Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News Bloomberg.
Speaker 2: Donny Berger is speaking with Tolma Bravo founder Orlando Bravo
Speaker 2: at the LAVKA conference here in New York.
Speaker 3: Let's listen it, or Orlando. There's so much change happening
Speaker 3: right now in the industry, but you started your career
Speaker 3: also at a moment of change. I would love to
Speaker 3: get into that because you started as a banker at
Speaker 3: Morgan Stanley. The lore of your career goes is that
Speaker 3: you're often tried by your managers to pigeonhole you into
Speaker 3: just Latin. But here, you say, here the expert in
Speaker 3: private capital when it comes to software in tech. How
Speaker 3: did you end up there?
Speaker 1: By luck?
Speaker 2: Yes, But Danny, it's a pleasure of being here with you.
Speaker 2: We're friends, We've gotten to work together over the years,
Speaker 2: and I organized my whole New York week and a
Speaker 2: half around this conference. It's very special for me to
Speaker 2: be here, being from a small town in Puerto Rico
Speaker 2: with all these great investors from Latin America, are people
Speaker 2: that have an in Latin America venture capital in the region.
Speaker 2: It's it's really really special for me. When I started
Speaker 2: a Morgan Stanley I grew up in a small town,
Speaker 2: may Leagues, Puerto Rico. For anyone that has been there,
Speaker 2: probably very few of you have. And through a lot
Speaker 2: of opportunity and seeing things that I was able to see,
Speaker 2: I got lucky and was able to get a job
Speaker 2: in Wall Street and they put me in the Latin
Speaker 2: America Group in M and A A.
Speaker 1: Morgan Stanley.
Speaker 2: But next to our group, there was an equally small group.
Speaker 2: This is in nineteen ninety two, that was the Tech group.
Speaker 2: And people were, you know, mor instantly saying, Latin American
Speaker 2: group is small. This tech group is really small. And
Speaker 2: for some reason we were just when we would get
Speaker 2: together every week, those two groups will get together, I
Speaker 2: was like, I want to be in that tech group.
Speaker 1: There was there was something about it.
Speaker 2: And I'm not a coder, I'm not an engineer by background,
Speaker 2: but it was it seemed to be a business that
Speaker 2: really fit young people really well, where you could have
Speaker 2: a lot of responsibility early in your career. So I
Speaker 2: went to the West Coast. I went to graduate school there.
Speaker 2: Then the same thing. I couldn't get a job in
Speaker 2: private equity. There were very few jobs available in the
Speaker 2: alternatives industry back then.
Speaker 1: It's grown so much.
Speaker 2: And at the end, a couple of people gave me
Speaker 2: an opportunity of being the Latin America Group, but Carl
Speaker 2: Toma hired me and said, if you want to do tech,
Speaker 2: you know, come on in and I'll open up an
Speaker 2: office in San Francisco, and we started then.
Speaker 3: I think it's also important to note even though you
Speaker 3: didn't stay with Latin Investing, that you went into tech,
Speaker 3: but you've always kept close ties to Puerto Rico and
Speaker 3: continued to do work for the community there big time.
Speaker 2: I'm actually going to Puerto Rico next week for a
Speaker 2: foundation event. My experience thus far has been one of opportunity.
Speaker 2: I'm very self aware of that. Even when I look
Speaker 2: at our organization today, Toma Bravo. We were one of
Speaker 2: the first to do a software buyout deal during the
Speaker 2: dotcom bubble collapse. Even though we were one of the
Speaker 2: first to do tech buyouts, and we were one of
Speaker 2: the people or one of the groups that created this
Speaker 2: category that has been very profitable for LPs and it's
Speaker 2: the biggest category in buyouts and will continue to grow
Speaker 2: and continue to take share. I've never created anything new.
Speaker 2: I got the opportunity to learn from one of the
Speaker 2: best investors in the world, Karl Toma. I got the
Speaker 2: opportunity to learn from the best operator I'll ever meet,
Speaker 2: Marcel Bernard, the most important person that has ever worked
Speaker 2: at our company during the seventies run different divisions of Motorola.
Speaker 2: We grab both concepts and just applied in to an
Speaker 2: industry that we really really liked.
