June 21, 2024 • 29 mins
Katie and Matt discuss auditing classes at portfolio manager school, getting on television by pretending to buy public companies, and how to make a few billion dollars by rolling up the building products distribution industry.
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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Hello and welcome to The Money Stuff Podcast, your weekly
podcast where we talk about stuff if you want it
to money. I'm Matt Levian and I write the Money
Stuff column for Bloomberg.
Speaker 1 (00:21):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 2 (00:26):
What's going on, Katie?
Speaker 1 (00:27):
We're going to talk about trader school and hedge funds.
Then we're going to talk about fake m and A,
and then we're going to talk about kind.
Speaker 2 (00:35):
Of M and A real weird NA.
Speaker 1 (00:38):
Yeah, let's get to it. Let's get into it. So
Traders School, we're talking about zero point seventy two Citadel.
The list goes on other giant hedge funds basically creating
an in house trading school to turn their nines into
perfect tens.
Speaker 2 (00:58):
Yes, this is a Bloomberg News Big Take article today yesterday.
It does matter.
Speaker 1 (01:03):
Time is a construct. As we keep going over, this is.
Speaker 2 (01:06):
A big take article at Bloomberg about how these hedge
funds are building their own in house trading schools. Here
we are talking about it.
Speaker 1 (01:12):
Yeah, reading this, I kind of feel like, shouldn't you
have an in house training program anyway.
Speaker 2 (01:19):
So a couple of points of that one is that no,
historically all of the like buy side like used to
hire from the seull side, right, Like it used to
be that if you're a hedge fund, the way you
acquired new talent was from the banks. And one thing
that's happening here is like the banks are a less
of a source of talent for these places, in part
because like banks get rid of prop trading and so
(01:40):
like the ability to source good risk takers from banks
has gone down, but also a part because these places
have gotten huge, and it's just like you're not looking
to like identify one good trader from somewhere, you're looking
to like mass produce them. And so having a training
program is kind of a new need for these big firms.
Right used to be a hedge funds, like one manager
and when that manager got rich enough, they just the
firm went away. So like, having this very institutional structure
(02:04):
is kind of a new thing, and so you need
a training program. The other thing about it, though, it's
not just training you know, incoming people to be good analysts.
It's taking the people who are analysts and have been
there for a while and trying to find out if
they will be good portfolio managers and promoting them to
being portfolio managers as carefully and scientifically as you can.
(02:24):
So instead of being like, yeah, you've been here a while,
here manage a book, it's like taking the analysts and
seeing if they'd be good at managing a book and
teaching them how to manage a book.
Speaker 1 (02:34):
So two points. So we're talking about it as trader school,
and the article talks about it as trader school. It's
more fun to me is this sort of just be
in vision where it's actually just like a factory and
you're just putting this person into the machine. It does
some combination of lights and sounds and things to the
person that they spit out as this stock picker.
Speaker 2 (02:56):
Well, that is sort of how these things are supposed
to work, right. The idea of these multi strategies is
they're very like scientifically managed and they really like carefully
monitor your trading and they make sure you're neutral to
all the factors, and if your portfolio goes down by
a little bit, they like pull some capital, and if
it goes down by a little bit more, they fire you.
It's you know it is like an alpha factory, right,
it is like trying to somewhat dehumanize the management of traders.
(03:19):
So yeah, it is a machine that flashes some lights
that you But wait, I also want to take it
seriously as a school because I would like to go
to Trader School.
Speaker 1 (03:27):
I want to audit a class at Trader School. I
don't think I would do very well, so I don't
want to receive a grade at the end, but I
would like to see what happens.
Speaker 2 (03:35):
Apparently they greate them out of ten, right, yeah, right,
Like usually the analysts come in as ninees and they're
supposed to leave as ten. Portfolio managers for that come
in coming at like a two.
Speaker 1 (03:45):
I was gonna say, I'd be, you know, a solid one,
maybe a two on a good day and maybe come out. Yeah.
Speaker 2 (03:54):
Two points on that one is that I hope that
by saying that you want to audit a class Trader School,
you have manifested that and that we will be invited
to audit a class at point seventy two or someone
or said it, or anyone's Trader School, any multi strategy
hedge fund that wants to have us audit a class
at Trader School, and maybe yeah, do some field recording.
Speaker 1 (04:15):
We doesn't even have to be top tier. We go
we don't need to go to like the Ivy League
of Trader School. I'd be willing to go, you know,
in state, but yeah, I would love to do that.
That would be our first like field podcast recording.
Speaker 2 (04:29):
I feel like we'd learn a lot at Trader School,
and so at our listeners, and so would possibly the
Hedge one that hosts us.
Speaker 1 (04:34):
I mean, point seventy two sounds like it is the
place to go because the article mentions that more than
half of Steve Cohen's stock pickers have come through its
program rather than big expensive outside hires that they've had
to make.
Speaker 2 (04:47):
So it does seem a lot cheaper to run a
trader school than to pay someone a fifty million dollar
guarantee to come be a portfolio manager.
Speaker 1 (04:54):
Yeah, I mean, maybe it's less good for you, that
star stockpicker, because right.
Speaker 2 (04:58):
It's like you're like on the Rickie contract, right, Like
you get paid like an employee rather than in a
bidding war for your talent.
Speaker 1 (05:04):
Yeah.
Speaker 2 (05:04):
The other thing about Trader School is my dream has
always been to do my job as like I write
my newsletter for like and do my podcast right, thank you,
six months of the year. And then I go, like,
intern in a financial job somewhere for six months of
the year, Like, wouldn't that be fun?
Speaker 1 (05:20):
I feel like this company would let you do whatever
you want, I.
Speaker 2 (05:24):
Know, but like who would hire me for that?
Speaker 1 (05:25):
Who?
Speaker 2 (05:26):
Like hopefully some of our listeners, But who would be like, oh, yeah, come,
like do a bad job at our job for six
months and then.
Speaker 1 (05:32):
Go write about it right heavy handed section we've ever.
Speaker 2 (05:35):
Hed, I know, right, like please have us come into
your things.
Speaker 1 (05:38):
Yeah.
Speaker 2 (05:39):
I didn't even mean it that way. It's so it's
hard to know what these jobs are like unless you've
done them in some way. Yeah, And I feel like
I could learn a lot by like spending a few
months me too.
Speaker 1 (05:50):
I mean, I feel like I was born and raised
inside this building. I've been here since I was twenty
three years old. Isn't the point of journalism to go
off and have broadening experiences and really get to know
the industries and the people that you cover.
Speaker 2 (06:04):
So and I've had some jobs in finance and that
was nice, but I haven't had all the jobs in finance. Yeah,
you know, you know, manage a little portfolio for for
point sevenue two. I feel like that could be good.
Speaker 1 (06:14):
I feel like that's something you do in high school, right,
you sign up and have like a paper portfolio.
Speaker 2 (06:19):
Well, I think that. I think the traders school is
to train them to run a real portfolio. But yeah,
some of these schools do have you run a paper portfolio.
Speaker 1 (06:25):
Yeah, I think I bought like shares of hot Topic.
Speaker 2 (06:28):
Okay, that sounds right. Yeah, I like this is at
least the second appearance of hot Topic on this show.
Speaker 1 (06:32):
I spent a lot of time at Hot Topic. What
else should we say about this? I mean, again, it
seems like a cheaper way of doing things. There's a
lot of conversation in this article about the talent war
going on in hedge funds right now.
Speaker 2 (06:45):
I think that it's just like these funds pay so
much to portfolio managers, They charge clients so much. There's
so much demand for this, and I think part of
it is like these are places that are pretty good
at identifying alpha and being able to say, like we
can strip out all the elements of luck and market
exposure and just identify who is skillful at managing investments,
(07:07):
and then we can offer you that sort of pure
uncut investment skill, and the clients apparently love that because
it's uncorrelated to everything else and it usually goes up,
and so they're willing to pay basically whatever fees these
funds charge. And given that, it's clear that there's the
shortage of people who can generate alpha, and it's not
clear that would be like a natural shortage, right, It's
(07:28):
just like there's only so many people who've like come
through the pipeline of becoming portfolio managers at point seventy
two or whatever. So if you can train more of them, like,
you're filling this like enormous unmet demand and you can
make a lot of money, right if you can like
bring someone in cheaply and turn them into a fifty
million dollar a year portfolio manager, Like, yeah, that's a
great business.
