and said, “Okay, I’ll try it” and then he ultimately liked what we were doing. It’s a difference between being impolite and being polite, and just like anything in life, if you are too persistent or too arrogant about it, you’re not going to get very far.

[00:15:44] Jonathan: When you started your firm, interest rates, as measured by the 10-year– roughly 11% down from 15% in ’81, and they have gone down significantly since then. Do you think PE would have had the returns that it did had borrowing costs stayed high?

[00:16:00] David: Remember when interest rates were high, inflation was also high, and therefore, it inflated the value of certain things too. No doubt, with interest rates low and borrowing costs low, it’s made it easier to finance things, and it’s also made it easier to get good rates of return. I suspect if interest rates had stayed high and inflation was normal, probably the returns would not have been as good.

On the other hand, in the early days of private equity, the business was largely one of leverage and basically quickly taking advantage of buying something at a reasonably cheap price. People, the sellers were selling things more cheaply then. You used a lot of leverage, you quickly fixed some costs, got rid of some costs, I should say and then you exited the deal. Today, you have a lot of management teams and management experts who work at these private equity firms.

They really go in and really help the company. It’s not just a leverage game. In the old days, think about this. The RJR deal, in 1989, was 5% equity and 95% debt. That was not considered unusual. Today, a buyout might be 40% or 50% equity. The deals are much better structured. The returns have stayed reasonably good although they’ve come down. In part, the returns are good because you have much more expertise in building these companies, the private equity firms are much more knowledgeable about what they do, and also, the interest rate charges are so much lower that the cost of leverage is just relatively de minimis.

[00:17:21] Jonathan: You referenced the KKR deal. You were an innovator. KKR at the time, they just had funds, not to belittle the business. It was an unbelievable business at the time, but you were the first person to make private equity into a real business, basically, the Fidelity of the PE world. How’d you get that idea?

[00:17:39] David: Well, I don’t really know that there was one moment where I was in bed, and all of a sudden, a light bulb went off. After we raised our second buyout fund, which was about a billion dollars, our first one was holding $100 million, and then we co-invested $600 million. I was saying, we raised, we invested $700, and we were able to get a billion for the second fund, but then it dawned on me that why couldn’t we do like that in another area?

We were doing buyouts, why not do a growth capital fund, why not do a real estate fund, or why not do a Europe fund or Asia fund? Since I was not the investor per se, I had the time to think of new products, and I could go recruit people and raise the money. I had the luxury of doing that. It seems in hindsight that it was an obvious idea, but to be honest, while some people have done it better than we have done it, nobody else had yet gone out and said, “Okay, I’m going to build a Fidelity of private equity.” We went in that direction. We made some mistakes, some things I wish we had done better, but we pursued that approach. I think there are now four or five firms around the world that are now doing that.

[00:18:42] Jonathan: I hope you’ve been enjoying the interview with David Rubinstein. To be sure to never miss another World According to Boyar episode, please follow us on Twitter @BoyarValue. Now back to the show. Now let’s talk about your latest book, How to Lead, a book I personally enjoyed and would highly recommend. In typical Rubinstein fashion, all proceeds from the sale of the book are going to John Hopkins.

How to Lead is a compilation and commentary of the interviews you’ve done with leaders in their respective fields conducted as President of the Economic Club of Washington and through your Bloomberg television show. The book interviews, a wide range of people from Oprah to Jeff Bezos, to Warren Buffett, Jamie Dimon, Phil Knight. You certainly have a lot on your plate. Why write this book?

[00:19:29] David: Well, one, I’d already done the interviews, so it wasn’t that hard to take the interviews I had and then edit them down. Two, it kept me out of trouble. I spent a couple of hours working on it a week and didn’t get in trouble doing anything as a result. Three, I do think I would like people to read the interviews and hopefully, the younger people, particularly, already might be inspired because I realized my TV show, even when it goes on social media, isn’t watched by that many people relative to 60 minutes or something. A book can last for a long time. I guess as I’ve gotten older, I keep saying, “What is my legacy going to be?” I’d like to have something that I could leave behind, and leaving behind a couple of books is something I’d like to do. I say to myself though, “What was I doing in my 20s, 30s, 40s, and 50s, and 60s? Why wasn’t I writing books?” I’m now trying to do one a year, why couldn’t do that when I was younger? Life is that way, so I’m glad I had the life I had, but I would like to do a couple of books.

I think people like the interview format, which is to say, it’s easier to pick up and read it because you don’t have to read the whole thing start to finish to get the point, you can read one interview at a time and put it down and go back and go and read another interview, and they’re not necessarily related. I think people seem to like it.

[00:20:39] Jonathan: In the book, you discuss the common attributes of successful leaders, and there are many, but the one that seemed to be the most common are luck, desire to succeed, hard work, long hours, focus, and experiencing failure. You wrote, in your book, your failure was losing the status and upward career trajectory after Carter lost and Reagan took over. Well, that might have stung. I don’t think his loss was directly attributable to you. Can you give an example of failures you had when trying to get Carlyle off the ground, or was it really smooth sailing?

[00:21:10] David: Sure. When we first started our first buyout deal, we finally got a company, we bought a company. About two or three days after we bought it, we realized we dramatically overpaid, it was a publicly-traded company. We didn’t have the opportunity to do as much due diligence as you would have as a private company. We realized pretty quickly, we grossly overpaid, and it took us years to get our money back. That was complicated.

Then, we had some other deals early on that we didn’t do that well on, relatively speaking. We always had some stumbles. Everybody has some stumbles, I suppose, but generally, it’s worked out okay. If I could do it all over again, as I may have said in the book, I would have held on to the stock we had an Amazon, and I would have pursued my initial opportunity to invest with Facebook, but I blew both of those.

[00:21:58] Jonathan: Was there ever a point when you were at Carlyle that you didn’t think you were going to make it?

[00:22:02] David: Yes, absolutely. We were pursuing a deal in bankruptcy court to buy an aerospace company out of bankruptcy or part of an aerospace company. We basically spent all our money trying to get this company, and we had no cash reserves, and at the time, I don’t believe we even had a fund. We had a tiny fund. We had no cash left, and all of a sudden, we lost the deal. We were outbid in bankruptcy court. I woke up one night and said, “You know what, we don’t have any cash, and I don’t know what we’re going to do now.” Ultimately, something happened, and we won the deal, so hopefully, things turned out. I did think for a while we weren’t going to make it.

[00:22:37] Jonathan: One of the people you’ve interviewed in the book, who’s truly an American hero, is Dr. Fauci. He’s certainly the definition of a leader. How did you come to know him? I think you tried to hire him at one point, right?

[00:22:51] David: Yes, I hired somebody to head up our Venture Capital Group. His name is Bob Grady. His sister is married to Dr. Fauci. Through Bob Grady, I got to know Dr. Fauci many years ago. When he turned 70, I went out to see him and said, “Look, you’ve done a great job for the country, but I assume at 70, you’re going to retire, why don’t you take your healthcare expertise and become an advisor to a private equity firm? What could be better for you than that, and you can make some money, you’ve never had any money?”

