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Fresh for everyone. Bloomberg

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Audio Studios. Podcasts,

0:59

radio, news. Hello

1:05

and welcome to the Money Stuff Podcast,

1:07

your weekly podcast where we talk about

1:09

stuff you lead into money. I'm

1:12

Matt Levine and I write the Money Stuff column for

1:14

Bloomberg opinion. And I'm Katie Greifel, a

1:16

reporter for Bloomberg News and an anchor for

1:18

Bloomberg Television. What's going

1:21

on, Katie? We're going to talk about trader school

1:23

and hedge funds. Then we're going to talk about

1:26

fake M&A. And then we're

1:28

going to talk about kind of M&A. Real

1:31

but weird. Let's get to it.

1:33

Let's get into it. So

1:37

trader school, we're talking about 0.72, Citadel,

1:39

the list goes on, other giant hedge

1:44

funds basically creating an in-house

1:46

trading school to turn their

1:48

nines into perfect tens. Yes,

1:50

this is a Bloomberg News

1:52

big take article today, yesterday.

1:56

It doesn't matter. Time is a construct as we

1:58

keep going over. a big take article

2:00

at Bloomberg about how these hedge funds are

2:03

building their own in-house trading schools. Here we

2:05

are talking about it. Yeah.

2:07

Reading this, I kind of

2:10

feel like shouldn't you have an in-house

2:12

training program anyway? So a couple points on that.

2:14

One is that, no, historically, all

2:17

of the buy side used to hire

2:19

from the sell side, right? It used

2:21

to be that if you're a hedge

2:23

fund, the way you acquired new talent

2:25

was from the banks. What's

2:27

happening here is the banks are less of

2:29

a source of talent for these places, in

2:31

part because banks get rid of prop trading,

2:33

and so the ability to source good risk

2:35

takers from banks has gone down, but also

2:37

in part because these places have gotten huge,

2:39

and it's just like you're not looking to

2:42

identify one good trader from somewhere. You're looking

2:44

to mass produce them, and so having a training

2:46

program is kind of a new need for these

2:48

big firms. It used to be a hedge fund

2:50

was like one manager, and when that manager got

2:52

rich enough, the program went

2:54

away. So having this very institutional

2:56

structure is kind of a new thing, and

2:59

so you need a training program. The other

3:01

thing about it, though, is not just training

3:03

incoming people to be good analysts. It's taking

3:05

the people who are analysts and have been

3:08

there for a while and trying to find

3:10

out if they will be good portfolio

3:13

managers and promoting them to being portfolio managers

3:15

as carefully and scientifically as you can. So instead

3:18

of being like, yeah, you've been here a while,

3:20

here at Manager Book, it's like taking

3:23

the analysts and seeing if they'd be good at

3:25

managing a book and teaching them how to manage

3:27

a book. So two points. So we're

3:30

talking about it as Trader School, and the

3:32

article talks about it as Trader School. What's

3:34

more fun to me is this

3:36

sort of dystopian vision where it's actually

3:38

just like a factory and you're just

3:41

putting this person into the machine. It

3:43

does some combination of lights and sounds

3:45

and things to the person that they

3:47

spit out as this stock

3:49

picker. Well, that is sort of how these

3:51

things are supposed to work, right? The idea of

3:54

these multi-strategy hedge funds is they're very scientifically managed

3:56

and they really carefully monitor your trading and they

3:58

make sure you're not just doing it neutral to

4:00

all the factors. And if your portfolio goes down by a

4:02

little bit, they like pull some capital. And if it goes

4:04

down by a little bit more, they fire you. You

4:07

know, it is like an alpha factory, right? It is

4:09

like trying to somewhat dehumanize the

4:11

management of traders. So yeah, it is a

4:13

machine that flashes some lights at you. But

4:15

wait, I also wanna take it seriously as

4:17

a school. Because I would like

4:19

to go to trader school. I wanna audit a class at

4:22

trader school. I don't think I would do very well. So

4:24

I don't wanna receive a grade at the end, but I

4:27

would like to see what happens. Apparently

4:29

they grade them out of 10, right? Yeah, right.

