00:00Solve Energy which is owned by private equity firm American
00:02Securities was able to complete its IPO and raise five hundred
00:06thirteen million dollars. I'm pleased to say joining us now is
00:10the American Securities founder and CEO Michael Fish. Michael
00:13thanks so much for joining this morning. So you IPO last week
00:16again in a week where we did see others back off. Was there ever
00:19a moment where you looked at the market volatility and thought
00:22maybe maybe we should do the same. Maybe we should postpone this.
00:25Never. Solve is a terrific company. It's got an amazing CEO George
00:31Hirschman and his management team and a significant backlog in a
00:36growing sector. Some call it energy transition. We call it energy
00:39addition. And Solve is the largest solar EPC. So it's built over
00:4420 gigawatts. Enough power to do all of LA's homes for a year. And
00:50a backlog that keeps growing on the back of the need for more
00:54energy for data centers for three industrialization of America
00:57and other things. And solar as you probably know is the cheapest
01:01fastest way to construct power. You don't have two to four year
01:05weights for turbines and things like that. And the sun shining
01:09every day particularly in parts of this country and battery
01:11storage is so great now. It's now a real option for many grids.
01:15The sun's also shining metaphorically for solve to I mean so
01:18far it's already up nearly 30 percent since its public debut. So
01:22what is the distinguishing factor between a company that you can
01:25bring to this public market right now and one that you can't
01:27because of the volatility we've seen?
01:30Well, I think, you know, company industry management always
01:32matters. And in Solve, as I said, people saw a great demand for
01:37many years to come in the need to build more power in this country
01:41and solar being a great place for that and Solve being the number
01:43one player in that space. And so with backlogs and growing revenue and
01:47EBITDA people saw stability in the midst of turmoil in other sectors.
01:52And we were delighted with Jeffries and JP Morgan, our lead underwriters
01:56and the management team did a terrific job talking to investors.
01:59I was speaking with TPG CEO who basically said that a lot of funds
02:03have left themselves with companies where the only exit route is an IPO.
02:07Maybe they're too big for a strategic buyer. I know for you certainly IPO is not
02:12the only exit route. You sold foundation building materials for Lowe's 8.8 billion
02:17dollars in cash at the end of last year. How are you viewing your exit
02:21options? Is the market pretty wide open for both strategic buyers and IPOs for the
02:26companies that you're currently holding?
02:29You know, as a general statement, the market factors matter as you're talking about,
02:33Danny. But if you've got a good company with stable long term demand, a great
02:37management team, there's always an exit at the right price if that price makes sense
02:43for you and your investors. And so we, in four situations last year, returned
02:50$2.6 billion to investors. As you said, you know, now Solve is a $6 billion market cap
02:56and we're delighted to own about 73% of that. So there's always opportunities if
03:00you're buying great companies with great management teams with long term stable demand.
03:04Do you think that is a fair statement, though, that some funds haven't fully thought through
03:08the exit that when they were buying companies at high multiples in 2021, 2022,
03:12they hadn't really thought about what happens five years down the down the road?
03:17Well, I don't know that they didn't think about it then and they sure thinking about it now.
03:21I mean, as you're highlighting the headwinds for exits have been the higher interest rates
03:25in the last five years from virtually zero base rates to now 5%.
03:29So if you borrowed to buy a company five years ago, you paid about 5%, 6% interest and now
03:36that's 10% or 11% if you can get it. And multiples being double digits. If you haven't
03:41seen growth, that's a problem. And now there's probably 16, there's estimated by one consulting
03:46firm to be 16,000 companies in private equity portfolios. And over 70% have been held for more
03:53than five years. So those companies need an exit. That, I think, will unwind itself in the next 12
03:59to 24 months as those initial financings come undone. They just run out of time. And so they've
04:04got to sell and they've got to refinance. Some will do a bit of both. And we think that's a
04:08great
04:08opportunity for industrials in the next period and a great time for us as the U.S. re-industrializes.
04:14Your fund concentrates on industrials and it has. And that used to be, dare I say, an atypical private
04:21equity bet because it's heavy industry, lots of assets, maybe margins aren't so good. It used to
04:25be things that the favorite child of private equity was like tech and software. And some of that has
04:30started to become problematic. Do you think that this is an industry that's going to start coming
04:35around to your thinking and especially the build out of the U.S., the AI, that industrials becomes a
04:40more attractive target for private equity? Well, there's lots of people with different strategies
04:44and they're great at what they do. We like industrials because industrials with, as you're saying,
04:49tech and software have been the two biggest sectors in private equity deals and they have about the
04:54same return on average. And what you need to bring to industrials is a history and an ability to make
05:00those companies better because of the prices you have to pay today, doing the same thing doesn't help
05:05enough. And so we're fortunate to have a 50 plus person resources group, functional operating people
05:10that help our companies, management teams do better. They don't do management's job, but they help
05:14management succeed. And, you know, a 30 plus year track record of focusing on this space. And so we're super
05:19excited about what's to come. How does the talent pipeline look for operating partners who can help
05:24specifically with various AI build outs? Because it is somewhat new, at least it's new in the pace that it's
05:29happening. Are you able to find the talent of people to bring in that can really guide companies through these
05:34transitions? As a general statement, yes, we have a lot of external resources that have experience helping
05:40our companies with demonstrated success cases. But we find the better play is to with the management
05:47team thing. What is what is the technology application that can be super changing and focus on that? Doing it
05:53top
05:53down hasn't worked really well for the last 24 months. And a lot of companies have been trying and we've
05:58been focused on
05:59it as well. But where you have a management team says, if we can do this, we've done great things.
06:03So in FBM,
06:04for example, we help management build a digital app. They deliver sealant, tile, wallboard, big construction
06:11projects to a big high rise. If if you don't know when that's coming, you can have management labor
06:15waiting around. So with a digital app, we can tell our customers exactly when the shipments will come
06:21on trucks and be offloaded in a two hour window. That saves enormous amounts of money for our customers,
06:27helps drive revenues in a positive customer company relationship. So there's things like that can really
06:33matter more. Obviously, on a cost saving side, again, an FBM example, a big contractor says, hey,
06:41bid on my ceiling tile. Here's the plans that used to take weeks to figure out how much ceiling tile
06:47on wallboard and other products they really need. You can throw that in AI and it can tell you pretty
06:52quickly and with fewer errors what that is. So you can do it a lot faster and with a lot
06:58less people.
06:58And that drives a positive situation for customers and company.
07:02How are you using AI internally at American Securities? Are you?
07:05Oh, yeah. We are we are doing it internally as a screening mechanism.
07:11We look at every company that we're going to invest in and kind of run. I call it an IC
07:16co-pilot
07:17and see what that says just to get independent eyes. And our due diligence team is using it all the
07:22time for market demand, a whole whole host of things. Now, it's not always right, but it is
07:26always interesting. Yeah. To prove to prove what's right is right. And what's what it might say
07:31something that's wrong. That's where the art. So you have you have essentially an IC, an AI IC member.
07:37You can basically call it that. I mean, anyone can run these things because we have internal internal
07:42walled off warehouse of where we can run, you know, chat like or anthropic like.
Comments