Ken Langone won Perot's deal at 100 times earnings
Ken Langone's career is one long bet on people, priced with nerve. At 33, never having underwritten anything, he talked his way into a meeting with Ross Perot, valued the company at 100 times earnings when the other banks said 30, and won the deal by refusing to share control. The same rule runs through a 42-year average holding period and through Home Depot, where the apron on the sales floor outranks the head office.
Takeaways
- Langone bets on people, and holds for decades. People are 95% of what he looks for in an opportunity, and his average holding period is 42 years. His Eli Lilly stake came out of a 1972 proxy fight and has compounded at 15% a year, including 16 flat years.
- Leave the other side feeling they won. Negotiating, he says, means making the other side feel they got more than they expected. He once gave a seller a better deal and then refused to do business with him again. Reputation and keeping his word matter more than any deal.
- Home Depot puts the apron on top. The orange-aproned employee is the most important person in an upside-down hierarchy, and a $1bn wage increase followed that logic. The biggest mistake was letting cost outrank culture, which he says Frank Blake fixed, calling him the company's founder.
- Grasso's rise made Langone's NYSE seats a fortune. Dick Grasso started at the New York Stock Exchange as an $82.50-a-week clerk and rose to chairman over 37 years, taking listings from 1,200 to 2,800. Langone bought seats at $72,000 and sold them at $8m each, and fought Eliot Spitzer over Grasso.
- A shambles became a top-ranked hospital system. He took a job at NYU Medical Center when it was in a shambles, right after its hospital merged with Mount Sinai. The system now has three number-one ranked hospitals, including Lutheran in Brooklyn, and ranks first in brain surgery and neurology.
Winning the Ross Perot underwriting
- He met Jack High at a Mardi Gras ball and asked for the chance to pitch his firm, which won him a 30-minute meeting in Dallas.
- Perot had already seen Goldman Sachs, Merrill Lynch, White Weld and Kidder Peabody, and talked for 29 of the 30 minutes. Langone spent his last 30 seconds saying goodbye, and Perot kept him until 1 a.m.
- On the third Dallas visit Perot asked what the company was worth. Langone said 100 times earnings, where the other firms had settled near 30.
- Gerry Lodge of G.H. Walker offered to match 100x and co-manage, but Langone demanded total control, and Perot gave him the deal. The papers were signed in New Jersey after midnight to avoid New York's transfer tax.
- Perot expected him to back off 100x in the limousine. Langone had planned 115x and winked at Margot Perot. The stock went from 16 to 24 on the first day.