He thought about it for a brief period of time. He said, “David, I don’t really care about money. I borrowed money to send my kids to college, I paid for that. I’m just not interested in making a lot of money. I care about infectious disease and saving lives.” What are you supposed to say to somebody who says that? He’s obviously a man under enormous pressure these days.

I think he will stand the test of time as being a great American. I suspect a year from now and hopefully so behind us, he will win every award you can possibly win for his insights, his courage, and his convictions. He’s the kind of person everybody should want their child to be: dedicated, hardworking, admired by virtually everybody, and focused on the right things: saving lives, not making money.

[00:23:56] Jonathan: You had the opportunity to interview President Bush and President Clinton at the same time. Does it take a special kind of leadership to become president?

[00:24:05] David: Well, being president of the United States, it’s hard to predict who is going to get that job because if you go back and look at these people when they were young, very rarely would somebody have said this young person is going to be president. Now, Bill Clinton was thought to be a potential president when he was very young, but generally, you don’t see that. People get to the presidency by different routes.

Rarely did it seem likely that Jimmy Carter, a peanut farmer, would become president; or Gerald Ford, a lifetime House Member, would become president; or Ronald Reagan, an actor, would become president. You just can’t predict how these things come out. Who would have thought Donald Trump would be elected president, never been in government before? These things are hard to predict. Being president of the United States is a great job.

I’ve often thought a better job is being a former president because everybody tells you how great you were and still are. Nobody is mad at you as much anymore, and you can take life a little bit easier. When I interviewed those two presidents together, they said that actually, they did miss being president because when you are president, you can really help people and change lives. That’s what they missed the most.

[00:25:04] Jonathan: Both, in some ways, are exceptions to some of the characteristics you outlined that most successful leaders share. One of the things you say and one of your arguments you make, and I agree with it, that most people who grew up in privileged circumstances generally don’t achieve the super degree of success that most of the people in your book have. President Bush came from a very well-to-do family, certainly had above-average family connections. What was it about him that you think propelled him to be president? What was the exception?

[00:25:35] David: In George W. Bush’s case, his family was prominent. They weren’t extremely wealthy, but they were prominent. What happened to him is he had a life of not all that much accomplishment, he would certainly say, and then he had a drinking problem, he would admit. Then at 40, he said, “I’m not drinking anymore,” decided to turn his life around, became involved in buying a baseball team that made some money, and he decided to run for governor, largely on the name George Bush.

It worked out. His first campaign, he was extremely underestimated. It worked out quite well. It was something that nobody would’ve predicted. Even his family, his father, his mother never thought he would be elected governor, let alone president of the United States, but sometimes these things happen.

[00:26:15] Jonathan: President Clinton’s also an outlier for many reasons. One of the things you do in the book is divide people’s lives in thirds, the first thirds of a person’s life are when they’re young and in school and learning. You found that people who are successful early in life, the Rhodes scholars, the student body presidents of the world generally don’t achieve fantastic degrees of success later on in life. What made President Clinton different?

[00:26:40] David: Well, it was said for a while before he was elected president, he was a rare person who was a rising star in three different decades, a rising star in the ’70s, ’80s, and ’90s, and people thought maybe the time had passed him by. He was always a rising star but wasn’t actually going to get there, and he actually wasn’t likely to get there either because the person who was thought to be the most likely nominee in the Democratic Party that year, 1992, was a man named Mario Cuomo.

At the last minute, he decided not to run. Because people thought Cuomo was going to run, a lot of the really good candidates also did not run, so Bill Clinton had a relatively modest field, I think he would admit, that he had to compete against, and he pulled it off, even though he had some challenges during the campaign, but had he not pull it off that time, I don’t think he could’ve run again, for a number of reasons.

He got lucky in some respects, he would admit. He also was aided by the fact that George Herbert Walker Bush had a Ross Perot helping to knock George Herbert Walker Bush down. Had Perot not entered the race, I think that George Herbert Walker Bush might have a pretty good chance of getting reelected.

[00:27:41] Jonathan: Another person you interview is the late great Ruth Bader Ginsburg. You typically don’t think of Supreme Court Justices as leaders. What made her different? What made her special?

[00:27:52] David: Well, she’s special because, in recent years, she became known as The Notorious RBG, in part, because she was seen as having come back from four bouts of cancer. She’s got a workout expert. She’s exercising every day, a diminutive woman, probably weighed 100 pounds, though, 98 of that were her brain, and she just was a person who was seen as having changed the world a fair bit but as an advocate and as a consistent fighter for women’s rights and somebody who was very articulate and easy to get along with.

People liked her, but I think it was her coming back from so many challenges in her life, physical challenges, and also having done so many things early in her life that changed the law that I think made her the only rock star we probably have ever had as Supreme Court Justice.

[00:28:36] Jonathan: Another person in the book, Coach K. You were Chairman of the Board of Trustees at Duke. I’m assuming one of the perks of the job is getting to go to some basketball games. How would you describe Coach K’s leadership style? Why has he been so successful over multiple decades?

[00:28:51] David: Think about it. He was the coach in the Army for a number of years, had a losing record. The first three or four years at Duke, he had a losing record, so he was fortunate that people gave him a chance at Duke, and then when he was at Duke, they didn’t fire him, as he was afraid was going to happen, and people were afraid that he just didn’t have what it took to be a major basketball coach, but in the end, he turned out to be a very good recruiter, which helps.

He also turned out to be somebody who really wanted to work with these young men, and even if they didn’t become pro basketball players, and most of the people he coaches do not become pro baseball players, they felt that he had given them leadership, he had become like a father figure to them, and he made them stronger individuals. Before the one-and-done phenomenon, he insisted that everybody have to graduate from Duke University before they would put a banner or pin it up on the rafters of Cameron.

That’s changed now because of all the ones-and-dones. He still tries to get these individuals to get their college degree if at all possible. He’s just a remarkable person, a great team leader, somebody that the coaches around the country I think really, really admire. I hate to be his successor.

[00:29:54] Jonathan: Yes, absolutely. You picture a lot of coaches being yellers to try and motivate their squads, the team. is Coach K a yeller?

[00:30:05] David: I am told by some players that he does, from time to time, use some words that you wouldn’t use on this podcast, but that’s how you motivate athletes from time to time and showing your emotions. John Wooden, by contrast, who was the greatest coach before Coach K was seen to be somebody that wasn’t a bit of a yeller, and then he was much more soft-spoken, but Coach K knows what it takes to motivate people, and it seems to have worked out, five national championships and three Olympic championships.

[00:30:34] Jonathan: Coach Krzyzewski certainly has made a very good living at Duke. He also has the shoe contracts, et cetera, but it’s not NBA-type money. Why don’t you think he ever made that transition to become a pro basketball coach?

[00:30:47] David: Well, I think he likes molding young men into professional players or into good, young citizens. He liked the university a lot. They were very nice to him. They stayed with him when his record wasn’t so great in the early years, I think pro basketball coaches don’t have the tenure that college basketball coaches often have, you can lose your job relatively quickly.

