The transcript from this week’s, MiB: Martin Franklin of Mariposa Capital, is below.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.
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MALE VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week on the podcast, you guys give me grief when I say I have an extra special guest. But once again, I have an extra special guest. So, Martin Franklin has such a fascinating career. He started out working with his father taking apart conglomerates and later decided he would rather build companies than disassemble them and put together quite an amazing streak.
You might be familiar with Benson Eyecare, the returns on that were 1800 percent. He also put together Jarden Corporation which generated returns of over 5000 percent. He’s built a number of companies.
And really, over the past 20 years, turns what was known as blank check companies or SPACs into quite a respectable way to put patient capital in place to make long-term acquisitions different from private equity which he describes as renting assets. He wants to own assets on behalf of himself and his investors.
Really just an incredibly fascinating career. He’s done so many really interesting things, and his track record is quite astonishing. So, with no further ado, my conversation with the founder and CEO of Mariposa Capital, Martin Franklin.
MALE VOICEOVER: This is my Masters in Business with Barry Ritholtz.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: Our extra special guest this week is Sir Martin Franklin. He is the Founder and Chief Executive Officer of Mariposa Capital. Previously, he was CEO of Jarden Corporation, Benson Eyecare. He was named Antigua and Barbuda’s Special Economic Envoy and was knighted as a high degree of knight grand cross, Sir Martin Franklin, welcome to Bloomberg.
MARTIN FRANKLIN, MARIPOSA CAPITAL, FOUNDER AND CEO: Hi, Barry. How are you? Thank you.
RITHOLTZ: Pretty good. Pretty good. So, I wanted to include some of the more eclectic things in your background because your career path is a little unusual when someone ask you what you do for a living, how do you answer them?
FRANKLIN: It’s never very easy. I describe myself as a business builder. You can’t fit that on your (inaudible) when they ask you to describe your employment, but that’s kind of what I am. A bit of an operator and an investor, I guess, a hybrid.
RITHOLTZ: So, you began working on hostile takeovers at a pretty young age with your father. How did that impact your views on finance?
FRANKLIN: I think I learned a lot in those early years. One of the things I learned with the corporate headquarters for a bit of a waste of time and money that you haven’t really changed. My father always used to say the quality of a corporation is in inverse proportion to its location from its headquarters. In other words, the further away they work from the headquarters, the better the business.
Often, those rules are true but that was probably the biggest thing. I mean, what my father and Jimmy Goldsmith did in those ways were he necessary act to deconglomerate the conglomerates of the ’60s and ’70s. And certainly served its purpose.
RITHOLTZ: One of those conglomerates you were appointed CEO of was DRG and your assigned to break up the conglomerate via asset sales, what was that experience, like?
FRANKLIN: Highly unusual. I mean, I think I was only about 24 or 25 years old, probably did more M&A, the most investment banker in that — in that time. But it really was quite an experience.
So, what — we took a headquarters from 110 people down to seven and we had certain businesses within the group, didn’t even know that this has happened. The underlying businesses were of varying quality. So, there was no doubt that they were all very appreciative of being sort of let-free from the shackles of a fairly poorly one conglomerate.
RITHOLTZ: So, in 1992, you returned to the United States where the idea was rather than breakup companies, you wanted to build something. Kind of reminds me of key plot point from the movie “Pretty Woman.” What was the motivation of saying let’s — rather than deconglomerize these mashed-up companies, let’s see what we can build? How did that go?
FRANKLIN: I’ll tell you. I had a very closed — and still have a very closed relationship with my father. By like any good son, I kind of wanted to blaze my own path. And one of the things that was very apparent to me was it was much less fulfilling to breakup a company.
And when you’re building something, everybody is sort of rooting for you. The investment community is rooting for you, employees are rooting for you. The establishments is rooting for you. And when I started on that path of building Benson Eyecare, it was just — all the energy was positive energy.
And so, I found it much more enjoyable. And again, I don’t know what my father did. It was necessary. But it was very much anti-establishment. It was often hostile. There was — there were people laid off at the results of these things.
Whereas when you’re building, you tend to be employing more and it’s a much more positive energy experience. So, it’s what I’ve been doing eversince.
RITHOLTZ: So, let’s talk about Benson Eyecare for a moment. You were the youngest CEO of a company ever listed on the NYSE at the time. And subsequently, you generated returns for your investors of 1,800 percent. Tell us a little bit about Benson Eyecare.
FRANKLIN: Sure. Well, I really started with very little money. And I made a — made it — and made some money when I was working with my father.
But basically, it started with my buying 11 optical shops from an — from a company called Sterling Optical which was …
RITHOLTZ: Sure.
FRANKLIN: Which was going bankrupt. And I got an SBA loan. I think I put up $100,000 and bought these stores. I think it was the only SBA loan that they — that NatWest made that year. It was one of those years. It was a down economy. I had to make many loans.
Anyway, we bought that business and folded it into a shell company called Ehrlich Bober Financial which was a then defunct former municipal bond broker. Stocks was 38 cents a share when we reversed it in.
We, at the same time, bought a chain of formally bankrupt stores in Minnesota called Benson Optical and so named Benson Eyecare and they run dispensaries and five ophthalmologist offices.
Anyway, that’s how we started. We’re a bit of smoke and mirrors. It gave us a business with about $50 million of volume and very little in profit ad we were off to the races.
And long story short, we’ve started buying manufacturers and distributors of eyewear. The largest acquisition we’ve made was a company called Optical Radiation which I think we bought in 1994 which was a homerun transaction.
We ended up owning the largest system of lens processes in the United States, optical labs, making lenses into prescriptions. Anyway, we sold the company to Essilor which is the largest lens maker in the world in 1996. And return to investors, the stock went from 38 cents to $9.70, if my memory recalls right.
RITHOLTZ: Not too shabby.
FRANKLIN: So, we made a lot of money for investors and that was my capital base, quite frankly, from which everything else I’ve done was built.
RITHOLTZ: So, let’s talk about the next thing that you built. You ended up joining Jarden a few years later. That wasn’t the initial name, was it? And that grew …
FRANKLIN: No, that company — I actually didn’t join it. I forced myself upon it. (Inaudible) . I bought 9.9 percent of a company called Alltrista which was a spin-off from Ball Corporation and made a take of — take private proposal for them which they rejected but they made another and another.
And basically, they had made a couple of very poor acquisitions and every time their numbers came down, I readjusted my offer and management continued to fight me on it.
And in the end, they held an auction. I was the only bidder. And finally, the board decided to invite me to be a director at exchange for a standstill.
So, Ian Ashken who’s been my partner and right hand for the last 31 years, he and I went on the board, I went to my first board meeting. It was an extraordinary event. At the end of that board meeting, they decided to fire the CEO. And 90 days later, made me chairman and CEO Ian vice chairman and CFO.
And I think split adjusted, the stock was about 1.20 if I remember rightly, $10 presplit. And we built the company from there. It was about $250 million business with about 30 million of EBITDA and it was — it was one of those stories where the board decided to actually invite in — a very rad (ph) story — where the board decided to invite in the protagonist and actually saw that I had a plan and a view and shareholders were richly rewarded.
We had — we built the company for 15 years, 34 percent compound return, sold the company with a stock of about $60.
RITHOLTZ: So, that’s about a 5,000 percent return and just to put some flesh on those bones, when you joined, it was about 300 million in revenues. By the time Newell Brands bought it for $15 billion, you had over $10 billion in revenue, 120 global brands, 35,000 employees, all of which begs the question how did you manage to scale up from what was essentially a faltering company into something so successful that Rubbermaid had to grab it.
FRANKLIN: It’s a great story. Some of it was like — we actually ended up with 55,000 employees which is a big than it sounds. But we — the beginning was an incredible serious of events. The first was one of the bad acquisitions we had made at the very beginning — and by the way, the company loans were in the red zone, the warning, sort of the potential default loan at Bank of America.
It was like one of those sort of loans that they were watching out for. So, the company was really in poor shape. But they had bought the last acquisition that they made, very poor acquisition. They paid $158 million if I remember correctly for a company.
But they bought it as an asset purchase. So, when we sold the business for 24 million, the business that they had bought. It created a large NOL and we filed an accelerated return with the government and got back $25 million of previously paid taxes.
And then we got a little bit lucky. The Bush had done the stimulus bill and allowed companies to go back further three years to recapture previously paid taxes for the NOL.
And got another $25 million. And that gave us enough liquidity to really solve the balance sheet issues. Our residual businesses were very profitable and has had about 30 million of EBITDA.
