WEBVTT - Nvidia to Invest $3.5 Billion in Chipmaker MediaTek 0:00:02.750 --> 0:00:04.410 Bloomberg Audio Studios. 0:00:04.890 --> 0:00:05.569 Podcasts. 0:00:05.890 --> 0:00:06.410 Radio. 0:00:06.850 --> 0:00:07.250 News. 0:00:09.750 --> 0:00:13.470 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.550 --> 0:00:16.570 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:00:16.630 --> 0:00:19.939 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:19.980 --> 0:00:23.040 you get your podcasts or watch us live on YouTube. 0:00:24.230 --> 0:00:27.440 Let's talk about big tech, NVIDIA in particular, because it's 0:00:27.480 --> 0:00:28.840 investing $ 3. 0:00:27.880 --> 0:00:30.420 5 billion in media tech. 0:00:30.960 --> 0:00:33.380 This is a Taiwanese chip maker, and this agreement broadens 0:00:33.420 --> 0:00:36.240 a partnership between the two chip designers. It's part of 0:00:36.260 --> 0:00:39.330 NVIDIA's future and effort to ensure that the future of 0:00:39.409 --> 0:00:43.530 AI is built around its hardware platform and standards. NVIDIA's CEO, 0:00:43.550 --> 0:00:46.370 Jensen Huang, spoke with our Ed Ludlow. Here's what he 0:00:46.409 --> 0:00:47.990 had to say on this particular deal. 0:00:48.010 --> 0:00:52.260 Well, this is not circular because, obviously, they do their 0:00:52.300 --> 0:00:56.590 own business and we do our own business. And MediaTek's 0:00:56.830 --> 0:01:02.690 already incredibly profitable, incredibly successful. They are the world's best 0:01:02.970 --> 0:01:06.300 SOC maker. They make more SOCs than any company in 0:01:06.330 --> 0:01:09.459 the world. It's a great pleasure for us to invest 0:01:09.600 --> 0:01:12.460 in a technology company in Taiwan. It's a great pleasure 0:01:12.480 --> 0:01:14.900 for us to invest in MediaTek. This is going to 0:01:14.940 --> 0:01:18.200 turn out, of course, the investment is grounded on a 0:01:18.240 --> 0:01:20.660 deep partnership that's going to be multiple years. 0:01:22.640 --> 0:01:25.480 That was NVIDIA CEO Jensen Huang speaking earlier with our 0:01:25.680 --> 0:01:26.339 Ed Ludlow. 0:01:26.640 --> 0:01:27.880 Let's bring in Mandeep Singh now. 0:01:27.959 --> 0:01:30.100 He is our Global Head of Tech Research here at 0:01:30.140 --> 0:01:33.390 Bloomberg Intelligence. And Mandeep, I liked how the first thing 0:01:33.410 --> 0:01:36.010 Jensen Huang said was, this is not circular. It's kind 0:01:36.030 --> 0:01:38.070 of like he has to make that point out front 0:01:38.430 --> 0:01:42.429 to everyone because there's so many concerns, maybe accusations, that 0:01:42.750 --> 0:01:46.430 a lot of the investments and deals that NVIDIA makes 0:01:46.510 --> 0:01:49.170 kind of goes round and round in this small little ecosystem. 0:01:49.370 --> 0:01:54.000 Yeah, I mean, it has had an impact on Nvidia's stock. 0:01:54.220 --> 0:01:57.880 They're not trading like everyone else in terms of earnings 0:01:57.960 --> 0:02:01.940 or free cash flow multiples. So everyone right now is 0:02:02.060 --> 0:02:05.400 critical of their circular financing. But look, in this case, 0:02:05.880 --> 0:02:08.900 they want to expand the ecosystem. And for a company 0:02:08.919 --> 0:02:13.870 that's generating over $ 200 billion in free cash flow, You know, 0:02:13.930 --> 0:02:18.490 investing $ 3. 5 billion has changed right now in terms of 0:02:18.570 --> 0:02:20.790 just what they could afford to do. 0:02:20.910 --> 0:02:22.190 And there are benefits. 