4:32

Usually the analysts come in as nines and they're supposed

4:35

to leave as 10 portfolio managers. I think I'd come

4:37

in at like a two. I

4:39

was gonna say I'd be a solid one,

4:41

maybe a two on a good day and

4:43

maybe come out as a four. I'm

4:45

in a point of four, yeah. A point of four as reasonable.

4:48

Two points on that. One is

4:50

that I hope that by saying that

4:52

you wanna audit a class at trader school, you

4:55

have manifested that and that we will be invited

4:57

to audit a class at point 72 or set

4:59

it over. Anyone's

5:02

trader school, any multi-strategy hedge fund that wants

5:04

to have us audit a class at trader

5:06

school and maybe do some field

5:08

recording. Doesn't even have to be top tier, we

5:10

go. We don't need to

5:12

go to like the Ivy League of trader school.

5:15

I'd be willing to go in state, but yeah.

5:18

I would love to do that. That

5:20

would be our first like field podcast

5:22

recording. I feel like we'd learn a lot at trader

5:24

school and so would our listeners. And so would possibly the hedge

5:26

fund that hosts us. I mean, point

5:28

72 sounds like it is the place

5:31

to go because the article mentions that

5:33

more than half of Steve Cohen's stock

5:35

pickers have come through its program rather

5:38

than big expensive outside hires that they've

5:40

had to make. It does seem

5:42

a lot cheaper to run a trader school than to pay

5:44

someone a $50 million guarantee to come be

5:47

a portfolio manager. Yeah, I mean, maybe

5:49

it's less good for you, that star stock

5:51

picker, because you know. Right. It's like you're like

5:53

on the rookie contract, right? Like you get paid like

5:55

an employee rather than in a bidding war for your

5:57

talent. Yeah. The other thing about trader school is my.