Speaker 3: What a time to be doing that, though, helping found
Speaker 3: Tomo Bravo in two thousand and eight. Really is the
Speaker 3: tech bubble, the remnants of it, the financial crisis a
Speaker 3: suchial a moment in time. How does how did that
Speaker 3: help guide you? How you grew Tomo Bravo and how
Speaker 3: you think about this market today, especially when so many
Speaker 3: parallels are being drawn between what's happening and the AI
Speaker 3: at the moment tack bubble of the two thousands.
Speaker 2: Yeah, and by the way, to win with Puerto Rico. Therefore,
Speaker 2: since I was given so many opportunities, our whole business
Speaker 2: is based on giving opportunities to existing management, to our people,
Speaker 2: promoting from within and in Puerto Rico to try to
Speaker 2: change the opportunity set so the more people participate and
Speaker 2: have an equal chance. That's kind of what I try
Speaker 2: to do there in terms of what what happened during
Speaker 2: the bubble, One important lesson is to focus on the
Speaker 2: business and the numbers that are right in front of
Speaker 2: you instead of being too affected by the noise. These
Speaker 2: are general things that are going on right now. AI
Speaker 2: is going to be transformative. It's going to be so powerful,
Speaker 2: it's going to be so exciting, and it's very very
Speaker 2: new and very early. So many people will be are
Speaker 2: paralyzed now, including LPs, to say, do I touch this
Speaker 2: area a services company? To I touch a software company,
Speaker 2: is it's going to be disrupted. I just get these
Speaker 2: inputs all the time of how everything is going to
Speaker 2: change overnight. It will change significantly, but it will be
Speaker 2: an evolution. In right after the dot com bubble burst,
Speaker 2: but I don't know who remembers and who was there
Speaker 2: Around that time, people thought that enterprise software was dead.
Speaker 2: One article after the other, these stocks traded at one
Speaker 2: and two dollars a share. Can you believe that it's
Speaker 2: one of the greatest industry's one point five trillion dollar
Speaker 2: economy today. We made a lot of mistakes before that,
Speaker 2: but we would go to these companies and they would
Speaker 2: let us look at all their files. We'd say, no,
Speaker 2: this is a good business. All the customers are renewing,
Speaker 2: they're buying more. They really need to use these products.
Speaker 2: So just focusing on the details and the business really
Speaker 2: helps you do something a little bit different than everybody else.
Speaker 3: Well, it's interesting because it's a two track, and I
Speaker 3: want to get into software more, but it feels like
Speaker 3: a two t you're describing LP's being frozen on legacy
Speaker 3: tech or evolving tech, let's call it. And then on
Speaker 3: the other side, a frenzy around AI and huge valuations
Speaker 3: that a lot of these private capital or public market
Speaker 3: companies are getting around AI. Do you look at that
Speaker 3: and say we've gone too far?
Speaker 2: Look, AI and software go together. That is becoming clearer
Speaker 2: and clearer. Look at the two hundred and fifty billion
Speaker 2: dollar market cap software companies.
Speaker 1: They have.
Speaker 2: Absorbed AI and now they're selling huge augentic solutions to
Speaker 2: their customers. We have a portfolio of about thirty billion
Speaker 2: dollars in revenue. Now we're private equity, so we can
Speaker 2: react faster than other forms of governance. All of our
Speaker 2: companies now have big AI solutions embedded in their products,
Speaker 2: or identic solutions to close the loop. Another available markets
Speaker 2: are tam total of market has double tripled. It really
Speaker 2: really goes together. It's not like this new thing where
Speaker 2: the corporate enterprise would completely change all of their processes,
Speaker 2: all of their technology, all of their interdependencies. AI will
Speaker 2: create new solutions and new use cases, many of which
Speaker 2: will allow people to use technology more than they were
Speaker 2: doing before. Look, there's so many solutions today that exist
Speaker 2: that allow customers to save half of the cost in
Speaker 2: many items in supply chain, in many, many, many categories,
Speaker 2: and right now society or companies use them five ten percent.
Speaker 1: So it all takes time, but once again, it goes together.