And then we bought a company called (inaudible) which makes the food (inaudible) product. And we paid only four times EBITDA for it. Everybody thought that was a one-trick pony and its profits won’t going to be sustainable and its profits went from 25 million to 40 million.
So, we had started with an extraordinary base. It was the only deal I’ve ever done with literally doubled earnings per share on the day we did it.
Obviously, the stock performed very well from it. And that gave us the building block on which to build. And I think the rest of the story is not so much what we did right, but the things we didn’t do wrong. And then we didn’t have any real failures. We bought good businesses and made them better under the umbrella.
We never borrowed too much. We used equity where appropriate and sort of navigated that route for 15 years, stuck to our knitting.
RITHOLTZ: Quite fascinating. Let’s talk a little bit about the state of business today and what’s driving things? We were talking earlier about Jarden being purchased by Newell Brands in 2015. What was that experience like? You’ve been through a lot of purchases and sales of assets but this was a pretty decent-sized transaction.
FRANKLIN: Yes. It was about a $20 billion gross transaction, 15 billion on the equity. My view, I looked at the sort of behaviors of my children and felt that a lot of the companies, the businesses inside the portfolio were becoming less relevant to the next generation of behaviors.
So, I felt it was the appropriate time for after consolidate with somebody who had a similar portfolio given the business combined, greater leverage and strength within their sectors. But also, the decision was a personal one. I’ve felt that we’ve taken the business a very long way, we generated superb returns, and this was the right time to move on.
I was also in the process of building a family office. I had a son and I had more children, sort of the head of — the oldest son, to come and sort of join a family office environment.
And so, the coincidence of timing felt that it was the right time. I think with hindsight, probably the right move. Obviously, I didn’t see COVID-19 coming or everything like that. But definitely, with the right move with hindsight.
So, since you mentioned COVID-19, you were, until recently, a director of restaurant brands international. They have such brands as Burger King, Popeye’s Chicken. Tim Horton’s how has the pandemic affected those sort of businesses and what was it like during the depth in March and April of the lockdown across the U.S.?
FRANKLIN: I think that there are retailers, quick-service retailers, food companies, that have been hit differently than others. The retailers like McDonald’s and Burger King and Popeye’s that have significant drive-thru services have been far less damaged than casual dining concepts where you’re sitting inside the restaurant and delivery or drive-thru is a fast (inaudible) proportion of the business.
So, I would tell you that they’ve managed through this admirably. Obviously, at lower levels of volume in some areas in — than others. But in terms of the — being able to keep their business strong, maintain their dividends, problems (ph) with their employees, they’ve been spared, as I’ve said, the more casual dining concepts of — have been decimated.
If you don’t have a capital base of which to operate and you operate month to month without sort of a government support, you’re out of business until consumer behavior completely changes again.
RITHOLTZ: So, let’s do a little comparison with the industrial conglomerates today. How do they look compared to the conglomerates of the ’70s and 1960s that your father was spending a lot of time taking apart?
FRANKLIN: Well, I would say first of all, there are far fewer of them today. The conglomerates of yesterday were fueled by continued — continuous deal making. They were taking advantage of accounting anomalies, about — on treatment of goodwill and things like that that aren’t the case today.
They were also fast — faster. They generally dealt with very large headquarters and (inaudible) on their won. And I’d say, today, they much more targeted, more disciplined, rarer, as I’ve said, and get — probably get less of a discount as a result of being a little more focused than the conglomerates of the ’60s and ’70s.
RITHOLTZ: What about a giant conglomerate sitting with a lot of cash like Berkshire Hathaway? What happens to that entity in the post Buffett-Munger era?
FRANKLIN: I’d give you an analogy. I would think of it the same way as one would think of Lowe’s Corporation after the passing of Larry and (inaudible) founders. There are great assets, great companies. But the — do you like the investment dynamism that existed with the founding entrepreneur.
At least for now, it’s not the same. That’s not enough on them. It’s just a different generation and that would be a normal course of events, I think, that Berkshire Hathaway will probably be the same story.
I think (inaudible) it doesn’t change the quality of the assets when they’re not there but I think that the sort of innate instinct to have when to make a big bet and what big bet to make is something that you don’t get to pass on. You have the habits or you don’t.
So, I think whoever — Warren Buffett and Charlie Munger put in as caretakers of the — of Berkshire for the future, they will probably be very admirable caretakers but they won’t be Warren Buffett and Charlie Munger. They can’t be. It’s an (inaudible) work.
RITHOLTZ: Right. There is no replacing those two guys.
FRANKLIN: That’s correct.
RITHOLTZ: So, you were Founder and Chairman of Element Solutions, a chemical technology company, seems very different from some of the previous companies you worked on. How did you find your way to that and was it really all that different from some of the other companies you helped build?
FRANKLIN: No. I mean, I’m currently involved in five quite significant sized businesses. And Element, is one of them. Element has the texture (ph), the same characteristics as all the other ones which is their — the businesses inside Element are the market leaders in their respective niche. It’s a very high free cash flow business.
It’s got good management. It’s got some really dispensable moats around it. Those are really core characteristics that you’d find in our frozen food businesses, Nomad Foods, which same thing for APi, our life safety business, and Royal Oak, my charcoal business. They all are leaders in their respective niche markets.
Element’s not really a — it’s a especially chemical company but it really is a services company. When you really get into what it does, what it does is it helps manufacturing in their manufacturing process. And it’s really the technicians as much as the chemical, could (ph) we sell them, that are what our customers pay for when they’re — when they’re dealing with our various business units.
RITHOLTZ: Quite interesting. So, let’s talk a little bit about what’s going on in the world of public markets and private equity. You’ve worked with firms in the past, like, Blackstone and Pinnacle, how is it what that what you do is different from private equity?
I’d say most distinctly, it’s the difference between owners and renters. Private equity, even the best of them, are renters of businesses because they own them with a specific mandate to sell them at some point in the future. So, in some cases, that’s — it could be six months, it could be five years, it could be 10 years, but they always end up selling them because that’s the structure how they have their capital.
I’m in the permanent capital business. So, the way I invest in the public markets, the only way that I’m a seller is if the company itself is sold because somebody comes along and makes an offer for all the shares.
We don’t tend to look at it that way. We look at our businesses from a very, very long investment standpoint. We talked earlier about Berkshire Hathaway, probably the same philosophical approach in terms of investing. So, ones we own something, we intend to build it for the long-term.
So, that affects decision making. The capital investments, long-term approach to ownership, incentives for employees and how we treat employees, I think, are very different in what I do to private equity.
The analogy I use is if you have an apartment and you are a renter and you had a hole — in your wall, you might put a poster up to cover the hole whereas if you’re the owner, you’re going to fix the wall. That, unfortunately, is the differences, sometimes, in approach.
RITHOLTZ: What’s the old joke? Nobody washes a rented car.
FRANKLIN: Exactly. Exactly.
RITHOLTZ: How do you make sure that your investors are patient capital.? There’s been so much discussion about shareholder value, and focusing on the next quarter as opposed to the next decade. How — how do you ensure you’re attracting the right investors to be owners with you of the companies you’re running?
FRANKLIN: That’s a very good question. I mean, the truth is you don’t. What we tend to do, reputationally, people know, right, our long history, that we are patient capital. And that tends to attract a certain kind of institutional shareholder.
We are also our own activists. I mean, I think that’s something that is an important point to make. If you have shorter term, hype-oriented (ph) investors, I think when you communicate with them and they understand that your balancing the short term and the long term to drive value, that gives investors some comfort.
For investors who really don’t care about the business, long-term prospects and just want short-term return, there’s nothing we could do about that but they tend to be in the minority. But because we’ve been able to drive good value over the long term, overall, we tend to — we tend to attract the right kind of investors.
I’ve always believed that you sell equity to investors the same way you sell products. There are — for investors, there are 5,000 different public companies to choose from, why invest in yours? You’ve got to give them a reason to be interested in your equity. And for people who sit back and think it’s all going to come their way, those are the ones that tend to get undervalued or have the wrong kinds of shareholders.
We actually make a real effort to find the right shareholders that fit the right profile to affect us, explain to them why our business merits investment.
RITHOLTZ: Quite interesting. I’m curious about what you described as being an activist investor in your own businesses? What does that look like?
FRANKLIN: Well, capital allocation is here you really make a difference in terms of returns. If you look at Jarden’s history, we weren’t just good owners and operators of our businesses, when you went to add equity to our business, you went to buy equity back. We did some significant buybacks during the course of Jarden’s evolution at times when we felt that the market had significantly undervalued our company.
