Exploring Trends in Private Equity

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. Let's bring in our next guest here, Melissa Baker. She's the founding partner of Fenwick Brands, a female led consumer focused investment firm. Melissa, thank you as always for joining us. How are you doing great, Happy to be with you all today. We're happy to have you. Well,

let's dive right in here. Retail consumer package goods. I'm a market scale from a stock market perspective. These stocks have been doing really well because people are saying, in the time of recession, everyone's going to need food, Everyone's going to need these kind of basic items. So naturally you have to invest in those shares, but talk to us about the trends in this industry right now. Yeah,

it's definitely an interesting time. I think, you know, if I put my investor head on, you know, we we are focused more on earlier stage consumer businesses and it's interesting. You know, we're coming off this period of what I would call, you know, over inflated and over invested markets where we saw a lot of capital come into the market, pressure to get it to work, causing really high valuations and really kind of gross prioritized over profit. You know.

Fast forward to today. Um, you know, I think the positive news is we're starting to see some much needed course correction. You know, you're right, consumers need staples, um. But more importantly, we need these earlier stage businesses to build healthy and profitable companies, and I think we're starting to become prioritized to gaps. Melissa, Melissa, I just want to jump in here, is we don't have a ton

of time. I'm wondering how you're seeing this course for should play out in the private side as a private equity investor, of what you're hearing from your portfolio companies, which include URSA, major let me shine Madison read back to the roots among others. Um, what are you hearing from them about course correction right now? Are they under pressure? Yeah? I think Look, everybody's under pressure to just maintain some consistent levels of growth. But I think we've got strong

value propositions to the consumer. I think we're being much more thoughtful and discerney as we think about you know, omni channel models and where the product is and being with the consumer where they are in purchase. And I think all of our companies are well positioned, but definitely long term minded, right um, and really focused on loyalty and retention. So what are you worried about here? What

keeps you up at night? Oh? Lots of thanks, um, But no, I think look, consumers are evolving, right and they purchased with their head in their heart. And I think the definition of brand and and the value of brand to the consumer um ever changing. And it's it's important for our companies to be well positioned, right. They have to solve for the purchase friction. They have to meet the consumers where they are in the head and

the heart and well developed omni channels. And so for me, it's like Look, we've we've got good value propositions, but we just need to be with that consumer and the consumers changing, and that's a constant struggle and opportunity for our businesses and making sure we're well positioned. Melissa. You know,

it's so funny. I I moderated panel at Milkin with a bunch of folks in private equity, and I think every single one of them was based in New York City and you're joining us from Birmingham, Alabama, where you're based, And I'm wondering how that goes. And I mean, if you think about it, you know, we see it so much of the focus here in New York City, So how does it help and how does it hinder you at points to be based there? Yeah, well, look, I think look we're hide Jim right, UM, and I think

we've got a great portfolio. So I think our portfolio, our reputation, you know, speaks for UM itself. But I will say that we're very relational, and I think like sometimes being a non coastal UM, you know, we have a different approach to kind of Middle America. Lens On right, the consumer UM and the consumers not just in coastal cities, and I think we have right. We kind of leverage that mindset and being where we are to to our advantage, and I think we bring something right that's a little

bit different to the to the table. Let's try and talk very quickly about just being a female lead investment firm. I think that's incredible. Walk us through perhaps a little bit of your perspective being a female founder in a private equity business. We got about a minute here. Yeah, I took a very unsimentional path, you know, the classical musician turn marketer turned, you know, sorry, classical musicians. Yes, what did you play violence? Ye? That second grade was

not a classical musician. But nevertheless continue Lissa, Yeah, nonetheless, I'm not your typical kind of right PE pedigree. Um. You know, for me, it was about leveraging all of my in the trenches operating an expertise to small brands that needed help. We saw an inefficiency kind of in the funding market between VC and PE and where partnerships and value added capital really could could make a difference.

Then I think for us, being a female lead firm, we're the consumer um the gain conviction of the product early, and I think we can bring more EQ to the partnership building companies is hard. It takes time. Um, I think there's lots of pivots, right, and I think it's not just a spreadsheet, but it's a relationship and a partnership, and I think we kind of can can bring a little more of the relationship and the empathy to the table with these companies and kind of what they're going through.

