← Capital Allocators – Inside the Institutional Investment Industry
Capital Allocators – Inside the Institutional Investment Industry
Alex Sloane & Matt Perelman – Buy-and-Build Playbook in the Core Economy at GSP (EP.499)
01:03:57
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- [00:00]
Matt Perlman
Being small is scary in a roll up. And it's true because if you take any one of these consolidations that we're involved with and you pick one of the underlying assets, there are fundamental micro market risks to that asset. Perhaps they have one customer that makes up 20% of the revenue. Or if it's a business that's dependent on traffic patterns, or whether you have the micro market risks of traffic patterns, or whether through scale and diversification of those revenue streams, those numbers on a percentage basis and on a overall risk basis start to down. So that 25% customer in the scheme of larger enterprise becomes 2%. That weather event that could have swung your revenue double digits in Q4 now can only swing it by 80 basis points because it's blended into an overall consolidation.
- [00:53]
Ted Seides
I'm Ted Seides and this is Capital Allocators. My guests on today's show are Alex Sloan and Matt Pearlman, co founders, Garnett Station Partners, a $4 billion private equity firm focused on buy and build investments in founder led core economy businesses. Alex and Matt are lifelong friends who took an unconventional path out of business school, acquiring a 23 unit Burger King franchise in North Carolina that they scaled to 1,100 locations before selling it back to the franchisor. That operating experience became the foundation for their investment firm. Our conversation traces that EV from operators to investors. We discussed their shared desk partnership and culture of debate and the Garnett Station playbook, from sourcing Lighthouse businesses and moving quickly in fragmented markets to building diversified platforms through disciplined capital allocation. We also cover lessons from scaling through cycles, the role of speed and integration in buy and build strategies, and how they think about risk exits and long term value creation before we get it's still travel season, partner meetings and board meetings, the Capital Allocator, cio, Summit, Berkshire and Milken. Across planes, trains and automobiles, you're bound to run into a few snags when they're unavoidable. I try to remember Will Guerra's story of the pilot who lifted everyone's spirits by bringing families into the cockpit. But it's not always easy. Which leads to my most recent pet peeve, speed limits. When I travel to certain places, everyone religiously follows the speed limit limit. In Florida along A1A, if you go much over 35 miles per hour, there's a good chance you'll get a ticket. In Sun Valley, I once got stopped for rolling through a blinking red light at a whopping 4 miles per hour. Once I adjust, I find it relaxing to drive slowly. It reminds me of the Pixar movie cars when the old timers off Route 66 drove low and slow. However, when I'm in Connecticut or New York, I'm a totally different driver. I need to get places and if I'm running late, I'll end up on a single lane road for five miles behind someone driving annoyingly slow. That person is probably driving 35 miles per hour the speed limit, but it's common knowledge in those parts that the flow of traffic is well above the speed limit, with maybe 7 mph over as the whisper number statue. For the life of me, I can't reconcile the two. Either we should drive the speed limit or not, or maybe we need a lot more variability in what the safe speed limit should be. So my new pet peeve depends entirely on where I am. If I'm in Florida, get off my tail, I'm already going the speed limit. If I'm in the Northeast, you better hurry up if you're in front of me and you're only driving the speed limit. The only way I know to gain the benefit of such different perspectives is right here on Capital Allocators. Thanks so much for spreading the word. Capital Allocators is brought to you by AlphaSense. Expert calls have always been one of the most powerful ways to build conviction. But today investors are asked to cover more companies and move faster with leaner teams. With AlphaSense's AI LED expert calls, their Tigus call service team sources experts based on your research criteria and lets the AI interviewer get to work. Then they take it one step further. Your call transcripts flow natively into your AlphaSense experience and become searchable and comparable. So your primary insights plug directly into your earnings diligence and pitchbook workflows with no tool switching. AI for coverage and efficiency, humans for complexity and conviction. Sounds like just the right mix to create a scalable institutional edge without growing headcount. For hedge funds, this means validating thesis assumptions before earnings across dozens of experts instead of a handful of for private equity, it means faster pre IOI scans and deeper commercial diligence. And for asset managers, it means pulling real operators perspectives straight into models without disconnected tools or manual handoffs. All of this lives inside the AlphaSense platform, turning raw conversations into comparable auditable insight. The first to see wins the rest. Follow Learn more at alpha-sense.com Capital Capital Allocators is also brought to you by Canoo Allocators. Exposure to alternatives has never been higher, and most of them will tell you the same thing Their data hasn't kept up. Chasing documents, extracting performance and reconciling across dozens of funds is a real drag on the people doing serious investment work. Canoe intelligence purpose built AI to fix that problem. Over 500 institutional clients, including 40% of the top US endowments, trust Canoe to process more than a million documents a month across 44,000 funds. If your team is still doing this work manually, I strongly recommend you check out canoe@canoeintelligence.com Please enjoy my conversation with Alex Sloan and Matt Perlman.
- [06:28]
Interviewer
Matt, Alex, so excited to do this with you.
- [06:31]
Matt Perlman
Thank you, Ted.
- [06:31]
Alex Sloan
Thanks for having us.
- [06:32]
Matt Perlman
Very excited to be here.
- [06:33]
Interviewer
I think with you guys, we need to go all the way back to your upbringing.
- [06:38]
Alex Sloan
Matt and I grew up together. We've been best friends since we were little kids. We grew up three blocks from each other. We started our careers. I was investment banking at Goldman. Matt was at Citi. I was at Apollo. Matt was at Catterton doing private equity there. We went to business school together, planning to go back to those jobs after graduation. But while we were there, we developed a thesis around franchise consolidation. Except every franchise brand rejected us as franchisees, except for Burger King. And I know you did an episode with Dan Schwartz and Alex Baring from 3G. They talked a bit about giving young people the opportunities to be successful. That's what happened. We first invested in a 23 unit Burger King franchisee business that was based in the Garnett street train station in Henderson, North Carolina. They gave us this shot. We were successful with that business. That allowed us to grow. We ultimately got to 1100 franchises. We were the biggest in the country. Took the company public and sold it about two years ago now for over a billion dollars back to the franchisor. So it was quite a journey and a lot of ups and downs. But that's the origin story. That's how we started the firm.
- [07:50]
Interviewer
I want to pick through some of that. How does being best friends growing up translate into working together?
- [07:58]
Matt Perlman
I think it's an asset from the standpoint of we've known each other for 30 years.
- [08:03]
Alex Sloan
Matt. We're older than that now. It used to be 30 years, but longer than that.