6:00

dream has always been to do my job as like I

6:02

write my newsletter for like I do my podcast

6:04

right thank you six months of the year and

6:07

then I go like intern

6:10

in a financial job somewhere for six months

6:12

of the year like wouldn't that be fun

6:14

I feel like this company would

6:16

let you do whatever you want I know but like

6:18

who would hire me for that like who like

6:20

hopefully some of our listeners but who would be

6:22

like oh yeah come like do a bad job

6:24

at our job for six months and then go

6:26

write about it right heavy-handed section

6:29

we've ever I know please have

6:31

us come into your thing yeah I didn't mean

6:33

it that way it's so it's hard to know

6:35

what these jobs are like unless

6:37

you've done them in some way yeah and I

6:39

feel like I could learn a lot by like

6:42

spending a few months me too I

6:44

mean I feel like I was born and raised

6:46

inside this building I think I've been here since

6:48

I was 23 years

6:50

old isn't the point of

6:52

journalism to go out and have broadening experiences

6:54

and really get to know the industries and

6:56

the people that you cover yeah and

6:59

I've had some jobs in finance and that was nice

7:01

but I haven't had all the jobs in finance yeah

7:03

you know I'd like to you know manage a little

7:05

portfolio for 4.72 I feel like that could be

7:07

good I feel like that's something you do

7:10

in high school right you sign up and have like

7:12

a paper portfolio well I think the traders school

7:14

is to train them to run a real portfolio

7:16

but yeah some of these schools do have you

7:18

run a paper portfolio yeah I think I bought

7:20

like shares of Hot Topic okay that sounds right

7:22

yeah I feel like this is at least the second

7:24

appearance of Hot Topic on this show I

7:27

spent a lot of time at Hot Topic what else

7:29

should we say about this I mean again it seems

7:31

like a cheaper way of doing things there's

7:34

a lot of conversation in this article about

7:36

the talent war going on in hedge funds

7:38

right now I think that it's

7:40

just like these funds pay so much to

7:42

portfolio managers they charge clients so

7:45

much there's so much demand for this and

7:47

I think part of it is like these

7:49

are places that are pretty

7:51

good at identifying Alpha

7:53

and being able to say like we can

7:55

strip out all the elements of luck and

7:57

market exposure and just identify who is skillful

8:00

at managing investments, and then we can

8:02

offer you that sort of pure uncut

8:04

investment skill. And the clients apparently love

8:06

that because it's uncorrelated to everything else

8:08

and it usually goes up. And

8:10

so they're willing to pay basically whatever fees

8:12

these funds charge. And given

8:15

that, it's clear that there's the shortage of people

8:17

who can generate alpha. And it's

8:20

not clear that that would be like a natural shortage,

8:22

right? It's just like, there's only so many people who've

8:24

like come through the pipeline of becoming portfolio managers at

8:26

.72 or whatever. So if you

8:28

can train more of them, like you're

8:31

filling this like enormous unmet demand, and you

8:33

can make a lot of money, right? If

8:35

you can like bring someone in cheaply and

8:37

turn them into a $50 million a year

8:39

portfolio manager, like, yeah, it's a great business.

8:42

I don't think I have any ideas, but

8:44

wouldn't it be fun to like do a

8:46

thought exercise of like, what would your trading

8:48

school look like? Like, what are they learning

8:50

in trading school classes? What are they learning in

8:52

training school classes? So I think that we're sort of exaggerating by

8:54

saying this is trading school, right? Like this is like- But isn't

8:56

it fun to go along this flight of fancy? Sure.

8:58

So I think that this is like a

9:01

lot of it is like some sort of

9:03

combination of like actual classes and like mentorship

9:05

and meetings and whatnot for like existing analysts

9:07

who want to move into portfolio manager roles

9:09

where they're trying to figure out if they'd

9:11

actually be good at it. But I will

9:13

say there are people who run trading schools

9:16

and those people are the big prop trading

9:18

firms, right? Oh, I thought you were going to say

9:20

the people that keep trying to scam you on Instagram. Oh

9:22

yeah. I don't think those people even run

9:25

trading schools. I think those people just run

9:27

Instagram ads. But no, like Jane Street and

9:29

Susquehanna and all those sort of big prop

9:31

trading firms are very invested in training people

9:33

how to think like traders because you can't

9:35

really hire people out of school who know

9:37

how to do that. If you're hiring investment

9:39

bankers, it's like some combination of like, can

9:41

they do a DCF model and like, will

9:44

they work really hard? And there are ways

9:46

to figure that out. But knowing if people

9:48

are good at operating under uncertainty and like

9:50

estimating probabilities in their head and sort of

9:53

being decisive and like taking risks in the right way is

9:55

just harder. And so a lot of what these firms do,

9:57

both in their like lay out, they're like, they're like, they're

9:59

like, they're like, lengthy interview process and

10:01

then like in their internship programs is

10:03

like they sit them down to like

10:05

play poker every night and they play

10:07

like fake trading games where they evaluate

10:09

their ability to like make these decisions.

10:11

So it's a really like very organized

10:14

trading school where they're trying to see

10:16

who is like overconfident, who

10:18

is too timid and who has like the right

10:20

ability to take risk. There were

10:22

some examples in the big take at Citadel

10:25

for example trainees are taught how to back

10:27

pitches from colleagues lower down the food chain.

10:29

At Ballet Asney they

10:31

get a limited pot of cash then they

10:34

have to deliver returns that match or beat

10:36

the firm's older hands. Point 72 wants its

10:38

cadre to think like CEOs meaning they'll need

10:40

to create and run a book of ideas

10:42

all while getting total buy-in from their teams.

10:44

That doesn't quite fit my

10:46

fantasy of my dream trading school. Right

10:48

because this is not really a trading school.