And with hindsight, those decisions were very good decisions. So, I think — as I say, being your own activist and being proactive with capital allocation, whether it’d be for acquisitions or buybacks or other forms of financing, you need to be adept at both, it’s not just selling your product that can create value for shareholders. So, we’re always very cognizant of that.
RITHOLTZ: Let’s talk a little bit about these blank check investment vehicles, how did you first get involved in them, I kind of remember in the 1990s, they were thought of as a little bit sketchy but they’ve since matured, haven’t they?
FRANKLIN: They haven’t been. I mean, I — I think I was probably the catalyst for them getting their respectability with hindsight. I think I’ve done $8.5 billion worth of equity investing with SPACs. The first one I did was the largest of its kind ever done and I think one of the first done by one of the larger bulge bracket investment banks that was called Freedom acquisition.
And Freedom was $525 million, I believe. At the time, no one had done one. I think the largest before that was maybe 300 million or 400 million. And yes, it was a very successful one and you need (ph) to buy the largest hedge fund in Europe at the time called GLG founded by Noam Gottesman and his partners.
Then we had two more after that, each called Liberty, Liberty and Liberty International. And then we had Justice. So, we did Freedom, two Liberties, and a Justice. Probably the next one should have been called ForAll (ph). But we didn’t. We had — we changed the names after that.
But we created some great companies. Obviously, one of them — Justice was Burger King which now is restaurant brands which is a, what, 20 billion plus market cap company, 25 billion market cap company, something like that.
One of them was Liberty was used to create a company called Phoenix Group Holdings which is now a FTSE 100 company. Nomad Foods, more recent one that I’ve done is now the largest frozen food company in Europe. We’ve done a number of these vehicles and really created companies that are very notable.
RITHOLTZ: So, you mentioned Justice Holdings. One of the partners and investors in that was William Ackman of Pershing Square. How did that partnership come about?
FRANKLIN: So, Bill’s a friend of mine. I’ve known Bill for many years. Nicolas Berggruen and I had partnered into the first three or four vehicles that we had created. And really, actually, it was a funny story.
We were at the end of our fundraising process. And we’d raised enough money to be this — have a fully-funded deal and we met Bill and he said, look, I really want to join you in this because I want to learn how these vehicles work and I’d love to be your partner.
And we were like, well, when sort of — it’s a bit late to really think about having another partner. But I’ll tell you what, I’ll give you enough money just packing it on, that it’s neutral to you economically if I join you as a partner. So, he invested, I actually can’t remember the amount of money we’re talking about. It was — maybe it’s — must have been over $250 million. It could have been more — it could have 500 million. I just don’t remember.
Anyway, it was a significant investment and it was — it was economically neutral to us. We thought it’d be fun to do a deal with Bill which is what we did.
RITHOLTZ: So, he’s a pretty avid tennis player and he later made the observation. You can learn a lot about someone based on how aggressive they are with their serve. I know you’re an athlete. Have you guys played much tennis together and how aggressive are you with your first serve?
FRANKLIN: Well, I could tell you that the last time I played tennis with Bill which is a few years ago, I beat him the first set and that was not a good outcome, from my perspective, because he wouldn’t leave me alone until we played again. And then we played another one, he beat me in that one. And we — I don’t think we’ve played tennis since.
So, and I don’t consider myself — I played squash for Penn for a period and I’m not a bad tennis player but I don’t play all the time. I probably played two or three times a year.
But I’m an athlete by background. And so, I can get lucky on an a set every once in a while.
RITHOLTZ: Yes. You’ve done some triathlons and some ultramarathons and Ironman championships, how did you get interested in that sort of personal abuse?
FRANKLIN: It’s a good description. I was a soccer player. I played in college. And then I played in the cosmopolitan league in the New York state area until I was about 32. And every weekend, injuries would get — make it less and less fun.
And then my brother, actually, suggested that I try triathlon. And I did my first one and I really enjoyed it and then I did another and another. Then somebody said you should try half Ironman, so I tried that. And then somebody said, well, you couldn’t do an Ironman. So, I went and did one of those.
And then I started doing a bunch of Ironmans and found that I enjoyed the distance. And then I met a guy called Vito Vialla (ph) who said, hey, I’m going to take you to a place where very few people had been and I said, well, what does that mean? He said, well, have you ever thought of running in the desert? A hundred and thirty-five miles nonstop in the middle of July?
I said no. Nobody does that. He says — he said, yes, we could do that. So, I said I’m in. And so, one of my first ultras was doing this race called Badwater which is this ultramarathon in a 130-degree in the shade heat in Death Valley in July. And it’s hard to explain but it’s kind of addicting.
And but I did that race. I ran, I think in that race, I ran for 41 hours and then did a bunch of other ultras around it. But I don’t do those anymore. I’m too old.
RITHOLTZ: Yes. You lost me at Death Valley. Anytime they name a place like that, it’s probably nowhere anyone should really be running.
So, let’s get back to some of the SPACs. You mentioned Burger King. Eventually, Justice Holdings merged with Burger King. That worked out pretty well. How did that deal come about?
FRANKLIN: So, we’d looked to the number of these different opportunities. Bill had an existing relationship with 3G. We’d actually gone very close to doing another — a different deal with Blackstone.
And my role really was to do the diligence because Bill was conflicted since he was already an investor in the 3G fund that he’d invested in Burger King. What I saw (ph), I liked. And we ended up agreeing a transaction that with hindsight’s been very successful.
I mean, we really bought 30 percent of Burger King before it was ready to do an IPO. But we gave them — we had a billion and a half dollars or so in the vehicle and that gave them the opportunity to deploy that capital into other projects that they were working on at the 3G and really recycled the capital they had invested in the Burger King buyout.
It was a very successful deal but became way more successful after it’d gone public. I mean, from 15, where we created the vehicle, really, to I think at the height, about 75, 77 or so, I believe the stock was. And since COVID, it’s still held in there pretty well. It’s over $55 today.
RITHOLTZ: That’s pretty respectable. The other SPAC that I wanted to ask about was Freedom that you ultimately used to help GLG go public. What was that experience like back in — was that ’07? ’08?
FRANKLIN: Yes. That was probably one of the easiest deals I’ve ever done because Noam Gottesman who’s a good friend of mine and Nicolas — Nicolas Berggruen, my partner at the time, he understood how SPACs worked. I remember the meeting we (inaudible) in his office at GLG and he said, look, we both know how these things work and how they should look.
This is — draw this out in the back of a napkin and if we can agree on the terms, let’s just give it to the lawyers and be done. And that’s exactly what we did. And I think the whole negotiation took about 45 minutes. The rest was done by the lawyers and at the time, a lot of these other hedge funds we’re looking at these alternative managers, they’d call them — we’re looking at different avenues of how to go public, some were going through a vehicle that Goldman Sachs have created to try and create a listing, some had looked to the traditional IPO route, done — looked at reversed acquisitions. They — very different approaches.
This one was, by far in a way, the most successful and traded the best of all of them. So, it was — it was, with hindsight, the right thing to do. And I think that gave us the sort of credibility to move on to the next vehicles that we created.
RITHOLTZ: So, you’re still pretty active with SPACs today. Given the COVID-19 pandemic and the lockdown, what areas are you seeing where opportunities exist and are there any areas of the economy that you see as permanently impaired that aren’t particularly attractive to you?
FRANKLIN: Well, I would say two things. First of all, I am still active. We just bought a company at the end of last year called API Group. Great company. It’s the largest installer of life safety systems, fire suppression and the like in buildings in the United States, does a lot of service and inspection work that’s regulated work. So, not the last vehicle that we created, we’re going to create another one, I’m sure, in the coming months.
Look, I think that there are sectors that are permanently impaired and I think the markets, all markets are sometimes get a little upside down. You got a lot of companies today that have very few — very little in the way of revenues and very little (ph) of the way of profits, trading at ridiculous valuations and then you’ve got some really solid companies that the market doesn’t seem to care about.
And those things correct themselves overtime. They always do. I’m not sure that I would say that there are sectors that are permanently impaired because permanently is a very big word. But I would — there are sectors I would touch today. No one really knows whether there will be a good vaccine that will come out for the coronavirus that we have out there today.
But if there is, some industries that are — that could be permanently sort of impaired will recover but I would want to be in travel today, just not effective that I think is going to fare well in this environment. I’d want to be in businesses where people are doing more things at home and just as sort of a general theme.
So, I think that whether it’d be the casual dining concepts we talked about earlier or vacation, package companies, convention companies, things where there — where human beings are gathering in large numbers. I’m not sure those affected I’d want to be in today.