Speaker 3: There is, at least you can see in public market
Speaker 3: those nerves. Salesforce Adobe, some of the worst performing stocks
Speaker 3: underperform the s and fed down think about twenty two
Speaker 3: percent year to date because of that. And maybe that's
Speaker 3: a correct way to look at those specific companies. Maybe not.
Speaker 3: Has there been a valuation reset in private capital as well?
Speaker 1: Well?
Speaker 3: And to what degree does that hurt you or does
Speaker 3: it present opportunities?
Speaker 2: The chairman said that he's an optimist, and I'm always
Speaker 2: an optimist. When you own a company, you always have
Speaker 2: opportunities now you mentioned a couple of stocks, great great companies. Now,
Speaker 2: is their valuations and multiples down because there's so MANI threat?
Speaker 2: Or are there multiples down because their growth rate has
Speaker 2: gone down? We really think it's the latter. Investors buy numbers.
Speaker 2: They put money out and they buy numbers. That's what
Speaker 2: the greatest investors do. The rest is noise and the
Speaker 2: market is highly highly highly efficient. So I don't I
Speaker 2: don't think that there's been this rerating of the sector
Speaker 2: because of AI, because really smart investors agree that this,
Speaker 2: over time will help these companies that are trusted by
Speaker 2: the customers, that have proprietary data that are embedded in
Speaker 2: their systems.
Speaker 1: It's helpful.
Speaker 2: I cannot even begin to describe how helpful it is.
Speaker 3: Does it at all though put pressure on margins? For example,
Speaker 3: if you have someone that says, all right, I can
Speaker 3: find a cheaper solution that's AI driven. It doesn't take
Speaker 3: as much, it doesn't cost as much. Does the whole
Speaker 3: industry pricing need to change because of the AI offering.
Speaker 2: There's always the question whether software is econ one oh
Speaker 2: one where price equesst marginal cost. You build all these products,
Speaker 2: but the marginal cost of delivering one is extremely low,
Speaker 2: so you kind of raise to the bottom and you
Speaker 2: have to control discounting the key and what we try
Speaker 2: to do is have the lowest cost of production, have
Speaker 2: the most efficient company there is. So when we do
Speaker 2: buy these billion dollar companies, we are very upfront that
Speaker 2: the first course of action is we're going to reduce
Speaker 2: the cost of the business, try to get it to
Speaker 2: a forty percent and margin usually from zero. And if
Speaker 2: you have the best run company making the right investment decisions,
Speaker 2: you can invest plenty in AI because you're not wasting
Speaker 2: a lot of money in other activities or trying activities
Speaker 2: that the company doesn't even have a core competency in doing.
Speaker 3: Well, Considering you've done that to so many companies, I'd
Speaker 3: love to know how you're using AI internally. What about Toma,
Speaker 3: Bravo's own processes. How are you utilizing AI.
Speaker 1: To grab information?
Speaker 2: It's really and I think most companies are using it
Speaker 2: that way, right We all ask consumers use it to
Speaker 2: ask questions, get quick data. Search companies as well are
Speaker 2: using it in that way. We're using it to get
Speaker 2: information a lot quicker. For example, at the end of
Speaker 2: the quarter. We love those quarter ends. Now it's October
Speaker 2: because companies have a January fiscal your end. That's something
Speaker 2: that SaaS Companies did a while ago. But as we
Speaker 2: come to the end of October, instead of me having
Speaker 2: to call every single partner across our portfolio of sixty companies,
Speaker 2: I just know the bookings results and you kind of
Speaker 2: can consume that pretty quickly and say, oh, is this
Speaker 2: are being good trends? And that really informs how you
Speaker 2: invest in companies as well. All your pipeline of deals
Speaker 2: is the industry slowing down, our customers buying more. But
Speaker 2: the ability to consume information very quickly in data is
Speaker 2: how we use it.
Speaker 3: I talked to one of your competitors, who maybe will
Speaker 3: remain nameless, that so that they were experimenting with an
Speaker 3: ai IC member that they would feed at all of
Speaker 3: its information and all the decisions they made, and you
Speaker 3: almost get kind of a vote or she I don't
Speaker 3: think we can gender these things on the IC. Would
Speaker 3: you ever do something like that? Would you use that
Speaker 3: for actual decision making?