10:51

This is a like developing... It's like soft

10:53

skills. Yeah it's like developing like senior portfolio

10:55

managers. Like that's a management job, that's an

10:57

investing job, but it's also like a risk-taking

10:59

job. Whereas like if you're like a 22

11:01

year old at Jane Street you're being taught

11:03

to have... Indian options. Yeah. Yeah.

11:06

Right. There's great stories in Michael Lewis's book

11:08

Going Infinite about... Who? Just kidding. About

11:11

Sam Beckman Fried's training

11:14

days or internship days at Jane Street where

11:16

he like learned to like make

11:18

positive expected value coin flip bets with his

11:20

fellow interns right. Part of the goal of

11:23

the training program was to like have

11:25

the interns bet against each other and sort of see

11:27

who was good at betting and who was good at

11:30

like finding and exploiting edges. I would

11:32

not want to go to that trading school, but

11:34

I like the idea of the trading school as

11:36

a sort of like Darwinian fight between the interns

11:38

for like, you know, there's only so many jobs

11:40

and whatever intern can like out trade the fellow

11:42

interns gets the job, you know. See

11:44

again that's something I would like to audit since I

11:46

would do terribly in that program, but boy would it

11:48

be fun to watch. Right. Right.

11:50

I find it stressful. Yeah.

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12:54

in an instant. Whoa, Einstein

12:57

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one AI CRM. Now everyone's in Einstein

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with Salesforce. I

13:23

would find fake M&A stressful. Yeah,

13:33

this is so good. Virgin Orbit,

13:36

a space company, went bankrupt like last year.

13:39

But before that, it sort of announced that it was

13:41

in its last stages, like it furloughed all of its

13:43

employees. And this guy

13:45

named Matthew Brown sent them a LinkedIn

13:47

message being like, hey, I would like to

13:49

invest $200 million in your company. And they

13:51

were like, hey, great, that sounds good. Thank

13:53

God. And they like negotiated the deal with

13:56

him. And eventually the deal

13:58

fell apart. probably because

14:00

he didn't have the money. SEC

14:02

brought a case against him this week, certainly

14:05

claiming he didn't have the money. And in fact, he

14:08

sent a screenshot of his bank account showing

14:10

like $182 million to Virgin Orville, but

14:13

it was a doctored screenshot and actually it had less than

14:15

$1. Strange

14:17

amount of money to have in your bank account.

14:19

Yeah, quite a discrepancy. So, deal

14:22

fell apart and the SEC sued him for

14:24

fraud saying that it was a fake takeover

14:26

offer. But what I think about it

14:28

is like, I read a lot about fake takeover offers

14:30

and they're all the same, which is that someone buys

14:32

stock in a company and then puts out a press

14:34

release saying, hey, I'm taking this company over and the

14:36

stock goes up and they sell the stock and then

14:38

they fizzle away. But this guy did

14:40

not do that. He did not buy stock in

14:42

the company. He did not put out a press

14:44

release. He might've just been doing it for fun.

14:46

This upsets me because I don't understand the

14:48

motivation. So he says it's real, right? I mean,

14:50

he gave a statement saying, no, no. The SEC case

14:52

is full of misrepresentations. I love his statement, actually. Let

14:55

me read it for you. The SEC's

14:57

complaint is filled with egregious errors, fabrications

15:00

and biased allegations that undeniably

15:03

favor the culprit and the

15:05

culprit is Virgin Orbit's management. I

15:08

love that he says that they're the

15:10

culprit here for doing due diligence. Yeah,

15:12

right. I mean, I have talked to

15:14

previous fake takeover guys and they're like,

15:17

why won't this company take my calls?

15:19

I'm offering to give them all this money as soon

15:21

as I can raise it. But the company won't take

15:23

my calls. Virgin took his calls. They signed an NDA.

15:25

They sent up a term sheet. They like sat down

15:27

and negotiated a deal with him. Eventually

15:30

started asking questions like, do you actually have this

15:32

money? Could you put it in escrow? And he

15:34

walked away. But I don't know, it was the

15:36

motivation. He says it was real.