RITHOLTZ: Makes a lot of sense. So, we’ve talked about string after string of successful investments and wins. Were there any misfires or failures along the way? You’ve really put together quite a streak.
FRANKLIN: I’ve been very fortunate. I think that my father always used to say you make more money on the deals you don’t do than the deals you do. And I think, well, I’ve been most fortunate, is not making some very large errors.
The only two times that I got out of my lane and did sort of venture capital things, I lost all my money. But it wasn’t — it was — the amount of money we’re talking about wasn’t that much relatively speaking. So, they were cheap lessons but they were lessons I didn’t still (ph) forget.
And so, I’ve tended to stick to my lane. And I’ve never gotten complacent and always stayed fairly humble about these things and kept my investment discipline, did my own due diligence, never sort of delegated at the consultants. The team around has been with me for my career.
As I told you earlier, Ian Ashken’s been with me for 31 years. Jim Lillie, my partner in — on the operations side been with me for 17 years. Head of my family office has been with me for 30 years. We — when we find the right people, keep them around you and you tend to navigate to the right place.
RITHOLTZ: Let me ask you about two kind of interesting things you’re involved with of a little more personal nature, tell us about your work with the Wounded Warrior Project?
FRANKLIN: I actually haven’t been involved with Wounded Warrior for a while, but I when I race Badwater, I actually race with the Wounded Warriors. I had — I had a soldier, his name is Steve Robison, has been a good friend of mine who lost his leg in Mosul and I actually hosted every year, still now, for holiday. It’s in my home in Antigua.
And just that the American hero. And I was quite involved in their early years in Wounded Warriors. But really, it’s a fundraiser as opposed to anything else. Obviously, the unsung heroes in our country are the masses (ph) of wounded veterans that sort of where — come home and need support and work and everything else.
One of the things I love about APi, the company that we invest in today, it’s — a lot of military vets in the business which builds not only a great culture but a great work ethic as well.
RITHOLTZ: So, let’s talk about Antigua since you mentioned it. What does a special economics envoy actually do?
FRANKLIN: Antigua is a small place. My family have been there for over 30 years. My parents live there. They’ve considered (ph) to move there for many, many years.
So, my love of the island, it’s a small island, only a population of only about 100,000 people. Getting connected to the right people outside the governments of small countries is sometimes not easy. So, what I do, it’s not a job, it’s an honor to do it for them.
But I try to connect them wherever I can to the right people who would take an interest in investing in Antigua or helping Antigua in any particular way particularly when we have crisis. We had a hurricane, basically wiped out Barbuda. So, I was quite involved with helping them with relief efforts.
And really, the same thing with COVID-19, we’ve — we were doing a lot of things in the ways of food programs and sourcing medical supplies, flying medical supplies down to the country. Little things that — to a population that’s relatively small, make a big difference. So, that’s really the role I’ve played. It’s not a (inaudible) role. It’s a role I play because of my connections to the island.
RITHOLTZ: And the knighthood, is — does that have anything to do with this being a former British colony or is that specific to Antigua?
FRANKLIN: Very much so. No, very much so. It’s something that’s on the Queen’s list, but it’s something the recommendations come from the colony.
So, it’s an honor. I don’t take it too seriously. It helps every once and a while getting a good reservation at a restaurant.
RITHOLTZ: Right. That’s what doctors used to do in the United States in the 1960s. Medical school was worth of that.
But did you get to meet the Queen? Was she the one who actually knighted you or was it a little less formal of a ceremony?
FRANKLIN: It was done — it was a little — it was equally formal but it was done by an envoy. It was done in Antigua. So, they send an envoy over from the U.K. to oversee it and it’s — and on queen’s list. I actually — I actually have been to BuckinghamPalace for (ph) that, but that was just a more charitable thing in the U.K.
RITHOLTZ: Quite interesting. So, I know we only have you for a finite amount of time. Let’s get to our favorite questions. And see what we can learn about Sir Martin the person as opposed to the knight of the grand cross. Let’s talk about — we’ve been talking about lockdown and pandemics, what are you watching under lockdown these days? Tell us your favorite Netflix or Amazon shows or what podcast are you listening to?
FRANKLIN: I watched — the other day, I watched “Eurovision” which is Will Ferrell’s latest movie that got launched on …
RITHOLTZ: Yes.
FRANKLIN: I think it’s on Netflix which — because I grew up with the Eurovision song contest, I thought it was extremely funny. So, that’s my latest favorite. I’ve been watching all the episodes of “Fauda.” I don’t know if you know that series but …
RITHOLTZ: Sure. It’s nail-biting.
FRANKLIN: It’s nail-biting and it’s frighteningly accurate. I watched an interesting movie on fungi which I find fascinating. So, yes, those are sort of my favorite so far.
RITHOLTZ: Yes, I’ve learned not to watch “Fauda” right before I go to bed otherwise, I’m up for hours.
FRANKLIN: It’s pretty disturbing.
RITHOLTZ: It’s so exciting. And I was shocked to learn, it’s actually very popular throughout the Middle East, not just in Israel. It’s kind of interesting how widely has been viewed throughout the Westbank and everywhere else.
FRANKLIN: it’s true. And it’s — the reality — I go out there quite a bit, it’s place in Tel Aviv. And there’s a lot of accuracy to all of that.
RITHOLTZ: Quite interesting.
FRANKLIN: So, tell us about some of your early mentors. I have to assume your father is somewhere on that list.
RITHOLTZ: For sure. He certainly was. In all my formative years of my priorities in life. But I worked for Wilbur Ross with my first real job at Rothschild at the time.
RITHOLTZ: Really?
FRANKLIN: And Wilbur was a great mentor for me. He was very kind, teaching me things through the early days when I really knew nothing about business. I was a political science major. I’ve never taken a business course or anything like that. So, he was really someone who was a big factor.
And then my father’s partner, Jimmy Goldsmith. Watching him with my father at work and doing what they do. I guess those were my three biggest mentors, my father, Wilbur, and Jimmy.
RITHOLTZ: What are you reading these days? Tell us what’s keeping your mind busy and what are some of your all-time favorite books.
FRANKLIN: So, my favorite book, I’ve just finished actually, have you read “American Kingpin”? It’s all about the fellow who built the Silk Road, which was this place where you can buy and sell pretty much anything on the dark web.
For someone who’s not really a technology person, I thought it was fascinating. It’s also a quick, easy read. I really enjoyed that.
I tend to read books that are more historical context. One of my favorite books of all time is called “The Third Chimpanzee” which is an early book by Jared Diamond. Paul Johnson’s “Modern Time” another favorite book of mine. All the Yuval Harari books I really like, “Sapiens” “Homo Deus,” really great books.
That’s my kind of reading. I was thinking out what I’m going to read next. I just literally just finished the “American Kingpin.”
RITHOLTZ: I’ll put those on my list. What sort of advice would you give to a recent college grad who was interested in a career in either finance, investing, M&A?
FRANKLIN: For me, I think by far away the most important thing to learn is how to communicate. I think so many kids today, they’re very smart technically but their IQ is a lot better than their EQ.
And so, I would say really learn how to write, be able to communicate in writing. It’s not just about a short email. Also, the personal touch to it, how to write a letter.
I think learn how to treat others as you would expect to be treated, the right way to present yourself. Those to me, I know this sounds very basic but those skill set that (inaudible) have been lost in our youth, I think.
RITHOLTZ: And our final question, what do you know about the world of investing today that you wish you knew when you’re getting started out 25 or so years ago?
FRANKLIN: Well, I wish I knew that there was going to be the greatest long-term growth in equities in history because you probably knew the pen had been — pin (ph) rather had been successful in investing just by buying something 25 years ago and keeping it.
But I guess outside of that, I think sticking to one ‘s lane is what I’ve learned over the years is if you really know something in depth, stick to it for the long term and I think that you can make securing return doing that instead of being, if you like, too wide in your approach.
I think that’s something that over the years I’ve learned, pays better. If you really know a space then focus on it or have a philosophy about the kind of business you like and stick to that. You’re going to make better returns.
RITHOLTZ: Thank you, Sir Martin Franklin, for being so generous with your time.
If you enjoy this conversation, well, check out any of the other previous 300 such discussions we’ve had over the past six years. You can find that at iTunes, Spotify, Google Podcast, Overcast, Stitcher, wherever your finer podcasts are sold.
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I would be remiss if I do not thank the crack staff who helps put these conversations together each week. Maruful is my audio engineer, Michael Boyle is my producer, Atika Valbrun is our project manager, Michael Batnick is our head of research, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.