Speaker 2: That would be pretty cool. I mean we would, and
Speaker 2: I've heard some VC firms have done that as well.
Speaker 2: And this ICY member shows up and then has the
Speaker 2: most power, and how could they possibly be wrong. They
Speaker 2: have all the data, the super brain that would be
Speaker 2: fun to do at some point.
Speaker 3: Okay, well you have to let me know.
Speaker 1: The thing is, I don't see, Danny.
Speaker 2: The thing is, all these things are very helpful right now,
Speaker 2: but you try to think of your time during the day.
Speaker 2: I always tell our team private equity, you have three
Speaker 2: things to do. Get the money, get the deal, and
Speaker 2: improve the deal. If in your eighteen hour day, if
Speaker 2: you really want to stretch it that way seven days
Speaker 2: a week trying to crush it and make money for
Speaker 2: LPs in an ultra competitive market, you're not spending time
Speaker 2: on those three it maybe a competitor is going to
Speaker 2: do better. So you have to be careful how much
Speaker 2: you're levitating and investing in projects that are intellectually interesting
Speaker 2: versus actually getting that deal, which, as you know many
Speaker 2: practitioners here, is very hard to convince a company that's
Speaker 2: worth ten billion dollars to sell it to you, no
Speaker 2: matter how poorly they're doing. And it's a day to
Speaker 2: day we do control deals only it's a day to
Speaker 2: day effort to improve the company. The head of sales quits.
Speaker 2: Now you got a problem the pipeline is low. You
Speaker 2: have a problem with a competitor, you have to take
Speaker 2: out the cost. You have to track that company on
Speaker 2: a monthly basis. For example, we do instead of quarterly
Speaker 2: board meetings, given the intensity of our operations, we do
Speaker 2: monthly operating reviews Adie Amternoon with every single company, all
Speaker 2: the direct reports in the room, and these processes are
Speaker 2: that is the alpha that our industry looks for in software.
Speaker 2: It is incredibly huge. When we started in software, the
Speaker 2: average software company lost money. Today and after the industry
Speaker 2: became this one point five trillion, the average publicly trying
Speaker 2: to software company loses money. There has been no operational
Speaker 2: improvement in the public markets in almost thirty years in
Speaker 2: the way software companies run. Now, groups like us, we
Speaker 2: started small, we started producing twenty five percent margin, now
Speaker 2: thirty five, now forty to forty five because we're also
Speaker 2: buying better businesses and we've learned. But that is so
Speaker 2: intense that it gives you very little time to pursue
Speaker 2: internal projects.
Speaker 3: Well, you mentioned the things that you should be doing
Speaker 3: if you are in this industry and delivering share, delivering
Speaker 3: value to your LPs. One of them, of course, is exiting,
Speaker 3: and this is an industry that has struggled with that
Speaker 3: as a whole lafter maybe overinvesting. In twenty twenty one
Speaker 3: and twenty twenty two, you've seen the rise of continuation vehicles,
Speaker 3: for example, liquidity solutions, and many people would say it's
Speaker 3: just a way to provide liquidity. It's the creativity of
Speaker 3: this industry and it's a natural progression. Other people would
Speaker 3: say it's a failure that you didn't get the exits
Speaker 3: and that you're continuing things on where do you stand
Speaker 3: on it.
Speaker 2: Both it's pretty controversial. LPs have gotten used to it,
Speaker 2: they've accepted this. I think you should do that as
Speaker 2: the exception rather than the rule. You can also do
Speaker 2: so many in your fund you mentioned valuations in our world.
Speaker 2: Say you are looking at a fifteen percent growth company
Speaker 2: that has high quality or revenue, that is a market
Speaker 2: leader in its space, that is now highly profitable because
Speaker 2: it's been owned by private equity. Those companies used to
Speaker 2: trade in the private markets for or twenty to twenty
Speaker 2: five times EBITDA, something in that range from one firm
Speaker 2: to another. Now the valuations of those companies are fifteen
Speaker 2: times EBITDA.
Speaker 1: So as an owner.
