The Exchanges

Q Why don't you take me back to both of your backgrounds leading into what became this public effort?

A I graduated from Penn. I worked at McKinsey in consulting for a couple of years and then started at Berkshire Partners actually as an associate on the private equity side of the house. So did that for two years. Never actually worked with Rob while I was a private equity associate. And then left there and went to a firm I think you know quite well, Ted, a firm called Reservoir Capital in New York for two years, where I did a little bit of everything across public and private. And then in 2006, Rob and a couple of the other partners at Berkshire reached out and said, Hey, we're thinking about starting up a public equity effort. We'd love for you to come and join. And the rest is history. I joined in 2007 and have been here ever since.

AI assessment note: “I graduated from Penn. I worked at McKinsey in consulting for a couple of years”

Q As you go and do the work on portfolio companies and try to get from what a public investor might commonly have to something that you hope is closer to what a private market investor gathers in information, what does that work look like, both in terms of time and that extra bit beyond what you think another public investor might typically do?

A One interesting thing about our firm, just to give you a sense, is When we invest in companies on the private equity side and the public equity side, when we have joint investments, we'll share the same material to both sides of the house because they're making independent decisions about a company. You don't know who wrote that material because it looks the same. It's presented the same. The standard of evidence is the same. The way it's written, how we look at the world is the same. And so there isn't a Stockbridge carve out for what we look for in a business or private equity carve out. We try and spend a lot of time and get to conviction on the key questions, and so examples of things we do. Very early on in our history, we looked at a business, at the time it was called Pediatrics, that staffed 25% of the NICUs in the United States, and we built a model of the demand for neonatology over a 10 to 20 year period, based on why were preemies being born, why were Children, babies being admitted to the NICU. And what were the drivers of that over a 20 year period? So very detailed demographic analysis over a long period of time. We own a business today called Vulcan Materials, which is an owner of Quarry's aggregate business around the United States. And it's a business we've looked at multiple times over the years. And one of the things we've done is assembled a database of Eve…

AI assessment note: “assembled a database of Every single quarry in the United States”

Q And what's one fact that most people don't know about you?

A One fact that people don't know about Stockbridge is actually that one of my partners, Saad Hassan, and I went to elementary school together at the British International School of Cairo in Egypt, and we didn't actually know that when he joined in 2011, We were having drinks at a bar next to the office, and I just asked him, where are you from? And he said, well, I, I lived in Egypt for a while, and I said, I did too. What school did you go to? It turned out we went to the same school. We were a year apart, and I went to my parents, held on to our yearbooks, and so I grabbed our old yearbook from the British International School of Cairo in 1986, and pulled it out, and there's a photo of Saad and I as kids back in Egypt in the mid-eighties. Rob?

AI assessment note: “one of my partners, Saad Hassan, and I went to elementary school together”

Q When you bring up the Skillsoft example, it's a public company that gets to take private, buy Berkshire. How have you navigated the potential conflicts on the public side?

A There's a few levels to this. Number one is, what we discovered pretty early on is that private equity business is not a source of information, given how we're investing in very long-term theses. What we've learned through our private equity business and the thirty-plus years of investment activity they've had across hundreds of different businesses is insight. Insights into industry trends, into business models, things like that. And so, the fact that what we're looking for is insight, Over long, long periods of time tends to keep us in a pretty good place from a conflict standpoint. Berkshire private equity tends to invest in smaller businesses has always invested in smaller businesses than we tend to invest in. So there's very little direct overlap in the companies we're looking at. So we found it's extremely rare that we end up with MNPI on a company and the places where we've run into issues They've tended to be opportunities, not conflicts or issues. We've co-invested in things. And so what that has led to is an investment that makes sense for Berkshire private equity and for Stockbridge has tended to be an investment we make together. And so we've had a number of those over a long period of time. The fact that we can profit together has resolved a lot of the internal conflict of interest that might crop up.

AI assessment note: “we found it's extremely rare that we end up with MNPI on a company”

Q How do you ultimately decide what goes into the portfolio?

A As a firm, we're very consensus oriented. That's been our history on the Berkshire Partners private equity side, and we carried that through to Stockbridge. So as an entire group, we discuss every idea that's making its way into the portfolio from a very early stage, which we call our tear sheet stage, where we're just introducing the whole team to the business to a final investment memo. Everybody from the newest analyst to the most senior partners is weighing in on that decision at that investment meeting, and the group will vote on whether it should be admitted to the portfolio or not. It served us really well as a firm to have that process. We think many engaged minds thinking about a company deeply over a long period of time leads to a better investment decision, and for Some of our more junior team members, it's more of an apprenticeship, so they see that process happening, and obviously the older and more experienced you are, the louder your voice is in that room, but insight comes from a lot of different places. We want to make sure that if someone has a deep insight, they have the ability to share it. That's a process we've carried over from Berkshire private equity. What's very, very different is just how do you decide how big something is in a portfolio? In private equity, the size is somewhat predetermined. The company needs X hundred million dollars of capital, but…

AI assessment note: “the group will vote on whether it should be admitted to the portfolio or not.”

Q Once you own a name, how have you thought about the cost benefit of going on a public company board?

A What we've learned over time is we're not trying to go on a board to change what a company is doing. Across the firm, we're very, very collaborative, and we partner with management teams, so we think even at the Stockbridge side, we're best on boards when our role is to help the management team achieve with the company what they're setting out to achieve. We think it's, uh, hard, lonely, and not very fun to be in a Conflict situation with the management team where you're trying to change something that they or the board are trying to do. So the key is if we have a problem with the company, it's better for us to sell than it is for us to go on the board and try and change it. And we've been pretty fortunate with the boards that we've been on that what they've done is they've increased our conviction in the underlying goodness of the company, the management team, and the thesis. And what we're looking for when we go on boards is Do we think this is a situation where we can add value to this management team because of the unique skills that we bring, given our board experience and our connection to Berkshire private equity? And do we think being on this board is going to help us maximize our profit opportunity because it'll help us build conviction. It'll keep us around for longer. It'll help us own things that may seem more expensive, but open our eyes to the opportunity that exi…

AI assessment note: “do we think being on this board is going to help us maximize our profit opportunity”