Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy, Alex Behring, Daniel Schwartz
[00:00:00] S0: I'm going to come back to the "Everyone being young" thing just in a minute, because I think it's so interesting. But when we first had lunch, you told me this story about the funny back and forth with Tim Hortons and your initial outreach to them. Can you tell that story as well? [00:00:00] S1: Sure. I was able, through a common friend, to get a dinner with the CEO near Toronto. And I flew out there. We had a great dinner, really hit it off. And he was open to potentially receiving a proposition to put the companies together, which we maybe a week later, or two weeks later, went to Warren. And Warren was super, super reassuring as we talked about, in a near instant. I mean, I remember 10 seconds into the call with Warren, he really, really praised the quality of the business. And Dan and I always go back to that and say how right he was. And we didn't even fully appreciate how good a business it ultimately was, which we do now. But anyway, so that went really well. So we had the financing lined up. He was open to receiving a proposition, we put a proposal together and we presented to him. Then there was radio silence for a week. We felt radio silence for a week is normal. This is a big deal. They're deliberating about it. But then that became two weeks and three weeks and four weeks. [00:00:00] S2: I had only bought one company at that point. So I'm like, "Alex, is this normal?" And he was like, well.... [00:00:00] S1: I was at first saying that it kind of is…
· Alex Behring, Daniel Schwartz
[00:00:00] S1: I was at first saying that it kind of is… [00:00:00] S2: He's like, "Don’t worry." Because he wanted me to focus on the business. He's like, "No, don't worry. It's totally normal. Totally normal. Totally normal to take eight weeks or seven weeks." [00:00:00] S1: So six weeks into it or something, I get an email back, basically saying, "Listen, thank you so much for your proposal. We're not prepared to move forward." And something like, "Best of luck with your future endeavors." And it only had two lines, maybe two and a half lines. At which point, I picked up the phone and called this guy whom I had hit it off so well with. And I said, "Listen, thank you for your email. I mean we see David, can you elaborate a little further?" To which he answered, "No, I can't." I mean, what else do you say? You know, I hung up and I called him. He said, "How did it go?" I said, "Well, not so well, kind of short." And then we did some more work and made improvements to our offer. And then we sent it to him, revised the offer to them, in the hopes that that would be enticing. And then we were prepared again to sit and wait for an extended period of time, only to be surprised and get a response back in hours. Two, or maybe a day. [00:00:00] S2: Within a day. [00:00:00] S1: I think I want to say less than a day. Saying, "Thank you for your offer. We are not prepared to move forward. And we wish you, again, the best of luck with your future endeavors." [00:00:00] S2: The good news is, neither of us are shy, and both of us are persistent.
· Daniel Schwartz, Alex Behring, Patrick O'Shaughnessy
[00:00:00] S2: The good news is, neither of us are shy, and both of us are persistent. [00:00:00] S1: So now we're really scrambling and trying to find every possible way of engaging in the dialogue and figuring out what it is that we had to do, if anything, to get a conversation going. And then ultimately, we found ways by means of which we're able to meet with him and his chief financial officer. And I was able to then drag Dan with me again, and engage into a conversation and gain some insight in terms of what is it exactly that we would need to do to get these companies together? And then, after some time in that conversation, we were able to have a revised offer that they thought was then enticing enough. We then moved on to the usual drafting and legal and due diligence phase of it, only to receive a call on a Sunday afternoon from the Wall Street Journal saying, "Listen, we know you guys are about to announce a deal. We're going to go live with it. And you guys have 30 minutes to decide whether you want to say something." It was delicate at the time because Tim Hortons is a brand of a magnitude that I almost want to say that I'm unsure whether it exists in the US, in terms of a consumer brand. [00:00:00] S0: It's ubiquitous in Canada.
· Patrick O'Shaughnessy, Alex Behring, Daniel Schwartz
[00:00:00] S0: It's ubiquitous in Canada. [00:00:00] S1: It's just so, so large, the brand in Canada and so important for the Canadians that this information about a deal coming out the wrong way at the wrong time, could have killed it after all these six months. So you asked him, when is it that he was nervous? But this is when I, in spite of my then already abundant gray hair, was nervous. [00:00:00] S0: How did it ultimately get done? And what was the reason that he was slow and quick in his initial two responses? [00:00:00] S1: So apparently – I mean, we were not privy to all the details, but the board dynamic there between him and the prior CEO that was chairing the board and whatnot. There was some genuine doubt about the deal and they were discussing it intensively. [00:00:00] S2: Yeah, I think if you rewind a bunch of years earlier, it was a subsidiary of Wendy's. [00:00:00] S1: That's right. That's what drove the... [00:00:00] S2: They were like, "Do we really want to be attached to a burger brand again?" But ultimately, I think we were able to convince them that this was going to be great for everybody, that this was going to be a portfolio of brands, that we would take Tim Hortons international. And that, most importantly, the brand would retain its independence, and independent management, and focus in Canada.
· Daniel Schwartz, Alex Behring, Patrick O'Shaughnessy
[00:00:00] S2: They were like, "Do we really want to be attached to a burger brand again?" But ultimately, I think we were able to convince them that this was going to be great for everybody, that this was going to be a portfolio of brands, that we would take Tim Hortons international. And that, most importantly, the brand would retain its independence, and independent management, and focus in Canada. [00:00:00] S1: And also, I think that what sealed the deal for them – of course, the financial proposal – but it was also the reassurance on our part that our owners in Canada, our Tim Hortons owners, which were the heart and the core of the brand, would really thrive under our ownership. That was key for them. They really cared about that. There were thousands of owners in Canada. They made the brand into what it is. [00:00:00] S0: The franchisees, you mean? [00:00:00] S1: The franchisees. Which in the case of Tim's, they call them owners. I think that was key for them. Once we disclosed what our plans were, why we thought that they would work out and so on, and so forth. That went a long way with them as well, because that helps dismiss their concerns about what happened in the past. This wouldn't repeat itself. [00:00:00] S0: You mentioned the call with Warren on this one in particular. Over the years, what have those calls been like? What could we all learn from the sorts of interactions you have with him at the really high level about a potential asset, a potential investment?
· Patrick O'Shaughnessy, Alex Behring, Daniel Schwartz
[00:00:00] S0: You mentioned the call with Warren on this one in particular. Over the years, what have those calls been like? What could we all learn from the sorts of interactions you have with him at the really high level about a potential asset, a potential investment? [00:00:00] S1: We learned a lot just by virtue of spending so much time with him. And I think Warren had this uncanny ability to quickly identify whether a business is good or not, and really, really have clarity around that. A little bit of this encyclopedic knowledge of business that he has is something that, of course, we're nowhere near having here at the firm. But we do try to emulate some of that around the stable of companies that we follow over a long period of time and the relationships that we build. That's the other thing we learned from him. He really sort of values these relationships; he builds them often when there's no business to talk about, and he's always respectful and mindful and great around that. And I think those are the two things I took personally to heart from all these interactions with him. [00:00:00] S0: Anything you'd add? [00:00:00] S2: Warren never compromises on business quality, and that takes discipline. And I think what we do here – and we like to think that we emulate him in that capacity, that we will never compromise on business quality. We'd rather do nothing than buy a business we don't think is great.