Speaker 2: The opportunity is that you can buy other companies out
Speaker 2: on acquisitions much cheaper than you had in your model.
Speaker 2: So you always try to use these things as an
Speaker 2: owner to your advantage. You then have to create more
Speaker 2: values so that at fifteen to seventeen times exit you
Speaker 2: can produce the returns that your investors expect.
Speaker 1: And that's where it.
Speaker 2: Comes in, and it's that optimism of there's always something
Speaker 2: you can do about it. When there was inflation, you
Speaker 2: have this huge labor inflation in your employee base, but
Speaker 2: that means you can raise prices to your customers even
Speaker 2: more because these are productivity tools.
Speaker 1: Same thing if prices go down.
Speaker 2: So what happened in private equity and the reason why
Speaker 2: I say the industry for a while, they're life us
Speaker 2: its way is one of the reasons is people forgot
Speaker 2: to sell our industry is you get the money, you
Speaker 2: try to transform a company as best you can, and
Speaker 2: then you sell that company. There is no permanent hold
Speaker 2: in our industry. If you want to do that, go
Speaker 2: to the public markets, form a holding company, tell your
Speaker 2: investors I'm going to hold these things forever. Back me
Speaker 2: and we'll figure out a way to do make money
Speaker 2: that way buy my stock. Private equity is not that
Speaker 2: the industry levitated too much, and we always say it's
Speaker 2: much harder. Remember when I said how hard it is
Speaker 2: to buy a company, it's much harder to sell it.
Speaker 2: So our team has to spend more time selling a
Speaker 2: company than buying a company. And that's something that we
Speaker 2: do rigorously, and it's something that really helped us. You
Speaker 2: and I were talking about in super Return. In the
Speaker 2: last eighteen months, we delivered back to our investors twenty
Speaker 2: billion in cash. That really helped our firm. Now it
Speaker 2: didn't happen overnight. We were working on those deals and
Speaker 2: on those sales for a while.
Speaker 3: So all these evergreen funds that are popping sounds like
Speaker 3: they're a problem.
Speaker 2: Then it's if you hold a company too long in
Speaker 2: private equity, and in this transformation world that we live
Speaker 2: in that is not linear, you will ultimately face a
Speaker 2: big project, especially in software, because it's not just the
Speaker 2: technology change or AI or how you have to invest,
Speaker 2: it's that these companies are exhausting to run. You live
Speaker 2: quarter of a quarter. That's why it's tough for family
Speaker 2: businesses to hold software companies. Right, It's not a thing
Speaker 2: you go from one entrepreneur to the other. And it's
Speaker 2: also a culture of employee ownership where employees, especially in
Speaker 2: Silicon Valley, need to have that return and that pop
Speaker 2: in their options and that restricted stock. So if you
Speaker 2: hold these things for twenty thirty years, I mean, we
Speaker 2: would love to. It'll be better for our business, will
Speaker 2: make more money, but it's not the way to really
Speaker 2: serve your customers as LPs.
Speaker 1: Well, as you.
Speaker 3: Mentioned when we had spoken earlier this summer, you were
Speaker 3: really outfront with saying private equity has lost its way.
Speaker 3: Where do we stand in that cycle?
Speaker 2: Now?
Speaker 3: Every now and then you hear news report of a
Speaker 3: company or a fund that's tried to fundraise it doesn't
Speaker 3: do so as successfully as it has in the past.
Speaker 3: Where are we out in the shakeout? Are we about
Speaker 3: to see some real visible pain between the haves and
Speaker 3: have nots?
Speaker 2: We are in the middle of the shakeout. It's when
Speaker 2: you see the few funds that raise all this great
Speaker 2: amount of money. They have two things. They have great
Speaker 2: performance and they have liquidity to their LPs.
Speaker 1: They have high.
Speaker 2: DPIs the investors in private equity states sovereign wealth funds.
Speaker 2: That's where most of the capital comes from the big money.
Speaker 2: Eighty percent of the money. Their boards still believe in
Speaker 2: private equity. The ten year performance beats everything, the fifteen
Speaker 2: year performance, the twenty year performance. The challenge is they
Speaker 2: have an allocation usually to private equity or fifteen percent.