And yes, we have the capital capital of the commodity, it's everywhere, but I think for us, it's like how you capitalize on the pivots and how you manage through growth inflection and I think that, um, you know, takes a lot of work in handholding and we bring that relate Schnell Peace to the public as well. Melissa Baker, really great to have you back on Bloomberg Business Week Radio. Thanks for joining us once again. She's founding partner of

Fenwick Brands. Joining us on the phone from Birmingham, Alabama. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well story featured in the new issue of Business Week magazine, written by Alex Barrinka, Technology reporter for Bloomberg News. Is all about how one of TikTok's biggest stars is roasting dudes for misogyny and racism. Alex Brinka's technology reporter for Bloomberg New. She joins us from our Los Angeles bureau. You can

see her on YouTube if you're watching us there. Also with us is Joel Weber, the editor of Bloomberg Business Week. He's with us right now in the Bloomberg Interactive Broker studio. So, Joel, it's so funny. We're talking about a person named Drew F. Wallow, and you know, we think about the power of that people have with these platforms. She has got seven point

five five million followers on TikTok. So it's fewer than Justin Bieber, but she's got like as many as Jimmy Fallon, almost as much as Jimmy Fallon, and and yet you know, not maybe not a household name, and it just speaks to how well uh, she owns TikTok. And on top of that, we're um and working on a special issue this week. You're gonna see some more stories that are gonna be thematically linked to this one. UM. This was

the first out of the gate. Uh. And it was also just totally caught our attention from the moment that Alex of flagged. Uh. This is an option because uh, Drew in the aftermath of the Supreme Court decision, Uh that basically you know, upended Row versus Wade. Um. We're thematically talking about that. Uh. This this in this week's issue. Um. And this is a sort of a surprising silver lining to all of that, which is how laughter can actually

become a weapon. Alex Philis more about Drew's approach here. Yeah, and you know, you say she's not a household name, but if you're on TikTok, she's absolutely a household name for better or for some of these, um, misogynistic type online trolls. For worse, Drew as a character who's really um increased in popularity over the last year. She we got to chat for this story. She is sharp, she is witty, but she also cares really deeply about women

who she says she's protecting. On the platform, if you see a Drew video in your feed on TikTok, you'll be scrolling and um, a video of a guy will typically pop up saying some pretty awful things. There are the racists, their sexist, uh, they're fat phobic. And then all of a sudden, Drew's face will cut in, usually with her kind of trademark laughter, cackling at these men, and she basically kind of dismantles them, and she doesn't

in a really interesting way. Drew is very smart and clever, and she makes some really like logical points and and basically picks apart these guys with logic. But she also takes these tactics that online trolls are really known for comedy, commenting on people's appearance, telling the guy he's already going bald and kind of wraps the logic in this wrapper of of the same tactics that online trolls like to

use when they go after women on the platform. And I'll tell you, I've seen these guys takedown videos or just like completely delete their accounts. They don't take it as well um as maybe some of their victims do.

So she's really kind of established this role for herself, almost, this like folk hero type role going after guys who are kind of awful on the internet, editorializing too much, Alex, you should know the minute you said balding, there was a major reaction in the control room and studio when I was not prepared for. I will admit, um, Alex, Let's talk about the the approach that TikTok takes here. The internet makes it very easy for people to say

all sorts of things. It's also, I think something social media platforms have really tried to address walkers through how maybe that's not enough. Yeah, so the platforms are are a little bit reactive, right. They might ban certain words or allow creators to mute words or block people. Um, but these guys will um kind of take tactics that that stay step ahead or trolls to speak more generally.

If they are banning things like, um like quote I hate fat women, and folks notice that that language is getting banned or taken down for bullying by the platforms, they'll change tact and say things like I only love men who weigh less women who weigh less than twenty pounds. So, um, the platforms are, whether it's TikTok, Instagram, Facebook, Twitter, they all have policies in place to kind of combat bullying.

But frankly, um, these bad actors on the platform move a lot quicker and speak in different languages or use code that is very well recognized by people on the internet. But it's this little bit of a game of kind of whackable. Um. What Drew has been able to do is basically keep up with the times and kind of um, you know, uh, slide a knife through these guys UM online and keep up with what they're saying and how they're kind of skirting these rules. So there's some things

out there. A lot of it depends on UM fans, followers, or people on the platforms to report things themselves. Um. But you know, if you can stay a step ahead, then maybe that hand to hand combat is a little bit more fierce. In the moment, it just feels like you she may have like no shortage of options to pick from. And I'm curious, did you put that towards Earlia?

How does she pick who she takes down? Yeah, so initially she would kind of um, I'm talking a year and a half ago and she started this um uh this kind of half. She would look for guys and find them who are kind of saying awful things. These days, she wakes up to thousands and thousands of notifications across all platforms. She has those notifications turned off because there

are so many of them. Um, but a lot of times now her fans, her followers will actually tag her in videos of people who are going after women or who are uh you know, um slewing racist, misogynistic or fat phobic comments on the platform. There's another camp. Um, there's a lot of folks who like to attack her. So those are coming straight into her notifications as well. Um, but you know, it seems like there's a lot out there.