: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: This week on the podcast, you guys give me grief when I say I have an extra special guest. But once again, I have an extra special guest. So, Martin Franklin has such a fascinating career. He started out working with his father taking apart conglomerates and later decided he would rather build companies than disassemble them and put together quite an amazing streak.
You might be familiar with Benson Eyecare, the returns on that were 1800 percent. He also put together Jarden Corporation which generated returns of over 5000 percent. He’s built a number of companies.
And really, over the past 20 years, turns what was known as blank check companies or SPACs into quite a respectable way to put patient capital in place to make long-term acquisitions different from private equity which he describes as renting assets. He wants to own assets on behalf of himself and his investors.
Really just an incredibly fascinating career. He’s done so many really interesting things, and his track record is quite astonishing. So, with no further ado, my conversation with the founder and CEO of Mariposa Capital, Martin Franklin.
MALE VOICEOVER: This is my Masters in Business with Barry Ritholtz.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: Our extra special guest this week is Sir Martin Franklin. He is the Founder and Chief Executive Officer of Mariposa Capital. Previously, he was CEO of Jarden Corporation, Benson Eyecare. He was named Antigua and Barbuda’s Special Economic Envoy and was knighted as a high degree of knight grand cross, Sir Martin Franklin, welcome to Bloomberg.
MARTIN FRANKLIN, MARIPOSA CAPITAL, FOUNDER AND CEO: Hi, Barry. How are you? Thank you.
RITHOLTZ: Pretty good. Pretty good. So, I wanted to include some of the more eclectic things in your background because your career path is a little unusual when someone ask you what you do for a living, how do you answer them?
FRANKLIN: It’s never very easy. I describe myself as a business builder. You can’t fit that on your (inaudible) when they ask you to describe your employment, but that’s kind of what I am. A bit of an operator and an investor, I guess, a hybrid.
RITHOLTZ: So, you began working on hostile takeovers at a pretty young age with your father. How did that impact your views on finance?
FRANKLIN: I think I learned a lot in those early years. One of the things I learned with the corporate headquarters for a bit of a waste of time and money that you haven’t really changed. My father always used to say the quality of a corporation is in inverse proportion to its location from its headquarters. In other words, the further away they work from the headquarters, the better the business.
Often, those rules are true but that was probably the biggest thing. I mean, what my father and Jimmy Goldsmith did in those ways were he necessary act to deconglomerate the conglomerates of the ’60s and ’70s. And certainly served its purpose.
RITHOLTZ: One of those conglomerates you were appointed CEO of was DRG and your assigned to break up the conglomerate via asset sales, what was that experience, like?
FRANKLIN: Highly unusual. I mean, I think I was only about 24 or 25 years old, probably did more M&A, the most investment banker in that — in that time. But it really was quite an experience.
So, what — we took a headquarters from 110 people down to seven and we had certain businesses within the group, didn’t even know that this has happened. The underlying businesses were of varying quality. So, there was no doubt that they were all very appreciative of being sort of let-free from the shackles of a fairly poorly one conglomerate.
RITHOLTZ: So, in 1992, you returned to the United States where the idea was rather than breakup companies, you wanted to build something. Kind of reminds me of key plot point from the movie “Pretty Woman.” What was the motivation of saying let’s — rather than deconglomerize these mashed-up companies, let’s see what we can build? How did that go?
FRANKLIN: I’ll tell you. I had a very closed — and still have a very closed relationship with my father. By like any good son, I kind of wanted to blaze my own path. And one of the things that was very apparent to me was it was much less fulfilling to breakup a company.
And when you’re building something, everybody is sort of rooting for you. The investment community is rooting for you, employees are rooting for you. The establishments is rooting for you. And when I started on that path of building Benson Eyecare, it was just — all the energy was positive energy.
And so, I found it much more enjoyable. And again, I don’t know what my father did. It was necessary. But it was very much anti-establishment. It was often hostile. There was — there were people laid off at the results of these things.
Whereas when you’re building, you tend to be employing more and it’s a much more positive energy experience. So, it’s what I’ve been doing eversince.
So, let’s talk about Benson Eyecare for a moment. You were the youngest CEO of a company ever listed on the NYSE at the time. And subsequently, you generated returns for your investors of 1,800 percent. Tell us a little bit about Benson Eyecare.
FRANKLIN: Sure. Well, I really started with very little money. And I made a — made it — and made some money when I was working with my father.
But basically, it started with my buying 11 optical shops from an — from a company called Sterling Optical which was …
RITHOLTZ: Sure.
FRANKLIN: Which was going bankrupt. And I got an SBA loan. I think I put up $100,000 and bought these stores. I think it was the only SBA loan that they — that NatWest made that year. It was one of those years. It was a down economy. I had to make many loans.
Anyway, we bought that business and folded it into a shell company called Ehrlich Bober Financial which was a then defunct former municipal bond broker. Stocks was 38 cents a share when we reversed it in.
We, at the same time, bought a chain of formally bankrupt stores in Minnesota called Benson Optical and so named Benson Eyecare and they run dispensaries and five ophthalmologist offices.
Anyway, that’s how we started. We’re a bit of smoke and mirrors. It gave us a business with about $50 million of volume and very little in profit ad we were off to the races.
And long story short, we’ve started buying manufacturers and distributors of eyewear. The largest acquisition we’ve made was a company called Optical Radiation which I think we bought in 1994 which was a homerun transaction.
We ended up owning the largest system of lens processes in the United States, optical labs, making lenses into prescriptions. Anyway, we sold the company to Essilor which is the largest lens maker in the world in 1996. And return to investors, the stock went from 38 cents to $9.70, if my memory recalls right.
RITHOLTZ: Not too shabby.
FRANKLIN: So, we made a lot of money for investors and that was my capital base, quite frankly, from which everything else I’ve done was built.
RITHOLTZ: So, let’s talk about the next thing that you built. You ended up joining Jarden a few years later. That wasn’t the initial name, was it? And that grew …
FRANKLIN: No, that company — I actually didn’t join it. I forced myself upon it. (Inaudible) . I bought 9.9 percent of a company called Alltrista which was a spin-off from Ball Corporation and made a take of — take private proposal for them which they rejected but they made another and another.
And basically, they had made a couple of very poor acquisitions and every time their numbers came down, I readjusted my offer and management continued to fight me on it.
And in the end, they held an auction. I was the only bidder. And finally, the board decided to invite me to be a director at exchange for a standstill.
So, Ian Ashken who’s been my partner and right hand for the last 31 years, he and I went on the board, I went to my first board meeting. It was an extraordinary event. At the end of that board meeting, they decided to fire the CEO. And 90 days later, made me chairman and CEO Ian vice chairman and CFO.
And I think split adjusted, the stock was about 1.20 if I remember rightly, $10 presplit. And we built the company from there. It was about $250 million business with about 30 million of EBITDA and it was — it was one of those stories where the board decided to actually invite in — a very rad (ph) story — where the board decided to invite in the protagonist and actually saw that I had a plan and a view and shareholders were richly rewarded.
We had — we built the company for 15 years, 34 percent compound return, sold the company with a stock of about $60.
RITHOLTZ: So, that’s about a 5,000 percent return and just to put some flesh on those bones, when you joined, it was about 300 million in revenues. By the time Newell Brands bought it for $15 billion, you had over $10 billion in revenue, 120 global brands, 35,000 employees, all of which begs the question how did you manage to scale up from what was essentially a faltering company into something so successful that Rubbermaid had to grab it.
FRANKLIN: It’s a great story. Some of it was like — we actually ended up with 55,000 employees which is a big …
RITHOLTZ: Wow.
FRANKLIN: … than it sounds. But we — the beginning was an incredible serious of events. The first was one of the bad acquisitions we had made at the very beginning — and by the way, the company loans were in the red zone, the warning, sort of the potential default loan at Bank of America.
It was like one of those sort of loans that they were watching out for. So, the company was really in poor shape. But they had bought the last acquisition that they made, very poor acquisition. They paid $158 million if I remember correctly for a company.
But they bought it as an asset purchase. So, when we sold the business for 24 million, the business that they had bought. It created a large NOL and we filed an accelerated return with the government and got back $25 million of previously paid taxes.
And then we got a little bit lucky. The Bush had done the stimulus bill and allowed companies to go back further three years to recapture previously paid taxes for the NOL.
And got another $25 million. And that gave us enough liquidity to really solve the balance sheet issues. Our residual businesses were very profitable and has had about 30 million of EBITDA.