Speaker 2: Some are growing in a little bit from thirteen, others
Speaker 2: may be decreasing depending on their portfolios. That investor base
Speaker 2: or that allocation is very stable, which is really nice
Speaker 2: for us and for the industry. But that allocation is
Speaker 2: stable because people get money back and they redeploy the money.
Speaker 2: If not, that allocation would grow on indefinitely. So when
Speaker 2: we meet with our own investors, we have a sheet
Speaker 2: for every one of them, and that's the one piece
Speaker 2: of paper we have is how much money they've given us,
Speaker 2: how much money we've given back, and therefore how much
Speaker 2: money maybe they.
Speaker 1: Have left to redeploy.
Speaker 2: Because also as a manager, they cannot be or we
Speaker 2: would love to one hundred percent concentrated into Mobravo by
Speaker 2: continuing to give us capital. Then they need manager diversification.
Speaker 2: So the people that have don't have liquidity and are
Speaker 2: having problems, they're just going to go away.
Speaker 1: And I've never seen that in the industry.
Speaker 2: In thirty years, the best managers are going to get
Speaker 2: a lot more money, and we're seeing that also in
Speaker 2: the business.
Speaker 3: What does it look like for funds to just go away?
Speaker 3: Is it they kind of quietly wind down? Does more
Speaker 3: consolidation happen? Do you have some really high profile shakeouts?
Speaker 3: What exactly does that even look like.
Speaker 2: We're seeing a lot of funds wind down and close
Speaker 2: we meet with you know, we have most of our
Speaker 2: our partners are most of the states and most of
Speaker 2: the sovereign wealth funds, and I spend about twenty five
Speaker 2: to thirty percent of my time with them to see
Speaker 2: how our performance matches up to our competitors, to see
Speaker 2: how they're doing. How else could we help them? Are
Speaker 2: we doing enough co invest We are so close to
Speaker 2: our partners and they are very open, and they tell us,
Speaker 2: we're really worried about these dormant or zombie funds because
Speaker 2: they've lost half their team, they've come to do something else,
Speaker 2: and they're senior people know that they're wind down the
Speaker 2: portfolio and that there's no future future fundraise. It is
Speaker 2: still private equity is still a bit of a momentum business.
Speaker 2: When you're returning a lot of money. Your people have
Speaker 2: confidence to put money out, Investors have confidence to give
Speaker 2: you money. People are happier. Everybody that carries worth something
Speaker 2: to the team. People are getting promoted from within. The
Speaker 2: older generation didn't lose ten years of opportunity. It's it's great.
Speaker 2: So you see that now, and now that's accelerating because
Speaker 2: the added pressure is the S and P with a
Speaker 2: magnificent seven in the last five years, has done great.
Speaker 2: It's hard to compete with those stocks. And yeah, that's
Speaker 2: where we are.
Speaker 3: So to be clear, the issue isn't just that exits
Speaker 3: aren't happening. It's that just straight up managers are underperforming
Speaker 3: underperforming public markets.
Speaker 2: Over the last five years, the average private equity firm
Speaker 2: and venture capital firm has underperformed the S and P
Speaker 2: five hundred. Now, the best of the best always crush it.
Speaker 2: They find a way, and we're talking about losing its way.
Speaker 2: And for I mean, there's a lot of experience in
Speaker 2: this room, but for those of you that are younger
Speaker 2: in starting a firm or building a firm, private equity
Speaker 2: should be agnostic as to what the environment is. You're
Speaker 2: not buying a stock, you're buying a company. It's not
Speaker 2: what's happening to you, Well, you buy a stock and
Speaker 2: the stuff price goes down and inflation goes up, or
Speaker 2: this happens, or there's a terif or trade. You can
Speaker 2: only sell the stock or keep it. But things are
Speaker 2: happening to you. When you own a company, there is
Speaker 2: so much you can do about it. You just have
Speaker 2: to adapt to the times.
Speaker 3: What do you then make as the shakeout is happening
Speaker 3: that there's a serious and big push into wealth and retail.
Speaker 3: Some would criticize that and say it's because fundraising has
Speaker 3: been challenged that people are looking into other avenues. Is
Speaker 3: there a bit of that happening in this industry?