Speaker 1 (07:48):
I don't think I have any ideas, but wouldn't it
be fun to like do a thought exercise of like
what would your trading school look like? Like what are
they learning in trading school classes?
Speaker 2 (07:57):
What are they learning in training school classes? So I
think that we're sort of exaggerating by saying this is
trading school, right, Like this is.
Speaker 1 (08:02):
Like that isn't it fun to go along this flight
of fancy?
Speaker 2 (08:04):
Sure? So I think that this is like a lot
of It is like some sort of combination of like
actual classes and like mentorship and meetings and whatnot, for
like existing analysts who want to move into a portfolio
manager roles where they're trying to figure out if they'd
actually be good at it. But I will say there
are people who run trading schools, and those people are
the big prop trading firms.
Speaker 1 (08:24):
Right. Oh, I thought you were going to say that
people that keep trying to scam me you on Instagram.
Speaker 2 (08:28):
Oh yeah, I don't think those people even run trading schools.
I think those people just run Instagram ads. But no,
like Jane Street and Susquehanna and all those sort of
big prop trading firms are very invested in training people
how to think like traders, because you can't really hire
people out of school who know how to do that
if you're hiring investment bankers. It's like some combination of
like can they do a DCF model and like will
(08:50):
they work really hard? And there are ways to figure
that out, but knowing if people are good at operating
under uncertainty and like estimating probabilities in their head and
sort of being decisive and like taking risks in the
right way. It's just harder, and so a lot of
what these firms do, both in their like lengthy interview
process and then like in their like internship programs, is
like they sit them down to like play poker every night,
(09:13):
and they play like fake trading games where they evaluate
their ability to like make these decisions. So it's a
really like very organized trading school where they're trying to
see who is like overconfident, who is too timid, and
who has like the right ability to take risk.
Speaker 1 (09:28):
There were some examples in The Big Take. At Citadel,
for example, trainees are taught how to back pitches from
colleagues lower down the food chain. At bally Asny, they
get a limited pot of cash, then they have to
deliver returns that match or beat the firm's older hands.
Zer point seventy two wants it's cadre to think like CEOs,
meaning they'll need to create and run a book of ideas,
all while getting total buy in from their teams. That
(09:51):
doesn't quite fit my fantasy of my dream trading school, right.
Speaker 2 (09:55):
Because this is not really at trading school. This is
a like developing like soft skills. Yeah, it's like developing
like senior portfolio managers. Like that's a management job. That's
an investing job, but it's also like a risk taking job, right,
Whereas like if you're like a twenty two year old
the Jane Street, you're.
Speaker 1 (10:09):
Being taught to indian options. Yeah yeah, right.
Speaker 2 (10:12):
There's great stories in Michael Lewis's about going infinitely No,
just kidding. I've at Sam Bachminfried's training days at our
internship days at Jane Street, where he like learned to
like make positive expected value coin flip bets with his
fellow interns. Right. Part of the goal of the trading
program was to like have the interns bet against each
(10:33):
other and sort of see who was good at betting
and who is good at like finding and exploiting edges.
I would not want to go to that trading school,
but I like the idea of the trading school as
a sort of like Darwinian fight between the interns, for like,
you know, there's only so many jobs, and whatever intern
can like out trade the fellow interns gets the job.
You know.
Speaker 1 (10:49):
See again, that's something I would like to audit. Since
I would do terribly in that program. But boy would
it be fun to watch, right, it's stressful. I would
(11:12):
find fake m and ice dress, It's just so good.
Speaker 2 (11:16):
Virgin Orbit Space company went bankrupt like last year, right,
but before that, it sort of announced that it was
in its last stages, like it furlowed all of its employees.
And this guy named Matthew Brown sent them a LinkedIn
message being like, hey, I would like to invest two
hundred million dollars in your company, and they were like, hey, great,
that sounds good, thank god, and they like negotiated the
(11:37):
deal with him, and eventually the deal fell apart, probably
because he didn't have the money. SEC brought a case
against them this week, certainly claiming he didn't have the money,
and in fact, he sent a screenshot of his bank
account showing like one hundred and eighty two million dollars
to Virgin Orbital, but it was a doctored screenshot and
actually it had less than one dollar. Yeah, strange amount
(11:59):
of money to having bank account.
Speaker 1 (12:00):
Yeah, quite a discrepancy.
Speaker 2 (12:02):
So deal fell apart, and the SEC sued him for fraud,
saying that it was a fake takeover offer. But what
I think about It is like I read a lot
about fake takeover offers, and they're all the samewhich is
that someone like buys stock in a company and the
like puts out a press release saying, hey, I'm taking
this company over, and the stock goes up and they
sell the stock and then they like fizzle away. But
this guy did not do that. He did not buy
(12:23):
stock in the company. He did not put out a
press release. He might have just been doing it for fun.
Speaker 1 (12:28):
This obsessed me because I don't understand the motivation.
Speaker 2 (12:30):
So he says it's real, right, I mean, like he
gave a statement saying no, no, I love.
Speaker 1 (12:37):
Let me read it for you. The SEC's complaint is
filled with egregious errors, fabrications, and biased allegations that undeniably
favor the culprit and the corporate his virgin orbits management.
I love that he says that they're the culprit here
for doing due diligence.
Speaker 2 (12:53):
Yeah right, I mean I have talked to previous fake
takeover guys and they're like, why won't this company take
my calls. I'm offering to give them all this money
as soon as I can raise it. But the company
would take my calls. Virgin took his calls like they
signed an NBA, They sent him a term sheet. They
like sat down and negotiated a deal with him. Yeah,
eventually started asking questions like do you actually have this money?
(13:14):
Could you put it in an escrow? And he walked away.
But I don't know it was a motivation, like he
says it was real. I would like to think that
he just wanted to be on TV, like he did
this thing. Yeah, and he did eventually get on CNBC
to talk about his proposed deal.
Speaker 1 (13:28):
He could have just started a fake AI company and
gone on TV that way.
Speaker 2 (13:33):
But this is so fun. I don't know, right, there
are a lot of ways to get on television, but
this is a good one. And you grew up in
this building. I grew up as an m and a lawyer,
and I always thought that like drama of negotiating deals
was kind of interesting and exciting. And he not only
got to go on TV to talk about his deal,
he got to like actually negotiate a deal, like he
got a term shet. He was like doing calls with
the CEO. He had a lawyer involved, but he's like,
(13:54):
let's not bring the lawyers into this. Too much. I'll
just will to negotiate this deal together, so I don't know,
seems like it would be fun. I would totally roleplay
negotiating and M AND ideals. This is another thing I
would do, like besides go to Trader school, I would
roll play negotiating M AND ideals for fun. And this
guy might have done that.
Speaker 1 (14:10):
I would find that so enormously stressful.
Speaker 2 (14:12):
Not if you knew you weren't going to do the deal,
that's true, you know, oh you know instead of two
hundred million dollars, like two hundred and ten million dollars,
you like, sure, two hundred ten million dollars. I'm not
paying that money anyway. But the other thing is like
the SEC claims that what he was trying to do
was extract money out of Virgin. So what happened is that,
you know, he was like, I'll put in two hundred
million dollars and that at some point he sent them
(14:34):
an email complaining that the deal had leaked. This is
before he went on TV. Unclear why the deal leaked,
but he said, I want a breakup fee. So if
this deal doesn't go through for any reason, if I
can't actually invest the two hundred million dollars. I want
you to pay me like three percent, like six million dollars, right,
which is an unusual ask, but people get breakup fees,
(14:55):
but not for like deciding not to do the deal.
