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