I think he didn’t want to– I think the closest he came was going to LA when Kobe Bryant was trying to recruit him, but in the end, Duke did some things that made it more attractive for him to stay. We built the practice arena for him and some other things. I think he’s pretty happy.

[00:31:24] Jonathan: Jamie Dimon, who also is in the book How to Lead, arguably the best bank CEO of all time, I think you refer to him as a once-in-a-generation phenomenon, was famously fired by Sandy Weill. Do you think he would have had the success he had without that happening?

[00:31:41] David: I would say that that was a transformative moment for him in his life. I did talk to him then and tried to recruit him to Carlyle, but I think he wanted to stay in the banking world, which he knew pretty well. Jeff Bezos was trying to recruit them as well. Jamie is as good a banker as has ever existed, just so smart, he knows all the details, motivates people.

I just really admire what he’s done in the banking world. He would be somebody that would like to be president of the United States, as he said publicly, but he recognizes that Democrats are not probably going to nominate the CEO of JP Morgan as their candidate, but Jamie has a lot of great skills. He’d be a good leader in government if he someday he wants to go in the government as, maybe, Secretary of Treasury or Head of the World Bank or something, he’d be great.

[00:32:25] Jonathan: You’re a student of history. If you could get any historical figure as a guest, who would it be, and what would you ask them?

[00:32:31] David: There’s no doubt that in my mind, the greatest American of all time would be Abraham Lincoln, he held the country together when there was a great temptation not to do, obviously, led the way to free slaves, and so forth. I would like to ask them, among other things, was he surprised that he, in the end, freed the slaves with the Emancipation Proclamation and had he done earlier, does he think the war would have ended much sooner because he did it, in part, to help with the war effort?

That was one of the reasons, but had he done earlier, would the war have ended much sooner? It’s an interesting question that you raise, and let me explain that what we’re doing now is what you would call an interview. What I’ve been doing is interviews, the interview format that we are now engaged him is relatively new in the history of mankind. There are no interviews that I’m aware of Plato, or Socrates, or Julius Caesar, Cleopatra, Charlemagne, so forth, and so on.

For whatever reason, this format developed, I would say, maybe in the early ’50s when The Tonight Show had Steve Allen on it and then Jack Parr, and they would bring guests on the interview. It was seen to be not just informative but entertaining and then ultimately, television shows did more and more interview formats, and then it became radio interviews, and podcast interviews, and now books and so forth.

I wish we could go back and interview William Shakespeare and say, “Did you really write these plays?” or ask King Henry VIII, “Why didn’t you just have a prenup instead of chopping the heads off of all these women that you didn’t want to stay with?” or Cleopatra, who was a better lover, or Mark Antony, or Julius Caesar. These are the things people want to know, but we’re not going to know the answers to these things, I think.

[00:34:14] Jonathan: I think it’s hard to respond after that one. You’re a student of history, your knowledge on a breadth of subjects is amazing. Buffett and Charlie Munger spend a lot of their time each day reading and reflecting. How much of the day would you say you spend just reading and thinking?

[00:34:29] David: Always not enough but I am a big believer in reading because, as a young boy, I didn’t come from a well-educated family or wealthy family, we didn’t have a lot of books at home. I’d go to the library and get as many books as I could and really fell in love with the new worlds that I was exposed to. Today, I’m very involved with reading efforts, literacy efforts, and so forth at the Library of Congress and the National Book Festival and so forth.

I try to read as many books as I can, at least one a week if not more. I have a trick, which is I’m often interviewing the authors. If you’re going to interview the author, you got to read the book. I, typically, am reading books on subjects I know something about, so it’s not that complicated for me. If I had to read a physics textbook, I wouldn’t probably get through it, but I do think that it’s a sad situation in this country that 40% of the adults are functionally illiterate, can’t read past the fourth-grade level. If you can’t read, you’re not likely to have a very enjoyable life compared to what you would have if you could read. We need to do much more about that.

[00:35:25] Jonathan: David Rubenstein, thank you so much for being a guest in The World According to Boyar, I loved hearing your insights and learning more about your latest book, How to Lead, thanks again for being on the show.

[00:35:36] David: My pleasure. Thank you for having me.

[00:35:41] Jonathan: I hope you enjoyed the interview with David Rubenstein. To be sure to never miss another World According to Boyar episode, please follow us on Twitter @BoyarValue. Until next time.

 

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Brandon Ridenour, CEO of ANGI discusses how ANGI is disrupting the home services industry.

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The interview discusses:

  • Brandon’s views on running a public company (especially during times of stock price volatility).
  • Why ANGI took the rare step for a public company and stopped providing quarterly guidance.
  • How ANGI is trying to transform the way consumers purchase home services and why he believes home services is one of the last major categories without a significant online presence.
  • How ANGI is helping to reduce the lack of price transparency in the home services business.
  • How he believes ANGI will be able to compete against Facebook and Google in the home services category.
  • Brandon’s views on potential anti-competitive behavior by companies like Google and whether the government should be exploring antitrust action.
  • The opportunity ANGI sees in fixed priced services and how they are building a similar model to that of Uber or Doordash.
  • ANGI’s partnerships with both Realogy and Loews.
  • How COVID has impacted ANGI’s business and which categories are doing well and which are struggling.
  • Why millennials are an incredible tailwind for their business.
  • Why he believes ANGI will do well regardless of economic conditions
  • And much more…

About Brandon Ridenour:

William B. (Brandon) Ridenour is CEO of ANGI Homeservices (ANGI) and also serves on the Board of Directors. Prior to assuming the role of CEO of ANGI Homeservices, Mr. Ridenour served as the Chief Product Officer of ANGI Homeservices and as the Chief Product Officer and Chief Technology Officer of HomeAdvisor for six years leading up to the acquisition of Angie’s List in 2017. In this role, Mr. Ridenour managed web and mobile product strategy, product design and development, as well as the operations of HomeAdvisor’s North American subsidiaries, HomeStars, mHelpDesk and CraftJack.

Earlier in his career, Mr. Ridenour served as the Senior Vice President of eCommerce at Nutrisystem, Inc. where he managed e-commerce organization and supported multiple large scale e-commerce platforms. He also previously served as the Director of eBusiness Solutions at Scholastic.

Mr. Ridenour currently serves on the board of Builder Homesite, Inc., a company whose mission is to bring home building leaders together to develop world-class technology solutions. He is also on the board of Axial, the largest online marketplace connecting private companies to capital.

 

Click Here to Read the Interview Transcript

Transcript Of Interview With Brandon Ridenour:

[00:00:00]

Jonathan Boyar: Welcome to The World According to Boyar, where we bring top investors, bestselling 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 guest is Brandon Ridenour CEO of publicly-traded ANGI Homeservices, the global leader in home improvement. Through their collection of brands, such as Angie’s List, HomeAdvisor, and Handy among many others, they’re creating the world’s largest digital marketplace for home services. Brandon, welcome to the show.

Brandon Ridenour: Jonathan, thanks for having me.

Jonathan: Well, before we start, full disclosure. Both IAC and ANGI have been written extensively about in our research service and clients of Boyar Asset Management own shares in both. Before we get to some of the exciting things that are happening at ANGI, I just wanted to briefly discuss your career path. Prior to ANGI, you worked for both Scholastic and Nutrisystem, two companies obviously not in the home improvement area. How did you end up working for ANGI?