But if it had worked, if Virgin Orbit had said, sure,
will give you six million dollars if you can't give
us the two hundred million dollars, then he might have
walked away with six million dollars.
Speaker 1 (15:06):
But wouldn't that have been clawed back?
Speaker 2 (15:08):
Yeah, of course it's not a good plan because they
were going into vocracy and they didn't infect going to vocracy.
Like the idea that they'd pay him six million dollars
for like pretending to do an equity investment not that likely.
Speaker 1 (15:18):
Again, this just seems totally, totally stressful. The CNBC appearance
in and of itself was pretty weird. I didn't watch it.
I don't think I could watch it. I find it
very stressful to watch.
Speaker 2 (15:28):
It was stressful to watch.
Speaker 3 (15:29):
We fully plan on transacting with the company within the
next twenty four hours. I have positions in over thirteen
space companies, and I view them all as neighbors.
Speaker 2 (15:45):
He did not seem like an experienced investor in space investor.
Speaker 1 (15:50):
Yeah, I would also struggle to name thirteen space companies.
Speaker 2 (15:53):
But that's why I think he would have as well.
Speaker 1 (15:55):
That's a good joke.
Speaker 2 (15:57):
It felt stressful and it did not make me confident
that the deal was going through.
Speaker 1 (16:01):
What do you do after this? He's thirty four, right,
so I don't know. Maybe he was a long career
of you know, fake M and I in front of him,
but I feel like this kind of blew his cover.
Speaker 2 (16:10):
Sometimes these things are like people who actually do do
a little investing and bite off more than they can chew, right,
And like, maybe he can go invest money in other
companies and be like the SEC got it all wrong
that time. Yeah, I'm good for this one million dollar investment.
Speaker 1 (16:23):
I don't know, I mean at this time. But you
also think about Virgin Orbits perspective during all of this,
because this was sort of like a White Night Savior moment.
Speaker 2 (16:35):
Yeah, they did start asking him questions like do you
have the money? But like they definitely like, you know,
he sent them an email and they engaged right, like, yeah,
he sent them like a cold LinkedIn message?
Speaker 1 (16:44):
Anything done over LinkedIn? I mean, come on, there's like.
Speaker 2 (16:47):
No record of him, right, Like he's you know, he's like,
I've invested seven hundred and fifty million dollars in space
companies and they're like, sure you have, right anyone? Yeah,
it was good, right, Like they would take anything at
that point, right, Like this is not the first, you know,
the top person on their list of potential investors. But
at this point they're like a week from bankruptcy. They're like, yeah,
we'll take what we can get. And so they'd returned
his calls, right, it is tough for them, right, Like
(17:08):
they jumped all in on engaging with this guy who
turned out to be fake. Apparently that not a lot
of other good options.
Speaker 4 (17:14):
Yeah.
Speaker 1 (17:15):
I think someone from the company I read called it
in unneeded distraction, but what was a very critical time?
And I'm sure they yes and no?
Speaker 2 (17:23):
Right, I mean like, yeah, was he distracting them from
other better investments?
Speaker 4 (17:27):
Maybe? Probably not, But maybe.
Speaker 1 (17:40):
Let's keep the conversation going on M and A. And
let's talk about a weird M and A that's going
on with Brad Jacobs and QX.
Speaker 2 (17:48):
I'm not familiar with the naming structure for his companies,
but he's.
Speaker 1 (17:52):
Like a XBO QXL, Right.
Speaker 2 (17:54):
He's like a logistics guy who.
Speaker 1 (17:56):
Likes I guess it's just there's certain letters that he likes.
Speaker 2 (17:59):
Right, he's a fan of an but not only an
X likes.
Speaker 1 (18:01):
You need some yeahs.
Speaker 2 (18:04):
Anyway, so he like ran XPO. He's made a lot
of money doing logistics, and he wrote a book called
how to Make a Few Billion dollars.
Speaker 1 (18:12):
I have it on my desk. I still haven't made
a few billion dollars.
Speaker 2 (18:16):
No, but it's like such a good aspiration. It's like
not one billion dollars, yea like a lot of billion dollars,
but a few billion.
Speaker 1 (18:23):
Dollars, you know, can get comfortable.
Speaker 2 (18:26):
Yeah, events these businesses really like rolls up smaller businesses. Rightly,
he goes out and acquires a bunch of smaller companies,
and uh, he's decided he's going to do that in
the building products distribution business.
Speaker 1 (18:37):
Sexy.
Speaker 2 (18:38):
Yeah, it's like companies that distribute I don't.
Speaker 1 (18:40):
Know it's important, Okay.
Speaker 2 (18:42):
Like I haven't read the book, but this is apparently
how you make a few billion dollars. Find like a large, lucrative,
kind of boring niche and then you buy all the
companies in that space.
Speaker 1 (18:50):
And you know, make them more in an industry.
Speaker 2 (18:52):
Yeah, so he's done that before. His plan is to
do it in this building products distribution space. So he
started q SO in QXIT, Like he's raised like four
point five billion dollars. Like some of that is his
own money, some of us from big outside investors. And
you know, he's like got a four point five billion
dollar fund to go out and buy building products distribution
companies and roll them up into a big QXO thing
(19:16):
and then you know, make a lot of money out of it.
But he didn't do it as like a fund or
as a private company. He did it by acquiring this
little public company called Silver Sun Technologies, which is like
a real company.
Speaker 1 (19:29):
It sells software.
Speaker 2 (19:30):
Yeah, it's like it like sells business software to it
like resells business software to businesses and then consults them
on how to use the software. It sort of seems
like it's vaguely in the same like building products universe,
but it's like selling software instead of building products. Anyway,
it exists. It's a real company. It's a public company,
publicly traded small as like you know, one and a
(19:52):
half million dollars of net income a year on like
fifty million of revenue, and like you know, it was
like a like fifteen twenty million dollar market gaps. It's
like a small company that's a public company. And he
called them up, apparently through Goldman, like his investment bankers
called up silver Sign and was like, we want to
put in a billion dollars into silver Sun. Take it over.
(20:13):
We'll own basically all the stock, but not all the stock,
most of them, ninety nine percent of the stock, and
we will change its name to QXO and make it
into this you know, platform for rolling up building products distributors.
And silver Son was like, yeah, sure, And so he
bought silver Sun for.
Speaker 1 (20:29):
A billion dollars insane.
Speaker 2 (20:31):
And so now he owns.
Speaker 1 (20:32):
Basically all just like a twenty five million dollar market cap.
Speaker 2 (20:36):
Yeah, it was like as low as like fifteen ish
or something like not that long ago, but yeah, it's
like double digit millions. Yeah, so now he owns like
basically all of it. But there's a little bit. There's
like six hundred thousand shares that trade. Yeah, and all
these people not that many people, but like the people
who buy the six hundred thousand shares, you know, there's
like retail demand for people who want to invest alongside
(20:57):
Brad Jacobs, Right, they're like, we've read he's a guy
who I make a few billion dollars a few times.
This is a good plan. He's going to make money
doing this roll up, So let's put our money into it.
But like there's so few shares that are publicly available
that they're trading it like they've gone down there in
like the seventies now, but like there are like two
hundred and thirty dollars a share a couple of days ago,
which if you multiply that by like the total shares,
(21:20):
like the people who put in the four point five
billion dollars to actually do this company, you get a
market cap of like almost two hundred billion dollars. So
I think that the retail investors applying the stock do
not quite understand how the capital structure works, and so
they're buying this stock at a price applying a two
(21:41):
hundred billion dollar valuation for company that again is just
a fund of cash, right, Yeah, it's just a four
point five billion dollar pot of money that Brad Jacobs
will use to go out and find companies. Right now,
it doesn't do anything.
Speaker 1 (21:51):
So as this tiny little tech business well to be fair.
This is an extremely weird capital structure. YEA, Like why
is my first question? Like, why not just do this
the normal way and eventually IPO and go about it
that way? Like why buy this small cap with the
plan to spin it off. I went back to a
December twenty twenty three interview that Brad Jacobs did and
(22:13):
he said, basically, we're putting it into a small cap.
