Ian and I recently returned from a five day, six city trip across three European countries. It was a good opportunity to catch up with management teams and to see firsthand the facilities of some existing and prospective portfolio companies.
We are sometimes asked, “What value do you get from visiting companies on their home turf instead of at conferences or through conference calls?” The answer is that we view the act of going to meet them very worthwhile for a number of reasons:
Seeing how the business operates provides perspective – It is one thing to read or hear about the complexity of building a product or offering a service; it is quite another to actually see it in person. Seeing operations firsthand often provides a far better appreciation of the competitive advantages a business enjoys (or does not). After touring some of the most complex facilities across sectors like automotive, general industrial and aerospace, one gets a better understanding of what makes these businesses tick as well as their financial characteristics (operational leverage, capital intensity, working capital intensity etc.)
The nature of the conversation is different – Senior executives appreciate when you take the time to visit them in their own backyard. It shows you care enough to make the trip and many of these managers take significant pride in showing you what they have helped build. They are often far more relaxed and open to discussing their long term vision than after a long day of sitting through back-to-back meetings in a cramped hotel conference room getting grilled by hedge funds about short-term results.
We can give countless examples of when CEOs, CFOs and founders of businesses have walked through their stores, factories or distribution centres and proudly discussed how the business has been built and where they are planning to take it over time. A phone call, while useful, does not always have the same impact and these visits help to build relationships with management teams we wish to partner with over the long term.
Visiting headquarters gives insight into how management prioritizes shareholders – Visiting companies can often provide insight into management’s true priorities and how they think about shareholder capital – shareholders after all are the owners of the company. This recent trip provides an interesting example.
We visited two companies operating in the same city, in the same industry and both are approximately the same size. One company boasted an extraordinarily opulent campus, featuring buildings created by globally renowned architects using exotic materials from around the world. There were numerous trendy restaurants and cafés onsite and the collection of art and fresh cut flowers were really quite something. Its competitor down the road had a headquarters that looked like, well, an office building. The lobby had not been updated in decades and contained a handful of uncomfortable chairs and a television that proudly showcased its products and included the share price. We met with the CFO in a small boardroom that included a broken coffee machine that would make random loud noises, but was fully functional so they had no reason to replace it. This CFO spoke about how cash generated from the business was to be put toward developing new products that would both improve the lives of its customers and provide fair returns to shareholders.
Which management team would you rather partner with for the long term?