0:02:22.250 --> 0:02:27.500 They did that with Marvell first, now with MediaTek. I mean, essentially, 0:02:27.860 --> 0:02:31.780 anybody who is making an accelerator chip right now, NVIDIA 0:02:31.820 --> 0:02:35.820 is saying, we provide the networking technology that can help 0:02:35.880 --> 0:02:39.050 you scale up that chip into a much bigger chip. 0:02:39.570 --> 0:02:43.270 kind of entity that can run these large inference workloads 0:02:43.310 --> 0:02:48.250 that every large hyperscaler is doing. So from that standpoint, 0:02:48.430 --> 0:02:52.169 interoperability is a good thing, whether it's Google TPUs or 0:02:52.210 --> 0:02:54.490 their own chips, and that's why they are going to 0:02:54.550 --> 0:02:55.989 all these suppliers here. 0:02:56.669 --> 0:03:00.130 So real quick, just where is the market these days? 0:03:00.160 --> 0:03:02.360 When you talk to institutional investors, where is the market 0:03:03.660 --> 0:03:06.180 In terms of its view of these circular deals, is 0:03:06.220 --> 0:03:08.780 it like it is what it is, we got to 0:03:08.860 --> 0:03:11.060 deal with it, or it's a problem, I'm staying away? 0:03:12.400 --> 0:03:13.500 What's the market thinking these days? 0:03:13.580 --> 0:03:19.000 I mean, NVIDIA has just guided to over $ 650 billion 0:03:19.120 --> 0:03:22.870 in annual revenue by next calendar year. So think of 0:03:22.930 --> 0:03:26.390 the size of this market. Just one company, which still 0:03:26.470 --> 0:03:31.889 has almost 80% share, in that accelerator chip space is 0:03:31.930 --> 0:03:36.240 guiding to 650 billion. Then you've got Google GPUs and 0:03:36.250 --> 0:03:39.520 AMD and you combine everything, you come up with at 0:03:39.620 --> 0:03:44.560 least an $ 800 billion plus market that is growing 70%. 0:03:44.560 --> 0:03:47.119 That's what Nvidia said. And it would have grown faster 0:03:47.320 --> 0:03:52.150 if they had more supply. So that's what I think 0:03:52.270 --> 0:03:55.310 everyone is focused on is at the end of the day, 0:03:55.350 --> 0:03:59.190 there could be some pull forward because of this circular financing, 0:03:59.230 --> 0:04:02.510 because Nvidia is giving them the money. But in the end, 0:04:02.730 --> 0:04:06.650 this is still a very large market with a very 0:04:06.710 --> 0:04:10.170 high growth rate. And I think everyone wants to cater 0:04:10.210 --> 0:04:11.230 to that market. Okay. 0:04:11.250 --> 0:04:13.230 So as much as it might look like Nvidia is 0:04:13.270 --> 0:04:17.910 dominating everything with the deal making within its ecosystem, it's actually... 0:04:18.630 --> 0:04:20.880 there's a lot of room for other companies to come in. 0:04:20.950 --> 0:04:25.300 Having said that, NVIDIA's investment with MediaTek, who does that hurt? 0:04:25.440 --> 0:04:28.979 What companies are kind of left out as a result 0:04:29.020 --> 0:04:29.300 of this? 0:04:29.900 --> 0:04:33.880 Not left out, but Google was planning to ramp up 0:04:34.200 --> 0:04:38.219 beyond Broadcom with MediaTek. And so this is kind of 0:04:38.279 --> 0:04:41.700 front-running Google to say, hey, Google, we will make sure 0:04:41.740 --> 0:04:45.330 we lock every capacity that's out there, whether it's with 0:04:45.470 --> 0:04:48.970 TSMC or with MediaTek or any FAB provider. And I 0:04:49.029 --> 0:04:52.570 think this is NVIDIA flexing its balance sheet to say, 0:04:52.990 --> 0:04:56.360 we can lock in any supplier that's out there that 0:04:56.400 --> 0:04:58.480 could help Google to ramp up capacity. 0:04:59.580 --> 0:05:00.020 Stay with us. 0:05:00.440 --> 0:05:02.640 More from Bloomberg Intelligence coming up after this. 0:05:06.620 --> 0:05:10.320 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:05:10.400 --> 0:05:13.440 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:05:13.500 --> 0:05:16.790 Auto with the Bloomberg Business App. Listen on demand wherever 0:05:16.850 --> 0:05:19.890 you get your podcasts or watch us live on YouTube. 0:05:21.230 --> 0:05:24.089 Anthropic is going to be the big IPO that everyone's 0:05:24.110 --> 0:05:27.909 waiting for sometime in the fall. We're thinking September, we're 0:05:27.930 --> 0:05:30.790 thinking October. That's what Bailey Lipschultz has told us. He 0:05:30.870 --> 0:05:33.510 is our senior equities reporter. He covers the capital markets 0:05:33.690 --> 0:05:36.870 and he joins us now on the upcoming IPO. 0:05:36.930 --> 0:05:38.930 So we're still thinking September, October? 