I will say, Um, she didn't tell me that it's getting a little bit tougher to find guys that she hasn't roasted before or subject matters she hasn't roasted before. Um, So you know, whether that's because she's doing her job too well as she sees it, or if things are cracking down a little bit, who knows. But a lot of these things are referrals. Yeah, she should come over

to Twitter. I see a lot of this stuff there. Hey, Alex, just in the last minute that we have with you, can you talk a little bit about the business of of somebody with seven point million, seven point five million followers on TikTok, Like how does she make money? Yeah? Absolutely so, Drew wouldn't divulge exactly how much she makes, but she will say she's making a living off of it. Um. There are a few venues for somebody like her to

make money. The platforms do pay out a small amount if you're in something like TikTok's creator fund um, but when I talk to creators across the platform outside of just Drew, they say that's basically coffee money or lunch money. UM. Where they make a lot of their money is on brand sponsorships, brand partnerships where they'll post sponsored post with

clothing or other products. Drew also has a podcast, so folks will start to venture outside of the platforms as well for opportunities for advertisers or sponsors to work with her. So mostly platforms, sponsorships or other partnerships is where a lot of these folks are making money. Well, it's a great story. Al highlights a really important issue and certainly, uh, somebody think who's not a household name for people who are not on TikTok, including myself Alex Brinka, technology reporter

for Bloomberg News. Check out our story in the new issue of Business Week magazine, on the Bloomberg and online. Now this is Bloomberg business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio, Creating. When we talk about the health of the markets, we not only look at the equity market and the bond market, of course, but we also look at trends that we've seen this year I p O S, M and A

and what's actually happening in the space. And it was interesting because in the first half of two we saw quite the decline when it came to when it came to I p O S and new deals. We are still seeing those some M and A activity. I mean, what comes to mind last week is the Frontier Sprint merger getting dropped and then Jeff Blue coming in and being the company that comes in and triest to make that acquisition. Let's get an update on the health of

M and A right now. Mark Cooper is CEO at Solemn Partners Mark this afternoon, joins us on the phone from New York City, Mark, how are you doing pretty well? How are you doing pretty well? So if we were doing this conversation a year ago, I think our conversation would be a lot different because we would be coming off of this, you know, quarter, first half of the year that was just so hot. When it came to M and A, when it came to I p O. Spacks were on the decline BECAUSEY was kind of the

peak for that. So we saw that coming. Help us understand where we are right now though, as we get into August. You know, I think we're in a reasonably good market. You know, you you can't look at two thousand twenty one and compare it to anything. It's a a once, it's a once in a generational market for M and A and was hitting on all filmsers for all kinds of reasons, which no, no need to go

into right now. But the fact of the matter is, yeah, we're off considerably from last year, but we're tracking only modestly down down in the nineteen which would be the first sort of comparable clean year, if you will, which was a very good year. Are they are they different? Mark? Are they different types of deals happening this year than last year? Well? Yeah, I think you're seeing more going private transactions and that would be natural given stock prices

has been lower. I think you're seeing a higher percentage of transactions being done by private equity buyers. Uh. And interestingly enough, you're seeing probably more in volume of mega transactions and they sold last year. Now that doesn't necessarily have anything to do with macroeconomic conditions. It could be everything about just specific transactions like you know, like Musk buying Twitter for four billion. That could move the needle

pretty significantly. But the private equity community still has I don't know, trillion and a half dollars of excess capital or dound. And you know, one interesting aspect of the market this go around versus two thousand and eight is the whole private credit markets. It's the debt markets. So traditionally stock markets went down as they did, uh and infestrates go up as they are. The public debt markets

just closed down. They shut which happened to happen, you know, for a couple of weeks or a couple of months this year. But what really is going on is the private credit markets are stepping in and picking up the slack. And the private correct credit markets don't care as much about near term volatility. What they care about is credit and return on capital. So while interests going up slightly, it's still still working well. Speaking of interest rates going

up slightly slightly, as a feeling an understatement. But it's an't there this incentive built into the market here that if I mean, I think a five year old could say this. If you're say allowance is worth less tomorrow given an inflationary environment, and makes sense to spend it today, you're saying that a toddler can do time value of money. I'm saying you can. Yeah, if you tell can your daughter do this stuff? No? Okay, come on, this is

like business school stuff. Keep continue, Please thank you if you give. If you give a child a quarter and say this quarter is not going to get you a Rubik's Cuba candy bar or whatever tomorrow, they're going to say I have to spend it today. It's true. I'm clearly steaking to a different anyways, Mark My point is that there's so much cash on the balance sheets right now. This is going to be worth less tomorrow. Just give

them the inflationary environment. Why aren't we seeing more emine? Well, you know you got to be careful with that concept. It's worth less tomorrow unless you invested well. Right, So the answer is, we're not. Corporation are gonna essentially do M and A because they think it's the best, because they think it is as simply a good way to return on their capital. I mean, yes, of course ray return comes into play, but they're looking at strategic issues.