- [08:06]
Matt Perlman
Yeah. We've known each other for far more than 30 years. We share a desk. We have one big Polycom speakerphone between us. Take all of our meetings together, all of our calls together, and all of our travels together. There's something to the fact that having known each other for so long and being so comfortable with one another, we can get the truth. We can get away from worrying about people's feelings versus getting at the right answer. People who start working at gsp, they're initially terrified because they see the two of us yelling and bickering and arguing with each other all day. But that's very much part of our process. We can say things to one another that perhaps in a private equity firm where two partners came together and spun out from larger firms and everyone's being a little more polite, it would take longer to get to the right answer or to get to a place where there's agreement or disagreement. And because we've known each other for so long, I think we can short circuit a lot of that.
- [09:01]
Interviewer
How does that play out in your respective personality types?
- [09:04]
Alex Sloan
For those that know us well, they know we're actually very different. We look similar.
- [09:08]
Matt Perlman
I take offense to that.
- [09:11]
Alex Sloan
We grew up together. We were trained at similar parts of the cycle. Different firms with different investing styles, certainly. But on the surface, there's a lot more similarities. We've both been happily married since we were young. We've each got three kids around the same age, go to school together, spend all of our time together. But we're actually very, very different people. To Matt's point about bickering and fighting and disagreeing, we take the opposite side of pretty much every argument. I tend to be the optimist, which is strange because of having been trained at Apollo. Matt tends to be the pessimist. He hates everything. Which again, is strange, having been take
- [09:48]
Matt Perlman
offense to that too.
- [09:50]
Alex Sloan
But then when Matt loves something, I hate it. I don't know whether that's intentional or if that's reflexive. But we have an executive coach that we work closely with, that we've worked with for Helps us manage through conflict and think through strategic issues and people issues.
- [10:05]
Matt Perlman
The fact that we are the same age, we're trained during the same financial cycle at some more institutions, makes the fact that we disagree on everything important. From the standpoint of. I think one of the real risks to our firm over the last 13 years is groupthink. Having a environment where people are supposed to disagree, particularly as you get closer to potentially closing a transaction and avoiding groupthink is something that I know the two of us spend a lot of time on, our senior team spends a lot of time on, and our executive coach spends a lot of time on. Alex has a line from one of the Adam Grant books that he's always espousing around our office. The book was called Think Again. That's a huge part of our process, is you can get into a room, everyone nods their heads and says, yes, this is a great idea. Are we going to make three times or five times? Who knows? But it's going to be great. Let's think again there because some of those sorts of discussions are actually the most dangerous ones.
- [10:57]
Interviewer
So what looks like a traditional background, New York upbringing, banking, private equity, Harvard Business School. How did you decide to do something different from what would have been? Going back on that traditional path.
- [11:11]
Alex Sloan
I always remind people talking to investors, prospective LPs or prospective team members who spend a lot of our time recruiting. You have to think of GSP differently in the sense it's not like I was a partner at KKR and Matt was a partner at Blackstone. And we got upset with our economic arrangement and decided we could do it on our own. Our firm was very much built organically. We think of ourselves as entrepreneurs. We run a business. Our business is there to produce extraordinary risk adjusted returns. We had this idea which literally started as a phone call four days into business school where I called Matt and said we should open a Wendy's or an Auntie Anne's in Harvard Square. That led us down a rabbit hole where we realized that there was a compelling opportunity to buy resilient businesses at very attractive prices. Add technology, data, science, capital, capital allocation, management talent, grow them through M and A and organically. It was an entrepreneurial idea. And in our office we have the original business plan from the first deal we looked at. It was five KFCs in Vermont. Ultimately that KFC deal didn't work out. But what we realized while building value in the Burger King business was that there was a massive opportunity to invest in fragmented markets, high quality businesses behind this baby boomer generational transition, 10 trillion of assets or so set to change hands over the next two decades, where we could build an engine to be the capital partners of choice to America's best founders. And we built an engine to go after that opportunity set, which is ultimately our firm today.
- [12:47]
Interviewer
Where'd that entrepreneurial instinct come from?
- [12:49]
Matt Perlman
I think we had the benefit when we were at business school in our early to mid-20s of being inexperienced, relatively dumb and very unencumbered. So we could go and take a risk, which to us it didn't feel like much of a risk because either it would work out and hopefully the transaction would be successful and perhaps we could do a second one or a third one. We had no money, we had no mortgages, we weren't married yet. We had no people relying on us. Our view was Even if it doesn't work out, we'll have become hopefully far better investors from the operational failure and the things we would have learned from it. Surely Catterton and Apollo, our former employers, would be even more interested in hiring us because we've operated and learned from the experiences and the failure. So today, would we go out and sign a bunch of personal guarantees and put it all on the line? I hope not. If my wife's listening, then we definitely would not. But at the time, it felt like a total risk reward in our favor. It was either heads we win or tails we can potentially win a different way.
- [13:53]
Alex Sloan
Yeah, I'll just say our prior firms were incredibly supportive of us, which I think was amazing. And we're forever grateful to those mentors there who enabled us to take this risk and feel like we could do it. And our parents, too, our families who were super supportive. I think we joke about our mothers who were a little bit confused when we told them we were leaving our fancy private equity jobs to become KFC franchisees. That initial conversation stung a little bit. But incredibly supportive families and incredibly supportive former firms, that gave us the confidence to go out and try it.
- [14:25]
Interviewer
So before we dive into what happened with the Burger King franchises, what did you get out of going to hbs?
- [14:32]
Alex Sloan
HBS was an amazing experience. We learned a ton and made a lot of great friends and built out our network. That's been great to us. I would say, though, that it starts further back at Harvard College, where my group of friends has been incredibly successful and helpful to us as we built the firm. And it's people like Josh Kushner from Thrive and Alex Taubman from Long Lake and Reed Raymond at Apollo and Brian Feinstein at Bessemer. My brother Jake was also in school with us and built an incredible business at Springdale. The list goes on. But without that group of people being very, very close to us, I really believe we wouldn't be able to build gsp.
- [15:11]
Matt Perlman
The other benefit of going to business school is it gives you two years to spend. Spent a lot of time on whatever entrepreneurial pursuit you want to think about. The other thing, which I don't think we had a full appreciation for until we started reaching out to people, was an HBS email address is a really powerful weapon. We would email CEOs of huge companies that we were trying to learn from, and they would all reply because of the email address. I don't know if they thought we were trying to write a case study about them or what, but we always tell younger People, you have two years to use this weapon. Use it because people will reply.
- [15:50]
Alex Sloan
Royce Yudkov was our professor. We met at business school. Royce, the RY in ABRI built ABRI with his partner Andrew Banks. Royce teaches a class at Harvard Business School called Financial Management of Smaller Firms, which is the most popular class at hbs. It's three sections, standing room only, very hard to get into. Matt and I were fortunate that we did get into the class and it in some ways changed our lives because the support from Royce gave us the confidence to keep going. Certainly helped us institutionalize the firm. When we went from our initial set of investors to building an institutional investment firm, Royce was instrumental with that and making introductions and serving as an advisor and reference for us. So another person who without his mentorship and support, I think we wouldn't be here today.