And then we bought a company called (inaudible) which makes the food (inaudible) product. And we paid only four times EBITDA for it. Everybody thought that was a one-trick pony and its profits won’t going to be sustainable and its profits went from 25 million to 40 million.
So, we had started with an extraordinary base. It was the only deal I’ve ever done with literally doubled earnings per share on the day we did it.
Obviously, the stock performed very well from it. And that gave us the building block on which to build. And I think the rest of the story is not so much what we did right, but the things we didn’t do wrong. And then we didn’t have any real failures. We bought good businesses and made them better under the umbrella.
We never borrowed too much. We used equity where appropriate and sort of navigated that route for 15 years, stuck to our knitting.
RITHOLTZ: Quite fascinating. Let’s talk a little bit about the state of business today and what’s driving things? We were talking earlier about Jarden being purchased by Newell Brands in 2015. What was that experience like? You’ve been through a lot of purchases and sales of assets but this was a pretty decent-sized transaction.
FRANKLIN: Yes. It was about a $20 billion gross transaction, 15 billion on the equity. My view, I looked at the sort of behaviors of my children and felt that a lot of the companies, the businesses inside the portfolio were becoming less relevant to the next generation of behaviors.
So, I felt it was the appropriate time for after consolidate with somebody who had a similar portfolio given the business combined, greater leverage and strength within their sectors. But also, the decision was a personal one. I’ve felt that we’ve taken the business a very long way, we generated superb returns, and this was the right time to move on.
I was also in the process of building a family office. I had a son and I had more children, sort of the head of — the oldest son, to come and sort of join a family office environment.
And so, the coincidence of timing felt that it was the right time. I think with hindsight, probably the right move. Obviously, I didn’t see COVID-19 coming or everything like that. But definitely, with the right move with hindsight.
So, since you mentioned COVID-19, you were, until recently, a director of restaurant brands international. They have such brands as Burger King, Popeye’s Chicken. Tim Horton’s how has the pandemic affected those sort of businesses and what was it like during the depth in March and April of the lockdown across the U.S.?
FRANKLIN: I think that there are retailers, quick-service retailers, food companies, that have been hit differently than others. The retailers like McDonald’s and Burger King and Popeye’s that have significant drive-thru services have been far less damaged than casual dining concepts where you’re sitting inside the restaurant and delivery or drive-thru is a fast (inaudible) proportion of the business.
So, I would tell you that they’ve managed through this admirably. Obviously, at lower levels of volume in some areas in — than others. But in terms of the — being able to keep their business strong, maintain their dividends, problems (ph) with their employees, they’ve been spared, as I’ve said, the more casual dining concepts of — have been decimated.
If you don’t have a capital base of which to operate and you operate month to month without sort of a government support, you’re out of business until consumer behavior completely changes again.
RITHOLTZ: So, let’s do a little comparison with the industrial conglomerates today. How do they look compared to the conglomerates of the ’70s and 1960s that your father was spending a lot of time taking apart?
FRANKLIN: Well, I would say first of all, there are far fewer of them today. The conglomerates of yesterday were fueled by continued — continuous deal making. They were taking advantage of accounting anomalies, about — on treatment of goodwill and things like that that aren’t the case today.
They were also fast — faster. They generally dealt with very large headquarters and (inaudible) on their won. And I’d say, today, they much more targeted, more disciplined, rarer, as I’ve said, and get — probably get less of a discount as a result of being a little more focused than the conglomerates of the ’60s and ’70s.
RITHOLTZ: What about a giant conglomerate sitting with a lot of cash like Berkshire Hathaway? What happens to that entity in the post Buffett-Munger era?
FRANKLIN: I’d give you an analogy. I would think of it the same way as one would think of Lowe’s Corporation after the passing of Larry and (inaudible) founders. There are great assets, great companies. But the — do you like the investment dynamism that existed with the founding entrepreneur.
At least for now, it’s not the same. That’s not enough on them. It’s just a different generation and that would be a normal course of events, I think, that Berkshire Hathaway will probably be the same story.
I think (inaudible) it doesn’t change the quality of the assets when they’re not there but I think that the sort of innate instinct to have when to make a big bet and what big bet to make is something that you don’t get to pass on. You have the habits or you don’t.
So, I think whoever — Warren Buffett and Charlie Munger put in as caretakers of the — of Berkshire for the future, they will probably be very admirable caretakers but they won’t be Warren Buffett and Charlie Munger. They can’t be. It’s an (inaudible) work.
RITHOLTZ: Right. There is no replacing those two guys.
FRANKLIN: That’s correct.
RITHOLTZ: So, you were Founder and Chairman of Element Solutions, a chemical technology company, seems very different from some of the previous companies you worked on. How did you find your way to that and was it really all that different from some of the other companies you helped build?
FRANKLIN: No. I mean, I’m currently involved in five quite significant sized businesses. And Element, is one of them. Element has the texture (ph), the same characteristics as all the other ones which is their — the businesses inside Element are the market leaders in their respective niche. It’s a very high free cash flow business.
It’s got good management. It’s got some really dispensable moats around it. Those are really core characteristics that you’d find in our frozen food businesses, Nomad Foods, which same thing for APi, our life safety business, and Royal Oak, my charcoal business. They all are leaders in their respective niche markets.
Element’s not really a — it’s a especially chemical company but it really is a services company. When you really get into what it does, what it does is it helps manufacturing in their manufacturing process. And it’s really the technicians as much as the chemical, could (ph) we sell them, that are what our customers pay for when they’re — when they’re dealing with our various business units.
RITHOLTZ: Quite interesting. So, let’s talk a little bit about what’s going on in the world of public markets and private equity. You’ve worked with firms in the past, like, Blackstone and Pinnacle, how is it what that what you do is different from private equity?
I’d say most distinctly, it’s the difference between owners and renters. Private equity, even the best of them, are renters of businesses because they own them with a specific mandate to sell them at some point in the future. So, in some cases, that’s — it could be six months, it could be five years, it could be 10 years, but they always end up selling them because that’s the structure how they have their capital.
I’m in the permanent capital business. So, the way I invest in the public markets, the only way that I’m a seller is if the company itself is sold because somebody comes along and makes an offer for all the shares.
We don’t tend to look at it that way. We look at our businesses from a very, very long investment standpoint. We talked earlier about Berkshire Hathaway, probably the same philosophical approach in terms of investing. So, ones we own something, we intend to build it for the long-term.
So, that affects decision making. The capital investments, long-term approach to ownership, incentives for employees and how we treat employees, I think, are very different in what I do to private equity.
The analogy I use is if you have an apartment and you are a renter and you had a hole — in your wall, you might put a poster up to cover the hole whereas if you’re the owner, you’re going to fix the wall. That, unfortunately, is the differences, sometimes, in approach.
RITHOLTZ: What’s the old joke? Nobody washes a rented car.
FRANKLIN: Exactly. Exactly.
RITHOLTZ: How do you make sure that your investors are patient capital.? There’s been so much discussion about shareholder value, and focusing on the next quarter as opposed to the next decade. How — how do you ensure you’re attracting the right investors to be owners with you of the companies you’re running?
FRANKLIN: That’s a very good question. I mean, the truth is you don’t. What we tend to do, reputationally, people know, right, our long history, that we are patient capital. And that tends to attract a certain kind of institutional shareholder.
We are also our own activists. I mean, I think that’s something that is an important point to make. If you have shorter term, hype-oriented (ph) investors, I think when you communicate with them and they understand that your balancing the short term and the long term to drive value, that gives investors some comfort.
For investors who really don’t care about the business, long-term prospects and just want short-term return, there’s nothing we could do about that but they tend to be in the minority. But because we’ve been able to drive good value over the long term, overall, we tend to — we tend to attract the right kind of investors.
I’ve always believed that you sell equity to investors the same way you sell products. There are — for investors, there are 5,000 different public companies to choose from, why invest in yours? You’ve got to give them a reason to be interested in your equity. And for people who sit back and think it’s all going to come their way, those are the ones that tend to get undervalued or have the wrong kinds of shareholders.
We actually make a real effort to find the right shareholders that fit the right profile to affect us, explain to them why our business merits investment.
RITHOLTZ: Quite interesting. I’m curious about what you described as being an activist investor in your own businesses? What does that look like?
FRANKLIN: Well, capital allocation is here you really make a difference in terms of returns. If you look at Jarden’s history, we weren’t just good owners and operators of our businesses, when you went to add equity to our business, you went to buy equity back. We did some significant buybacks during the course of Jarden’s evolution at times when we felt that the market had significantly undervalued our company.