Speaker 2: Look, it's new, just like AI or the power these
Speaker 2: predictive models is new. How will it evolve? Would it
Speaker 2: be a good thing for the industry and institutional investors
Speaker 2: or not? Once again, on those things, since they haven't happened,
Speaker 2: we don't know. Now, look at what I just said
Speaker 2: about institutions that fifteen percent. One of the reasons it's
Speaker 2: going to grow so much is because allocation by retail
Speaker 2: and private wealth is close to zero percent, So it's.
Speaker 1: Going to go up.
Speaker 2: I mean, that's the huge market that is completely untapped
Speaker 2: that will be tapped into this alternative asset class for us.
Speaker 2: The way we see it is we are going to
Speaker 2: look at it, but very carefully and very strategically. And
Speaker 2: the reason we're going to go slowly and strategically into
Speaker 2: it is that investors, retail investors and high net worth
Speaker 2: investors really need to understand what the manager does, how
Speaker 2: the manager invests. I go back to the point of
Speaker 2: our business is not linear. We buy a billion dollar
Speaker 2: revenue company that has no earnings, we.
Speaker 1: Cut twenty percent of the cost.
Speaker 2: We do this with those projects, even when we get
Speaker 2: the best outcomes at the.
Speaker 1: End, they weren't a straight line.
Speaker 2: So with these investors that have liquidity, if they don't
Speaker 2: understand really well what you're doing, they may make bad
Speaker 2: choices with your investment over time, just like we go.
Speaker 2: I've mentioned thirty percent of my times with institutions, I
Speaker 2: really need our partners to know exactly what we're doing,
Speaker 2: why we're doing it. When we make a mistake, they
Speaker 2: understand when we do well, there's a reason why we
Speaker 2: got lucky or did well. Explaining that to the retail
Speaker 2: channel is going to be absolutely critical.
Speaker 1: Think about it.
Speaker 2: Right, we're investing in the capital. You want to know
Speaker 2: who you're dealing with for sure.
Speaker 3: I mean, but there are other firms. You can make
Speaker 3: the argument they're going full speed ahead and maybe there's
Speaker 3: something of a first move or advantage. Do you look
Speaker 3: at some of the things happening Apollo having an ETF
Speaker 3: others discussing trying to get into four oh one case
Speaker 3: and worry that maybe you need to get in first.
Speaker 2: There's that fomo and you have to resist it, especially
Speaker 2: since there's so much demand for it. I mean, if
Speaker 2: you open the flood gates, there is just incredible demand
Speaker 2: because it's zero going to fifteen, and people want actually
Speaker 2: and rightly so individuals to be part of the economy,
Speaker 2: me in North American economy, especially in tech and software,
Speaker 2: where you're targeting smaller companies with owners that can really
Speaker 2: add value to these companies as as an alternative right
Speaker 2: to just buind the magnificent seven forever, which with forever
Speaker 2: won't do as great as they've done over the last
Speaker 2: five years.
Speaker 3: It's really interesting because there's pressure and other people are thriving,
Speaker 3: and amid all of that, you had one of the
Speaker 3: biggest take privates of the year until EA came along
Speaker 3: with the fifty five. I know we thought we were
Speaker 3: they knocked you off.
Speaker 1: The throne this way, Well, I don't know.
Speaker 2: My partners were like one of them is ripping his
Speaker 2: eyebrows out.
Speaker 1: He didn't understand.
Speaker 2: I thought it was a good thing because at some
Speaker 2: point we can't be the only crazy ones doing all
Speaker 2: these ten dollar dollars deals.
Speaker 3: I mean literally they but they up to you by
Speaker 3: fifty five billion, the biggest LBO in history. Just given
Speaker 3: some of the stresses we were talking about. Is that
Speaker 3: a one off and aberration? Is Toma Bravo doing a
Speaker 3: huge deal with day Force and Jepson Is that a
Speaker 3: one off? Or have the mega LBOs returned?