- [16:40]
Interviewer
Alex, you mentioned buying a franchise with 23, selling it 10 years later with 1100 franchises. Probably a lot of steps to get from 23 to 1100. What were some of the highlights of that journey?
- [16:54]
Alex Sloan
I was thinking of the lowlights. It certainly was not a one way street up into the right from 23 Burger Kings to 1100 and the billion dollar sale. There were a lot of ups and a lot of downs. There is that saying the lows are so much lower than the highs are high. Which is. That's how Matt and I feel about it. And one of the reasons why I'm so grateful for having Matt and my partnership with him, because that is what kept us going, is having each other in some of the darker days. When I think about that journey, I think more about COVID When the stores were being shut down and our suppliers were filing for chapter seven and we couldn't even get hamburgers, let alone people to staff the restaurants. The banks were agitated and we had to jump through a lot of hoops to get liquidity. And then you got through Covid and all of a sudden you got punched in the face yet again with all the inflationary challenges and value wars. I think about the resilience that that showed and our ability to get back up and fight through it, get extra liquidity and stand up our distribution business so that we could distribute hamburgers to the restaurants and all the things that we had to do in order to make it through those really tough times and see the other side of it.
- [18:02]
Matt Perlman
I just think about the bad times also when we took the business public IT of 19 and we reverse merged our 220 unit Burger King and Popeyes business into a larger Burger King business. And became the largest shareholders of that company. The day we did the deal, we merged in at 8.35 a share. And the stock ran up that day to 10. And we're high fiving. We think we're geniuses. This is amazing. Eight months later, the stock's at 98 cents. Because of COVID and a bunch of missteps we had made. You can imagine the stock's at 98 cents. Alex and I are some of the only people in office in New York City in March. The bonds are trading in the 70s. The lenders are organizing against us. However smart we felt the day the stock popped to 10. When we did the merger, we felt 100 times dumber on that day. We ended up battling through that and did a bunch of stuff that was relatively smart in retrospect. The stock gets back to seven and we're okay. We made it through and now it's middle of 21. And then boom, inflation hits. Our beef costs go from $2 a pound to $4 a pound. Lower income consumer, which was our core consumer, where it was relatively squeezed and the stock goes back down to a dollar. We're idiots again. Fortunately, we were able to bring in a new CEO, Deborah Derby, who's now the CEO of one of our businesses. She took earnings in that business from a trough of 60 million a year at year end 2022, to when we sold the business a year and a half later, 150 million. Talking about the highs being high and the lows being low. You're never as smart as you look and you're never as dumb as you look. The truth is somewhere in the middle. George Roberts from KKR has a line. As long as the capital keeps flowing, eventually good things will happen. Of which that story would certainly be true for. And Royce Yudgoff has a line. As long as you keep the chess pieces on the chessboard, you can keep playing. We would repeat those two things to ourselves during COVID when you can imagine our entire portfolio looked like some version of that Burger King business because it was all revenue zero. And it was dark days for us.
- [20:05]
Interviewer
Where you guys started was operating these franchises. What did one Burger King franchise unit look like when you bought it and what did you do to improve it?
- [20:16]
Matt Perlman
I'll take you back to 2014, which was the first Burger King investment we ever made. The unit economic at the time was about 1.1 million of sales per box and about 11% straw level margin. What we saw is that through technology and thoughtful capital allocation, there was a real Opportunity to increase the overall equity value. What we were able to do pretty quickly was line up all of the $1.1 million Burger King P&Ls in the country that had similar wage state profiles through benchmarking. See that these particular restaurants were off by about three to 400 base points. Some of that was food costs, some of that was on the labor line. This was our first iteration with investing in technology to grow the enterprise value of these businesses. Within that business we put in food cost software which allowed us to pretty quickly see where the variance in cost of goods sold was coming from. Was it waste, was it over portioning or was it theft? Then we were able to start managing to that. Eventually we moved the store level margins within that business from 11% to closer to 15 or 16%. If you think about a business that beneath that store level, EBITDA line has G and a. So the 11% store level margin was maybe 7% EBITDA margin and we move that up to 12 or 13%. That's quite material. The examples today are similar to the examples back then, perhaps on a larger scale with 4 billion of AUM today versus 23 Burger Kings. But you'd be surprised how many founders we come across and we'll show them what tech adoption can do to their business and their first reaction is yeah, but I don't want to invest $2 million in whatever enterprise solution you guys are talking about. We'll show them that the $2 million investment yields an 18 month payback and here's how we can finance it. More often than not, a white bulb starts to go off in their head and that's been a real important driver
- [22:20]
Interviewer
of organic growth as you're building, growing this franchise business. At what point in time did you decide to branch out and create Garnett Station?
- [22:30]
Alex Sloan
Pretty quickly, about a year into building the Burger King business, we got a call from the former CEO of Burger King who took a job running another franchise system and said, I've watched what you guys have done, providing capital, technology, data, science, organizational design and rolling up the Burger King system and helping professionalize it. Would you consider doing it in our system? That deal led to. Then the former Chief Marketing officer Burger King called and said, my wife runs this business. I think you guys should consider helping her professionalize it. Buy it from the founders and grow it. One deal led to another deal led to another deal. You look, Today we have 36 investment professionals, 24 operators, 14 in back office staff. That is entirely been built organically. When we realize we need operating partners to help us bring the technological changes and the innovation and the supply chain and the marketing and the integration. Because it used to be Matt and I running our Burger King business and now we need to build a real firm to go do it. So it was very much organically. It was Covid when we realized coming out of it that we should build an institutional investment firm as opposed to deal by deal, spv family Office capital. Because we felt like having lived through that cycle and thought through all the challenges that came with it, demonstrated that we could invest through cycles. We started in 2013 through early 2020, late. Everything was up and to the right. The fact that our returns were good, it was almost like table stakes. But surviving what was a very challenging period for our portfolio, getting through it and not losing a company, not needing a dollar of rescue capital, growing equity value across the portfolio and then exiting those businesses proved to ourselves and proved to the institutional LP world that we can do this in a repeatable way. And that's what inspired us to build an institutional business.
- [24:26]
Interviewer
I'd love to take a step back and break down how you go about doing all of this. If you think of gsp, what is it that you're looking for in the type of company that you want to buy and build?