Brandon: I’ve definitely followed an unusual path to where I am today. I started my career at Accenture back when was Andersen Consulting. Really was a technologist and a software engineer. Probably around 2000 I left and went into- this was during the middle of the dotcom boom, I went to a small startup. This is in 2000, so it didn’t last long.

Over the ensuing probably 15 years or so, I really worked in consumer e-commerce. While the businesses might not seem like they have a lot of relevancy to home services specifically, they were all unusual bespoke services to consumers. A lot of them were continuity or subscription-based so I have a lot of experience in dealing with consumers and thinking about things over life cycles and lifetime value.

I came to [00:02:00] what was ServiceMagic in 2011 as chief technology officer and chief product officer, again, a combined role and spent about seven years redefining ServiceMagic or rebranding it to HomeAdvisor and then embarking on this effort to redefine how home services works and how people take care of their homes. A couple of years ago, my friend and former CEO here where I worked with at Nutrisystem retired, and I was fortunate to be able to take over as CEO.

Jonathan: I love asking CEOs of public companies what is it like running a public company? Do you enjoy it? If you had your druthers, would you rather be private?

Brandon: That’s a great question. I’ve been doing this since late 2017 and it has been incredibly interesting and very challenging experience and certainly one that propels a lot of personal growth. I think adding a pandemic onto that experience has made it especially both interesting and challenging.

The way I think about this is there’s work I might prefer to do. I love building products. I love focusing on the day-to-day of figuring out how to build great products and obviously I do very little of that now. If you’re trying to do something incredibly ambitious, which is certainly what we’re trying to do, there is no better position or role in which to have an incredible influence over the outcome. I think less about the sort of day-to-day, hour-to-hour view of what I’m doing and how much it’s my preference and more about what we’re trying to accomplish and the incredible leverage I have in trying to propel us forward.

Jonathan: That’s a great answer. One of the things I know that is difficult about running a public company is obviously your mark to market every day. At the Boyar Value Group we’re long-term patient investors, we try not to look at the day to day fluctuations of stocks, easy to say, very difficult to do. Like many stocks, yours has been particularly volatile this year ranging from $4.10 to $17.10, and that’s something that’s completely out of your control. How do you get your employees and yourself from not focusing on too much of the daily moves of the stock price? It’s obviously a significant [00:04:00] part of compensation and your total net worth.

Brandon: Yes, that’s a wonderful question. I don’t love the volatility and I don’t think anybody possibly can. Certainly, we try to follow the precedent I think that was set at Amazon where we one, don’t spend a lot of time talking about it. To the degree we do, when we’re at the lows, we talk about the fact that the external market doesn’t really know what we’re doing and can’t always appreciate it.

When we’re at the highs, we say the same thing, that really it’s relevant to what we’re trying to accomplish and how we measure ourselves and how we mark ourselves against our performance. It’s not a perfect strategy by any stretch of the imagination, but I think one of the benefits we’ve had is we’ve had some serious highs and some serious lows and back and forth, and I think people have to some degree now gotten used to it because it has become a pattern. I hope it’s not one that necessarily persists into the future.

I also talked to our team about the fact that every successful company, the most successful companies, have had that same pattern in their history, whether it’s Amazon, Netflix or anybody with a name. They’ve all had that pattern of volatility. I think that’s a little bit calming to know that that is realistically the path with any incredibly ambitious company follows that goes on to become future successful.

The last thing I’m at is we do benefit I think by having IAC as a control shareholder. IAC and the management there, definitely take a very long-term view of this and a very long-term view of the opportunity. Having their support and that structure definitely puts us in a safe position to swing big and really pursue this with a long-term view and not necessarily get caught up in a quarter-to-quarter grind. If we were traditional public company, that certainly might be more difficult.

Jonathan: The IAC, which owns roughly about 85% of your stock, they recently announced they’re no longer going to be giving quarterly guidance. Is ANGI following suit?

Brandon: We are. I personally think it is a very smart move. I’ve now lived that experience for directly [00:06:00] as a CEO for eight quarters, and then for a few quarters before that in very close proximity. I think with regard to what we’re doing and what we’re trying to accomplish, quarter to quarter variations volatility is frankly pretty irrelevant. It really doesn’t end up being irrelevant to the market, but it is irrelevant to what we’re trying to accomplish and whether or not we’re on the path to doing so.

We’re still going to publish our quarterly results and people are still going to care a great deal, but I think trying to publish a number a year round or whatever the case maybe, and then try to live up to it, which of course, it’s fundamental to issuing guidance is I don’t want to say waste of people’s time, but certainly not the most efficient use of the time and resources of some very important people whose mindshare is better spent elsewhere.

Jonathan: I really wanted to dig in to ANGI. I’m really excited about the company. We have a pretty diverse audience on the world according to Boyar. Can you just briefly explain what ANGI is?

Brandon: Sure. Well, we’re definitely a collection of brands, all whom are focusing on the exact same thing, which is we’re really trying to transform the way people get home services. I think more broadly speaking, we’re trying to reinvent the way people care for their home.

The status quo in how people care for their home is a very subpar experience, I think would be a nice way to put it. It’s pretty antiquated, and the vast majority of that activity happens offline or happens in a very analog way. It’s certainly, I guess odd, that home services is probably the bigger laggard category when you think about all the consumers verticals in terms of moving from offline to online. Nearly every other category has been reinvented or disrupted in some significant way by online services. Now, home services has really lagged.

Our view on that is driven by two different things. One is that just fundamentally, in terms of demographics, home owners skew quite a bit older on average than perhaps most categories. The average age of our customer is around 53 or so. These are folks that just aren’t digital natives. They didn’t grow up [00:08:00] doing everything digitally. The internet mostly came, if you look at that population, came after college or after their education. There’s a behavior aspect of having done things one way for a very long time that is stubborn to change. That’s point one.

Then point two is you also have to deliver an experience and services as they say, 10 times better than the status quo in order to disrupt and influence that behavior in a new direction. I think both of those, one, the demographic aspect, has been an inhibitor. Then two, I don’t think the service that’s 10x better has existed quite yet.

There’s certainly services. They’re better, and they’ve augmented the classic way of doing things with EPC and consumer reviews and that sort of thing. We haven’t seen the truly innovative types of services that you’ve seen in other categories. That’s obviously what we’re aspiring to and what we believe we’re building, delivering for homeowners.

We have a few brands in the US. I think the HomeAdvisor really has done the growth engine of the company over the last many years. Then Handy is a very innovative service we acquired a couple of years ago that really delivers what we think is the next generation’s style of experience, what we call fixed-price services. You can really think of it as on-demand services, greater than an experience. It’s very similar to those which you get in other categories.

We also have the leaders in several of the Western European countries, but those businesses are earlier staged and quite a bit smaller.

Jonathan: Is the market opportunity– I’ve seen numbers all over the place, somewhat about 400 billion and about 10% right now is online. Is that roughly correct?