We're going to spin that company back to the leglacy
shareholders in a few months when the deal closes, the
Silverstone shareholders will have their company back. They'll also have
a two and a half million dollars dividend, and they'll
get zero point three percent share in my new company. Like,
that is a lot of steps.
Speaker 2 (22:32):
Yeah, by the way, they didn't do that. They were
planning to do that. Yeah, they changed their mind and
they didn't spin out the legacy business to the old shaholders.
They're keeping the legacy business, which by the way, is
like it's a small business, but it has like two
hundred employees. It's not like a nothing, it's like a
real company that does stuff. So they're keeping the legacy business.
They're not spinning it out to the sharelders and instead
of paying them two and a half million dollars, they're
paying them like seventeen million dollars, which again is like
(22:53):
sort of a round where the market cap was before
Brad Jacobs came along. Why do it? I don't know,
it's weird. I mean he had Goldman Sachs like calling
small caps forever.
Speaker 1 (23:01):
Importantly, they called and they didn't send a LinkedIn message.
Speaker 2 (23:04):
Yeah right, I mean that's the normal way to do
m and A is like your banker knows someone calls
them rather than sending me a cold linked in. But anyway,
the answer is it's nice to be publicly traded. Sometimes
it gives you some advantages in fundraising. I think that
a big part of the answer is probably if you're
doing a roll up, you want to be able to
give people stock, and it is perhaps more convenient to
(23:25):
be able to give people publicly traded stock. So if
he's going to buy a small building products distribution company,
he can be like, you know, I have this pot
of money. I have like four point five billion dollars.
I can give you some money for your company, or
I can give you some of my publicly traded stock
or some combination of them. And so you know, if
you're rolling up these businesses, people who have built these
businesses over time want to have some continued economic exposure
(23:47):
to the thing they built, and so like you can
give them stock, it's like you know you'll still have
some you know, diluted economic interest in the thing you built.
There's a bit of a problem where like what price
do you give them the stock at? Because he is
like raising money at call nine dollars a share, which
is like kind of roughly like you're putting in cash
into a fund, right, Like you're buying it at like
sort of the cash value of the fund. But like, meanwhile,
(24:08):
the stock is trading it like seventy dollars a share,
because it's like people's hopes. So I don't know the
first roll up he does, the first acquisition he does, like,
is he going to pay in stock valued at nine
dollars a share seventy dollars a share?
Speaker 1 (24:19):
Yeah, it feels I mean in some ways similar to
the Destiny Tech situation in d xyzes when we're talking
about enormous, enormous premiums here.
Speaker 2 (24:29):
Right exactly, Like Destiny Tech is a pot of money
that owns it's like a pot of shares in private companies,
and you know, it's like cool private companies that retail
investors can't invest. It's like you know, SpaceX and whatever.
And so when they took Destiny Tech public, there was
more demand for the shares than the actual value of
(24:49):
the companies it owned, and so it was trading it
like one thousand percent premium to net asset value. This
is a little bit like that, right, Like this is
your chance to invest in Brad Jacob's private investment vehicle
rolling up the building products distribution business. But the trade
off is like you're not really investing in that. You're
really investing in like the sort of MEMI retail premium
to the actual value of the company, because like if
(25:11):
he does really well and like triples the value of
the company, that's still way less than what people are
paying for the retail stock today.
Speaker 4 (25:17):
Yeah.
Speaker 1 (25:18):
I also am curious about how Silver Sun executives feel,
because in some ways it kind of feels like winning
the lottery. I would imagine, like, how did he pick
this company?
Speaker 2 (25:30):
I think that I think that the bankers must have
had a list of very small companies that we could
acquire because it's not like he paid them a billion dollars, right, Yeah,
it's like you put a billion dollars into the company
and like the existing shareholders, what do they get. They
get a divot end, right, which is in round numbers
like fifty to one hundred percent of the value of
their shares. Right, They're getting paid in cash, and then
they also keep their shares, which have you know, gone
(25:52):
up from like nothing to to dollars tell.
Speaker 1 (25:54):
Them right now, Yeah, I think a lot of them.
Speaker 2 (25:56):
I would think a lot of them probably would have. Yeah.
Speaker 1 (25:58):
Yeah, again, it just feels like winning the lottery. This
is so strange, it's very strange. Yeah.
Speaker 2 (26:03):
Now, there's always been this sort of like industry of
little public companies that are useful for reverse mergers, because
every soft and someone wants to become a public company,
not by doing an IPO, but by like merging with
an existing public company that doesn't have much there, right.
And so with silver On, the idea was like, there's
(26:24):
a little bit of a business there, and we'll spin
it out to the existing shareholders, so we'll end up
keeping its listing but getting rid of its business. Then
they changed their mind and they're keeping its business.
Speaker 1 (26:32):
Too, And why do you think they did that.
Speaker 2 (26:34):
I don't know. My guess would be it's just logistically easier,
but I don't know.
Speaker 1 (26:38):
Curious.
Speaker 2 (26:39):
A lot of like reverse mergers are done with companies
that like don't really have any business at all anymore.
They did exist and they closed down. So you see
all these companies that were like gold miners and then
they became cannabis companies, and then they became crypto miners,
and then they became AI company. Yeah, they did like
like every buzzword because they keep being like reused for
their public listing. Yes, quite like that. This is like
(27:00):
the sort of high end version of that, but it's still,
you know, a twenty five million dollar company. This is
like a billionaire calling Goldman to call a company, and
they're not going to call like the worst of the
cannabis companies, but like it's a small company.
Speaker 1 (27:11):
Yeah.
Speaker 2 (27:11):
The best of these is, of course, the New Jersey Deli.
Speaker 1 (27:13):
Oh my god, your hometown Hometown Deli.
Speaker 2 (27:17):
Hometown International is a public company that had one deli
and at some point in like twenty twenty one, David
Einhorn called it out because it was a single deli
that was trading at one hundred million dollars.
Speaker 1 (27:27):
That was such a bull that was full time.
Speaker 2 (27:30):
It was amazing, And like I wrote a column about it,
pointing out that actually the fully diluted value of the
Deli when you counted for all the warrants, was two
billion dollars. Yeah, and like the Deli was very perplexing,
but like, ultimately it sort of turned out it was
like some reverse merger promoters who were hoping that you
would have a sort of valuable enough public company that
someone would want to do a reverse merger with it
(27:51):
and go public by merging with the Deli, and the
Deli was just sort of like an easy business to
hive off the eventual public company. But then they were
so for fraud because they were sort of allegedly manipulating
the stuff.
Speaker 1 (28:03):
Is the Deli still an operation? Like is there a
physical Deli?
Speaker 2 (28:06):
I believe the Delhi closed that. At the time, there
was so much financial journalism about the Delhi, like several
business reporters went to this town in New Jersey and
ordered sandwiches.
Speaker 1 (28:15):
To be naturally the sandwiches are good.
Speaker 2 (28:17):
I always found that puzzling because if you looked at
the financial statements of the Delhi, which were public because
it was a public company that was also deli, their
employee costs were so low, Like I was like, how
could they be open even ten hours a week? So
I don't know, but apparently financial journalists would go to
the Delhi and order sandwiches and the sandwiches are pretty good.
So it was a real enough deli but also somehow front.
(28:39):
But anyway, this is a real public company that was
kind of small and now was like a tiny part
of a big fund.
Speaker 1 (28:46):
Yeah, Della's do some roll ups and consolidate this industry.
Speaker 2 (28:50):
Yeah, yeah. And that was The Money Stuff Podcast.
Speaker 1 (28:56):
I'm Matt Levian and I'm Katie.
Speaker 2 (28:58):
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Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Hello and welcome to The Money Stuff Podcast, your weekly
podcast where we talk about stuff if you want it
to money. I'm Matt Levian and I write the Money
Stuff column for Bloomberg.
Speaker 1 (00:21):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 2 (00:26):
What's going on, Katie?
Speaker 1 (00:27):
We're going to talk about trader school and hedge funds.
