Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Alex Behring
[00:00:00] S0: If you think about this unique nature of it being so much house capital, you're on the line with all of your LPs. And you think about the search for, let's say, Hunter Douglas, which was a transaction three or four years ago. Talk about the length of time that you're willing to engage with a company, maybe in that specific case, how long it took you to get to know that business and how the transaction came together. These are very unique ways and long durations, and I'd love to just put some meat on those bones. [00:00:00] S1: I met Ralph in the mid-2000s, first in Switzerland, and then we got also close to his family here, the two sons. One resided in Greenwich ‘til recently, and the other one resided here near the city. And had a good relationship going for a long time. I think that not until a few years ago, as Ralph aged, and he was trying to organize his family affairs. And he was trying to carve a solution for the fact that one of his sons wanted to remain involved in the business, which is David, our partner. And he also cared what happened to Hunter Douglas following 100 years in the family. And that's the context in which we started a conversation. But that was already 2021, mid-year. I visited him in Switzerland, in his home, and had a conversation about it. And he was then brainstorming what to do. And I think the outcome of that conversation was that he would give us a window to present him with a proposal. And then, if he liked that proposal, he would move forward. That's sort of how it started.
· Alex Behring, Patrick O'Shaughnessy
[00:00:00] S1: I met Ralph in the mid-2000s, first in Switzerland, and then we got also close to his family here, the two sons. One resided in Greenwich ‘til recently, and the other one resided here near the city. And had a good relationship going for a long time. I think that not until a few years ago, as Ralph aged, and he was trying to organize his family affairs. And he was trying to carve a solution for the fact that one of his sons wanted to remain involved in the business, which is David, our partner. And he also cared what happened to Hunter Douglas following 100 years in the family. And that's the context in which we started a conversation. But that was already 2021, mid-year. I visited him in Switzerland, in his home, and had a conversation about it. And he was then brainstorming what to do. And I think the outcome of that conversation was that he would give us a window to present him with a proposal. And then, if he liked that proposal, he would move forward. That's sort of how it started. [00:00:00] S0: So sort of a 15-year investment of time to get that window? [00:00:00] S1: In this case, that's right.
· Alex Behring, Daniel Schwartz
[00:00:00] S1: In this case, that's right. [00:00:00] S2: I like that we're inserting the word "window" here many times, but maybe just some additional color. You had a long-standing relationship with Ralph. I had first met David in 2007. David is Ralph's son, who is now our partner in Hunter Douglas. He rolled his shares into the transaction a few years ago. They invested alongside us in Burger King. We built a good relationship, lots of mutual respect. David came down, Alex – Alex, I guess and I organized to have some of our partners come visit us in Burger King in 2011 or 2012. And we gave a presentation on what we were doing, and I remember spending time with David. And he said, "This reminds me, in some respects, of Hunter Douglas, this kind of entrepreneurial, startup-type culture in a traditional business." And we kept tabs on their business through the years as well. And we watched David do some transformational acquisitions along the way to evolve that Hunter Douglas business to become even more direct-to-consumer. So to go to both selling through dealer and direct-to-consumer. We were big admirers of that business for many, many years. And we had the history of following the business for many, many, many years prior to Alex and Ralph chatting about succession and next steps for the business. So we played the real long game. [00:00:00] S1: David did really sort of shape the company through those deals, I think. [00:00:00] S2: He did. David evolved Hunter Douglas into a business that we had an even greater appreciation for 15 years after meeting him.
· Daniel Schwartz, Patrick O'Shaughnessy, Alex Behring
[00:00:00] S2: He did. David evolved Hunter Douglas into a business that we had an even greater appreciation for 15 years after meeting him. [00:00:00] S0: Maybe since it's a company that probably people have seen, can imagine as a product that's accessible and simple to understand – use it as an example to explain the criteria that you love in a business. Describe the business, but more importantly, what it is about it when you did the transaction that was so appealing. [00:00:00] S1: The business basically owns the relationships; it doesn't have a concentrated customer or a concentrated supplier. So it's a business that's really well positioned in an industry. Purchasing window covering products is not a frequent thing. It's not something that you do every week, or every year even. So I think that really sort of set itself well for the business. [00:00:00] S0: So I understand that last piece, meaning because you do it infrequently, brand and familiarity matter a lot. Like, if you're not going to do it often, you'd rather just go... [00:00:00] S1: Also, a lot of times you do it in the context of a renovation, for instance. But it's never a big part of that, also. So I think it lands itself. Quality matters. Our quality is almost, in a way, too good. I wish people would replace the product sooner.
· Alex Behring, Daniel Schwartz
[00:00:00] S1: Also, a lot of times you do it in the context of a renovation, for instance. But it's never a big part of that, also. So I think it lands itself. Quality matters. Our quality is almost, in a way, too good. I wish people would replace the product sooner. [00:00:00] S2: The TAM for the interior and exterior window coverings is around $70 billion. HD is far and away the largest player. We have this combination of scaled manufacturing coupled with scaled distribution. And that allows us to, either through our own sales force, or through our exclusive dealer network, deliver the product within a week, two weeks, which is typically when people would expect their window coverings to be delivered. Every product is largely custom made-to-measure. So there's no one single SKU. And so we have billions of permutations of styles, colors, patterns, sizes. And the business was around prior to us buying it for about 100 years. And we talk about all the things that can change in the world and disruption risks, but we're highly confident about the sun rising and the sun setting. And you see houses are being built with larger and larger windows because people like natural light. And so it's a product that's here to stay. We're the number one leader. There's some volume growth. There's a little bit of price growth. And as I mentioned, as we mentioned earlier, there's this historical roll-up element of the business, where you're buying small players in the industry. And we are the natural home for many of these small players.
· Daniel Schwartz, Alex Behring
[00:00:00] S2: The TAM for the interior and exterior window coverings is around $70 billion. HD is far and away the largest player. We have this combination of scaled manufacturing coupled with scaled distribution. And that allows us to, either through our own sales force, or through our exclusive dealer network, deliver the product within a week, two weeks, which is typically when people would expect their window coverings to be delivered. Every product is largely custom made-to-measure. So there's no one single SKU. And so we have billions of permutations of styles, colors, patterns, sizes. And the business was around prior to us buying it for about 100 years. And we talk about all the things that can change in the world and disruption risks, but we're highly confident about the sun rising and the sun setting. And you see houses are being built with larger and larger windows because people like natural light. And so it's a product that's here to stay. We're the number one leader. There's some volume growth. There's a little bit of price growth. And as I mentioned, as we mentioned earlier, there's this historical roll-up element of the business, where you're buying small players in the industry. And we are the natural home for many of these small players. [00:00:00] S1: Also, climate change and the increased awareness of the risks associated with that, and the need to save energy and whatnot. I mean, that's a positive driver for this business.