Brandon: That’s roughly correct. We redid the numbers recently in terms of the TAM and we have it at about 500 billion, so it’s grown a bit. The 400 billion number was from probably close to a decade ago now. Then in terms of the online penetration, we still have it below 10%, but it’s a little squishy in terms of getting it exactly, but that’s definitely in the ballpark.

Jonathan: This is obviously a huge opportunity. You are well-funded obviously with IAC’s backing after they just

[00:10:00] spun out MATCH, they have a lot of cash. How are you able to compete against giants like Facebook and Google who are also trying to get into this market?

Brandon: I think that is one of the most interesting questions because it’s certainly a question that weighs on most investors’ minds. There are two different ways to look at competition. First, there is competition for advertising dollars among small businesses. As a small business, any small business has a myriad of ways to advertise and small businesses in the home services space have advertised historically on TV and the directories and the yellow pages. Then obviously, with the  the internet, they can have a bunch of additional options, including a paid search in Google and advertisements on Facebook and the like.

I think one on that front, we compete very favorably with any service that exists because I believe we have the best offering for service providers. I can go into some detail on why that is, but we offer a platform that offers a level of targeting and a granularity in terms of control and ROI tracking that’s never existed.

If you think about the way it would work, historically, you put an ad in the yellow pages or maybe on the top of an online directory. It’s very difficult to know what response you’re getting exactly what– You’re typically paying a fixed price every month and you don’t necessarily know which phone calls come from the ad. In our platform, in our ecosystem, you know exactly what you got and you know exactly what your ROI is. You can be very specific about not just that you’re a plumber in Denver, but in fact, you’re only interested in doing tankless water heater installations and you’re only interested in doing them in three zip codes. It’s a level of control and power that has just never really existed.

However, I think that that is really not the long term way to think about competition. The way I think about our ambition is that we’re trying to create a transformational consumer service that reinvents the way people care for their home. When you think about that as an ambition and a mission, very focused on home services, we don’t really feel that we have anybody competing to provide or accomplish that same goal.

In the end, most of this activity is offline. Our challenge is to create that transformational service and [00:12:00] move that activity that’s happening offline to online. When I think about Facebook or Google or any of the large platforms where you can advertise, the odds of them creating a truly transformational deep service that is explicitly focused on the home is pretty unlikely. We have literally thousands of people that get up and come to the office every day with this one because one goal in mind.

Home services is complicated that there’s enough nuance and complexity and specificity to the category that I think trying to be a Jack of all trades across a bunch of different categories and come up with a really great solution is pretty unlikely.

Jonathan: It’s really your level of focus compared to the behemoths is what’s going to make you guys win?

Brandon: That’s right. I’m sure we’ll talk about fixed price a bit, but we are moving from being, I think what was historically a lighter marketplace where we connected people. I would think of that as more of a traditional advertising model to a much deeper vertically integrated fulfillment platform and suffice to say that gets more and more difficult. The deeper you go in, the more ownership you take over delivering actual services, it gets complicated.

I think those types of services, when you look at them in today’s world across categories, whether it’s something like Uber or whether it is a DoorDash or Grubhub or any of the services that really have true vertical integration and manage the fulfillment, you don’t see the big mega platforms competing as much in those areas where I think you see them competing more are in lighter, simpler information discovery areas. Certainly, you’re seeing that in flights and travel and perhaps in hotels, because you’re an aggregator and you’re really just connecting the platforms that are readily available.

If you want to actually start delivering services, it’s really an entirely different level of complexity. I think the level of focus and the investment required in terms of humans and operations and logistics is pretty difficult to take on. [00:14:00]

Jonathan: Today is July 29th so we’re talking about competition and it’s particularly timely because the leaders of Facebook, Apple, Amazon or I don’t know if they’re on Capitol Hill or they’re doing it via Zoom or whatnot, but they’re talking about competition and  monopolistic behavior. Do you have any views on that? Google is probably one of your biggest sources of traffic, but it’s also in some ways your competition, as we just discussed. Do you have anything you can elaborate on that?

Brandon: Sure. First as just a consumer, a person living in the United States, I look at the last 20-25 years of incredible innovation driven by the internet and all the amazing companies that we as consumers benefit from and that certainly the economy as a whole has benefited from. I think if we want to see that for the next 15 or 20 years, the ability to discover these companies, these businesses, these innovative services is crucially important. Obviously, with the dominance Google has in terms of offering search and discovery services, I think it’s a completely reasonable thing for the government to take a look at. It’s just so important. I do believe if you take a longer view of this, we all certainly want to see innovation flourish and we want to see these amazing new services developed by entrepreneurial folks come into being and be able to thrive. I don’t have enough expertise to know whether there’s a there there, but I do think it’s a reasonable thing for people to take a look at.

When I think about ANGI Homeservices, of course, we think about these platforms, we think about Google in particular, they’re a huge partner for us, an incredibly important source of finding customers and I expect that they always will be. In fact, there’s no question that they’re the best way for us to find customers. That’s where people search. We value the relationship. We value the channel, if you will, from a marketing perspective as an incredibly important part of our business.

When I think about our strategy, and when I think about competition, I honestly believe we are either going to execute and be successful [00:16:00] by developing a truly customized service that goes deep within home services and really attracts a very large audience of homeowners in a sticky fashion and become a direct destination brand, or we won’t because we didn’t execute successfully. I don’t believe that Google– If they’re going to have an advertising business, they’re going to have home services, businesses that advertise there because they have an audience and that’s completely reasonable. I don’t think we’re really competing to accomplish the same thing.

Jonathan: Understood but you have been, I don’t want to say a victim, but when Google changed their algorithm, I don’t know if it was a year or two years ago, your costs went up, I think 30% and it’s no coincidence that they are competing in the same category. It’s something the government probably should take a look at.

Brandon: Google’s a large source of customer acquisition for us, and certainly when they make changes, we are affected. We have been affected positively in the past but I think if you look at the course in the last 10 years, I think it’s reasonably clear that Google’s own proprietary products have incrementally taken up more space on the search result page, which just makes it a little bit more difficult or perhaps a lot more difficult for consumers to find those organic results and those services like ourselves.

This is to each person’s own eye but I do feel like they do occupy most of the most premium real estate on the page. It’s pretty extensive. I feel from a personal standpoint, as a company I feel pretty comfortable with the risk profile and our ability to continue to operate within Google at the level we are currently.

[background music]

Jonathan: I hope you’ve been enjoying the interview with Brandon. Be sure you never miss another World According To Boyar episode. Please follow us on Twitter @BoyarValue. Now back to the show.

One of the ways that I guess you’re planning on combating Google is to have more direct relationship [00:18:00] with the customer. You’re doing this with fixed price services. Can you just describe that opportunity?

Brandon: Absolutely. We’ve been in business for more than 20 years. It’s an incredibly complex problem in terms of solving home services and it’s complex for two reasons. One is almost a math challenge and the other one is really about human behavior.