Then we're going to talk about fake m and A,
and then we're going to talk about kind.
Speaker 2 (00:35):
Of M and A real weird NA.
Speaker 1 (00:38):
Yeah, let's get to it. Let's get into it. So
Traders School, we're talking about zero point seventy two Citadel.
The list goes on other giant hedge funds basically creating
an in house trading school to turn their nines into
perfect tens.
Speaker 2 (00:58):
Yes, this is a Bloomberg News Big Take article today yesterday.
It does matter.
Speaker 1 (01:03):
Time is a construct. As we keep going over, this is.
Speaker 2 (01:06):
A big take article at Bloomberg about how these hedge
funds are building their own in house trading schools. Here
we are talking about it.
Speaker 1 (01:12):
Yeah, reading this, I kind of feel like, shouldn't you
have an in house training program anyway.
Speaker 2 (01:19):
So a couple of points of that one is that no,
historically all of the like buy side like used to
hire from the seull side, right, Like it used to
be that if you're a hedge fund, the way you
acquired new talent was from the banks. And one thing
that's happening here is like the banks are a less
of a source of talent for these places, in part
because like banks get rid of prop trading and so
(01:40):
like the ability to source good risk takers from banks
has gone down, but also a part because these places
have gotten huge, and it's just like you're not looking
to like identify one good trader from somewhere, you're looking
to like mass produce them. And so having a training
program is kind of a new need for these big firms.
Right used to be a hedge funds, like one manager
and when that manager got rich enough, they just the
firm went away. So like, having this very institutional structure
(02:04):
is kind of a new thing, and so you need
a training program. The other thing about it, though, it's
not just training you know, incoming people to be good analysts.
It's taking the people who are analysts and have been
there for a while and trying to find out if
they will be good portfolio managers and promoting them to
being portfolio managers as carefully and scientifically as you can.
(02:24):
So instead of being like, yeah, you've been here a while,
here manage a book, it's like taking the analysts and
seeing if they'd be good at managing a book and
teaching them how to manage a book.
Speaker 1 (02:34):
So two points. So we're talking about it as trader school,
and the article talks about it as trader school. It's
more fun to me is this sort of just be
in vision where it's actually just like a factory and
you're just putting this person into the machine. It does
some combination of lights and sounds and things to the
person that they spit out as this stock picker.
Speaker 2 (02:56):
Well, that is sort of how these things are supposed
to work, right. The idea of these multi strategies is
they're very like scientifically managed and they really like carefully
monitor your trading and they make sure you're neutral to
all the factors, and if your portfolio goes down by
a little bit, they like pull some capital, and if
it goes down by a little bit more, they fire you.
It's you know it is like an alpha factory, right,
it is like trying to somewhat dehumanize the management of traders.
(03:19):
So yeah, it is a machine that flashes some lights
that you But wait, I also want to take it
seriously as a school because I would like to go
to Trader School.
Speaker 1 (03:27):
I want to audit a class at Trader School. I
don't think I would do very well, so I don't
want to receive a grade at the end, but I
would like to see what happens.
Speaker 2 (03:35):
Apparently they greate them out of ten, right, yeah, right,
Like usually the analysts come in as ninees and they're
supposed to leave as ten. Portfolio managers for that come
in coming at like a two.
Speaker 1 (03:45):
I was gonna say, I'd be, you know, a solid one,
maybe a two on a good day and maybe come out. Yeah.
Speaker 2 (03:54):
Two points on that one is that I hope that
by saying that you want to audit a class Trader School,
you have manifested that and that we will be invited
to audit a class at point seventy two or someone
or said it, or anyone's Trader School, any multi strategy
hedge fund that wants to have us audit a class
at Trader School, and maybe yeah, do some field recording.
Speaker 1 (04:15):
We doesn't even have to be top tier. We go
we don't need to go to like the Ivy League
of Trader School. I'd be willing to go, you know,
in state, but yeah, I would love to do that.
That would be our first like field podcast recording.
Speaker 2 (04:29):
I feel like we'd learn a lot at Trader School,
and so at our listeners, and so would possibly the
Hedge one that hosts us.
Speaker 1 (04:34):
I mean, point seventy two sounds like it is the
place to go because the article mentions that more than
half of Steve Cohen's stock pickers have come through its
program rather than big expensive outside hires that they've had
to make.
Speaker 2 (04:47):
So it does seem a lot cheaper to run a
trader school than to pay someone a fifty million dollar
guarantee to come be a portfolio manager.
Speaker 1 (04:54):
Yeah, I mean, maybe it's less good for you, that
star stockpicker, because right.
Speaker 2 (04:58):
It's like you're like on the Rickie contract, right, Like
you get paid like an employee rather than in a
bidding war for your talent.
Speaker 1 (05:04):
Yeah.
Speaker 2 (05:04):
The other thing about Trader School is my dream has
always been to do my job as like I write
my newsletter for like and do my podcast right, thank you,
six months of the year. And then I go, like,
intern in a financial job somewhere for six months of
the year, Like, wouldn't that be fun?
Speaker 1 (05:20):
I feel like this company would let you do whatever
you want, I.
Speaker 2 (05:24):
Know, but like who would hire me for that?
Speaker 1 (05:25):
Who?
Speaker 2 (05:26):
Like hopefully some of our listeners, But who would be like, oh, yeah, come,
like do a bad job at our job for six
months and then.
Speaker 1 (05:32):
Go write about it right heavy handed section we've ever.
Speaker 2 (05:35):
Hed, I know, right, like please have us come into
your things.
Speaker 1 (05:38):
Yeah.
Speaker 2 (05:39):
I didn't even mean it that way. It's so it's
hard to know what these jobs are like unless you've
done them in some way. Yeah, And I feel like
I could learn a lot by like spending a few
months me too.
Speaker 1 (05:50):
I mean, I feel like I was born and raised
inside this building. I've been here since I was twenty
three years old. Isn't the point of journalism to go
off and have broadening experiences and really get to know
the industries and the people that you cover.
Speaker 2 (06:04):
So and I've had some jobs in finance and that
was nice, but I haven't had all the jobs in finance. Yeah,
you know, you know, manage a little portfolio for for
point sevenue two. I feel like that could be good.
Speaker 1 (06:14):
I feel like that's something you do in high school, right,
you sign up and have like a paper portfolio.
Speaker 2 (06:19):
Well, I think that. I think the traders school is
to train them to run a real portfolio. But yeah,
some of these schools do have you run a paper portfolio.
Speaker 1 (06:25):
Yeah, I think I bought like shares of hot Topic.
Speaker 2 (06:28):
Okay, that sounds right. Yeah, I like this is at
least the second appearance of hot Topic on this show.
Speaker 1 (06:32):
I spent a lot of time at Hot Topic. What
else should we say about this? I mean, again, it
seems like a cheaper way of doing things. There's a
lot of conversation in this article about the talent war
going on in hedge funds right now.
Speaker 2 (06:45):
I think that it's just like these funds pay so
much to portfolio managers, They charge clients so much. There's
so much demand for this, and I think part of
it is like these are places that are pretty good
at identifying alpha and being able to say, like we
can strip out all the elements of luck and market
exposure and just identify who is skillful at managing investments,
(07:07):
and then we can offer you that sort of pure
uncut investment skill, and the clients apparently love that because
it's uncorrelated to everything else and it usually goes up,
and so they're willing to pay basically whatever fees these
funds charge. And given that, it's clear that there's the
shortage of people who can generate alpha, and it's not
clear that would be like a natural shortage, right, It's
(07:28):
just like there's only so many people who've like come
through the pipeline of becoming portfolio managers at point seventy
two or whatever. So if you can train more of them, like,
you're filling this like enormous unmet demand and you can
make a lot of money, right if you can like
bring someone in cheaply and turn them into a fifty
million dollar a year portfolio manager, Like, yeah, that's a
great business.
Speaker 1 (07:48):
I don't think I have any ideas, but wouldn't it
be fun to like do a thought exercise of like
what would your trading school look like? Like what are
they learning in trading school classes?