Speaker 2: It's look, this is not new for us, right. You
Speaker 2: mentioned this year Jefferson and day four so that we're
Speaker 2: both around ten billion announced deals. But we did proof
Speaker 2: Point ninet eleven billion, Real Page at ten billion, Sale
Speaker 2: Point at eight billion, Ping and four Draw at eight billion.
Speaker 1: I mean, we were just going.
Speaker 2: There because our strategy is to focus on our two
Speaker 2: core competencies. One is our team really knows how to
Speaker 2: buy the best, the market leader in these categories of apps,
Speaker 2: infrastructure and cyber the number one player, and it's so
Speaker 2: important in cyber to buy the number one player. You
Speaker 2: cannot go in and buy the number three, four, five.
Speaker 2: I can talk about that all day. Why that's the case,
Speaker 2: and our second team score competency is turning a great
Speaker 2: innovator which those companies are into actually a great business.
Speaker 2: Taking that twenty percent growth of the company and innovation
Speaker 2: and market leadership and making it work for the shareholder.
Speaker 1: When those companies were.
Speaker 2: Delivering zero cash, have them delivered forty percent cash. That way,
Speaker 2: our investors become fundamental investors in software instead of depending
Speaker 2: on a revenue multiple exit, which is completely arbitrary and
Speaker 2: completely volatile. They depend on selling the company or they're
Speaker 2: selling the company at a twenty five PE, highly justifiable
Speaker 2: as a small premium to the s and P five
Speaker 2: hundred for four times the growth and a much much
Speaker 2: better business, all recurring where cash flow is greater than PE.
Speaker 2: We turn a revenue multiple to an even multiple. What
Speaker 2: happened is as the SaaS industry has really taken off,
Speaker 2: and it's still at its infancye fifty percent of the
Speaker 2: systems are still on premise, we have this enormous opportunity
Speaker 2: to take these beautiful companies and transform in that way. Now,
Speaker 2: we need to keep proving that we can generate the
Speaker 2: performance at the scale that we're doing. And we've had
Speaker 2: some wonderful exits in the past at a big scale.
Speaker 2: So it's nice to see somebody do a fifty five
Speaker 2: billion dollar deal because now we can tell our investors
Speaker 2: we're middle market and we do middle market only, and
Speaker 2: we're really targeted, and these things are really small. Were
Speaker 2: like you see, we told you these companies.
Speaker 3: Are yeah, only about a minute left Orlando. And I
Speaker 3: know you've touched on this in different places, but it
Speaker 3: might be nice to just put it together for everyone
Speaker 3: watching and for trying to navigate a particularly difficult time
Speaker 3: in private equity and private capital investing. What are just
Speaker 3: the most important principles to be concentrating on it this time.
Speaker 2: Focus on the business, you know, focus on your investors,
Speaker 2: but really spend most of your time cult calling all
Speaker 2: the companies. Really focus on the business. Get away from
Speaker 2: what's the firm going to be in ten years or
Speaker 2: twenty years, what's the strategy, what's.
Speaker 1: My org structure?
Speaker 2: Mentor your people to get the deal and then figure
Speaker 2: out a way, a repeatable process that you can continuously
Speaker 2: improve the company. Have your feet on the ground and
Speaker 2: focus on the business that's right in front of you.
Speaker 1: You know, do the work, do the diligence.
Speaker 2: It is so important, and don't be as affected by
Speaker 2: what everybody thinks. The answers are sometimes so obvious investing
Speaker 2: wise and operating that you just need to go to
Speaker 2: the source and focus on it. Our group has become
Speaker 2: much larger now we have one hundred and eighty billion
Speaker 2: dollars under management. We work as hard as possible to
Speaker 2: run it just like when we did when we did
Speaker 2: our first deal at fifty million. And frankly, the problems
Speaker 2: that our companies have and the opportunities that our companies
Speaker 2: have and how we generate a deal and convinced a
Speaker 2: founder or a big company to work with us is
Speaker 2: the same as it was before.
Speaker 1: So remaining true to that is very, very important.
Speaker 3: That's the perfect note to end it on. Orlando, thank
Speaker 3: you so much for joining this morning, and thank you
Speaker 3: all for watching. Please join me in thinking, Orlando. Bravo, bravo,
Speaker 3: thank you