They're looking at, you know, do they have more better investment opportunities within their existing business, So they look at a whole beriad of things. They're also looking at the health of their business. And frankly, the flip side of your argument is with inflation as it is, consumer demand dropping and the consumer driven companies, I mean, that could suggest that they're gonna have a fall off in their

business and so they might want to be conservative. Now to your to to the ultimate point is if you look back on two thousand and eight, that was a great time to be a buyer, because when do you want to buy. You want to buy when things aren't so great. You're buying a better prices, uh theoretically, and hopefully you're buying assets that weren't necessarily available to you before when the markets were so robust then there was

such a great demand. But Mark you said the best time to buy with two thousand eight and and and a lot of that, I mean going back to I think a very famous call made by the by Norway's major state fund is that you just you buy tech in two thousand eight and you do super well for I think up til now really and I'm wondering, but one of the biggest kind of tail winds for that trade was that Tech was really using a lot of the cash that they had in terms of acquisitions, which

brings me back to the M and A story. You have so much cash on these tech balance sheets, they're not able to spend it because of the antitrust scrutiny, So how do you make any sense of that? So you brought up a couple of points. You're right. Antitrust is probably, in my view the biggest issue UH headwind issue that we have in M and A, or one of the biggest issues. Certainly obviously the economy being the other macroeconomic conditions obviously be being very important as it

relates to UH tech. You know, tech buyers doing roll up strategies. I don't think that's stopping. We're talking about larger transactions now and as you do tuck ins, I mean you see it happen all the time, and they're continuing to do them now. Anti trust is the big issue, and that won't stop. In my view, and you're right, that was a great opportunity for success. And you're right two thousand and eight because it was a down year and it was a tough year obviously great recession. That

was a great time to be a buyer. And I'm not suggesting it's not now a great time to be a buyer, but there are a lot of considerations. Mark, does it become a better time to be a buyer? Uh, in the remainder of rather into I mean, what's your call for this moving forward? So I think it's a good time. I think you have to be selective, and no one knows, uh, you know, are we in a recept shan or are we going to be in a recession? What's the demand profile gonna look like going forward? How

business is going to perform? So far, earnings has been good for you two. You know, I'm bullish long term, and I don't know what long term means. So my attitude about buying is this is probably a pretty good time to buy if you've got staying power at a long hold period, and strategics obviously do and if they're doing something that is uh. Those attitudes to the business that has savings and synergies that pushes them in a positive direction. And the answer is yes. And from financial buyers,

they are continuing to invest. They're not stopping. Mark, we only have twenty seconds left. Tell us some industries to keep an eye on. I think it's gonna be across the board. I think healthcare seems to be seems to be active, industrials seems to be active. Business services, which has been a great middle market business of an equity. And then finally, I think tech will continue to be important.

All right, Mark Cooper, CEO of Solomon Partners this afternoon, joining us on the phone from New York City, talking all things m n A A Jolneal. Yeah, I bet you let me drive. Oh no, no, no, no, please do dravels. I want to drive. It's a good question. This is the Drive to the Clothes on Bluebird Radio. All right, well, here we go. We got nine minutes to go in trading today on this first day of August.

We just heard the numbers from Charlie Pellett. But worth another check here is we're pretty much flat on the NAZAC. We're down just about a little more than one tenth of one percent on the S and p the dows in the green, but just ever so slightly. This comes after just a monstrous month, the best rally for stocks since in the month July. Really curious to hear what Lisa Shallatt has to think of it. She's Chief Investment Officer for Wealth Management at Morgan Stanley. Lisa joining us

this afternoon on the phone from New York City. Lisa, how are you? Um? Fine? Thank you all right? So where are you when it comes to whether or not the bottom is in here? Are you in the Mike Wilson school or are you in the idea that okay, well we are we got a bottom in here? Absolutely not, So you know, Mike, Mike Wilson is a dear colleague of mine and heads up our Global Investment Committee along with us over here at the wealth management business at