Speaker 2 (07:57):
What are they learning in training school classes? So I
think that we're sort of exaggerating by saying this is
trading school, right, Like this is.
Speaker 1 (08:02):
Like that isn't it fun to go along this flight
of fancy?
Speaker 2 (08:04):
Sure? So I think that this is like a lot
of It is like some sort of combination of like
actual classes and like mentorship and meetings and whatnot, for
like existing analysts who want to move into a portfolio
manager roles where they're trying to figure out if they'd
actually be good at it. But I will say there
are people who run trading schools, and those people are
the big prop trading firms.
Speaker 1 (08:24):
Right. Oh, I thought you were going to say that
people that keep trying to scam me you on Instagram.
Speaker 2 (08:28):
Oh yeah, I don't think those people even run trading schools.
I think those people just run Instagram ads. But no,
like Jane Street and Susquehanna and all those sort of
big prop trading firms are very invested in training people
how to think like traders, because you can't really hire
people out of school who know how to do that
if you're hiring investment bankers. It's like some combination of
like can they do a DCF model and like will
(08:50):
they work really hard? And there are ways to figure
that out, but knowing if people are good at operating
under uncertainty and like estimating probabilities in their head and
sort of being decisive and like taking risks in the
right way. It's just harder, and so a lot of
what these firms do, both in their like lengthy interview
process and then like in their like internship programs, is
like they sit them down to like play poker every night,
(09:13):
and they play like fake trading games where they evaluate
their ability to like make these decisions. So it's a
really like very organized trading school where they're trying to
see who is like overconfident, who is too timid, and
who has like the right ability to take risk.
Speaker 1 (09:28):
There were some examples in The Big Take. At Citadel,
for example, trainees are taught how to back pitches from
colleagues lower down the food chain. At bally Asny, they
get a limited pot of cash, then they have to
deliver returns that match or beat the firm's older hands.
Zer point seventy two wants it's cadre to think like CEOs,
meaning they'll need to create and run a book of ideas,
all while getting total buy in from their teams. That
(09:51):
doesn't quite fit my fantasy of my dream trading school, right.
Speaker 2 (09:55):
Because this is not really at trading school. This is
a like developing like soft skills. Yeah, it's like developing
like senior portfolio managers. Like that's a management job. That's
an investing job, but it's also like a risk taking job, right,
Whereas like if you're like a twenty two year old
the Jane Street, you're.
Speaker 1 (10:09):
Being taught to indian options. Yeah yeah, right.
Speaker 2 (10:12):
There's great stories in Michael Lewis's about going infinitely No,
just kidding. I've at Sam Bachminfried's training days at our
internship days at Jane Street, where he like learned to
like make positive expected value coin flip bets with his
fellow interns. Right. Part of the goal of the trading
program was to like have the interns bet against each
(10:33):
other and sort of see who was good at betting
and who is good at like finding and exploiting edges.
I would not want to go to that trading school,
but I like the idea of the trading school as
a sort of like Darwinian fight between the interns, for like,
you know, there's only so many jobs, and whatever intern
can like out trade the fellow interns gets the job.
You know.
Speaker 1 (10:49):
See again, that's something I would like to audit. Since
I would do terribly in that program. But boy would
it be fun to watch, right, it's stressful. I would
(11:12):
find fake m and ice dress, It's just so good.
Speaker 2 (11:16):
Virgin Orbit Space company went bankrupt like last year, right,
but before that, it sort of announced that it was
in its last stages, like it furlowed all of its employees.
And this guy named Matthew Brown sent them a LinkedIn
message being like, hey, I would like to invest two
hundred million dollars in your company, and they were like, hey, great,
that sounds good, thank god, and they like negotiated the
(11:37):
deal with him, and eventually the deal fell apart, probably
because he didn't have the money. SEC brought a case
against them this week, certainly claiming he didn't have the money,
and in fact, he sent a screenshot of his bank
account showing like one hundred and eighty two million dollars
to Virgin Orbital, but it was a doctored screenshot and
actually it had less than one dollar. Yeah, strange amount
(11:59):
of money to having bank account.
Speaker 1 (12:00):
Yeah, quite a discrepancy.
Speaker 2 (12:02):
So deal fell apart, and the SEC sued him for fraud,
saying that it was a fake takeover offer. But what
I think about It is like I read a lot
about fake takeover offers, and they're all the samewhich is
that someone like buys stock in a company and the
like puts out a press release saying, hey, I'm taking
this company over, and the stock goes up and they
sell the stock and then they like fizzle away. But
this guy did not do that. He did not buy
(12:23):
stock in the company. He did not put out a
press release. He might have just been doing it for fun.
Speaker 1 (12:28):
This obsessed me because I don't understand the motivation.
Speaker 2 (12:30):
So he says it's real, right, I mean, like he
gave a statement saying no, no, I love.
Speaker 1 (12:37):
Let me read it for you. The SEC's complaint is
filled with egregious errors, fabrications, and biased allegations that undeniably
favor the culprit and the corporate his virgin orbits management.
I love that he says that they're the culprit here
for doing due diligence.
Speaker 2 (12:53):
Yeah right, I mean I have talked to previous fake
takeover guys and they're like, why won't this company take
my calls. I'm offering to give them all this money
as soon as I can raise it. But the company
would take my calls. Virgin took his calls like they
signed an NBA, They sent him a term sheet. They
like sat down and negotiated a deal with him. Yeah,
eventually started asking questions like do you actually have this money?
(13:14):
Could you put it in an escrow? And he walked away.
But I don't know it was a motivation, like he
says it was real. I would like to think that
he just wanted to be on TV, like he did
this thing. Yeah, and he did eventually get on CNBC
to talk about his proposed deal.
Speaker 1 (13:28):
He could have just started a fake AI company and
gone on TV that way.
Speaker 2 (13:33):
But this is so fun. I don't know, right, there
are a lot of ways to get on television, but
this is a good one. And you grew up in
this building. I grew up as an m and a lawyer,
and I always thought that like drama of negotiating deals
was kind of interesting and exciting. And he not only
got to go on TV to talk about his deal,
he got to like actually negotiate a deal, like he
got a term shet. He was like doing calls with
the CEO. He had a lawyer involved, but he's like,
(13:54):
let's not bring the lawyers into this. Too much. I'll
just will to negotiate this deal together, so I don't know,
seems like it would be fun. I would totally roleplay
negotiating and M AND ideals. This is another thing I
would do, like besides go to Trader school, I would
roll play negotiating M AND ideals for fun. And this
guy might have done that.
Speaker 1 (14:10):
I would find that so enormously stressful.
Speaker 2 (14:12):
Not if you knew you weren't going to do the deal,
that's true, you know, oh you know instead of two
hundred million dollars, like two hundred and ten million dollars,
you like, sure, two hundred ten million dollars. I'm not
paying that money anyway. But the other thing is like
the SEC claims that what he was trying to do
was extract money out of Virgin. So what happened is that,
you know, he was like, I'll put in two hundred
million dollars and that at some point he sent them
(14:34):
an email complaining that the deal had leaked. This is
before he went on TV. Unclear why the deal leaked,
but he said, I want a breakup fee. So if
this deal doesn't go through for any reason, if I
can't actually invest the two hundred million dollars. I want
you to pay me like three percent, like six million dollars, right,
which is an unusual ask, but people get breakup fees,
(14:55):
but not for like deciding not to do the deal.
But if it had worked, if Virgin Orbit had said, sure,
will give you six million dollars if you can't give
us the two hundred million dollars, then he might have
walked away with six million dollars.
Speaker 1 (15:06):
But wouldn't that have been clawed back?
Speaker 2 (15:08):
Yeah, of course it's not a good plan because they
were going into vocracy and they didn't infect going to vocracy.
Like the idea that they'd pay him six million dollars
for like pretending to do an equity investment not that likely.
Speaker 1 (15:18):
Again, this just seems totally, totally stressful. The CNBC appearance
in and of itself was pretty weird. I didn't watch it.
I don't think I could watch it. I find it
very stressful to watch.