- [24:41]
Matt Perlman
The first thing we are looking for is we invest in founder owned businesses. We feel like a lot of the alpha that we've been able to create over the last 13 years is partnering with founders being the first institutional capital into their businesses and helping them scale those businesses, usually through M and A, ultimately to a scale, to a level of diversification, to a level of revenue mix. Through integration, technology, capital allocation, managerial talent and governance create platforms that larger private equity firms want to buy. That's not something we've learned in business school. That's not something that we learned in investment banking. That's what we learned from getting our teeth kicked in. As operators ourselves, we were the CEOs of our burger King business for the first few years and made mistake after mistake after mistake. Those mistakes have added up to a healthy appreciation for operations, for integration, and for what true partnership with the founder looks like. Like that's been the single biggest overall alpha generator.
- [25:51]
Alex Sloan
We care deeply about the quality of the business, even if it's a single unit. We do basically two things at gsp. We do what we call start small scale, fast buildups where we have a thesis around industries that we want to pursue. But we're also value oriented, disciplined on price. We say we're purchase Price matters investors. So to the extent we're not able to find businesses in those industries that meet our quality bar, that are of a size and scale, 20 plus million of EBITDA that we can buy at our purchase Price matters valuation, we build them. So we start as small as a million of ebitda, board directors, management team, a technology stack and we go out and we'll literally buy one unit at a time. We've done that 20 times across the portfolio. We are willing to buy businesses that are only 1 million of EBITDA or one unit, but they have to meet our quality bar. In order to meet our quality bar, you have to have been through multiple economic cycles. In our experience, you can't have a quality business without a quality founder. Are we willing to put in a new management team when we invest in a company? Of course. But we care deeply about the founder, not just the business they built, but also the type of person they are. We will not do business with bad people and that's a core tenet of the firm.
- [27:05]
Matt Perlman
When you're buying a business from a founder, they're always going to know far more about the business than you, certainly up until the point at which you buy. And if anything, they've probably forgotten more about that business than you're even going to learn after you own it. The integrity of that founder is critical. Because we've done so many of these founder owned acquisitions over the last 13 years, we probably have a decent sense for what good looks like. We don't invest in newer brands, we don't invest in newer business models. The youngest business we've ever invested in at GSP is 17 years old. The oldest is 90 years old. The average is somewhere in between. That's critical. We need to be able to diligence and understand what do cycles look like for these businesses. If you take some new hot, sexy brand or business model or sector or concept, people can certainly make money doing that. That's just not us. We're not smart enough to make a macro call or a brand call or take a bet on something new.
- [28:01]
Alex Sloan
You don't get paid for a degree of difficulty. Restaurants are hard.
- [28:05]
Matt Perlman
They're really hard.
- [28:06]
Alex Sloan
We're very proud of our returns in restaurants. It's about 20% of what we do. But we have very much divers diversified away from restaurants, trying to get into better businesses. If you look over the history of our firm early on you could argue we were guilty of value traps, buying businesses cheaply for a reason. What we learned is that we can buy high Quality founder owned companies in good industries with real tailwinds and you can do it at our purchase price matters. Value discipline. We don't have to buy challenging businesses or turnarounds or businesses in challenging categories. That being said, if there are 10 to 12 investments into one of our funds, there'll be anywhere from one to two restaurant investments.
- [28:48]
Matt Perlman
That quality bar is a critical part of the evolution over the last 13 years. If you looked at our earlier deals versus today, there's a much more clear set of heuristics for what quality looks like. If you take multi unit businesses of which restaurants would certainly be one of them, they qualify for investment from us. Business has to have at least 20% store level margins. Business has to have new units that pay back in three years or less and has to have the number one average unit volume or sales per box in its category or micro category. If you look at our first two deals we would be over three on those quality heuristics. Now the first one being the Burger King business was ultimately a successful outcome. But I do think there is something to the we don't get paid for degree of difficulty. Let's raise the quality bar here and make this a little bit easier without sacrificing price discipline.
- [29:41]
Interviewer
Thematically, what are some of the areas you've gravitated to?
- [29:44]
Alex Sloan
We are fast followers. One of our favorite ways to be inspired for themes is to look at what some of the great firms that are bigger than we are and have done Successful consolidations. Industries that are large, highly fragmented by number of units, organically growing with real secular tailwinds. Industries where bigger is better. So there's real industrial logic to the consolidation. Industries where other firms have successfully consolidated before. We never want to be the first ones through the door. We want to benefit from the technology that's there to help manage these businesses in a consolidated way. We believe experience matters from a management talent perspective, so we love to bring on management team members who've been part of successful consolidations from other firms. And then we want to know that there is a put to the strategics. We want to know that there are a bunch of strategics out there that would want to buy our businesses once we've built the opportunity. The last thing I'll say is we're value oriented. We care a lot about multiples on single unit acquisitions. We won't do consolidations or we won't build businesses in industries where bolt ons don't trade at our target risk rewards. So those are the key criteria. We have franchise Investment, we have consolidation in commercial services, residential services, auto services. We estimate of the 10 trillion of assets set to change hands over the next two decades, trades within that 10 trillion, we estimate about 1.2 trillion is the TAM that GSP that we have a right to win in. So it's a massive market and whenever we get questions about oh, there are a lot of firms doing buy and build, that's great, we welcome the other firms in the competition. These industries are so massive. We have a consolidation in tire and auto services business we invested in three years ago when it had less than 5 million of EBITDA. Today it's 25 million of EBITDA. It's a $250 billion market with 150,000m and targets to go after. So it's an amazing place to invest. These are very fragmented markets and we feel we have a long Runway before these things get too consolidated.
- [31:45]
Interviewer
Whether it's a platform or an add on acquisition, what does your diligence process look like to get comfortable that something makes sense?
- [31:54]
Alex Sloan
On average, it takes us two to three years from when we first start working on a theme until we get a deal done in that space, we have a whole process for how we attack the battlefield in these categories. Ultimately, what we're trying to get at is what is the lighthouse? What is the lighthouse for business quality in that specific industry? Then we're not doing rocket science. The beauty of being industry special is there are three numbers that matter in these businesses. Once we've mapped out and gotten comfortable with what that lighthouse looks like, we can tell you quickly whether we're interested in investing in your business and what price we'll pay. One of the advantages of doing a deal with us is we can move very quickly. One of the reasons we love doing rollups, buildups is because the nature of investing in consolidations. No individual deal can kill you. We're investing between 100 and $150 million of equity. But individual deals can be as small as $5 million of equity. You can afford to get one or two of them wrong if you're buying 20, 50, 100 acquisitions over the life of your deal. And in fact, Matt has a saying saying if every deal is right in a roll up, we're either not taking enough risk or not moving fast enough. It's okay to have a bad deal. That's the beauty of the model. You're able to get the most amount of capital into your winners in these consolidation strategies. So it's one of the reasons why we love these buildups. It's an elegant model.