0:05:39.650 --> 0:05:42.680 Still thinking September, October, but if you just- understand how 0:05:42.920 --> 0:05:47.440 IPOs work. For the company to price and debut in September, 0:05:47.460 --> 0:05:50.620 it needs to publicly be on file by the Tuesday 0:05:50.680 --> 0:05:54.200 after Labor Day. So that's like kind of a best 0:05:54.220 --> 0:05:57.700 case scenario. If we believe our understanding when we talk 0:05:57.720 --> 0:05:59.360 to bankers and people around the steel to be true, 0:05:59.740 --> 0:06:01.979 they still haven't finalized their revolving credit facility. 0:06:02.520 --> 0:06:03.480 That's a big step. 0:06:03.839 --> 0:06:06.170 Bringing the other banks outside of the big four that 0:06:06.200 --> 0:06:08.090 we've broken a lot of news around under the tent 0:06:08.170 --> 0:06:08.810 is a big step. 0:06:09.029 --> 0:06:10.010 And they also have to have. 0:06:09.910 --> 0:06:12.520 An analyst day so the analysts can model out what 0:06:12.540 --> 0:06:15.760 they're expecting with Anthropic. When you're at Goldman Sachs, if 0:06:15.779 --> 0:06:17.490 you call up your sales desk and say, hey, I 0:06:17.529 --> 0:06:18.390 want to talk to the analyst. 0:06:18.410 --> 0:06:20.310 He has to have a model to be able to share. 0:06:20.730 --> 0:06:22.390 So if you put all of those kind of pieces 0:06:22.430 --> 0:06:25.570 into formation, you look at it and say, the fastest 0:06:25.690 --> 0:06:28.580 probably is Thursday or Friday. But in reality, they've been 0:06:28.779 --> 0:06:31.279 kind of dragging their heels with piecing together this revolving 0:06:31.320 --> 0:06:34.539 credit facility. But once that takes place, it should move 0:06:34.580 --> 0:06:35.260 pretty darn quickly. 0:06:37.120 --> 0:06:39.050 Is there going to be a crowding out effect for 0:06:39.190 --> 0:06:40.229 other deals, do you think? 0:06:40.529 --> 0:06:42.350 Good question. I mean, it's going to take all the 0:06:42.470 --> 0:06:45.190 oxygen and including a lot of the dollars out of 0:06:45.230 --> 0:06:47.810 the marketplace. How's the street kind of thinking about this? 0:06:47.830 --> 0:06:49.310 Because presumably after Labor Day. 0:06:49.330 --> 0:06:51.400 There's a lot of companies that will want to go public. Yeah, no, 0:06:51.440 --> 0:06:53.300 and we've already seen a few that have flipped publicly. 0:06:53.360 --> 0:06:57.760 So smaller, lesser known deals, Agreco, Covault Power, obviously they're 0:06:57.800 --> 0:07:00.560 both private equity. They're both kind of playing the AI angle. 0:07:00.900 --> 0:07:03.520 But the big thing is if you're trying to schedule 0:07:03.540 --> 0:07:06.050 a meeting with a long only, or if you're trying 0:07:06.070 --> 0:07:07.690 to schedule a meeting with the sovereign wealth fund, these 0:07:07.710 --> 0:07:11.470 aren't huge teams. They're not the millennium IPO pods that 0:07:11.490 --> 0:07:13.670 are really playing all of these deals. So I've talked 0:07:13.690 --> 0:07:16.050 to some sponsors, I've talked to some bankers, And that's 0:07:16.170 --> 0:07:18.640 kind of been consternation. When you look at SpaceX, which 0:07:18.680 --> 0:07:22.370 we saw back in June, we crunched the numbers, the 0:07:22.370 --> 0:07:25.590 14 notable deals to go public in the month before SpaceX, 0:07:25.610 --> 0:07:29.150 so kind of racing to hit that pre-SpaceX window. Weighted 0:07:29.190 --> 0:07:31.710 average loss is almost 10% from the offer price. You're 0:07:31.730 --> 0:07:34.030 supposed to buy IPOs to make money, not lose money. 