M&A Trends, Creating More Diverse Corporate Boards

Week on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Vitos Purdudo is co head of Global Mergers and Acquisitions at RBC Capital Markets in our Interactor Broker studio, along with the one and only Ed Hammond, deal's reporter at Bloomberg News. So nice to have both of you here, Vito, Let's just get right to it. What's the M A environment? Look like we had a bunch of deal activity, big deals late last year.

Is that going to continue? Yeah? Look, I think it was an interesting year last year. It was kind of two halves. So the M and A market was completely made by large deals in the first half of and so if you looked at the US market, Um, you know, it was fully driven where it was up over in the first half because large deals were up that much.

The European market, just given the uncertainty and the political climate over there, was actually off over in the first half, and even though they had a massive rally in the second half, they were still down last year. I think a lot of what we're seeing now are the trends that developed in the second half. A lot of the transactions are of a size kind of one to five billion, kind of mid size, more bite size for corporates, uh more doable for private equity firms. But conditions are pretty

strong right now. We are sitting at financing rates if you talk, if you see the markets from a debt financing perspective, and the volumes that are occurring, they're they're hungry for M and A product right now. So many companies are repricing their debt financing, but there isn't a lot of new M and A product and so as

that comes to market, that's really available. Stock prices are near all time highs, and then cash on balance sheets and dry powder and private equity funds again kind of near all time all time highs for private equity, near all time highs for corporates, and so you have a lot of really good conditions. Um, I do think it's a first half of this year market. So when you look at the second half, I'm sure it'll extend into it.

But if you can get your deal done first half of this year and not have to deal with the political uncertainty, and we're sitting here on a day when you know you can't call an election in such a caucus, excuse me, and and so even call a caucus, bro, imagine the deal was done like that. You're gonna sort of partially announce the deal and then I'm gonna trickle it out over days and days. It's embarrassing, Yeah, and

it's difficult. I think the problem right now is people look at it and there are a lot of key assets that people want to sell because they weren't able to last year, and so there's a lot of pent up demand both in terms of buying and selling. And as a result, you know, I think people want to make sure that you know, I'm not going to risk uncertainty and if I can get it out sooner, and that's what we're seeing from our clients right now. But but there's not a lot of large deal flow versus

what we saw last year. We saw some real blockbusters in that first half of the year. And so in the immediate term, how much is your phone ringing or your email box filling up with concerns from a CEO who might be thinking about selling around coronavirus. So, look, I think that impacts you if you're dealing with business that excuse into Asia China more specifically. So you saw some I p O s get pushed out and I think somewhere because of exposure to that market, somewhere just

because of concerns on volatility. UM. I think you know, M and A deals don't happen when there's uncertainty, and so you need to be certain about your performance. You need to be certain about the market performance. And so I think the risk is more you know, it's going to be isolated a certain areas. Now, we've spent a lot of time looking at this UH and I would tell you the the amount that the Chinese economy accounts for the global economy is much more significant than if

you go back to stars. Right, So if you go back to two thousand three, I saw a statistic for luxury goods. A third of all luxury goods today are sold in China. Yeah, we've talked about the fall off in Hong Kong. Yeah, ten was the number back in two thousand three, And so if you think about that, if you think about the importance they are just to the global economy, it's going to have an impact, but I do think it's going to be more of a blip.

The other thing I was talking to someone this morning about was how soon I was asked this question by a client, how soon do you think people are going to start mentioning the coronavirus in their earnings? Well, I couldn't be. I mean you look at LVMH, tiffany where. Obviously the China pieces a huge motivation. Could they? Could they potentially, Declara Mac. I don't think so. But it's but but you know, I look remind people where the back is material at first change and then the deal,

and basically it's it's it's way you almost impossible. I think there's only been in Delaware law, there's only been one that and it's you can't And in general, market conditions like this are excluded from that definition. So I think that's difficult. But I do think if you recall when Tiffany's had to make comment about their UM the main store and the impact that was having from being so close to Trump Tower in New York City. Since the streets are shut down, UM, you're gonna see things

like that impacted. You start hearing about Macau shutting down for two weeks, you start hearing about Apple and Starbucks closing stores, Right, you're gonna feel some impact. Now. I do think, um, we'll know a bit more as this plays out, but it will impact the companies that are exposed to that market in general. Speaking of M and A, just want to bring you a quick headline Intercontinental Exchange approaches eBay about a takeover that is just crossing the

Bloomberg according to just got three set can here. What would you say to that? You know, you're seeing a blend of a lot of these companies like this. We we've been talking to big theme this year of convergence. Yeah, and so when you take a look at sort of buyers extending their reach in the other areas, especially technology related, UM, that's fairly inesting. I haven't I haven't spent a lot of time in that space. But that's something I'll be

taking a closer look at. That's a really instrument all right, video about five and a half percent as expected. We'll keep watching that one. He is the co head of Global M and a over at RBC Capital Markets are thanks to him, and of course to Ed Hammond, our m and a man on the scene. All right, Well, this story immediately jumped out to both Carol and myself. It's a topic that we talked about a lot on this show. We talked about it at the Bloomberg fifty.