- [33:16]
Matt Perlman
That's a great point. You're able to buy them reasonably well, so your unlevered in place yield is pretty high. That affords some real downside protection. Above and beyond the fact that we're typically structurally senior to the rollover. Then on the inverse of something's really working. You can continue to feed the capital and grow it to be a larger, more concentrated position with less risk than doing something upfront and putting 15% of the fund into one deal. If you look at our largest investment to date, it's a consolidation called Authentic Restaurant Brands that we started four years ago with a $20 million equity check. Today it's a several billion dollar company across a number of different brands within that portfolio that's gone. So we've continued defeated capital and we feel like that's the de risk strategy in terms of how to allocate capital across a portfolio.
- [34:11]
Ted Seides
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- [35:14]
Interviewer
You've mentioned speed. Once you've identified a lighthouse. Why is speed important?
- [35:20]
Alex Sloan
Speed is important because of diversification in rollout up. In these consolidations, when you buy a single unit or a single commercial roofing business, there is micro market risk, there is founder risk, there is personnel risk. When you start to do a consolidation, you add multiple units or multiple service businesses, multiple branches. You diversify that risk away. And when you think about what drives a multiple of a business, it's growth and stability. The nice thing about diversifying and getting speed in these consolidations is you are adding diversification, you are improving stability in the consolidation.
- [36:00]
Matt Perlman
Alex's brother Jake, who's a very successful investor, has a line being small is scary in a roll up and it's true, because if you take any one of these consolidations that we're involved with and you pick one of the underlying assets, there are fundamental micro market risks to that asset. Perhaps they have one customer that makes up 20% of the revenue. Or if it's a business that's dependent on traffic patterns, or whether you have the micro market risks of traffic patterns, or whether through scale and diversification of those revenue streams, those numbers on a percentage basis and on a overall risk basis start to come down. So that 25% customer in the scheme of large renter prize becomes 2%. That weather event that could have swung your revenue double digits in Q4 now can only swing it by 80 basis points because it's blended into an overall consolidation. So that's why speed is important and being smaller, scary. The way that we counteract the speed point with safety of principle and downside protection is we rarely use leverage upfront in these consolidations. That's a big part of our model that allows us to go faster without having the risks of senior bank covenants. And when I say go faster, I don't just mean on the M and A side, but on the team building side. We're taking businesses that typically have anywhere from 1 to 3 million of G and A and over the course of two or three years that GNA is going to approach 8, 9, $10 million. Doing that in the face of bank covenants, while you're doing a bunch of M and A, while you're integrating to us, adding leverage on there feels like an undue risk. Particularly when the in place unlevered yields are high enough where you don't need the leverage to make the math work.
- [37:38]
Alex Sloan
That's part of why when you look at our team page, we often joke we must be world's worst GP owners because we have so many people. Relative to our 4 billion of AUM, we've got 70 some odd people. It can seem ridiculous on a headcount per AUM basis, but that's very intentional. Our model is people intensive, it's time intensive, it's all encompassing. We joke about some of our mentors and friends who run firms where they're buying incredible businesses, paying market multiples and showing up to board meetings and everything seems to go up and to the right. That's not what we do. We are buying founder owned companies. Our GSP playbook is very involved. We have an incredible operating partner, value creation team and operating executive team team them and our deal teams do a lot of the heavy lifting in order to build these consolidations in a thoughtful way. It's also why we care a lot about getting the industry right. If you get the industry right and the trends right, and you're investing in secularly growing industries that don't have risk from disintermediation from technology, you're going to have secular tailwind from the industry we believe will continue to grow over time. If you do it with low leverage and great management teams, we believe we're going to win over time. That's why we have the confidence to move quickly is because we're picking industries we are very, very thoughtful about the long term growth prospects for. And so long as we don't lever them too much upfront, we feel like we can get through cycles and get through any blips.
- [39:03]
Interviewer
I want to circle back on something we talked about earlier, which is if you bring together the tailwinds that you've done your work on, you understand what the Lighthouse is. You want to move fast. How do you prevent yourselves from groupthink of doing acquisition after acquisition and making mistakes along the way because you want to move fast.
- [39:23]
Alex Sloan
So much of our process is looking back at the acquisitions that Lighthouse changes over time. In fact, some of our best deals don't go all that well from the beginning. We did a funeral home consolidation. The first quarter was a disaster under our ownership and that ended up being the best NYC deal we've done at our firm. So long as you're willing to think again and make changes to what business quality is and attract great management teams, get the big trends right, you can build a diversified platform in a growing category and benefit from the tailwinds in Microsoft Excel. Every rollup looks easy, but in reality operations are hard. These are people businesses, particularly in a world where technology is changing so fast. Building in technology change management rollups are actually really, really hard and particularly through cycles.
- [40:10]
Matt Perlman
If you think about what blows up rollups over time, at least in our experience, it's two things. It's leverage and lack of integration we touched on earlier. But we don't use leverage upfront in these consolidations. We'll add it later once they're 10, 15, 20 million of EBITDA and have quote unquote earn the right for leverage and have the GNA in place to handle it. On the integration side, a we're j curving the G and A of these businesses dramatically to absorb the incremental units and the asset assets acquired and B Alex touched on it earlier. We're only doing roll ups in categories and asset classes and businesses that have been consolidated before. The benefit to that is there is off the shelf tech solutions that have been created to manage these businesses in a multi unit way so you don't run into the problem which happened to us in our second deal, the only deal we've ever lost money on where we had dis synergies. Every time we bought an additional unit, we actually had to add gna because we did not have the technology in place to manage in a multi unit context. There's plenty of people who can be pioneers and be the first to roll up a category or maximize leverage, catch the cycle the right way and make a 14x. That's just not our model.
- [41:23]
Interviewer
What are the biggest challenges of integrating additional add on acquisitions or stores?
- [41:28]
Matt Perlman
Visibility.
- [41:30]
Alex Sloan
People think about back office as some back office function. In our experience, getting the CFO right, getting the systems right, having treasury and cash management and FP&A and roll right dashboards in place is so important. You can really fool yourself with run rates and add back nonsense, particularly in a rollup where you're buying a lot of stuff. At some point you have to figure out what are the cash flows of that business. Having a warning light system in place, which has become so much easier to do with the advent of AI and all the technology that's been invented, you can identify problems in real time and you can fix them. These are people, businesses that we're investing and in our experience we believe culture matters, people matter, labor matters. Having the systems to identify where the problems are, what the cash flows look like is important. I think a lot of people dismiss that.
- [42:18]
Interviewer
How long does it take to buy a platform that you've done an acquisition and have the right tech pipes in place so you have the dashboard, you need to run it the way you'd like to.
- [42:30]
Alex Sloan
Before that, we will not invest in a consolidation unless we have a lot of confidence in the tech platform that is Table six for us. When I said it takes two to three years from when we first start looking at an industry until we get a deal done. Part of that is figuring out what quality is the lighthouse. But a lot of it too is making sure we have those pipes set up in place well before we even have the first asset.