0:07:34.430 --> 0:07:36.570 So when you look at the calendar, we have seen 0:07:36.610 --> 0:07:39.570 companies flip public. We expect some to flip public this week. 0:07:39.950 --> 0:07:42.950 That should open the opportunity to beat Anthropic out the door. 0:07:43.330 --> 0:07:44.800 But you don't want to be on the road at 0:07:44.830 --> 0:07:46.750 the same time. You don't want to be calling Wellington 0:07:46.830 --> 0:07:48.760 asking for them to take time to talk to your 0:07:48.780 --> 0:07:52.260 company if Dario is trying to make a visit. Yeah. 0:07:52.300 --> 0:07:53.600 They'll be like, we'll get back to you. 0:07:53.760 --> 0:07:54.220 Exactly. 0:07:55.280 --> 0:07:57.960 Let's talk about another company, which a couple of years 0:07:58.000 --> 0:08:00.380 ago was a big, big deal for young people. 0:08:00.480 --> 0:08:02.960 Shein, kind of like fast fashion. 0:08:03.900 --> 0:08:07.160 Shein Global Holdings, the shares fell as much as 14% 0:08:07.160 --> 0:08:08.500 in Hong Kong gray market trading. 0:08:08.550 --> 0:08:11.290 This is before the stock makes its debut in Hong. 0:08:11.190 --> 0:08:11.550 Kong, right? 0:08:11.610 --> 0:08:12.870 It'll make its debut tomorrow. 0:08:12.930 --> 0:08:16.090 And again, this is a company that sold almost $ 2 0:08:15.890 --> 0:08:19.030 billion worth of shares in the IPO last Market cap's 0:08:19.030 --> 0:08:21.270 26 billion. You mentioned just a few years ago, 2022, 0:08:21.270 --> 0:08:24.930 they raised a private round around $ 100 billion. 0:08:25.350 --> 0:08:26.690 So that is a huge drop off. 0:08:26.730 --> 0:08:28.790 When you talk to investors who've met with the company, 0:08:29.250 --> 0:08:32.589 the critique is, I'm paying a similar multiple for a 0:08:32.630 --> 0:08:35.040 Zara or an H & M that I'm paying for 0:08:35.059 --> 0:08:38.000 a company that hasn't seen growth, that has a lot 0:08:38.020 --> 0:08:41.439 of political uncertainty and a lot of headwinds. There were 0:08:41.480 --> 0:08:43.360 reports that they wanted to go public in the US, 0:08:43.420 --> 0:08:46.199 then London, now they're listing in Hong Kong. There's just 0:08:46.240 --> 0:08:48.579 so much uncertainty around the company. And again, it'll be 0:08:48.660 --> 0:08:51.230 interesting to see when we see that formal trading. But 0:08:51.260 --> 0:08:53.770 we've been really using over the last few weeks and 0:08:53.850 --> 0:08:56.870 months this gray market to better inform what's going to 0:08:56.929 --> 0:09:00.040 happen actually on exchange. And even if you just go 0:09:00.140 --> 0:09:02.420 one to one or even half two to one, you're 0:09:02.440 --> 0:09:04.339 still saying this is going to be something that trades 0:09:04.400 --> 0:09:05.160 down pretty sharply. 0:09:05.980 --> 0:09:07.140 So just real quick, 30 seconds. 0:09:07.179 --> 0:09:09.380 Are we expecting a flood of deals to be filed 0:09:09.420 --> 0:09:11.290 or hit the road in the next several weeks? 0:09:11.450 --> 0:09:11.810 Definitely. 0:09:11.870 --> 0:09:14.390 We expect potentially a couple this week. And then I 0:09:14.429 --> 0:09:16.949 think after Labor Day, you'll see people back in the seats. 0:09:17.010 --> 0:09:20.450 You'll see filings being put public. You'll see companies starting 0:09:20.470 --> 0:09:23.510 those formal roadshows. And we should expect a pretty darn 0:09:23.890 --> 0:09:26.900 packed September into October. Again, though, we do have a 0:09:26.920 --> 0:09:29.319 live September meeting for the Fed. So that has a 0:09:29.340 --> 0:09:31.640 bit of a concern for some of these bankers. And 0:09:31.660 --> 0:09:35.260 then obviously all eyes will shortly after pivot to the 0:09:35.320 --> 0:09:37.700 election in the midterms and what that does or doesn't 0:09:37.720 --> 0:09:38.260 mean for risk. 0:09:38.440 --> 0:09:41.819 So I'm just looking at POTS bull tickers for Anthropic. 0:09:41.940 --> 0:09:48.170 ANTH is already taken by Anthra Pharmaceuticals. So what, ANTR? No, 0:09:48.210 --> 0:09:50.030 like you still have to have the like thethropic part 0:09:50.070 --> 0:09:52.349 of it in the ticker. Do we have any idea 0:09:52.390 --> 0:09:52.870 what they're going. 