And with hindsight, those decisions were very good decisions. So, I think — as I say, being your own activist and being proactive with capital allocation, whether it’d be for acquisitions or buybacks or other forms of financing, you need to be adept at both, it’s not just selling your product that can create value for shareholders. So, we’re always very cognizant of that.
RITHOLTZ: Let’s talk a little bit about these blank check investment vehicles, how did you first get involved in them, I kind of remember in the 1990s, they were thought of as a little bit sketchy but they’ve since matured, haven’t they?
FRANKLIN: They haven’t been. I mean, I — I think I was probably the catalyst for them getting their respectability with hindsight. I think I’ve done $8.5 billion worth of equity investing with SPACs. The first one I did was the largest of its kind ever done and I think one of the first done by one of the larger bulge bracket investment banks that was called Freedom acquisition.
And Freedom was $525 million, I believe. At the time, no one had done one. I think the largest before that was maybe 300 million or 400 million. And yes, it was a very successful one and you need (ph) to buy the largest hedge fund in Europe at the time called GLG founded by Noam Gottesman and his partners.
Then we had two more after that, each called Liberty, Liberty and Liberty International. And then we had Justice. So, we did Freedom, two Liberties, and a Justice. Probably the next one should have been called ForAll (ph). But we didn’t. We had — we changed the names after that.
But we created some great companies. Obviously, one of them — Justice was Burger King which now is restaurant brands which is a, what, 20 billion plus market cap company, 25 billion market cap company, something like that.
One of them was Liberty was used to create a company called Phoenix Group Holdings which is now a FTSE 100 company. Nomad Foods, more recent one that I’ve done is now the largest frozen food company in Europe. We’ve done a number of these vehicles and really created companies that are very notable.
RITHOLTZ: So, you mentioned Justice Holdings. One of the partners and investors in that was William Ackman of Pershing Square. How did that partnership come about?
FRANKLIN: So, Bill’s a friend of mine. I’ve known Bill for many years. Nicolas Berggruen and I had partnered into the first three or four vehicles that we had created. And really, actually, it was a funny story.
We were at the end of our fundraising process. And we’d raised enough money to be this — have a fully-funded deal and we met Bill and he said, look, I really want to join you in this because I want to learn how these vehicles work and I’d love to be your partner.
And we were like, well, when sort of — it’s a bit late to really think about having another partner. But I’ll tell you what, I’ll give you enough money just packing it on, that it’s neutral to you economically if I join you as a partner. So, he invested, I actually can’t remember the amount of money we’re talking about. It was — maybe it’s — must have been over $250 million. It could have been more — it could have 500 million. I just don’t remember.
Anyway, it was a significant investment and it was — it was economically neutral to us. We thought it’d be fun to do a deal with Bill which is what we did.
RITHOLTZ: So, he’s a pretty avid tennis player and he later made the observation. You can learn a lot about someone based on how aggressive they are with their serve. I know you’re an athlete. Have you guys played much tennis together and how aggressive are you with your first serve?
FRANKLIN: Well, I could tell you that the last time I played tennis with Bill which is a few years ago, I beat him the first set and that was not a good outcome, from my perspective, because he wouldn’t leave me alone until we played again. And then we played another one, he beat me in that one. And we — I don’t think we’ve played tennis since.
So, and I don’t consider myself — I played squash for Penn for a period and I’m not a bad tennis player but I don’t play all the time. I probably played two or three times a year.
But I’m an athlete by background. And so, I can get lucky on an a set every once in a while.
RITHOLTZ: Yes. You’ve done some triathlons and some ultramarathons and Ironman championships, how did you get interested in that sort of personal abuse?
FRANKLIN: It’s a good description. I was a soccer player. I played in college. And then I played in the cosmopolitan league in the New York state area until I was about 32. And every weekend, injuries would get — make it less and less fun.
And then my brother, actually, suggested that I try triathlon. And I did my first one and I really enjoyed it and then I did another and another. Then somebody said you should try half Ironman, so I tried that. And then somebody said, well, you couldn’t do an Ironman. So, I went and did one of those.
And then I started doing a bunch of Ironmans and found that I enjoyed the distance. And then I met a guy called Vito Vialla (ph) who said, hey, I’m going to take you to a place where very few people had been and I said, well, what does that mean? He said, well, have you ever thought of running in the desert? A hundred and thirty-five miles nonstop in the middle of July?
I said no. Nobody does that. He says — he said, yes, we could do that. So, I said I’m in. And so, one of my first ultras was doing this race called Badwater which is this ultramarathon in a 130-degree in the shade heat in Death Valley in July. And it’s hard to explain but it’s kind of addicting.
And but I did that race. I ran, I think in that race, I ran for 41 hours and then did a bunch of other ultras around it. But I don’t do those anymore. I’m too old.
RITHOLTZ: Yes. You lost me at Death Valley. Anytime they name a place like that, it’s probably nowhere anyone should really be running.
So, let’s get back to some of the SPACs. You mentioned Burger King. Eventually, Justice Holdings merged with Burger King. That worked out pretty well. How did that deal come about?
FRANKLIN: So, we’d looked to the number of these different opportunities. Bill had an existing relationship with 3G. We’d actually gone very close to doing another — a different deal with Blackstone.
And my role really was to do the diligence because Bill was conflicted since he was already an investor in the 3G fund that he’d invested in Burger King. What I saw (ph), I liked. And we ended up agreeing a transaction that with hindsight’s been very successful.
I mean, we really bought 30 percent of Burger King before it was ready to do an IPO. But we gave them — we had a billion and a half dollars or so in the vehicle and that gave them the opportunity to deploy that capital into other projects that they were working on at the 3G and really recycled the capital they had invested in the Burger King buyout.
It was a very successful deal but became way more successful after it’d gone public. I mean, from 15, where we created the vehicle, really, to I think at the height, about 75, 77 or so, I believe the stock was. And since COVID, it’s still held in there pretty well. It’s over $55 today.
RITHOLTZ: That’s pretty respectable. The other SPAC that I wanted to ask about was Freedom that you ultimately used to help GLG go public. What was that experience like back in — was that ’07? ’08?
FRANKLIN: Yes. That was probably one of the easiest deals I’ve ever done because Noam Gottesman who’s a good friend of mine and Nicolas — Nicolas Berggruen, my partner at the time, he understood how SPACs worked. I remember the meeting we (inaudible) in his office at GLG and he said, look, we both know how these things work and how they should look.
This is — draw this out in the back of a napkin and if we can agree on the terms, let’s just give it to the lawyers and be done. And that’s exactly what we did. And I think the whole negotiation took about 45 minutes. The rest was done by the lawyers and at the time, a lot of these other hedge funds we’re looking at these alternative managers, they’d call them — we’re looking at different avenues of how to go public, some were going through a vehicle that Goldman Sachs have created to try and create a listing, some had looked to the traditional IPO route, done — looked at reversed acquisitions. They — very different approaches.
This one was, by far in a way, the most successful and traded the best of all of them. So, it was — it was, with hindsight, the right thing to do. And I think that gave us the sort of credibility to move on to the next vehicles that we created.
RITHOLTZ: So, you’re still pretty active with SPACs today. Given the COVID-19 pandemic and the lockdown, what areas are you seeing where opportunities exist and are there any areas of the economy that you see as permanently impaired that aren’t particularly attractive to you?
FRANKLIN: Well, I would say two things. First of all, I am still active. We just bought a company at the end of last year called API Group. Great company. It’s the largest installer of life safety systems, fire suppression and the like in buildings in the United States, does a lot of service and inspection work that’s regulated work. So, not the last vehicle that we created, we’re going to create another one, I’m sure, in the coming months.
Look, I think that there are sectors that are permanently impaired and I think the markets, all markets are sometimes get a little upside down. You got a lot of companies today that have very few — very little in the way of revenues and very little (ph) of the way of profits, trading at ridiculous valuations and then you’ve got some really solid companies that the market doesn’t seem to care about.
And those things correct themselves overtime. They always do. I’m not sure that I would say that there are sectors that are permanently impaired because permanently is a very big word. But I would — there are sectors I would touch today. No one really knows whether there will be a good vaccine that will come out for the coronavirus that we have out there today.
But if there is, some industries that are — that could be permanently sort of impaired will recover but I would want to be in travel today, just not effective that I think is going to fare well in this environment. I’d want to be in businesses where people are doing more things at home and just as sort of a general theme.
So, I think that whether it’d be the casual dining concepts we talked about earlier or vacation, package companies, convention companies, things where there — where human beings are gathering in large numbers. I’m not sure those affected I’d want to be in today.