15:38

I would like to think that he just

15:40

wanted to be on TV. He did this

15:42

thing and he did eventually get

15:44

on CNBC to talk about his proposed deal.

15:47

He could have just started a fake AI company

15:49

and gotten on TV that way. But

15:51

this is so fun. I don't know. There are a lot

15:53

of ways to get on television, but this is a good

15:55

one. And you grew up in this building. I grew up

15:58

as an M&A lawyer. And I always thought that like. drama

16:00

of negotiating deals was kind of interesting and exciting. And

16:02

he not only got to go on TV to talk

16:05

about his deal, he got to like actually negotiate a

16:07

deal. Like he like got a term sheet, he was

16:09

like doing calls with the CEO. He

16:11

had a lawyer involved, but he's like, let's not bring

16:13

the lawyers into this too much. I'll just negotiate this

16:16

deal together. So I don't know, seems

16:18

like it would be fun. I would totally role

16:20

play negotiating an M&A deal. This is another thing

16:22

I would do. Besides go to trader's school, I

16:24

would role play negotiating M&A deals for fun. And

16:27

this guy might've done that. I would find

16:29

that so enormously stressful. Not if you

16:31

knew you weren't gonna do the deal. That's

16:34

true. You know, oh, you know, instead of

16:36

$200 million, like $210 million, you're like sure,

16:38

$210 million. I'm not paying

16:40

that money anyway. But the other thing is like

16:42

the SEC claims that what he was trying to do was

16:45

extract money out of Virgin. So

16:47

what happened is that, you know, he

16:50

was like, I'll put in $200 million. And then

16:52

at some point he sent them an email complaining that the

16:54

deal had leaked. This is before

16:56

he went on TV, unclear whether the deal

16:58

leaked, but he said, I want a breakup fee.