From a math standpoint, we serve all of America, we serve every single zip code and there’s well more than 500 different types of projects that we do. They’re about 42,000 zip codes in America. If you combine the zip codes and the 500 plus services, you almost have what you can think of as 20 million micro markets where you have to have humans available to deliver services and you have to balance supply and demand. It’s an enormous problem from a scale standpoint.

On the human side of it, unlike, let’s say a service like Uber where you can pretty much go out and find and mint new drivers really easily because almost everybody knows how to drive. In home services, these are oftentimes craftsmen, people that not only have but need to have many years of experience.

For many of these types of projects you think about things like wood floor refinishing, or remodeling or you name it, lots of complicated types of projects. You can’t just go create these businesses so you have to work with the economy as it exists. The combination of those two things makes this, I think in order of magnitude or perhaps a couple of orders of magnitude more difficult than perhaps like the idea of creating a service like Uber.

We have been working to standardize over the last seven or eight years, the experience for consumers and digitized more of the experience. We have offered services like online booking, which enable people to book an appointment directly with the provider. What we have found over time is that it’s very challenging to get hundreds of thousands of small businesses to operate in a consistent manner, I would say of their own accord.

We essentially pivoted three or four years ago [00:20:00] to begin a completely new approach to this problem. We really believe fundamentally that we need to provide a very consistent experience to homeowners that solves several different pain points.

First of all, there’s no price transparency whatsoever in home services. Nobody knows really what anything should cost. If you go out and get estimates, you’re often going to get estimates that are all over the board or they’re not close to each other. First of all, we think solving price transparency and helping people understand the price as fast and easily as we can is important.

Then digitizing the remainder of the experience and taking out a lot of the friction. People don’t want to talk on the phone anymore. Nobody wants to obviously leave a voicemail. People want to effectively– Everybody’s time-starved. People would love to when it comes to home services, generally, once they get the momentum to actually do a home service, they want to get it done as quickly as possible.

We embarked on a new path, which is effectively us pricing and selling the service directly to the consumer. Based on whatever the project is, we’re determining, we show the price up front, and then a homeowner can quickly order that service. You put the credit card in, tell us what date and time they want the service. Then we find the professional to complete the service at the requested price or at the indicator price. We manage that fulfillment digitally, beginning to end and including processing the payment once the service has been completed.

It’s a closed loop system where the entire thing from a consumer or homeowner standpoint is managed through the app from seeing the price upfront all the way to watching the service technician arrive at your home in a digitally via the map and then obviously getting a receipt and seeing the payment process.

Jonathan: Basically, what you’re saying is the traditional–What you’re trying to do now is let’s say I wanted to have my gutters cleaned, I would go online, I would probably tell them how big my house is, whatnot. It would be a fixed price of what it would cost to clean the gutters and you would find a [00:22:00] qualified person to do it. I would not really have to communicate with that person at all. Is that what you’re saying?

Brandon: Well, that’s exactly right. I can simplify the whole thing I’m saying by just saying it’s very similar to the experience in ordering a car service from Uber or ordering food from DoorDash. I think the only difference really is that it’s typically not a same-day service. You’re scheduling oftentimes out a few days, but beyond that, the experience is very, very similar and you can communicate with the provider if you want to or need to. For the most part, no, there’s no reason to. You know the price, you know the date and time the provider’s going to show up and they show up and do the work. Then when it’s completed, we process the payment.

Along with this, of course, we guarantee the work, we guarantee the outcome and we call it our happiness guarantee. If something goes wrong, then we’ll either refund the money or preferably send somebody out to make it right. That’s a level of, I guess, confidence that you don’t typically get with how people have historically gotten home services.

Jonathan: You’ve compared this to some way to Uber, which seems like a pretty good comparison. Uber’s running into issues of these workers being classified either as employees, instead of independent contractors. Is that something you’re worrying about? Does that change the opportunity if all these service providers were classified as employees of ANGI?

Brandon: Well, we certainly watched the evolution in the regulatory environments, but generally speaking, we are in a very different position because the entities that we’re working with on the provider side are small businesses. Sometimes they may be sole proprietors or very small businesses and sometimes they’re much larger businesses, but they are generally speaking standalone businesses. We’re not bringing them into this industry. They are generally running this business and they’re taking consumers or customers from other sources.

I think that is pretty fundamentally different from where Uber sits and some of the challenges they face. [00:24:00] We’ll of course watch it. The home services industry has always been a small business-driven contract-oriented industry. Just the very nature of contractors and the fact that they use subcontractors to do remodeling projects or larger projects, it is the way the industry has always operated. We’re simply providing a digital medium on which you can interact in the same way that the industry has always interacted.

Perhaps the different thing we are doing is obviously we are offering price transparency which is sorely lacking in the industry. I think we’re pretty outside the scope of where the regulatory focuses and gig jobs and gig businesses at the moment.

Jonathan: In terms of the fixed price opportunity, how big can this be? Where is it now, relative to sales and where do you think it could be, 5-10 years from now?

Brandon: Well, that’s an interesting question because we do believe we use the term home services, but it’s incredibly heterogeneous. Obviously fixing a leaky pipe shares very little resemblance to remodeling a kitchen or building an addition to a home. Those are just two examples, but there’s many, many of those.

The question for us is this expression model is we believe fundamentally better value proposition for homeowners, for the reasons I already mentioned. It’s also a great deal for the service providers because rather than paying for advertising, they just receive when they get it, we pay them. They have a job and they don’t- they just receive compensation for it. We love the model and we think that is really strong for both sides of the marketplace, but the whole nature of pre-pricing a project gets more and more complex as you go up the scale in terms of project complexity and project cost.

We started by launching in about 130 different types of projects that are low prices, relatively simple. We did that last year and we have seen a lot of success with that, and that continues to grow quickly. This year, I should say that first segment that we tackled we think is about 50 billion [00:26:00] of the 500 billion total TAM and the home services market.

Relatively small slice from a TAM standpoint because these are low price services, but a very high volume part of that from a service request volume standpoint. We love tackling that first because we think, while it’s relatively small from a revenue standpoint given the whole market size, it makes up a big part of people’s experience.

Most of the projects that people do within a year are relatively low price. We’ve got our cleaning to lawnmowing handyman services and those types of things, that’s the most common thing that people do. We love delivering this experience and making that the core part of how people experience getting home services.

What we’ve done over the course of this year is we’ve moved into higher value and higher price services, which is where we’ve had some question mark about our ability to price it and about perhaps more importantly, whether homeowners would buy much more expensive services.

I would say in the first quarter of this year, we saw pretty quickly that when we offered services and these are typically call the average price is around $5,000, we saw very quickly that homeowners would engage. There was very high engagement, very high conversion rates to purchase these services. That was, I think the fundamental piece of information we needed to know there was a market there and something worth going after.

Obviously, if homeowners are just too reticent to buy those types of high-priced high-ticket types of projects, then it would have been difficult to overcome. We were able to prove out pretty quickly that there was interest and a willingness to buy those services.

What we spent the last few months doing or tackling is optimizing our sophistication around how to price those projects because they are much more complicated. Just to give an example, installing a wood privacy fence or installing a deck, these are the kinds of projects that cost a few thousand dollars and which each one of them requires a different approach to pricing it properly.