- [42:50]
Interviewer
I want to ask you about capital allocation. You're buying businesses, there's a financing component. What do you see as the most important levers of capital allocation and success of one of these businesses?
- [43:02]
Matt Perlman
It's two things. One is, is what is the pipeline and opportunity set for inorganic growth? We are actively avoiding Categories where the bolt ons are trading outside of our price range. There are categories today that people are having success rolling up, whether they be Resi H vac or pest control or in a prior cycle, perhaps vet where the platforms trade at big prices, but the bolt ons also trade at big prices. Prices you have relatively small bolt ons trading at maybe 8 to 11 times cash flow. For us, that is fundamentally less interesting than similar end markets where the platforms are trading at 12 to 15 times, but the bolt ons, because of micro market risk or just lack of private equity heat, are trading at, let's call it five to eight times. To us, those are more interesting opportunities. A lot of the time we spend in diligence on a category and on the initial purchase within that category is spent on building out the pipeline. So we can think about within how much confidence interval range do we have that we can get the next 30, 40, 50 million to work at an unlevered low to mid teens return and then with a dollop of leverage once the business is ready for it. Now, without even getting into organic growth, you're up into the high teens or low 20s. The second capital allocation decision that is critical to us is where are the pockets of technology implementation and investment to drive organic growth? Directionally speaking, the businesses we're investing in are GDP plus growers. Perhaps their markets are growing at 3, 4 or 5%. We have found that through partnerships with our operating partners and management teams and founders with tech implementation, whether it's estimating software or labor management tools or sites like Section, we're able to increase that organic growth rate typically by 2 or 300 basis points, which in pockets of venture capital might not sound enormous. But with us, if we're buying a business and creating a platform for six times cash flow, and we're taking the organic growth rate from 3 to 6%, 40 plus percent of that increase in sales, growth is flowing down to our bottom line. That's material in terms of equity value creation, particularly when you pair that with the fact that we are able to typically sell these consolidations for a larger multiple than we created them for because they're scaled, they're diversified, they're professionally managed, they're well integrated, and they look like what firms want to pay up for because they are MA engines.
- [45:40]
Interviewer
How do you decide when a business is ready to take on some leverage?
- [45:45]
Matt Perlman
It's a combination of two things. One is what is the depth of the G and a line? Do we have a cfo, a controller ahead of treasury and cash Management are all of the warning lights that we touched on earlier in place so that we're able to spot things in real time if something isn't coming to fruition in a way that we underwrote it. So that's the people side of it. And two is size and scale. We have found that the credit markets are far deeper, cheaper, more flexible, less covenant laid in and friendlier to consolidations that are, let's say 15 to 20 million of EBITDA in size and scope versus something that's 5. What does that mean in terms of practical timing? For us? That's usually 12 to 18 months after we invest in a business. We've typically deployed the preponderance of the equity we've allocated to that roll up. The team is fully formed, we have all the warning lights in place and it's at a size and a scale where we can then go to the market and get a number of term sheets and create real competitive tension around that financing.
- [46:46]
Alex Sloan
One of the reasons why we love investing in these categories is because there are tons of high ROIs, opportunities to redeploy the cash flows before we get involved in these companies. Typically these founders are not differentiating between investing and spending. Their measure of success at the end of each year is how much cash do I have in my bank account? And we totally flip that mindset to how many 20 plus percent IRR projects can we find. It's particularly true as we've done more in these commercial services consolidations where working capital is the real thing. And you think about a founder owned business, maybe it's a third generation generation family that's got a bunch of mouths to feed. Even though there are tons of growth opportunities, they have to think about the working capital investment to go capture those projects. Those are opportunities that we love because we're not capital constrained in that way and don't think about businesses that way. It's funny because the Wall Street Journal had an article the other week about how popular these halo businesses are. High asset intensity, low obsolescence. This is in reaction to some of the the AI and software problems. What we have been doing for these last 15 years has been so out of favor and so uncool, it's funny to see this swing back toward these types of companies. The other point I'd love to make here is that every one of our partner companies we think about as though we're going to own them forever. Obviously that's not the model we sell companies and it's a big part of our process. But our view is what gets us to the returns that we're proud of is having them. That's why we care a lot about price. Because our view is if you're buying a business at a double digit in place, free cash flow yield in a growing category with a great management team, and you don't put too much debt on it, that is a recipe for success. So every decision we make, we make as though we're going to own it forever. And we care a lot about integrating these businesses and we care a lot about how they're managed. I think that's been a big driver of the returns.
- [48:39]
Interviewer
When you come at it with the mindset of wanting to own something forever and you have an example of like a tire company with 150,000 units, you can imagine continuing to do this for a long time. How do you think about the exit strategy?
- [48:52]
Alex Sloan
We fight about this all the time.
- [48:53]
Matt Perlman
Ted Our view fundamentally is investors give us a dollar. Our goal that we're striving towards every day is to give them $3 back within a reasonable time period. That's a 25% or so gross IRR. Our job is to build these consolidations to a standpoint where they are M and A machines that can continue things at reasonable prices, integrate them and grow the underlying business they bought so that they bought something for six. Under our tutelage, they've integrated it down to four. And some other buyer can continue to underwrite that. We should consider selling larger firms, perhaps have different cost of capital than we do. Larger firms are able to lever things when they buy them from us in a way that we couldn't when we started them them. Market forces are going to be market forces in terms of what's popular and in vogue for people to buy today. So when you put that all together, a lot of our job as managers is to listen to the market and to understand where the pockets of opportunity are for us to create liquidity for our investors and for our management teams. Having said that, we're glad to roll most of the exits we've had. We've rolled equity into the deal. We've benefited from that, not only economically, given the buyers have tended to do well with businesses. We've sold them, which is a good thing. But also we've learned a ton from remaining involved with a bunch of these businesses. There's a firm on the west coast who I'll give a shout out to, Sidler Equity Partners. We've been on two boards with them from businesses we've sold. We've learned enormous amounts from watching them deal with founders and management teams and think about different growth initiatives and how to prioritize and size the prizes of those. That's been hugely beneficial to us over the last 13 years.
- [50:42]
Alex Sloan
When I say we fight about all the time, I think it's part of our process. On the one hand, we're building these businesses we're really proud of and we talked about being able to feed our winners and continue to grow and compound. On the other hand, we have the scars with some of the early businesses of having lived through cycles. We understand that when the opportunity is to return capital to our investors and generate great returns, that's the tension that we have have that versus the incremental irr.
- [51:07]
Interviewer
When you're talking to a founder that you're trying to win the deal, how do you position that tension with wanting to be their partner forever treat it that way and the knowledge that in the structure that you're in, you're ultimately probably going to sell it in a few years.