17:00

So if this deal doesn't go through for

17:02

any reason, if I can't actually invest the

17:04

$200 million, I want you to pay

17:06

me like 3%, like $6 million, right? Which

17:10

is an unusual ask. But

17:12

even people get breakup fees, but not for like deciding not

17:15

to do the deal. But if it had

17:17

worked, if Virgin Orbit had said, sure, we'll give you

17:19

$6 million. If you can't give

17:21

us the $200 million, then

17:23

he might've walked away with $6 million. But wouldn't

17:25

that have been clawed back? Yeah, of course. It's

17:28

not a good plan. Because they were going into bankruptcy and they did

17:30

in fact go into bankruptcy. Like the idea that they'd pay them $6

17:33

million for like pretending to do an equity investment,

17:35

not that likely. Again, this just

17:38

seems totally, totally stressful. The CNBC

17:40

appearance in and of itself was

17:42

pretty weird. I didn't watch it. I don't think I could

17:45

watch it. I find it very stressful to watch. It

17:47

was stressful to watch. We fully

17:49

plan on transacting with the company

17:52

within the next 24 hours. I

17:56

have positions in over 13

17:58

space companies. companies and

18:01

I view them all as neighbors. He

18:04

did not seem like an experienced

18:07

investor in space investor. Yeah. I would also

18:09

struggle to name 13 space companies, but that's

18:11

I think he would have as well. That's

18:14

a good joke. It

18:16

felt stressful and it did not make

18:18

me confident that the deal was going through. What do

18:20

you do after this? He's 34, right? So

18:22

I don't know. Maybe he has a long career of, you

18:25

know, fake M&A in front of him, but I feel like

18:27

this kind of blue is covered. Sometimes these

18:29

things are like people who actually do do a

18:31

little investing and bite off more than they can

18:33

chew. Right. And like maybe he can go invest

18:36

money in other companies and be like, yes,

18:38

he got it all wrong that time. Yeah. I'm good for

18:40

this one million dollar investment. I don't know. I

18:43

mean it this time, but you also

18:45

think about Virgin Orbitz

18:48

perspective during all of this, because this was

18:51

sort of like a white knight savior

18:53

moment. Yeah. They did start asking him questions

18:55

like, do you have the money? But like they

18:58

definitely like, you know, he sent them

19:00

an email and they engaged, right? Like he sent them

19:02

like a cold LinkedIn message. Anything done over

19:04

LinkedIn. I mean, come on. There's like no record

19:06

of him, right? Like he's, you know, he's like, I've invested $750

19:08

million in space companies

19:10

and they're like, sure you have. Right. Anyone

19:13

was good, right? Like they would take anything at

19:15

that point, right? Like this is not the, you

19:17

know, the top person on their list of potential

19:19

investors, but at this point they're like a week

19:21

from bankruptcy, they're like, yeah, we'll take what we

19:23

can get. And so they'd returned his calls, right?

19:25

It is tough for them, right? Like they jumped

19:27

all in on engaging with this guy who turned

19:29

out to be fake apparently, but not a lot

19:31

of other good options. Yeah. I think

19:34

someone from the company I read called it

19:36

an unneeded distraction. Sure. What was a very

19:39

critical time. And I'm sure they... Yes and

19:41

no, right? I mean, like, was

19:43

he distracting them from other better investment?

19:46

Maybe, probably not, but maybe. This

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21:22

Let's keep the conversation going on M&A and let's

21:25

talk about a weird M&A

21:27

that's going on with Brad Jacobs

21:29

and QXO.

21:31

I'm not familiar with the naming structure for

21:33

his companies, but he's like a- XBO,

21:36

QXO. Right. He's like a

21:38

logistics guy who likes, I guess it's just-

21:40

There's certain letters that he loves. Right. He's

21:43

a fan of an X, but not only an X like Elon Musk. He also

21:45

likes O's. Yeah. X is an

21:47

O's. Anyway, so he ran

21:49

XPO. He's made a lot of

21:51

money doing logistics and he wrote

21:53

a book called How to Make a Few Billion Dollars. I

21:56

have it on my desk. I

21:58

still haven't made a few billion dollars. But it's

22:00

like such a good aspiration. It's like not

22:02

$1 billion, not like a

22:05

lot of billion dollars, but a few billion dollars. A few billion.

22:07

Get comfortable. Yeah. Even since

22:10

these businesses are like rolls up smaller businesses, he goes

22:12

out and acquires a bunch of smaller companies and

22:15

he's decided he's going to do

22:17

that in the building products distribution

22:19

business. Sexy. Yeah, it's like companies

22:21

that distribute, I don't know. It's

22:24

important, okay. Like I haven't read the book,

22:26

but this is apparently how you make a few billion dollars.

22:28

You find like a large lucrative kind of

22:30

boring niche and then you buy all the companies in

22:32

that space and you know, make them more efficient. You

22:34

consolidate an industry. Yeah. So

22:36

he's done that before. His plan is to

22:39

do it in this building products distribution space.

22:42

So he started QXO. And QXO,

22:44

like he's raised like $4.5 billion. Like

22:46

some of that is his own money. Some of it is from big

22:48

outside investors. And you know, he's like got

22:51

a $4.5 billion fund to go out and

22:53

buy building products distribution companies and

22:56

roll them up into a big QXO thing. And then,

22:58

you know, make a lot of money out of it.

23:01

But he didn't do it as like

23:03

a fund or as a private company.

23:05

He did it by acquiring this little

23:07

public company called Silver Sun Technologies, which

23:10

is like a real company. It sells. Software.

23:13

Yeah. It's like, it like

23:15

sells business software to, it like

23:17

resells business software to businesses and then

23:20

consults them on how to use the software.

23:22

It sort of seems like it's vaguely in

23:24

the same like building products universe, but it's

23:27

like selling software instead of building products. Anyway,

23:29

it exists. It's a real company. It's a public

23:32

company, publicly traded, small. Has like, you know, $1.5

23:34

million of net income a year on

23:37

like 50 million of revenue. And like, you

23:39

know, it was like a 15, $20 million market

23:44

cap. So it's like a small company, but it's a public company.