0:09:52.790 --> 0:09:53.589 To use as their ticker? 0:09:53.650 --> 0:09:54.849 No, that's a good question though. 0:09:54.890 --> 0:09:55.110 All right. 0:09:55.230 --> 0:09:57.420 I'm sure you could probably bet on it on Calgary. Oh, 0:09:57.500 --> 0:09:59.660 I'm sure. There's a market for that. 0:09:59.679 --> 0:10:00.660 There's a market for everything. 0:10:01.300 --> 0:10:01.720 Stay with us. 0:10:02.120 --> 0:10:04.340 More from Bloomberg Intelligence coming up after this. 0:10:08.340 --> 0:10:12.020 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:12.100 --> 0:10:15.140 weekdays at 10 a.m. Eastern on Apple CarPlay and Android 0:10:15.200 --> 0:10:18.500 Auto with the Bloomberg Business App. Listen on demand wherever 0:10:18.540 --> 0:10:21.590 you get your podcasts or watch us live on YouTube. 0:10:21.610 --> 0:10:24.990 Well, it's Monday, which means it's Merger Monday, which means 0:10:25.890 --> 0:10:29.390 a pharmaceutical company is out there buying another healthcare pharmaceutical 0:10:29.429 --> 0:10:34.630 slash biotech company. And today it's Eli Lilly buying Merida Biosciences, 0:10:34.630 --> 0:10:39.329 $ 2. 88 billion in cash. Michelle Cortez joins us. She's the 0:10:39.350 --> 0:10:42.449 Senior Editor for Global Business for Bloomberg News. She's based 0:10:42.470 --> 0:10:44.470 down there in D.C. Michelle, talk to us about Eli 0:10:44.510 --> 0:10:47.189 Lilly and Merida Biosciences. What's going on here? 0:10:48.730 --> 0:10:52.230 Well, Lilly has been making a bet on this particular 0:10:52.270 --> 0:10:56.010 space on immunology products for the last several years. It 0:10:56.050 --> 0:10:58.500 does have a number of products here as well. But 0:10:58.920 --> 0:11:01.540 the bigger story is that Lilly is looking to actually 0:11:01.600 --> 0:11:05.630 put some of this power that it's getting from selling 0:11:06.170 --> 0:11:09.390 diabetes shots and weight loss shots that have become so 0:11:09.490 --> 0:11:12.370 ubiquitous in the United States and the rest of the world. 0:11:12.650 --> 0:11:14.620 They're trying to put that to use so that when 0:11:14.840 --> 0:11:17.939 they do eventually lose some of that protection, some of 0:11:17.980 --> 0:11:22.380 that patent protection, they'll be able to have future income streams. 0:11:22.679 --> 0:11:24.350 It's hard to look at now because they do make 0:11:24.400 --> 0:11:27.050 so much money from those. But immunology is a huge 0:11:27.070 --> 0:11:29.170 and growing area. And that's one of the areas where 0:11:29.210 --> 0:11:30.570 Lilly is really staking its claim. 0:11:31.350 --> 0:11:35.560 Michelle, I go to the BUYP buyer profile or intent 0:11:35.600 --> 0:11:38.780 profile page on the Bloomberg Terminal, and Lilly has made 0:11:38.800 --> 0:11:43.160 a number of acquisitions in recent weeks and months. Merida 0:11:43.240 --> 0:11:46.770 is just the latest for $ 2. 9 billion, but in August, 0:11:46.790 --> 0:11:50.910 there were two purchases with some other companies, Indupro and 0:11:51.090 --> 0:11:55.270 Amplifica Holdings. In July, there was Ratio Therapeutics. Do any 0:11:55.290 --> 0:11:57.319 of these get the attention of regulators? 0:11:59.860 --> 0:12:02.880 You know, these acquisitions aren't really getting the attentions of regulators. 