- [51:22]
Matt Perlman
We're very upfront about the point that we are a private equity firm. Our goal is to monetize the investments within a reasonable time horizon with our founders self selecting. If they have an issue with that, there's probably not going to be a partnership. And if they don't, then let's turn over the next card and talk about it. That also comes to the discussion around incentives and incentive alignment with us and the partner companies. One of the things that we've spent a lot of time, effort and energy on over the last 13 years is coming up with incentive and governance structures in place to make sure that people are maximally aligned to a successful exit. And so what does that mean for us? That means the importance of rollover. In a founder owned transaction, founders are typically rolling anywhere from 20 to 50% of a transaction with us. Also incentive economics above and beyond that general private equity hygiene is to allocate a 10% management incentive plan at the time of the deal. And we do that and that's important. But what we found is going above and beyond that decrease create even more alignment in some of the, I'll call them upper tier outcome cases. When we do a deal with a founder, we present to him or her as well as their whole team what the management option program looks like. But we also explain that if they are willing to write a new check into our deal side by side with our security, we will give them additional one to one options on that dollar. So if you write a check for $100,000, Mrs. Regional Manager, we will give you above and beyond your base options another $100,000. In addition to that, we are forward about providing incentives above 3 and 4x outcomes. We call them super options. Our view is the incremental dilution above a 3 or 4x is more than worth it for the incremental incentive for these people to be maximally aligned with us. And we've had a number of those outcomes come to pass. And that's the best part of rating that bell.
- [53:22]
Interviewer
With you guys as founders of the business, your own operating experience, what you've done, how have you gone about building Garnet Station to take all of those lessons and scale them with your team?
- [53:35]
Alex Sloan
We view the opportunity to bring in great people as an investment. One of the effects of the DPI problem in the broader industry is not just on LPs, it's also on investors.
- [53:47]
Matt Perlman
Right?
- [53:47]
Alex Sloan
And you think about VP, principal, MD, even partner level investors who've been at firms for a while and haven't seen their carry paid out. There are succession logjams that have only gotten worse. We've really gone on offense to recruit talent from other great firms. People who we brought on that years ago we never could have got to join our firm. And that's one of the ways we've been able to grow our business is attracting great talent and investing in the team. Not just on the investment side, but also if you look at our operating team and value creation team, we brought on Will Gadsden, our COO and partner about four years ago. It's an unbelievable accelerator to the business. I often say to each other, I can't believe we ever had a firm without having Will there to really manage and ensure our processes and our back office is up to the same standards as our investment activities. Our third hire we ever made is our partner Howard Norwitz, who we call him the left tackle of the firm. Howard has a 35 year background in debt and distress. When we brought Howard on, we certainly could not afford him. That was an enormous investment, but an example of looking back, without Howard, we never could have built the firm. So I think investing in talent, not just at the partner companies that we've talked so much about, but also at the firm has really allowed us to grow the business business.
- [55:12]
Matt Perlman
There's been tactical things we've done as it relates to hiring from having operated the companies in the early days that we've learned. For example, we have an operating executive program where these are all full time employees who go and live in market shoulder to shoulder with a CEO of each of the consolidations and help them with executing and implementing the 100 day plan. When we were running the businesses ourselves in the early days, one of the things we quickly noticed noticed was it would always take us a lot longer than 100 days to implement the 100 day plan and make sure that all the integration and the tech adoption and the things that go along with institutional ownership were happening. An aha moment occurred to us as we started doing this ad hoc in an informal way years ago where we would have people spend real time down in the portfolio companies was that if we actually put someone there whose sole job was to project manage that process, that was a real excitement rent for us. So I think that's been a huge part of the value creation the last few years. Then two, a lot of it's good luck, honestly. I mean, Alex talked about Will and Howard who we built the firm without. But our very first employee and hire was at the time a 24 year old named Jordan Garay who came to meet with us to get advice on going to business school. And now 12 years later is mission critical to the firm firm. He's our right hand guy and we couldn't have built the firm without him.
- [56:38]
Interviewer
How have you systematized and organized the 70 people underneath that leadership?
- [56:44]
Alex Sloan
It's no different than a lot of firms where we have an investment team. Jordan helps oversee that. We have a number of deal quarterbacks on the investment team who report into us and have a vp. Those are principal and partner level and they have a vp, a senior associate and often an associate on dealership teams. They then report into me and Matt who are the investment committee. Will oversees our CFO and our back office activities. We have a business development five person team that's done an incredible job helping source opportunities and give me and Matt leverage. Where we used to have to do every first meeting now with a business development team, every first meeting with founders. And our business development team is able to not only handle the first call but actually to handle the first meeting then help decide whether Matt master I should fly out and spend time in person with the founders, which is a big part of our program. So investment team, business development team and then all the back office activities of the firm.
- [57:40]
Interviewer
How do you think about where to take GSP from here?
- [57:44]
Alex Sloan
That's a question that Matt and I think a lot about. I'll say one of our mentors, Brian Friedman from Jefferies. He's a really thoughtful guy. We were meeting with him a couple of months Ago. Partly on this question. Where we come out is putting one foot in front of the other together, not having these big, hairy, audacious goals, Proud of the business we built. We've got an incredible team. We're investing in industries that are growing with huge tam rather than saying, oh, we have some goal to do X number of deals and Y sectors, continue to put one foot in front of the other, stick to what we're good at, what we know, the playbook that we've developed, and continue to generate great returns. We certainly don't have an AUM goal. That's not the business business. Our goal is on the incentive side. Brian was very helpful in clarifying that type of thinking.
- [58:31]
Matt Perlman
I think the problem if you say, well, we want to do a deal in this space or we really want to do a deal of this size or we want to get to this AUM is that you may make decisions to force yourself into that, and ultimately that may prove to be misstep. So I firmly agree with Alex. Putting one foot in front of the other and not changing the model has gotten us here and hopefully another 30 or 40 years of doing this.
- [58:56]
Alex Sloan
And we love it. We have the best time. We love what we do. We love working together. We love working with the team. Our favorite part is working with the founders of these businesses. I was on spring break with my kids, but I was on the phone randomly yesterday with Tony Lam, who's the founder and CEO of Cone Ice, one of our best friends. Been invested with Tony and his wife Susie for seven years now. Unbelievable. Founder, person, close friend. Talking about AI and technology and innovation and learning from him. You know, he runs a food truck franchise or business business. You might think, what can Tony Lam do to help you with AI and innovation in our firm? But Tony's brilliant. He's extremely helpful to us and a great friend. So we love what we do. We're just going to continue putting one foot in front of the other and continue to grow.
- [59:39]
Interviewer
All right, Matt, Alex, you know what's coming. So I want to get a chance to ask you a couple closing questions.