23:47

And he called them up, apparently through

23:49

Goldman, like his investment bankers called up Silver Sun

23:51

and was like, we want to put in a

23:53

billion dollars into Silver Sun, take it over. We'll

23:56

own basically all the stock, but not all the

23:58

stock. Most of it, 99%. some of

24:00

the stuff. And we will change its name

24:02

to QXO and make it into this, you

24:05

know, platform for rolling up, building products,

24:07

distributors. And Silver

24:09

Sun was like, yeah, sure. And so

24:11

he bought Silver Sun for a billion

24:13

dollars. Insane. And so now he owns basically

24:15

all of it. It was like a $25

24:18

million market cap. Yeah, it was like as low

24:20

as like 15ish or something to go out, like not that

24:22

long ago. But yeah, it's like double

24:24

digit millions. Yeah. So now he

24:26

owns like basically all of it. But there's a little bit, there's like 600,000 shares

24:29

that trade. And all

24:32

these people, not that many people, like the people

24:34

who buy the 600,000 shares, you know, there's like

24:36

retail demand for people who want to invest alongside

24:39

Brad Jacobs, right? They're like, we've read, he's a

24:41

guy who can make a few billion dollars

24:43

a few times. He's the guy, yeah. This is

24:45

a good plan. He's going to make money doing

24:47

this roll up. So let's put our money into

24:50

it. But like, there's so few shares that are

24:52

publicly available that they're trading at like, they've

24:54

gone down there in like the 70s now, but like there were like $230 a

24:56

share a

24:59

couple of days ago, which if you

25:01

multiply that by like the total shares,

25:03

like the people who put in the $4.5

25:06

billion to actually do this

25:08

company, you get a market cap

25:10

of like almost $200 billion. So

25:12

I think that the retail

25:14

investors buying the stock do not

25:17

quite understand how the

25:19

capital structure works. And so they're buying the

25:21

stock at a price and applying a $200

25:24

billion valuation for a company that again, is

25:26

just a fund of cash, right? Yeah. It's

25:28

just a $4.5 billion pot of money that

25:30

Brad Jacobs will use to go out and

25:32

find companies. But right now it doesn't do

25:34

anything, except has this tiny little tech business.

25:36

Well, to be fair, this is an

25:39

extremely weird capital structure. Oh, yeah. Like,

25:41

why is my first question? Like, why not just

25:43

do this the normal way and eventually IPO and

25:45

go about it that

25:47

way? Like, why buy this small cap with the

25:49

plan to spin it off? I went

25:52

back to a December 2023 interview

25:54

that Brad Jacobs did. And

25:56

he said, basically, we're putting it into

25:58

a small cap, we're going And to

26:00

spin that company back to the legacy

26:02

shareholders in a few months when the

26:04

deal closes, the Silverstone shareholders will have

26:06

their company back. They'll also have a

26:08

$2.5 million dividend and they'll get a 0.3% share

26:11

in my new company. Like that is a

26:14

lot of steps. Yeah, by the

26:16

way, they didn't do that. They were planning to do that.

26:18

Yeah. They changed their mind and

26:20

they didn't spin out the legacy business to the old

26:22

shareholders. They're keeping the legacy business, which by the way

26:24

is like, it's a small business, but it has like

26:26

200 employees. It's not like a nothing. It's like a

26:28

real company that does stuff. They're keeping the legacy business.

26:30

They're not spinning it out to the shareholders and instead

26:33

of paying them $2.5 million, they're paying them like $17

26:35

million, which again is like sort of around where

26:37

the market cap was before Brad Jacobs came along. Why do

26:39

it? I don't know. It's weird.