0:12:02.940 --> 0:12:07.719 It's getting a lot of attention from investors. Lilly is 0:12:07.760 --> 0:12:10.140 really taking a very different approach. They're buying things at 0:12:10.179 --> 0:12:12.660 a very early stage. It's a great question, actually. I 0:12:12.780 --> 0:12:16.470 don't know if they're somehow, you know, hovering up an 0:12:16.590 --> 0:12:20.650 awful lot of early stage products in the same category 0:12:20.750 --> 0:12:23.870 so that they could be kind of cornering the market 0:12:23.950 --> 0:12:28.450 on some new technology that's just emerging. It's so early 0:12:28.470 --> 0:12:30.829 what they're doing, though. I think that it's probably unlikely 0:12:30.870 --> 0:12:34.069 and others would follow quickly along. It's interesting, all of 0:12:34.110 --> 0:12:38.510 those things that you're citing, the numbers, they've told us 0:12:38.550 --> 0:12:42.270 that they look at 10 different acquisitions every single week. 0:12:42.570 --> 0:12:44.410 And so they're pulling the trigger a lot, but they're 0:12:44.470 --> 0:12:46.870 pulling it at a very low rate, right? All of 0:12:46.929 --> 0:12:49.750 those ones that you're talking about. I think the biggest 0:12:49.790 --> 0:12:51.950 deal that Lilly has ever done is sub $ 8 billion, 0:12:52.340 --> 0:12:52.790 you know, like. 0:12:56.059 --> 0:12:59.780 It is comparatively to the size of the company. It's 0:12:59.960 --> 0:13:03.320 very small potatoes. They are just chucking a lot of potatoes, 0:13:03.559 --> 0:13:04.199 in all honesty. 0:13:04.720 --> 0:13:05.100 It's interesting. 0:13:05.120 --> 0:13:07.160 Well, I've been at Bloomberg 17 years, and I just 0:13:07.179 --> 0:13:10.420 learned another function today, the BYP function. 0:13:10.470 --> 0:13:10.990 Yeah, yeah. 0:13:11.040 --> 0:13:12.069 Very cool. I like that. 0:13:13.150 --> 0:13:16.150 Michelle, what does Eli Lilly prefer to do? Do they 0:13:16.290 --> 0:13:19.970 prefer to develop stuff in their lab or just go 0:13:20.030 --> 0:13:21.350 out and buy it, like with this deal? 0:13:22.830 --> 0:13:23.030 Right. 0:13:23.090 --> 0:13:27.760 Well, I mean... It's got to be a hard decision, right? 0:13:27.840 --> 0:13:31.000 Lilly paid the price of this a long time ago 0:13:31.420 --> 0:13:35.000 with Prozac. Of course, they were dominant in that particular space. 0:13:35.020 --> 0:13:37.060 And then when they lost the patent protection on Prozac, 0:13:37.140 --> 0:13:41.080 they really had to scramble. And then the GLP-1s, they 0:13:41.140 --> 0:13:44.340 did that themselves. Like this is a huge market. Obviously, 0:13:44.360 --> 0:13:48.330 they weren't first movers. That was Novo Nordisk. But they 0:13:48.350 --> 0:13:52.630 developed their weight loss and obesity drugs in-house, and they 0:13:52.650 --> 0:13:55.189 have really reaped the benefits there. And they want to 0:13:55.230 --> 0:13:58.179 do that again. And the problem is, is that it 0:13:58.800 --> 0:14:00.950 just can't be an expert everywhere. So they're bringing in 0:14:01.000 --> 0:14:04.560 stuff early stage. They're trying to develop it in-house and 0:14:04.580 --> 0:14:08.490 then create it long-term. We'll see what happens. A lot 0:14:08.500 --> 0:14:11.650 of other companies in this particular situation, when they've had 0:14:11.790 --> 0:14:16.630 huge products that are losing patent protection, they go out 0:14:16.690 --> 0:14:20.410 and do $ 25 billion, $ 30 billion, $ 50 billion. I mean, 0:14:20.450 --> 0:14:22.370 not a lot because there's not a lot of companies 0:14:22.390 --> 0:14:24.530 that can pony up that kind of money. But we 0:14:24.570 --> 0:14:27.950 do see massive M & A. They're doing massive numbers 0:14:28.330 --> 0:14:32.050 in terms of deals, not massive size of the deals themselves. 0:14:32.610 --> 0:14:35.630 I'm fascinated by the fact that Eli Lilly is kind 0:14:35.670 --> 0:14:39.090 of scouring for deals on such a frequent basis. And yes, 0:14:39.150 --> 0:14:41.550 pulls the trigger on a couple of them, but doesn't 0:14:41.610 --> 0:14:44.850 necessarily take a bite out of all of them. What 0:14:44.870 --> 0:14:48.370 does that mean in terms of their willing? I mean, 0:14:48.410 --> 0:14:50.730 do they have like a goal of how many companies 0:14:50.910 --> 0:14:53.670 or investments they want to make, you know, that they 0:14:53.870 --> 0:14:55.810 feel that they need to execute on? 0:14:57.530 --> 0:14:59.490 I don't think that they have a number that they 0:14:59.550 --> 0:15:02.360 need to execute on at this point. And to be fair, 0:15:02.380 --> 0:15:07.380 they don't have an awful lot of pressure at the moment, right? 