We almost have to go project by project and really figure out how to price that project, such that obviously we make a reasonable [00:28:00] margin and we can find providers to understand the clearing price in any locality that it requires to find providers to do the work that’s the price we offer.

We’re in the process of getting good at that. I think we’ll be in the process of getting good at that for the next, at least a year and a half because it’s effectively a project-by-project groundwork to figure that out, but we’re seeing it grow quickly. We know enough now to have confidence that this model is going to scale to probably a greater extent of projects than we might’ve originally believed. That’s where we’re at today.

Jonathan: Can you just out of curiosity, something like the wood privacy fence, like how do you use technology to price something like this? It seems something that would be very difficult to do because I might not be able to tell someone how big square foot of my property is, et cetera. How does that work?

Brandon: That’s a great question. There are really two components to knowing how to price a project. One is understanding the specifics of the project given its nature and what are the factors that determine pricing. With a wood fence, it’s going to be what’s the length of the fence, what material are we talking about, that sort of thing. Then the second aspect of that you need to know is really about the local market dynamics and what the going rate is to get a provider to do that kind of work.

On the ladder because of our scale, we’re building up expertise and sophistication quickly in terms of understanding local market dynamics. I think that’s a competitive advantage in a durable asset that we will possess that puts us in a strong position to do this effectively, where it will be difficult for others.

On the former, privacy wood fence installation is a great example of where we’re using technology to really accurately price these projects instantly. For privacy wood fencing we use satellite imagery to quickly allow the homeowner to identify the length of fence, the segment of fence that they want to install or replace. With that information along with a couple of questions around materials and that sort of thing, we can quite quickly and accurately price that project.

Obviously, not every project is [00:30:00] outside. You can’t use satellite imagery for everything, but that gives you a sense of how the actual solution might be a bit different for each and every individual project. I should have mentioned that the TAM, if the first 130 or so projects were around $50 billion in total TAM, this next segment we’re tackling is around $200 billion. By virtue of the success we’ve had, I think early this year, we believe that we’re going to unlock maybe not all of that TAM but certainly a significant portion of it via fixed price.

Jonathan: Right now, you went from a few hundred-dollar project to a $5,000 project, which I think you said about 150, $200 million of the Total Addressable Market. Do you ever see that going up? Is a remodel of the kitchen or some of these really high margin items ever– Do you ever see that being in a fixed price or quasi fixed-price model?

Brandon: Our fundamental goal is to make owning and caring for your home a really different experience and a much easier experience. The vast majority of what people do fall into these lower price projects. Most projects are several thousand dollars and then occasionally you might have one that is a little more expensive. That probably makes up nine out of 10 projects people do, maybe even more. What we want to do is build the brand that’s synonymous with this type of innovative and transformational experience and develop really loyal customers. I think fixed-price as applied to these most common projects are what will generate that loyalty.

To take it a step further, obviously, we ultimately believe that not only can we develop or deliver fixed-price projects, but we can begin to take ownership of all those repetitive projects that you do. If you have to clean your gutters twice a year, but we can offer that on a recurring basis and we can offer in a way that you really don’t have to think about it again. We just show up twice a year and let you know we’re coming and do the job and let you know it’s been done.

As you can imagine, there’s a pretty long list of these kinds of recurring [00:32:00] known projects that people have to do. Well, we think we can actually just take the load and the labor off people’s minds and deliver that in a more automated way.

It’s through this experience if you can imagine not only having a fixed-price experience, but having it via the app, and then perhaps engaging with these recurring services. It’s a pretty deep experience, we’ve got your credit card on file, it’s really seamless to order additional services. I think the general idea is every once in a while, when you decide to remodel your kitchen every 10 years, or when you have to replace your roof once every 10 or 20 years, or your furnace, we have the relationship at that point.

I don’t know that fixed-price, as stated will ever apply to something like a kitchen remodel. I think there may be some sort of simpler versions of it that possibly could but a $40,000 or $50,000 or $60,000 kitchen remodel’s probably always going to be handled differently. I think the point for us though, is we can win on the high-frequency projects, create this really deep and established relationship with the homeowner, and then we’re automatically top of mind when those higher-margin, higher-value projects come up.

Jonathan: One of the ways you’re creating this deeper relationship is you have partnerships, you have one with Realogy and one with Lowe’s. Lowe’s was announced earlier this week. Can you briefly touch on that?

Brandon: Sure. We started partnering with Realogy, I think it was middle of last year. The nature of that relationship is one that I really love because it’s good for us, it’s good for Realogy and it’s good for the homeowners that are selling their houses. Effectively, Realogy offers a program where a homeowner can improve their house, which improves their odds in price, they’re selling the home and the price at which they can sell it. Realogy essentially provides funding for that work and we provide the execution and management of the services.

This is simply put, a fixed-price service model and it is more in the middle-tier pricing; it’s more in the single-digit thousands of dollars type of area from a price standpoint and it tends to be heterogeneous. [00:34:00] It’s not usually just one project, but it’s a combination project; maybe I’m painting and reinstalling the floors or refinishing wood floors and so on.

One out of the programs because I think it’s the best of all worlds when it’s in everybody’s interest, everybody has a strong value proposition. It’s been a real proof point for us to essentially prove that we could manage and market these types of more complex services, particularly a heterogenous basket of services, and do so at really high levels of satisfaction.

We’ve been very happy with the program, I believe Realogy has been very happy with the program, and it’s been growing pretty consistently. Obviously, COVID threw a temporary curveball within the housing market but as we’ve all seen, demand has picked up very robustly and we’re pretty closely tied in terms of that partnership to transaction volume in the housing market.

That feeds in really nicely, which is what we’re trying to do overall, the learnings we’re getting and working with Realogy and working in the market on these types of complex projects feeds directly into serving our own customers directly on home advisor for the same kinds of projects on a fixed price basis so it’s been very synergistic in that sense.

The Lowe’s partnership, we couldn’t be more excited about. Obviously, it’s brand new. Lowe’s is a leader and selling products and materials related to the home, is somebody we’re extremely happy to partner with. We obviously bring a lot to the table in terms of enormous service demand from homeowners. I think there’s a natural synergy to partner with someone who is looking at this from a product and materials or leading with product and materials.

As they continue to strengthen their relationship with home pros, our ability to work within a partnership to deliver their pros, service demands, I think it’s naturally in our interest, in the natural and their interest. I’m excited about it. Obviously, we just kicked it off, but I think it’s pretty obvious that our position and scale, and being able to deliver service to their pros, and that then feeding potentially directly to product and material sales makes a ton of sense, conceptually,

Jonathan: In terms of how you’re running the business now, from March until [00:36:00] July, obviously, you’ve been dealing with COVID, how has that impacted your business in terms of what people are looking for? Is it now highly non-discretionary types of services people are looking at, or people are actually letting people in their homes for other types of discretionary work?

Brandon: Well, I think we’re obviously very thankful for the resiliency our business has shown throughout this. There were certainly a few weeks there in the early going that looked pretty grim, but the industry really bounced back with a vengeance and has performed really well I think given the context. That said, we are in the business of putting people inside of other people’s homes to deliver services, at least in some part. That is not going to go without some impact when you have a pandemic and the fear that is reasonably pervasive. What we’re seeing, I think in terms of the major impacts are on the demand side.