It's just something that's very much, as Tom Keane would say in the Zeitgeist for more diverse corporate boards. Move down the org chart. That's the headline on the story by Jeff Green in the latest edition or the upcoming edition. I guess of Bloomberg business Week magazine. Jeff Green normally based out in Detroit City. He's here with us in New York City, and so is Joe Webber, the editor of Bloomberg Business Week. Detroit people feel about Detroit City.

That a thing you like that Detroit City. The rocket is understood. Come on, as long as you spelled Detroit, right, We're good. Alright, good. Uh so j G, welcome back to New York. Tell us about this story, because this is the constant refrain. People say, all right, we want a more diverse board, but the candidates just starting out there, there's nothing I could do about it. Bro Yeah, Well, I started kind of looking at it backward. I was looking at the number of first time executives that were

showing up on boards. There's a lot of a lot more first timers now on the SP it doesn't turn over much, but when it does, they're more likely to be first timers. And I was trying to figure out why. So I started looking at, well, who has the most people UM, and Marriott jumped kind of to the top. So I went to them and said, what's going on here? And like they had no idea that they were in any way. Look, you know would be on this list. And so I talked to Arnie Sorenson. He said, it's

it's not really on purpose. We're not trying to be more diverse. But he said, you know, I was one of the first people allowed to be on an outside board at Marriott. I went on he first, he went on Walmart. Now he's on Microsoft UM. And he said, I thought it was a great experience. So he made it a requirement that his reports come to their board meetings and kind of see how it works. And then for those who are interested, he said, why don't you

think about going on some outside boards. Oh? Interesting, So this is allowed, so non CEO, but maybe C suite or kind of how it's percolated down to reports to reports to reports at Marriott's three levels. At least one of those people that would have been in the story she just left for another company, but it had been a report to report to report. Perhaps the programs working because one of the things that comes with these positions is oftentimes a little networking effect, right, Yeah, and a

higher profit and a higher pay. It doesn't hurt if you're trying to keep somebody. So what are those well, I mean you get access to both for the company that you work for and the company you're going to. There's access and networking. Um, you know the Home DEEPO in Adobe or a couple of the boards where people from Marryott are now serving Home Deeper in particular, they

talk about how it's a customer service. They have people trying to wait on you on the floor, you have people you know, waiting on you in the rooms, and there's a lot of potential cross pollenization, a lot of things. So it makes a business sense. And it's not just Marriott,

I mean I was, there was several. Almost every big company now is letting their lower level executives serve in some capacity, usually just one, but I mean one is really all you need for one is more than none, which is what it used to be, right, especially for lower level. It's a retention tool. You have somebody you might want to be CEO someday, you put them in this position basically the boss of a CEO. I'm I'm an e v P but by day, but you know, eight times a year, I'm the boss of the CEO

of a major company. Potentially. It's also like an executive program to some extent, if you think about it, you're taking your lower level executives and exposing them to another corporate board and kind of their expertise and what they're working on. And in that way, I mean there's a

payoff for the company as well. Yeah, and you know the sort of the collateral undamaged whatever, the the good thing that comes out of it is the next layer and the layer below that in most corporations is more diverse. I mean, you know, what is it of C E O S or white males? It gets better it's our female and you know the numbers get bigger when you

get further down. Well, and the other point you make this in the story is this idea that when boards are looking for new members, they are often not looking for white dudes. They are looking for people of color and women often and so that only it becomes sort of a virtuous sort of situation. So who else is shining in this regard? You know, if if Marryott just happened to stumble into this, uh, like, what else is happening out there? Well, it's not. I mean a lot

of companies are doing it for the other reasons. I mean I think I remember Cummins, you know, the industrial company, for no reason they could explain LOOKS is really good in this and big companies like m X and and other companies, you just it's because they have the policy. I mean, I've written about this in the past. I did an article for Business Week a few years ago when I first saw this kind of happening, and it was interesting. Some of the people I wrote about one