- [59:44]
Ted Seides
Before we get to the closing questions, I want to tell you about one of our strategic investment. We've made a few, and each are working on a product or service we think will be valuable to our community. One is Ascension Data. Ascension provides workflow software for compensation that allows you to track, plan, and take
- [60:03]
Interviewer
care of your team.
- [60:04]
Ted Seides
We're excited for you to check out how they can help solve the sticky pain point of compensation. There's a Link in the show notes
- [60:11]
Interviewer
so you can learn more.
- [60:12]
Ted Seides
And here are those closing questions.
- [60:15]
Interviewer
Matt, what was your first paid job and what'd you learn from it?
- [60:19]
Matt Perlman
My first paid job was when I was 14 years old. I worked at a pet store in Connecticut called Pet Pantry. Wasn't old enough where they could pay me in cash compensation, so they paid me in kind. And I had a lot of pets. They would give me pet food and dog food and interesting wheels and contraptions for my various animals at home. And God bless my parents for putting up with that. It taught me A the value of hard work because every day I came in I would clean out the exact same cages and refill the same bowls and food and it was relatively rote. But I think doing that at a young age does teach you the value of showing up on time and working hard. And B, I think there's something to be said for everyone having to work in retail at some point and deal with tons of people, tons of different personalities and some of the more complicated factors. Being relatively young and working in a retail environment is something I learned a ton from. I will certainly force my kids to do something similar once they're 14 years old. It was a great experience.
- [61:21]
Interviewer
Alex, what's the best advice you've ever received?
- [61:24]
Alex Sloan
My favorite advice is my wife's grandfather is an incredible entrepreneur, built an amazing real estate business from nothing. Used to tell me when he was alive, every deal is the enemy and never forget that. And we talked a little bit about groupthink and our fear of groupthink and think again. And every deal is the enemy is hung sign in our office just to remind us on the one yard line. Never get comfortable. Never let inertia take you through a deal. Never let quote unquote pattern recognition allow you to invest money. Make sure you're thinking again on every single assumption and every set of diligence. We say that a lot in our office. So every deal is the enemy is my favorite piece of advice.
- [62:02]
Interviewer
Which two people have had the biggest impact on your professional lives?
- [62:06]
Matt Perlman
For me, I would say number one is my wife, Annabelle Bell. She's allowed me to spend the time, effort and energy traveling around the world with alex the last 13 years doing the things we need to do to build the firm. And she's picked both of us up off the ground from the lows over the last 13 years. But equally as important, she actually suggested that Alex and I work together while we were in business school. So GSP is very much her brainchild. Her and Alex have actually known each other for longer than I've known either one of them. They're went from preschool through college together. We both give her and Alex's wife, who's also named Alex, a ton of credit for helping us in the early days of figuring out our partnership. Two is Royce Yudkov, who we mentioned earlier, who's our HBS professor for me and I'm sure Alex agrees, has been our most impactful and important mentor and thought partner over the last 13 years. Even to this day, almost 15 years later, whenever we have a serious problem, our first phone call is to Royce and just an unbelievably thoughtful, smart, humble individual who we owe out to.
- [63:16]
Alex Sloan
I'll start with my wife as well. Ted that wasn't my planned answer, but I'm going to get in a lot
- [63:19]
Matt Perlman
of trouble, probably a good moment.
- [63:20]
Alex Sloan
My wife was an incredible, amazing person and wife and mother and business person in her own right.
- [63:25]
Matt Perlman
Keep going.
- [63:28]
Alex Sloan
But in terms of most impactful on my professional career career, the two for me, Paul Freeborg, who is now the executive chairman of Continental Grain, who was the CEO of Continental Grain, has been my mentor for 20 some odd years and I guess saw something in me when I was a teenager and has been there for me every step of the way. So our largest investor has been there the depths of COVID every Sunday, two hour phone calls to strategically and psychologically get us through the lows. I'm forever grateful to Paul. The second person I would say is a man by the name of Marc Becker, who unfortunately passed away about two and a half years ago. Mark was one of the very early partners at Apollo, one of the first employees there and was a senior partner there. Mark was the first person I met in business other than my father, who I wanted to be like for me. He was the first person other than my dad where I saw you could be very professionally successful, family successful, philanthropically successful, and I wanted to be like Mark and I still do.
- [64:30]
Interviewer
What's your biggest investment pet peeve?
- [64:33]
Matt Perlman
My biggest investment pet peeve is when people seem to have all the answers and won't simply say I don't know, let me get back to you on that. Particularly with our team, I'm completely fine. I know Alex agrees with people wanting to go do some extra work or analysis to get the right answer, but I am not a big fan of people responding to things off the cuff without full diligence and confirmation there. Drives me nuts.
- [64:59]
Alex Sloan
For me, Ted, when people don't write things down, I can't stand we're in meetings and people aren't taking notes. It drives me insane.
- [65:05]
Interviewer
All right, guys, last one. If the next five years are a chapter in your life, what's that chapter about?
- [65:10]
Matt Perlman
Certainly the first 10 years of US building the firm was very much that. It was us building the processes, the team, and building the overall enterprise to go execute on our mission of hopefully continuing to generate attractive, risk adjusted returns and do it consistently. When I think about the next five years, I feel like today we're very much in replication phase. Over the last three or four or five years, the engine has started to hum where Alex and I don't need to be involved in every single decision. We don't need to negotiate the same credit agreements that we used to 10 years ago or put our nose in documents that maybe we would have six, seven or eight years ago. The team is in a place today where we feel like everything we're doing is based on processes and decisions and substance and form that we put into place four, five, six years ago, some intentional, some unintentional. Today, if we were to look at the next five years, it would be the replication phase era, hopefully, of our firm.
- [66:14]
Alex Sloan
I'll just add to that, Ted, which is not only replication phase, but what gets me so excited is all the AI and all the technology that's changing and focused on how we bring that to help grow our businesses and improve our outcomes. I get jazzed about all the things that are happening and we're very much leaning into all of the innovation and change.
- [66:33]
Interviewer
Matt, Alex, thanks so much for sharing your journey.
- [66:36]
Alex Sloan
Thank you, Ted.
- [66:37]
Matt Perlman
Thank you, Ted.
- [66:38]
Ted Seides
Thanks for listening to the show. If you like what you heard, hop on our website@capitalallocators.com where you can access past shows, join our mailing list and sign up for premium content. Have a good one and see you next time.
- [66:54]
Alex Sloan
All opinions expressed by TED and podcast guests are solely their own opinions and do not reflect the opinion of Capital Allocators or their firms. This podcast is for informational purposes and should not be relied upon as a basis for investment decisions. Clients of Capital Allocators or podcast guests may maintain positions in securities discussed on this podcast.