RITHOLTZ: Makes a lot of sense. So, we’ve talked about string after string of successful investments and wins. Were there any misfires or failures along the way? You’ve really put together quite a streak.
FRANKLIN: I’ve been very fortunate. I think that my father always used to say you make more money on the deals you don’t do than the deals you do. And I think, well, I’ve been most fortunate, is not making some very large errors.
The only two times that I got out of my lane and did sort of venture capital things, I lost all my money. But it wasn’t — it was — the amount of money we’re talking about wasn’t that much relatively speaking. So, they were cheap lessons but they were lessons I didn’t still (ph) forget.
And so, I’ve tended to stick to my lane. And I’ve never gotten complacent and always stayed fairly humble about these things and kept my investment discipline, did my own due diligence, never sort of delegated at the consultants. The team around has been with me for my career.
As I told you earlier, Ian Ashken’s been with me for 31 years. Jim Lillie, my partner in — on the operations side been with me for 17 years. Head of my family office has been with me for 30 years. We — when we find the right people, keep them around you and you tend to navigate to the right place.
RITHOLTZ: Let me ask you about two kind of interesting things you’re involved with of a little more personal nature, tell us about your work with the Wounded Warrior Project?
FRANKLIN: I actually haven’t been involved with Wounded Warrior for a while, but I when I race Badwater, I actually race with the Wounded Warriors. I had — I had a soldier, his name is Steve Robison, has been a good friend of mine who lost his leg in Mosul and I actually hosted every year, still now, for holiday. It’s in my home in Antigua.
And just that the American hero. And I was quite involved in their early years in Wounded Warriors. But really, it’s a fundraiser as opposed to anything else. Obviously, the unsung heroes in our country are the masses (ph) of wounded veterans that sort of where — come home and need support and work and everything else.
One of the things I love about APi, the company that we invest in today, it’s — a lot of military vets in the business which builds not only a great culture but a great work ethic as well.
RITHOLTZ: So, let’s talk about Antigua since you mentioned it. What does a special economics envoy actually do?
FRANKLIN: Antigua is a small place. My family have been there for over 30 years. My parents live there. They’ve considered (ph) to move there for many, many years.
So, my love of the island, it’s a small island, only a population of only about 100,000 people. Getting connected to the right people outside the governments of small countries is sometimes not easy. So, what I do, it’s not a job, it’s an honor to do it for them.
But I try to connect them wherever I can to the right people who would take an interest in investing in Antigua or helping Antigua in any particular way particularly when we have crisis. We had a hurricane, basically wiped out Barbuda. So, I was quite involved with helping them with relief efforts.
And really, the same thing with COVID-19, we’ve — we were doing a lot of things in the ways of food programs and sourcing medical supplies, flying medical supplies down to the country. Little things that — to a population that’s relatively small, make a big difference. So, that’s really the role I’ve played. It’s not a (inaudible) role. It’s a role I play because of my connections to the island.
RITHOLTZ: And the knighthood, is — does that have anything to do with this being a former British colony or is that specific to Antigua?
FRANKLIN: Very much so. No, very much so. It’s something that’s on the Queen’s list, but it’s something the recommendations come from the colony.
So, it’s an honor. I don’t take it too seriously. It helps every once and a while getting a good reservation at a restaurant.
RITHOLTZ: Right. That’s what doctors used to do in the United States in the 1960s. Medical school was worth of that.
But did you get to meet the Queen? Was she the one who actually knighted you or was it a little less formal of a ceremony?
FRANKLIN: It was done — it was a little — it was equally formal but it was done by an envoy. It was done in Antigua. So, they send an envoy over from the U.K. to oversee it and it’s — and on queen’s list. I actually — I actually have been to BuckinghamPalace for (ph) that, but that was just a more charitable thing in the U.K.
RITHOLTZ: Quite interesting. So, I know we only have you for a finite amount of time. Let’s get to our favorite questions. And see what we can learn about Sir Martin the person as opposed to the knight of the grand cross. Let’s talk about — we’ve been talking about lockdown and pandemics, what are you watching under lockdown these days? Tell us your favorite Netflix or Amazon shows or what podcast are you listening to?
FRANKLIN: I watched — the other day, I watched “Eurovision” which is Will Ferrell’s latest movie that got launched on …
RITHOLTZ: Yes.
FRANKLIN: I think it’s on Netflix which — because I grew up with the Eurovision song contest, I thought it was extremely funny. So, that’s my latest favorite. I’ve been watching all the episodes of “Fauda.” I don’t know if you know that series but …
RITHOLTZ: Sure. It’s nail-biting.
FRANKLIN: It’s nail-biting and it’s frighteningly accurate. I watched an interesting movie on fungi which I find fascinating. So, yes, those are sort of my favorite so far.
RITHOLTZ: Yes, I’ve learned not to watch “Fauda” right before I go to bed otherwise, I’m up for hours.
FRANKLIN: It’s pretty disturbing.
RITHOLTZ: It’s so exciting. And I was shocked to learn, it’s actually very popular throughout the Middle East, not just in Israel. It’s kind of interesting how widely has been viewed throughout the Westbank and everywhere else.
FRANKLIN: it’s true. And it’s — the reality — I go out there quite a bit, it’s place in Tel Aviv. And there’s a lot of accuracy to all of that.
RITHOLTZ: Quite interesting.
FRANKLIN: So, tell us about some of your early mentors. I have to assume your father is somewhere on that list.
RITHOLTZ: For sure. He certainly was. In all my formative years of my priorities in life. But I worked for Wilbur Ross with my first real job at Rothschild at the time.
RITHOLTZ: Really?
FRANKLIN: And Wilbur was a great mentor for me. He was very kind, teaching me things through the early days when I really knew nothing about business. I was a political science major. I’ve never taken a business course or anything like that. So, he was really someone who was a big factor.
And then my father’s partner, Jimmy Goldsmith. Watching him with my father at work and doing what they do. I guess those were my three biggest mentors, my father, Wilbur, and Jimmy.
RITHOLTZ: What are you reading these days? Tell us what’s keeping your mind busy and what are some of your all-time favorite books.
FRANKLIN: So, my favorite book, I’ve just finished actually, have you read “American Kingpin”? It’s all about the fellow who built the Silk Road, which was this place where you can buy and sell pretty much anything on the dark web.
For someone who’s not really a technology person, I thought it was fascinating. It’s also a quick, easy read. I really enjoyed that.
I tend to read books that are more historical context. One of my favorite books of all time is called “The Third Chimpanzee” which is an early book by Jared Diamond. Paul Johnson’s “Modern Time” another favorite book of mine. All the Yuval Harari books I really like, “Sapiens” “Homo Deus,” really great books.
That’s my kind of reading. I was thinking out what I’m going to read next. I just literally just finished the “American Kingpin.”
RITHOLTZ: I’ll put those on my list. What sort of advice would you give to a recent college grad who was interested in a career in either finance, investing, M&A?
FRANKLIN: For me, I think by far away the most important thing to learn is how to communicate. I think so many kids today, they’re very smart technically but their IQ is a lot better than their EQ.
And so, I would say really learn how to write, be able to communicate in writing. It’s not just about a short email. Also, the personal touch to it, how to write a letter.
I think learn how to treat others as you would expect to be treated, the right way to present yourself. Those to me, I know this sounds very basic but those skill set that (inaudible) have been lost in our youth, I think.
RITHOLTZ: And our final question, what do you know about the world of investing today that you wish you knew when you’re getting started out 25 or so years ago?
FRANKLIN: Well, I wish I knew that there was going to be the greatest long-term growth in equities in history because you probably knew the pen had been — pin (ph) rather had been successful in investing just by buying something 25 years ago and keeping it.
But I guess outside of that, I think sticking to one ‘s lane is what I’ve learned over the years is if you really know something in depth, stick to it for the long term and I think that you can make securing return doing that instead of being, if you like, too wide in your approach.
I think that’s something that over the years I’ve learned, pays better. If you really know a space then focus on it or have a philosophy about the kind of business you like and stick to that. You’re going to make better returns.
RITHOLTZ: Thank you, Sir Martin Franklin, for being so generous with your time.
If you enjoy this conversation, well, check out any of the other previous 300 such discussions we’ve had over the past six years. You can find that at iTunes, Spotify, Google Podcast, Overcast, Stitcher, wherever your finer podcasts are sold.
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I would be remiss if I do not thank the crack staff who helps put these conversations together each week. Maruful is my audio engineer, Michael Boyle is my producer, Atika Valbrun is our project manager, Michael Batnick is our head of research, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.