of them now runs of General Motors. The other one, the other woman now runs Automation, and they've both been featured in these stories about how they're you know, they decided, Um. I think it was the CEO of General Motors said I'm gonna put some of my lower level executives out there. And Mary Borrow was one of the people who got a shot, and I interviewed her at the time. She was, you know, two layers from CEO. So let me ask

you this, because this is right in your wheelhouse. We made a lot of this decision by Goldman Sax recently to say we're not going to take you public if you don't have at least one diverse member of your board. And a year from now, I believe her in one that's going to go to two. How big a deal is that? I mean, you know this space much better than we do. How big a deal with that? Well, I don't think Goldman Sax is going to not do

a deal. But I don't think Goldman Sax has to worry anymore that anybody is going to come to them with a board that isn't going to have a diverse candidate. I mean, I think it's gonna be basically, I want Goldman sex and my deal. I'm going to start looking because if you look at most I p o s and you look at you go just pull them up on the Bloomberg and look at the screen. The last two people picked for almost every board are women. But we work wasn't that way. They waited till everything that.

But I'm just saying a high profile you know I p O that had a lot of different problems, but they didn't have women on ten percent of the big I p o s every year don't have any women on the board. I mean, that's that's a that's not my stat but I quoted a lot um. It was I think it was twenty women on boards. Went and look, they look at the top twenty five I p O deals every year and they don't, you know, invariably ten percent percent. And this is the one in this way

that that jumped out of me. Although women make up half the work, first, they didn't exceed a quarter of SMP directors until just last year, right, so total total. What I what I guess I think about with this framing is like overall problem is like we know diversity on boards is a problem, right, and like novel solution that hadn't been talked about, and don't jump to this, We'll just open up the funnel a little bit, like it doesn't have to be top of the food chain

down the later the company's opening. If you want to see diversity, look for chaos, look for turmoil. We did another story looking at the consumer segment. You know, it's the worst place to be in theory as a CEO. At the moment, they're more CEOs are being fired at consumer companies than anywhere else. However, it's also if you're willing to, you know, be a little risky, it's the great place to be a woman right now. I mean it's they have a food chain too, they have a

they have a bench. So you're seeing women just like jump to the floor there. And when you're on a board, even if you're a lower level executive, you get paid for it, right exactly, it's not and it's not too shabby. Yeah, not for nothing, all right, Jeff Green, what a treat to see you here in New York City. Managining diversity reporter for Bloomberg, usually based out in Detroit, Michigan, I

said it correctly that Detroit Detroit City. Joel Weber, editor of Bloomberg Business Week, he is here in New York. You just call it motor City. My god, there's a lot of growing going on right now, just saying this isn't a good corporate board. No, not even close. You're listening to Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. Alright, so this story one of

the most right on the Bloomberg Today. Goldman Sachs is Adam Corney is one of Wall Street's most prominent evangelists for rewiring trading desks deaths. I can't say it trading desks with cutting edge technology anyway. It talks about the commitment really that has been made to technology at Goldman Sachs. And so you do wonder about him stepping down. Trinaderag And is finance reporter at Bloomberg News. He's in our

Bloomberg Interactor Broker studio. He wrote it, sor I've been I'm spending too much to Twitter is a little crazy today. All Right, I'm going to step back from Twitter and I'm going to focus on straight. Um. I'm glad you're here. We're gonna look you in the eye and welcome you to our home. Thank you. Tell us about this story, who this guy is, and what he's meant to Goldmen,

and what it means that he's leaving. Well, the interesting thing is how much the story has changed just in the last few hours since we published the story, Because when we were talking about this story, initially it was Adam Corn, one of the most prominent tech evangelists inside Goldman's accent across Wall Street. But in the last few years we've also heard the new breaking news that his boss was also one of the most senior engineers there is leaving the film. And you know, some people might

find it weird. Why are we talking about engineers when we're talking about a big Wall Street banking investment bank. Why do I care? They're not the real players. We need to talk about the traders and the investment bankers. It turns out that's not the case the new Goldman. Just last week they did a huge deal with their big debut investor day where they talked about tech transformation

being the centerpiece of their trading vision and strategy. So when you have two people who have been integral to that process, who have been at the firm for so many years, who know all the core products have been building it leaving in the midst of all these initiatives. It's certainly it feels like a really puzzling move, and one wonders that there's more to it, and especially that it's not like one guy. I mean that there's there

is a trend here. I mean, especially when as you do in your story, you talk about Marty Chavez, you talk about Alicia Weasel. Is that am I saying that? Right? Um? You know, these are a lot of important people who not only set the strategy, but we're executing it and we're put forth by Goldman. So what do you make of it? Let's take a step back when you when you think of all the palace intrigue inside Goldman Sacs of the last couple of years. What is it that

we've talked about a lot. Ever since David Solomon took over, see you, and the new management was in place. We we kept talking about the old guard and people associated with Lloyd blank Fire, and then the old leaders of the firm leaving and and in new blood coming in or people close to the new management taking prominent roles across the firm. However, the moves that we're putting on

this week feel different. These are people who are supposed to be a part of the nucleus of David Solomon's team taking Goldman Snacks forward, the likes of Ezra the Adam corn. These were people who were supposed to be the next generation leaders driving that vision forward. So for them to abruptly leave is definitely a bit of a head scratch. So what are you okay, so scratching your head, But what are you hearing from folks about what it means?