Speaker 2 (15:28):
It was stressful to watch.
Speaker 3 (15:29):
We fully plan on transacting with the company within the
next twenty four hours. I have positions in over thirteen
space companies, and I view them all as neighbors.
Speaker 2 (15:45):
He did not seem like an experienced investor in space investor.
Speaker 1 (15:50):
Yeah, I would also struggle to name thirteen space companies.
Speaker 2 (15:53):
But that's why I think he would have as well.
Speaker 1 (15:55):
That's a good joke.
Speaker 2 (15:57):
It felt stressful and it did not make me confident
that the deal was going through.
Speaker 1 (16:01):
What do you do after this? He's thirty four, right,
so I don't know. Maybe he was a long career
of you know, fake M and I in front of him,
but I feel like this kind of blew his cover.
Speaker 2 (16:10):
Sometimes these things are like people who actually do do
a little investing and bite off more than they can chew, right,
And like, maybe he can go invest money in other
companies and be like the SEC got it all wrong
that time. Yeah, I'm good for this one million dollar investment.
Speaker 1 (16:23):
I don't know, I mean at this time. But you
also think about Virgin Orbits perspective during all of this,
because this was sort of like a White Night Savior moment.
Speaker 2 (16:35):
Yeah, they did start asking him questions like do you
have the money? But like they definitely like, you know,
he sent them an email and they engaged right, like, yeah,
he sent them like a cold LinkedIn message?
Speaker 1 (16:44):
Anything done over LinkedIn? I mean, come on, there's like.
Speaker 2 (16:47):
No record of him, right, Like he's you know, he's like,
I've invested seven hundred and fifty million dollars in space
companies and they're like, sure you have, right anyone? Yeah,
it was good, right, Like they would take anything at
that point, right, Like this is not the first, you know,
the top person on their list of potential investors. But
at this point they're like a week from bankruptcy. They're like, yeah,
we'll take what we can get. And so they'd returned
his calls, right, it is tough for them, right, Like
(17:08):
they jumped all in on engaging with this guy who
turned out to be fake. Apparently that not a lot
of other good options.
Speaker 4 (17:14):
Yeah.
Speaker 1 (17:15):
I think someone from the company I read called it
in unneeded distraction, but what was a very critical time?
And I'm sure they yes and no?
Speaker 2 (17:23):
Right, I mean like, yeah, was he distracting them from
other better investments?
Speaker 4 (17:27):
Maybe? Probably not, But maybe.
Speaker 1 (17:40):
Let's keep the conversation going on M and A. And
let's talk about a weird M and A that's going
on with Brad Jacobs and QX.
Speaker 2 (17:48):
I'm not familiar with the naming structure for his companies,
but he's.
Speaker 1 (17:52):
Like a XBO QXL, Right.
Speaker 2 (17:54):
He's like a logistics guy who.
Speaker 1 (17:56):
Likes I guess it's just there's certain letters that he likes.
Speaker 2 (17:59):
Right, he's a fan of an but not only an
X likes.
Speaker 1 (18:01):
You need some yeahs.
Speaker 2 (18:04):
Anyway, so he like ran XPO. He's made a lot
of money doing logistics, and he wrote a book called
how to Make a Few Billion dollars.
Speaker 1 (18:12):
I have it on my desk. I still haven't made
a few billion dollars.
Speaker 2 (18:16):
No, but it's like such a good aspiration. It's like
not one billion dollars, yea like a lot of billion dollars,
but a few billion.
Speaker 1 (18:23):
Dollars, you know, can get comfortable.
Speaker 2 (18:26):
Yeah, events these businesses really like rolls up smaller businesses. Rightly,
he goes out and acquires a bunch of smaller companies,
and uh, he's decided he's going to do that in
the building products distribution business.
Speaker 1 (18:37):
Sexy.
Speaker 2 (18:38):
Yeah, it's like companies that distribute I don't.
Speaker 1 (18:40):
Know it's important, Okay.
Speaker 2 (18:42):
Like I haven't read the book, but this is apparently
how you make a few billion dollars. Find like a large, lucrative,
kind of boring niche and then you buy all the
companies in that space.
Speaker 1 (18:50):
And you know, make them more in an industry.
Speaker 2 (18:52):
Yeah, so he's done that before. His plan is to
do it in this building products distribution space. So he
started q SO in QXIT, Like he's raised like four
point five billion dollars. Like some of that is his
own money, some of us from big outside investors. And
you know, he's like got a four point five billion
dollar fund to go out and buy building products distribution
companies and roll them up into a big QXO thing
(19:16):
and then you know, make a lot of money out of it.
But he didn't do it as like a fund or
as a private company. He did it by acquiring this
little public company called Silver Sun Technologies, which is like
a real company.
Speaker 1 (19:29):
It sells software.
Speaker 2 (19:30):
Yeah, it's like it like sells business software to it
like resells business software to businesses and then consults them
on how to use the software. It sort of seems
like it's vaguely in the same like building products universe,
but it's like selling software instead of building products. Anyway,
it exists. It's a real company. It's a public company,
publicly traded small as like you know, one and a
(19:52):
half million dollars of net income a year on like
fifty million of revenue, and like you know, it was
like a like fifteen twenty million dollar market gaps. It's
like a small company that's a public company. And he
called them up, apparently through Goldman, like his investment bankers
called up silver Sign and was like, we want to
put in a billion dollars into silver Sun. Take it over.
(20:13):
We'll own basically all the stock, but not all the stock,
most of them, ninety nine percent of the stock, and
we will change its name to QXO and make it
into this you know, platform for rolling up building products distributors.
And silver Son was like, yeah, sure, And so he
bought silver Sun for.
Speaker 1 (20:29):
A billion dollars insane.
Speaker 2 (20:31):
And so now he owns.
Speaker 1 (20:32):
Basically all just like a twenty five million dollar market cap.
Speaker 2 (20:36):
Yeah, it was like as low as like fifteen ish
or something like not that long ago, but yeah, it's
like double digit millions. Yeah, so now he owns like
basically all of it. But there's a little bit. There's
like six hundred thousand shares that trade. Yeah, and all
these people not that many people, but like the people
who buy the six hundred thousand shares, you know, there's
like retail demand for people who want to invest alongside
(20:57):
Brad Jacobs, Right, they're like, we've read he's a guy
who I make a few billion dollars a few times.
This is a good plan. He's going to make money
doing this roll up, So let's put our money into it.
But like there's so few shares that are publicly available
that they're trading it like they've gone down there in
like the seventies now, but like there are like two
hundred and thirty dollars a share a couple of days ago,
which if you multiply that by like the total shares,
(21:20):
like the people who put in the four point five
billion dollars to actually do this company, you get a
market cap of like almost two hundred billion dollars. So
I think that the retail investors applying the stock do
not quite understand how the capital structure works, and so
they're buying this stock at a price applying a two
(21:41):
hundred billion dollar valuation for company that again is just
a fund of cash, right, Yeah, it's just a four
point five billion dollar pot of money that Brad Jacobs
will use to go out and find companies. Right now,
it doesn't do anything.
Speaker 1 (21:51):
So as this tiny little tech business well to be fair.
This is an extremely weird capital structure. YEA, Like why
is my first question? Like, why not just do this
the normal way and eventually IPO and go about it
that way? Like why buy this small cap with the
plan to spin it off. I went back to a
December twenty twenty three interview that Brad Jacobs did and
(22:13):
he said, basically, we're putting it into a small cap.
We're going to spin that company back to the leglacy
shareholders in a few months when the deal closes, the
Silverstone shareholders will have their company back. They'll also have
a two and a half million dollars dividend, and they'll
get zero point three percent share in my new company. Like,
that is a lot of steps.
Speaker 2 (22:32):
Yeah, by the way, they didn't do that. They were
planning to do that. Yeah, they changed their mind and
they didn't spin out the legacy business to the old shaholders.
They're keeping the legacy business, which by the way, is
like it's a small business, but it has like two
hundred employees. It's not like a nothing, it's like a
real company that does stuff. So they're keeping the legacy business.