There are certain project types that are not growing or are flat to down maybe a little bit or are growing much more slowly than we would’ve expected. These are typically indoor discretionary projects and remodeling projects are a great example. They haven’t collapsed and I think they’ve been pretty resilient, all things considered. They’re definitely dragging growth a bit relative to where we thought we would be because they’re really important. Remodeling, while the frequency is low, the value of those jobs is enormous and it’s an important contributor to us financially. Those are growing more slowly and/or are flattish year over year. The reason is people are scared. There’s a level of fear.

I think maid service, cleaning services is another one where we’ve seen actually really soft demand. That’s one where people, they can do it themselves. They’re choosing to do that, to reduce exposure. Luckily for us, I think we said 65% or so of our business is non-discretionary. It’s just work that people have to get done, whether it’s inside or outside. Your AC breaks, you’re going to [00:38:00] get it fixed. It’s just the reality. Then beyond the 65%, that’s non-discretionary, a lot of work is also outside, even if it’s discretionary. As you can imagine people aren’t as worried about that.

Overall, I think we saw a huge bounce back in growth. We posted the highest service request growth rate in June in two years on a year-over-year basis. It was really a very strong recovery, but uneven. What I mean by uneven is some categories are up to 50 to 90%. In-ground swimming pool installation was up 90% year over year while other really important categories are flat to maybe a little bit down. When you have the type of supply and demand challenge that we do, trying to keep up with category growth that might be 50% or 60% or 70% out of the blue is definitely challenging. That’s a little bit of what we’re working through now.

On the provider side, providers are affected in a few different ways. A lot of them pulled back on employment and hiring during the early stages and perhaps, or either having difficulty hiring or have been cautious to do so. There are supply chain issues that are affecting a lot of categories. We’re seeing, I think it’s more than 50% of providers are reporting that they continue to be impacted by the pandemic and are effectively operating at a reduced capacity. Those two things are, I believe transient quite clearly but are definitely affects we’re seeing as the pandemic continues in its current form.

Jonathan: You had people on your platform trying to get in-ground swimming pools. That’s a major project. That’s a $50,000 plus project during the pandemic.

Brandon: Absolutely. One thing, we haven’t seen any consumer weakness. I think the consumer appears very strong. At least to this point, obviously, that was a concern and continues to be, I guess, a future concern as to whether that maintains but to this point, consumers have been, I think, very strong in terms of their willingness to do discretionary projects where there isn’t the risk of contagion.

[00:40:00] The impact is very specifically around concerns about having people in the home and having exposure.

Jonathan: Jamie Dimon, the CEO of JP Morgan said, savings are up, incomes are up, home prices are up. You’ll see the fact of this recession, you’re just not going to see it right away because of all the stimulus. Is ANGI preparing for future pain to come? Who knows what’s going to happen with the stimulus checks now that they’re running out and how there’ll be renewed? Is ANGI preparing for a deeper recession or how are you structuring your business?

Brandon: We really aren’t. We operate the company in a very lean fashion in any case, which is why when COVID originally hit and demand dropped so precipitously, we took a look at our operations and how we approach things. We certainly made some changes, but we were able to keep our workforce completely employed and quite frankly, focused on our longer-term goals.

We didn’t really miss a beat and I think more importantly, perhaps than that, just in terms of operating efficiently, we have an extremely resilient business model. That was on display during the initial we’ll call demand crash because we saw demand crash 40% plus and just a matter of days.

The way our business works is that if homeowner demand drops, first of all, we had a surplus of homeowner demand in the first place as we talked about, but if homeowner demand does drop, a couple of things happen, one is that service providers in general need our service much more. That’s broadly speaking to service providers who pay us. We generally see a much higher engagement level from service providers and those types of situations.

Secondly, the way our ecosystem works is that if providers allocate a budget and if consumer requests levels drop, then you just tend to see a higher revenue per request that gets processed. Perhaps this is at least partially driven by the fact that we do have such a big imbalance, that if we do see some drop in consumer demand, we’re just able to better match those SPs against the remaining consumer demand.

In the end, if you look at our performance, which we released, I think in April was our low point and our global revenue dropped by [00:42:00] 2% year over year. That was in the heart of a really an unimaginable collapse in demand, unlike anything we’ve seen, including the housing crisis in 2008.

We feel really confident that whichever way this turns out, we can stay focused that the business will perform well. Of course it can have some impact, some moderate impact on our growth rate and financials, but we’re going to be in a really strong position either way and in a position most importantly, to stay focused on what we’re trying to accomplish and then we think about a three or five-year horizon.

Jonathan: One of the effects people are predicting of COVID is mass shift of people to the suburbs. Whether that happens or not is certainly offered a debate. I would imagine that’d be pretty good for your business, correct?

Brandon: We believe so. I was looking at some data that just came out where home ownership amongst millennials just spiked in a pretty unprecedented way. That’s certainly incredibly positive for us. We believe millennials are going to be incredible tailwind to driving that behavioral change around moving this activity to online. These are digital natives. These are folks that already order most products and services digitally across every other category we have long anticipated and are certainly excited by what we think is probably a 10-year demographically driven wave, where a lot of this activity does come online.

Then just beyond that, home ownership is incredibly good for us. Home transactions, there’s a ton of work that happens before, during and after home transactions. That generally on a macro level creates more demand. It certainly some of the side effects of COVID with a focus on the home and people perhaps migrating out of dense urban cities and into less dense areas where they can own larger homes are positive for us. Obviously not worth the trade off in the world, but those are side effects that are currently tailwinds for our business.

Jonathan: Brandon, thank you so much for joining us on The World According To Boyar and sharing your vision for ANGI. I look forward to following your progress on this exciting story. [00:44:00]

Brandon: Thanks, Jonathan. I really appreciate the opportunity to be here. Thanks again.

Jonathan: Be sure to never miss another episode of The World According To Boyar. Please follow us on Twitter @BoyarValue. Until next time.

[00:44:24] [END OF AUDIO]

 

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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

Boyar Research
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

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Tobias Carlisle, Founder of The Acquirer’s Multiple, on how to incorporate deep value investment into your investment process.

The Interview discusses:

• What is The Acquirer’s Multiple® and why investors should pay attention to this metric

• What does deep value investing really mean and tips on incorporating it into your investment process.

• The importance of mean reversion

• Two deep value stocks he currently finds attractive. 

Bio

Tobias Carlisle is the founder of The Acquirer’s Multiple®. He is the founder of Acquirers Funds, LLC.

He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.

Never miss another podcast click here to subscribe today!

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

Boyar Research
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

Disclaimer: This interview does not constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation to buy or an offer to sell any securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Past performance is no guarantee of future results and there is no assurance that any targets or forward-looking statements will be attained. This interview represents the views of Boyar Asset Management as of October 3rd 2018 and may change without notice. Boyar Asset Management may own shares in any of the companies discussed during the interview.

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