Maybe about what's going on inside Coleman Sacks. Well, well, one thing is clear, there's no way, in no way, shape or firm doesn't indicate that Godman's pulling back from its text strategy, right. That should have said no, No one can have any sort of thoughts about going back on that promise. That is the only way forward for them. And we have talked about a procession of tech innovatives who have left the firm. But at the same time, Goldman has tried to offset the losses by bringing in

tech fire are par from the outside. They've got Marco or Gentye from Amazon, they got another senior leader from Verizon, So they have been beefing up a talent from outside, and I'm sure over time that these outsiders will also bring in people that they work with closely over the years to fill up the ranks inside Goldman Sax. And you know, that's what leads you to wonder maybe some

of that tension is that play. Although we have no indication exactly why they left, all we know is last week these people were all part of the showcase invested

at Goldman Sacks and suddenly they're not there. And Tree, as you know, and we certainly around this table, I feel like for years, remember Jamie Diamond holding some event and talking about the amount of money spending out technology and cybersecurity and all these things, and I think we all at that point, you know, started to say, Okay, Wall Street is not just about the finance part. It's a big part about technology. So how do you read this?

Is this just another sign because as you said, they're not cutting back on their commitment to technology. They brought into big names. Is it just David Solomon continuing to kind of remake this firm and his bitch or where he sees it going the tech transformation, the people he's put in place is certainly part of the stamp he's leaving on the firm. But the problem is, right now, when we're talking about that stamp, it's about a lot of the people who are leaving. And I'm sure he

doesn't like that. I'm sure he doesn't want that, but he will continue to pour as much money as possible into upgrading the technological system because Wall Street has been overhauled over the last ten to twenty years and the change is only going to accelerate over the next decade or so. So you can't walk away from that pledge. So he's continuing to do that. But at the same time, the kind of people who have left, that's a lot of right, especially coming after the state of knowledge leaving

the building, because you have to think of it. In some ways, the bank technology is not the same as the technology the tech company you have. You have to build very specific products and these are people who know the core of the system. So in some ways for them to leave, that's that. I mean, you guys got the would right it is, and you can lose and you can certainly lose a momentum right when you're when you're building out tech processes. It's a technical term. It's

bummer dot com. You m R on the terminal Bummer bro exactly finance reporter for you have no idea. It's about the themes for today. It's about It's about the bro all right. Anyway, Bro's coming and going, John, thank you so much, Bro Journal. Yeah, but you let me drive? Oh no, no, no, no, who's going to home? Please? I'll do the l I don't want to drive all just drive baby questions drying us the drive to the globe Bloomberg Radio, it is time for the drive to

the clothes. Larry Pitkowsky is back with us, co founder at good Haven Capital Management, based in Millburn, New Jersey, back in our Bloomberg Interactive Broker studio on what, as you know, is a busy, busy Tuesday. It always seems it's very true. Um, what do you make of this market environment? There's you know, Jason and I kicked off our broadcast saying, man, there's so much uncertainty out there.

We're still a waiting news on the Iowa caucuses. Uh, we're a waiting you know, kind of what's the future of Tesla. The stock just keeps taking off and off despite people still questioning some of the fundamentals that are out there. We're worried about the virus. There are a lot of things still up in the air, and yet the market continues to grind higher. It does you know a good haven. We are stock pickers and risk managers

and we're really not macro people. And I'd be in a better mood if the market was down than the market being your value person to write value people, and you know it's easier to find bargains on weaker reads. However, the economy seems okay, and you know you have very low interest rates, it is harder to find things to do in asset prices of almost everything you're dramatically higher.