They're not spinning it out to the sharelders and instead
of paying them two and a half million dollars, they're
paying them like seventeen million dollars, which again is like
(22:53):
sort of a round where the market cap was before
Brad Jacobs came along. Why do it? I don't know,
it's weird. I mean he had Goldman Sachs like calling
small caps forever.
Speaker 1 (23:01):
Importantly, they called and they didn't send a LinkedIn message.
Speaker 2 (23:04):
Yeah right, I mean that's the normal way to do
m and A is like your banker knows someone calls
them rather than sending me a cold linked in. But anyway,
the answer is it's nice to be publicly traded. Sometimes
it gives you some advantages in fundraising. I think that
a big part of the answer is probably if you're
doing a roll up, you want to be able to
give people stock, and it is perhaps more convenient to
(23:25):
be able to give people publicly traded stock. So if
he's going to buy a small building products distribution company,
he can be like, you know, I have this pot
of money. I have like four point five billion dollars.
I can give you some money for your company, or
I can give you some of my publicly traded stock
or some combination of them. And so you know, if
you're rolling up these businesses, people who have built these
businesses over time want to have some continued economic exposure
(23:47):
to the thing they built, and so like you can
give them stock, it's like you know you'll still have
some you know, diluted economic interest in the thing you built.
There's a bit of a problem where like what price
do you give them the stock at? Because he is
like raising money at call nine dollars a share, which
is like kind of roughly like you're putting in cash
into a fund, right, Like you're buying it at like
sort of the cash value of the fund. But like, meanwhile,
(24:08):
the stock is trading it like seventy dollars a share,
because it's like people's hopes. So I don't know the
first roll up he does, the first acquisition he does, like,
is he going to pay in stock valued at nine
dollars a share seventy dollars a share?
Speaker 1 (24:19):
Yeah, it feels I mean in some ways similar to
the Destiny Tech situation in d xyzes when we're talking
about enormous, enormous premiums here.
Speaker 2 (24:29):
Right exactly, Like Destiny Tech is a pot of money
that owns it's like a pot of shares in private companies,
and you know, it's like cool private companies that retail
investors can't invest. It's like you know, SpaceX and whatever.
And so when they took Destiny Tech public, there was
more demand for the shares than the actual value of
(24:49):
the companies it owned, and so it was trading it
like one thousand percent premium to net asset value. This
is a little bit like that, right, Like this is
your chance to invest in Brad Jacob's private investment vehicle
rolling up the building products distribution business. But the trade
off is like you're not really investing in that. You're
really investing in like the sort of MEMI retail premium
to the actual value of the company, because like if
(25:11):
he does really well and like triples the value of
the company, that's still way less than what people are
paying for the retail stock today.
Speaker 4 (25:17):
Yeah.
Speaker 1 (25:18):
I also am curious about how Silver Sun executives feel,
because in some ways it kind of feels like winning
the lottery. I would imagine, like, how did he pick
this company?
Speaker 2 (25:30):
I think that I think that the bankers must have
had a list of very small companies that we could
acquire because it's not like he paid them a billion dollars, right, Yeah,
it's like you put a billion dollars into the company
and like the existing shareholders, what do they get. They
get a divot end, right, which is in round numbers
like fifty to one hundred percent of the value of
their shares. Right, They're getting paid in cash, and then
they also keep their shares, which have you know, gone
(25:52):
up from like nothing to to dollars tell.
Speaker 1 (25:54):
Them right now, Yeah, I think a lot of them.
Speaker 2 (25:56):
I would think a lot of them probably would have. Yeah.
Speaker 1 (25:58):
Yeah, again, it just feels like winning the lottery. This
is so strange, it's very strange. Yeah.
Speaker 2 (26:03):
Now, there's always been this sort of like industry of
little public companies that are useful for reverse mergers, because
every soft and someone wants to become a public company,
not by doing an IPO, but by like merging with
an existing public company that doesn't have much there, right.
And so with silver On, the idea was like, there's
(26:24):
a little bit of a business there, and we'll spin
it out to the existing shareholders, so we'll end up
keeping its listing but getting rid of its business. Then
they changed their mind and they're keeping its business.
Speaker 1 (26:32):
Too, And why do you think they did that.
Speaker 2 (26:34):
I don't know. My guess would be it's just logistically easier,
but I don't know.
Speaker 1 (26:38):
Curious.
Speaker 2 (26:39):
A lot of like reverse mergers are done with companies
that like don't really have any business at all anymore.
They did exist and they closed down. So you see
all these companies that were like gold miners and then
they became cannabis companies, and then they became crypto miners,
and then they became AI company. Yeah, they did like
like every buzzword because they keep being like reused for
their public listing. Yes, quite like that. This is like
(27:00):
the sort of high end version of that, but it's still,
you know, a twenty five million dollar company. This is
like a billionaire calling Goldman to call a company, and
they're not going to call like the worst of the
cannabis companies, but like it's a small company.
Speaker 1 (27:11):
Yeah.
Speaker 2 (27:11):
The best of these is, of course, the New Jersey Deli.
Speaker 1 (27:13):
Oh my god, your hometown Hometown Deli.
Speaker 2 (27:17):
Hometown International is a public company that had one deli
and at some point in like twenty twenty one, David
Einhorn called it out because it was a single deli
that was trading at one hundred million dollars.
Speaker 1 (27:27):
That was such a bull that was full time.
Speaker 2 (27:30):
It was amazing, And like I wrote a column about it,
pointing out that actually the fully diluted value of the
Deli when you counted for all the warrants, was two
billion dollars. Yeah, and like the Deli was very perplexing,
but like, ultimately it sort of turned out it was
like some reverse merger promoters who were hoping that you
would have a sort of valuable enough public company that
someone would want to do a reverse merger with it
(27:51):
and go public by merging with the Deli, and the
Deli was just sort of like an easy business to
hive off the eventual public company. But then they were
so for fraud because they were sort of allegedly manipulating
the stuff.
Speaker 1 (28:03):
Is the Deli still an operation? Like is there a
physical Deli?
Speaker 2 (28:06):
I believe the Delhi closed that. At the time, there
was so much financial journalism about the Delhi, like several
business reporters went to this town in New Jersey and
ordered sandwiches.
Speaker 1 (28:15):
To be naturally the sandwiches are good.
Speaker 2 (28:17):
I always found that puzzling because if you looked at
the financial statements of the Delhi, which were public because
it was a public company that was also deli, their
employee costs were so low, Like I was like, how
could they be open even ten hours a week? So
I don't know, but apparently financial journalists would go to
the Delhi and order sandwiches and the sandwiches are pretty good.
So it was a real enough deli but also somehow front.
(28:39):
But anyway, this is a real public company that was
kind of small and now was like a tiny part
of a big fund.
Speaker 1 (28:46):
Yeah, Della's do some roll ups and consolidate this industry.
Speaker 2 (28:50):
Yeah, yeah. And that was The Money Stuff Podcast.
Speaker 1 (28:56):
I'm Matt Levian and I'm Katie.
Speaker 2 (28:58):
You can find my work by subsco having to the
Money Stuff newsletter on Bloomberg dot com.
Speaker 1 (29:02):
And you can find me on Bloomberg TV every day
between ten to eleven am Eastern.
Speaker 2 (29:07):
We'd love to hear from you. They can send an
email to your moneypot at Bloomberg dot net, ask us
a question and we might answer it on air.
Speaker 1 (29:14):
You can also subscribe to our show wherever you're listening
right now and leave us a review. It helps more
people find the show.
Speaker 2 (29:20):
The Money Stuff podcast is produced by Anna Maserakis and Moses.
Speaker 1 (29:23):
On Our theme music was composed by Blake Maples, Brandon.
Speaker 2 (29:26):
Frances Nanimss.
Speaker 1 (29:27):
Our executive producer and stage Vallman is Bloomberg's heead of podcasts.
Speaker 2 (29:31):
Thanks for listening to the Money Stuff podcast. Get back
next week, Course Stuff
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