0:15:07.420 --> 0:15:10.240 The patents that they have on these GLP-1 drugs, the shots, 0:15:11.200 --> 0:15:13.660 they have those for at least another decade. So that's 0:15:13.700 --> 0:15:15.420 not going to be hit too hard. And they are 0:15:15.700 --> 0:15:19.320 innovating in that particular space. Like we see some pills 0:15:19.380 --> 0:15:22.280 and whatnot that are coming along, even more effective, more 0:15:22.340 --> 0:15:26.300 potent medicines. They will face a little bit of pressure because... 0:15:26.560 --> 0:15:30.320 Novonar discs drugs are older and they are coming off patent, 0:15:31.020 --> 0:15:32.880 but Lilly's to this point have been a little bit 0:15:32.920 --> 0:15:36.020 more effective. So we'll see if that creates pressure, but 0:15:36.080 --> 0:15:38.990 it won't be, I think, for another five to eight 0:15:39.020 --> 0:15:42.630 years that Lilly will actually start having to show how 0:15:42.670 --> 0:15:44.550 they're going to replace this medicine. You only have to 0:15:44.570 --> 0:15:47.950 look at Pfizer and the struggles that they've had post-pandemic, right, 0:15:47.990 --> 0:15:51.109 when they've lost their covid vaccines and their covid treatments 0:15:51.150 --> 0:15:52.150 they just do not want. 0:15:52.030 --> 0:15:54.850 To do that stay with us more from bloomberg intelligence 0:15:54.890 --> 0:15:56.050 coming up after. 0:15:55.890 --> 0:16:03.270 This you're listening to the bloomberg intelligence podcast catch us 0:16:03.390 --> 0:16:06.440 live weekdays at 10 a.m eastern on apple carplay and 0:16:06.480 --> 0:16:09.780 android auto with the bloomberg business app listen on demand 0:16:09.820 --> 0:16:12.900 wherever you get your podcasts or watch us live on. 0:16:12.860 --> 0:16:17.480 Youtube merger monday full force here today kkr our friends 0:16:17.540 --> 0:16:22.520 over there They are selling USI Insurance Services to Aon 0:16:23.120 --> 0:16:28.420 for $ 17 billion, and KKR is set to reap a 0:16:28.420 --> 0:16:30.680 $ 3. 3 billion windfall for the deal. 0:16:30.720 --> 0:16:31.490 Pretty good for our. 0:16:31.450 --> 0:16:34.410 Friends over there. Matt Palazzolo joins us here, Senior Analyst. 0:16:34.430 --> 0:16:37.270 He covers the property and casualty insurance space. Talk to 0:16:37.310 --> 0:16:40.229 us about what Aon is buying. 0:16:39.970 --> 0:16:40.430 Here for $ 17 billion. 0:16:40.470 --> 0:16:40.570 Yep. 0:16:42.710 --> 0:16:45.910 They are buying another insurance broker. This is not an 0:16:45.930 --> 0:16:50.330 insurance company. USI doesn't take on risk. They're a middleman. 0:16:51.270 --> 0:16:55.550 What's been happening is the big global brokers like Aon 0:16:55.690 --> 0:16:59.640 and Marsh, they have historically operated in the large account market, 0:16:59.780 --> 0:17:03.440 like Fortune 500 companies. For many years now, they have 0:17:03.480 --> 0:17:06.359 been battling over the middle market in the US and 0:17:06.400 --> 0:17:10.600 trying to grow there. Marsh has an organic way of growing, 0:17:10.640 --> 0:17:13.760 and they do some bolt-on deals. Aon has really done 0:17:13.780 --> 0:17:18.190 it through big deals. So the purpose here for Aon 0:17:18.250 --> 0:17:19.830 is to grow in the U.S. 0:17:20.270 --> 0:17:24.290 Middle market. KKR owned it. I believe they have. 0:17:24.230 --> 0:17:27.410 To monetize these things over time anyway, so I think 0:17:27.430 --> 0:17:28.690 it seemed like a good time for. 0:17:28.609 --> 0:17:29.010 Both of them. 0:17:29.350 --> 0:17:31.340 It says here in Bloomberg News reporting, the sale is 0:17:31.400 --> 0:17:36.159 expected to generate a 3.4 times return. On KKR's balance sheet, 0:17:36.200 --> 0:17:38.360 capital invested pretty solid there. 