But you know, you have to deal with the circumstances that are in front of you and try and look for in a risk adjusted and risk averse way things to do with capital if you find them. And so where do you go? What are you picking these days? Well, if you look at a couple of things that I thought were worth talking about one uh as as you mentioned the coronavirus, and you know it's, first of all, it's a it's a terrible thing happening from a standpoint

of human beings. People have lost their lives. More people probably will, but there seems to potentially be some overreactions in some areas. Uh At good Haven, we own some Delta Airlines. That stock has been a little bit weak lately, and you know, they only get five percent of revenues from all of the Asia Pacific region and it's not a very profitable part of their portfolio. And it's seven

and a half eight times earnings. You have the best margins in the airline industry, you have the best balance sheet, and that seems like a cheap stock price to us. So you'd be buying into it, are you adding? We have added selectively, We've owned it, We've added selectively. We own it, you know, in a reasonable size, and we own some We also own American Airlines. But I think that's an industry that has become a much better business and has been weaker lately, and that's where we like

to do some fissure. They had a good run last year, did It's a very well run company. Although I don't think we're talking about I don't think it's that kind of is to eight times earnings with really minimal exposure to what's happening. You know, that seems like a cheap price and a two dividend to speak to what David was talking about. Well, and it's I'm glad you said that thing about American because I do wonder in a case like this, whether you're sort of looking at an

entire sector, in this case being the airlines. We happen to find this sector in general interesting. It's become a much better business. You look at the industries consolidated domestically down to four main carries and control spacity, charging you for everything, well, you know, and getting people to still yeah,

depending on the flight, depends which hat you're wearing. When I you know, when I when I see the extra pieces a consumer, I remind myself that I'm an owner, and I smile and I put my owner hat on. But I think, by the way, on an inflation adjusted basis, airline fares are still have gotten nowhere for decades. Yeah, alright, alright, so Larry says. But I just do feel like it

adds up though. If you're checking bags, if you want to potentially eat something, if you want to blanket, if you want to do anything, you want to breathe, if you want to breathe think about it. Used to be able to move around on an airline so easily, right, and now it's like, no, you can't sit there, because if you want to sit there, we're going to charge you. I do find that the experience has been getting better lately, and of course Delta happens to have the best scores

for Delta. Delta seems to have figured it out a little bit. Yeah. I mean, I'm in Atlanta Delta for a long time, and but but I will say, as a longtime Delta person, they went through a terrible period. I mean like they went through a period where they were the worst in the industry everyone, a long difficult period. But I think they've come out of it, and I don't think they go back to that, and I don't think the market has given them, you know, their proper

due for having become a much better business. All right, let's talk a little bit about Uncle Warren. Warren Buffett Berkshire is another name that you like. Tell us why that's not an obvious pack. I think it's I call it hiding in plain sight. I mean, who would believe after all these decades of notoriety and unbelievable success that Berkshire would be priced at what I considered to be

a very attractive level. I mean, it might be depending on we don't know what book value was at the end of the year, and let's use that as a rough proxy, but assume the fourth quarter it was up in high single digits. Berkshire could be priced today at around one point three times book value. And it's not what you have to really appreciate what's beneath the surface. You have a bunch of very strong, big businesses that throw off an enorose amount of cast Burlington Northern, all

the insurance companies. You have a big investment portfolio that's two hundred billion dollars probably today. You have talented people all through the organization. You have a hundred and twenty billion dollars of cash, which is enormous optionality in any kind of a downturn. And he has begun repurchasing stock, you know, probably ten to fifteen percent below the current price. So I it's amazing to me that after all these years, that is available at what I consider to be way

below intrinsic value at a very attractive price. Alphabet, they just reported earnings yesterday. Big holding for you guys. Have you added on the selling today or what's your take? Care to go backwards? You know, we've probably made five times our money in alphabet and we had we did not buy any today. Have been pairing back? I think not not very lately. You know, if you you know, sitting on a high quality holding, if it's growing in

the you feel the intrinsic values. Marching forward can often turn out to be a wonderful way to compound money. I thought the earnings were fine. I think there's all kinds of volatility. I don't think they spend a lot of time guiding UH investors ahead of earnings, and so you get some volatility. But you know, I I thought what they articulated as far as future growth, and they did buy back a lot more stock in the quarter than they have previously. I think it was just fine.

And of course what you pay for a investment matters a lot, and we paid a very good price. We just want to mention a headline crossing. This is about boeing Um said to set its new loan size at thirteen billion dollars. So um this is connected with the seven thirty seven. Yeah, in turn on the MAX. Yeah, yeah, exactly blowing. Is that something that you'd be picking up thing to look at it? Well, it does have. The MAX has had an interesting impact on the airline companies,

some good and some bad. Good is taking capacity out and not bind blowing, not at the moment, but it is. It is a pile. It is on the ski. Co founder portfolio Maader of good Haven Capital Management. Always good to catch up with you. Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern only on Bloomberg Radio