26:42

I mean, he had Goldman Sachs like calling small caps

26:44

for it. Importantly, they called and they didn't send a

26:46

LinkedIn message. Yeah, right. I mean, that's

26:48

the normal way to do M&A is like your

26:50

banker knows someone who calls them rather than sending

26:52

a cold LinkedIn. But anyway, the answer

26:55

is it's nice to be publicly traded sometimes.

26:57

It gives you some advantages in fundraising. I

26:59

think that a big part of the answer

27:01

is probably if you're doing a roll up,

27:03

you want to be able to give people

27:05

stock and it is perhaps more convenient to

27:07

be able to give people publicly traded stocks.

27:09

So if he's going to buy a small

27:11

building products distribution company, he can be like,

27:14

you know, I have this pot of money. I have

27:16

like $4.5 billion. I can give you some money

27:18

for your company or I can give

27:20

you some of my publicly traded stock or some

27:22

combination of them. And so, you know, if you're

27:24

rolling up these businesses, people who have built these

27:26

businesses over time want to have some continued economic

27:28

exposure to the thing they built. And so like

27:30

you can give them stock. It's like, you know,

27:32

you'll still have some diluted economic

27:34

interest in the thing you built. There's

27:37

a bit of a problem where like what price do you

27:39

give them the stock at because he is like raising money

27:41

at, call it $9 a share, which

27:43

is like kind of roughly like you're

27:46

putting in cash into a fund, right? Like you're buying it

27:48

at like sort of the cash value of the fund. But

27:51

like meanwhile, the stock is trading like $70 a share

27:53

because it's like people's hopes. So I

27:55

don't know the first roll up he does, the first

27:57

acquisition he does, like is he going to pay? in

28:00

stock valued at $9 a share or $70 a share. Yeah,

28:03

it feels, I mean, in some

28:05

ways similar to the DestinyTech situation

28:07

and DXYZ. Yes. When we're talking about

28:09

enormous, enormous premiums here. Right, exactly.

28:12

DestinyTech is a pot of

28:14

money that owns, it's like a pot of shares

28:16

in private companies. And, you know,

28:19

it's like cool private companies that retail

28:21

investors can't invest. That's like, you know, SpaceX

28:23

and whatever. And so when

28:26

they took DestinyTech public, there was more

28:28

demand for the shares than the actual

28:30

value of the companies it owned. And

28:32

so it was trading at like 1000%

28:34

premium to net asset value. This is

28:36

a little bit like that, right? Like

28:38

this is your chance to invest in

28:40

Brad Jacob's private investment vehicle, rolling up

28:42

the building products distribution business. But

28:44

the trade-off is like, you're not really investing in

28:47

that. You're really investing in like the

28:49

sort of Mimi retail premium to the

28:51

actual value of the company. Because

28:54

like if he does really well and like triples the

28:56

value of the company, that's still way less than what

28:58

people are paying for their retail stock today. Yeah.

29:01

I also am curious about

29:03

how Silver Sun executives

29:06

feel. Because in some ways, it kind of

29:08

feels like winning the lottery, I would imagine.

29:10

Like, how did he pick this company? I

29:14

think that the bankers most have had a list of

29:16

very small companies that we could acquire. Because it's not

29:18

like he paid them a billion dollars, right? It's like

29:20

he put a billion dollars into the company. And like

29:22

the existing shareholders, what do they get? They get a

29:24

dividend, right? Which is in round numbers, like 50 to

29:26

100% of the value of their shares, right?

29:29

They're getting paid in cash. And then they

29:32

also keep their shares, which have, you know, gone

29:35

up from like nothing to $200. I would sell

29:37

them right now. Yeah. I think a lot of them probably

29:39

would have. Yeah. Yeah.

29:42

Again, it just feels like winning the lottery. Like

29:44

this is so strange. It's very strange. Yeah.

29:46

Now there's always been this sort of

29:48

like industry of little

29:50

public companies that are

29:52

useful for reverse mergers because every

29:55

so often someone wants to become

29:57

a public company, not by doing an

29:59

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