Morgan Stanley. UM and I think you know. Our our perspective is that investors um have made a lot of assumptions here, assumptions about inflation peaking, assumptions about UH peak fed, assumptions about the fact that you know, multiple should expand as you know interest rates um it uh. And our view is that, look, while some of that narrative may

UH be beginning to take shape. Um, there's big elements of it that remain unknowns, And the single biggest element is what what where are we really in this earnings trajectory and can corporate earnings really hold up against this backdrop that that we're seeing. Um, you know, can are we really going to see corporations resist or recession if that's what the bond markets pricing? Um, we don't think

so at leasta. How much of this is a waitings game, and that similar to when there was that amount of uncertainty, everyone just kind of flocked to big tech names that have a lot of cash on their balance sheets because it was the cash that could kind of cushion them from that recessionary blow. We're now in an environment where I would argue a lot of the SMP five companies have a ton of cash on their balance eat as a byproduct of those extremely low rates. So can't that

help cushing it from any sort of recessionary blow? I think that I definitely think that that is the case, and we are quite bullish on the longer term outlook for the economy once we get through this FED rate hiking cycle because of the health of balance sheets but we do think that that um, what we've seen in Q two so far from companies UM is a little bit of of an illusion in terms of the read

through being. Oh, look how resilient everybody is. Remember when Q two began, Uh, you know, the FED was really kind of at seventy basis points on FED funds. A lot has happened and policy operates with a lag. It still remains to be seen what real levels of demand are going to be for folks products. Um, if inflation is really rolling over, so is all this wonderful pricing power that comes and needs claimed to be taking as

a way of helping them make the numbers. And the bottom line is when you really take a step back, UM, we're starting to see negative operating leverage, meaning sales of the SMP five are growing more quickly than profits. And that's what tends to happen just as inflation peaks. But our sense is that you know that that as quickly as that those pricing gains came in to corporate earnings, they're going to go out. And that's just not in

the forward estimates. So at least that raises the question about where the opportunities are right now for our investor audience, if you get new money, how are you deploying it? Where are you putting it? Yeah, so we're you know, looking for places where the recession is already fully valued and they're very low expectations. Like you're saying there is going to be a recession. Um, we actually don't think that we know that for sure, and actually our base

cases that we escape one. But that's why we're looking for areas of the market where expectations are washed out, where recession is already priced, whether we get one or not. Uh. And so we're finding that in some small and mid cap stocks. We're finding it in healthcare, we're finding it, uh, in financials. We're finding it in energy stocks, which we think are going to continue to surprise on the upside. Uh. So those would be some of the places that that

we're looking. Hey, uh, Lisa, jump on, I want to go back to you. Well, I should say, fretty excuse me, I want to jump in here. Um. You know, a listener is getting in touch right now. He wants to know where inflation is turning over a comment that you made a little earlier. Where are you seeing that specifically?

So we're seeing it in two places. So obviously at the gasoline pumping in uh, you know, oil prices more broadly, more broadly in commodities, those are things that the market is telling you have definitively rolled over as part of that commodities trade. We've seen industrial metals, things like copper rollover, etcetera. Perhaps more powerfully, we're seeing it in the manufacturing surveys, where manufacturers are now telling us that prices paid are

coming down hard. For example, we got the I S M survey this morning, UH, and that uh index of prices paid UM came down really hard. UM. Last month we were running that index at seventy eight point five and today it came in at sixty versus an expectation of seventy four point three. So prices do look like on one level, uh, they are um moderating. Certainly, we haven't seen that in wages yet. We haven't fully seen it in housing prices and rents yet, as those tend

to be you know, lagging. But we have begun to see the front end of some of those supply chain related problems in commodities and gasoline easing up. We something've got about a minute here, how concerned are you about liquidity as we talk about really unprecedented amount of quantitative tightening um very uh And and this is another element where I think the market maybe premature in its um conviction that the coast is clear. Um. You know, we are you know, going to move into a very dangerous

seasonal time for the year. Uh. In the best of seasons, right, summer tends to be August in particular, tends to be a tough liquidity uh. Chapter we're accelerating and ramping up to t in the month of September and into October. UM. So liquidity here as these rates um kick in with a leg Um. We believe folks should you know, keep their seatbelt, keep their seat belts buckled, um, and wait and learn because we really haven't been here. These are

somewhat unchartered waters. Lisa Shalit, chief investment Officer for Wealth Management at Morgan Stanley, joining us on the phone from New York City. Lisa, always great to chat with you. Thanks so much for taking the time. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube. Search to Bloomberg Global News