0:17:38.720 --> 0:17:41.220 So why go after the middle market? 0:17:41.520 --> 0:17:43.700 Is the middle market more or less profitable than doing 0:17:43.720 --> 0:17:46.050 the corporate, the Fortune 500 type thing? 0:17:46.130 --> 0:17:47.250 It's more profitable. 0:17:47.270 --> 0:17:50.930 The prices are more sticky. So these guys will get paid. 0:17:51.310 --> 0:17:54.070 The brokers will get paid on a commission on the business, right? 0:17:54.530 --> 0:17:56.570 And if you're doing a bigger company, you might get 0:17:56.609 --> 0:17:59.659 paid on a fee. So if they're organizing all of whoever, 0:17:59.840 --> 0:18:02.560 Google's insurance or something, Google's not going to say, look, 0:18:03.310 --> 0:18:05.530 We're going to pay you 10% to 15% of it all. 0:18:05.810 --> 0:18:08.389 We'll pay you a fixed fee. In the middle market, 0:18:08.430 --> 0:18:12.070 there's more commission business, and the prices are more sticky. 0:18:12.510 --> 0:18:14.869 It is more attractive, but it can be smaller. 0:18:15.790 --> 0:18:18.060 It seems like this insurance brokerage business is a pretty 0:18:18.080 --> 0:18:19.409 good business. 0:18:19.780 --> 0:18:20.540 It is a good business. 0:18:20.580 --> 0:18:24.220 This is why private equity loves this business. It generates 0:18:24.240 --> 0:18:29.619 a lot of cash. They buy these companies. Some of 0:18:29.660 --> 0:18:32.420 the companies they buy continue to roll up smaller companies. 0:18:33.240 --> 0:18:34.859 They throw off a lot of cash, and then they 0:18:34.880 --> 0:18:39.500 can turn around and sell them. The space as a 0:18:39.640 --> 0:18:43.970 whole was trading at peak PE or EV to EBITDA 0:18:43.990 --> 0:18:46.929 multiples over the past couple of years because growth was 0:18:46.990 --> 0:18:49.690 really good. Margin expansion was really good. Those margins have 0:18:49.730 --> 0:18:53.889 come down a significant amount. This deal was still kind 0:18:53.930 --> 0:18:57.520 of struck. on an unadjusted basis at those higher levels. 0:18:57.600 --> 0:19:02.650 So I think good business, good strategic piece for Aon, 0:19:04.030 --> 0:19:07.109 more compelling strategically than financially, I think, for Aon. 0:19:07.590 --> 0:19:10.270 I used to look around and I said, this insurance 0:19:10.310 --> 0:19:14.050 brokerage business, I was looking at my buddies, solid C 0:19:14.109 --> 0:19:16.600 players coming out of school making a boatload of dough 0:19:16.619 --> 0:19:17.700 in the insurance business. 0:19:18.650 --> 0:19:20.640 And I remember, that's a good business. 0:19:20.940 --> 0:19:25.600 Now, in the investment brokerage business, my business, the competition 0:19:25.619 --> 0:19:29.540 has cut the margins to like nothing practically. You know, 0:19:29.600 --> 0:19:32.240 I used to make three quarters of a bid trading 0:19:32.280 --> 0:19:32.959 stocks back in the day. 0:19:33.000 --> 0:19:34.840 Now I get a penny or two. Has that happened 0:19:34.880 --> 0:19:35.700 in the insurance business? 0:19:35.720 --> 0:19:36.340 It has not. 0:19:36.380 --> 0:19:40.570 So the commissions in this business have been historically pretty resilient. 0:19:41.990 --> 0:19:44.230 I remember back when, you know, I don't want to 0:19:44.250 --> 0:19:46.300 say when the internet, but you know, when the internet 0:19:46.320 --> 0:19:49.090 was becoming kind of wider spread, people thought, okay, this 0:19:49.150 --> 0:19:53.030 is going to democratize. this, uh, process and it's going 0:19:53.050 --> 0:19:53.970 to cut into margins. 0:19:54.010 --> 0:19:54.790 Didn't really do it. 0:19:55.109 --> 0:19:58.490 Um, earlier this year, we had a whole panic about 0:19:58.630 --> 0:20:00.859 AI and AI was going to cut into the broker 0:20:00.880 --> 0:20:05.060 margins still to be determined, but I don't think so. 0:20:05.340 --> 0:20:08.460