AI, cloud and platforms are disrupting each and every industry. How do we find the winners?
Anne Dias, Founder and Managing Partner of Aragon, speaks with Erik Schatzker, Editor-at-Large at Bloomberg TV, on “Bloomberg Markets.” Video and Transcript below.
Watch the video here:
Transcript:
Erik Schatzker (ES): Anne you’re on the hunt for companies that can double earnings in the space of three to four years. Tell me about some of those companies.
Anne Dias (AD): We’re looking for companies that can double their earnings power in three to four years, mostly by riding a wave of innovation and dislocation. So today, with cloud and A.I. and digitization, that’s reshuffling the decks in every industry. There’s going to be winners. There’s going to be losers. So we’re trying to find the winners that are going to double their earnings power in this period of time.
So maybe to throw out a couple: of one of the companies that we think fits the bill is Bill.com. Bill.com is a company that was founded by Rene Lacerte after some time at Intuit. And this company reorganizes your entire back office if you are a small business. Everything from payments to any kind of back-office processes so you, the entrepreneur, can save time and spend your time selling and innovating rather than having to spend your time paying bills, checks, etc.
The company is going to grow tremendously for two reasons. It’s got about 150,000 customers today. It’s going to double that number of customers. And for each of these customers, instead of having one or two products like check paying or ACH transfers, it’s introducing new products and those products are much more profitable. So the combination of these two things will make it, in our view, a tremendous growth story.
ES: Digitizing accounting and digitizing the back office for small and medium sized businesses. OK, Bill.com. What’s another one?
AD: I want to move to Europe. So I am going to talk to you about a company called SIXT. And you might not have heard about it. It’s the number one car rental company in Europe.
ES: Yes, oh I know this company. SIXT. OK.
AD: It was started by Erich Sixt in the 60s as a local car rental agency in Bavaria. Then they expanded to Germany, then all of Europe. And during Covid, they actually picked up another American car rental company. So there’s tremendous recovery in the earnings power of this company because it was affected by Covid and now it’s got another engine of growth — the U.S.
But behind the scenes this company is digitizing and transforming into a new business. There’s been a generational shift in the CEO. The founder has passed on the reins to his two sons. And the company is becoming essentially a mobility company — not just a car rental company, but actually a Uber for long distance all across Europe as well as a long long-term car rental company, where you can walk up to a car and with a QR code open the door and rent it for one day, one month, one year.
ES: I was going to ask you if companies that can double their earnings power in three to four years exist outside tech and you just answered the question. They do. I wouldn’t call SIXT a tech company.
AD: Yeah, I call it “non-tech tech”. So this is a company that trades like a regular old economy company — seven times free cash flow but it’s going to double its earnings because of this digital transformation.
ES: You operate in both public and private markets correct?
AD: Yes. I think it’s a continuum nowadays. In an ecosystem of competitors, you have public and private companies, so we have to talk to both.
ES: So in the public market everyone, in theory, has access to the same information right. It’s may the best man, may the best woman win in the private market. It seems to me it’s quite a bit different. There’s still more opacity and there are some investors, I think of Tiger Global for example. But I could also name D1 and others that are throwing around enormous sums of money in the private market. How do you swim with those sharks?
AD: So, you’re right. In the public markets it’s like drinking from a firehose. It’s not how you have access to information it’s how you process it. It’s actually a little bit the same thing in the private markets. So our approach is to use themes- that travel- but whether public or private, if you have a dislocation in a sector, the winner could be a private company or it could be a public company.
Let me give you an example: We recently invest in a company called MIRAKL. It’s a marketplace software infrastructure company. So if you think of Shopify and what they do for the small merchant — that whole operating system — and if you think of Amazon on the other side — where it’s just a gigantic global marketplace. They do it in the middle. So if you’re a manufacturer or supplier, in a turnkey way you could suddenly have a marketplace. That didn’t come to us from the private markets, that came to us because we know this is going to be successful. It’s that we’ve seen this movie before. And I think the fact that public market investors are also aggressively investing in private investments is because thematically they’re the same.
ES: You’ve been doing this for quite some time and what you said stuck with me for a moment — “we’ve seen this movie before”. Is that part of what differentiates you, having seen a type of business model and then something similar reemerge?
AD: Absolutely. It’s a blueprint for success in a business model. So whether it’s in Latin America or in France or in the U.S., there’s a right way and a wrong way to develop a business model. And so if you’re transporting a business model across to Europe and it’s been successful in the US you know it’s going to work.
For instance, we have invested in a company called Zooplus. It’s actually going to be delisted. It’s being taken over by a private equity player. Zooplus is the number one pet food and pet supplies company in Europe — 40 percent market share. It’s only trading at one times sales. It’s exactly Chewy. They’re using the Chewy playbook and they’re essentially translating it to Europe. Not just selling food, selling services selling vet stuff et cetera. So I think themes travel, there’s a blueprint of success and we’re trying to ride that.
ES: You’ve worked with the best Anne, George Soros, Stan Druckenmiller, Andreas Halvorson, Julian Robertson of Tiger fame staked you. What does it take to stand out as an equity long short manager today?
AD: I think that those are, everyone has their own recipe for making money. And what is important is that it’s consistent and patient. You don’t want to change the dial all the time. I think if you’re finding companies that have great fundamentals and are going to essentially be successful, that’s going to translate into financial earnings power that’s also of that nature. And I think that’s the common denominator between people. To me it’s a mosaic of facts. And you have to put it together to forecast the future and do that before everyone else figures out what’s going to happen.
ES: I’ve heard you use a term “European digital tsunami”. What exactly is that?
AD: So I think it took a pandemic and a divorce — Brexit — to have Europe come into its own. And I think there’s a moment- a digital moment- happening right now. I’ve grown up in Europe and I’ve worked and traveled all across Europe and it’s always been very fragmented. You’ve always had really just a spaghetti bowl of languages and countries and regulations. Impossible with this fragmentation to have European champions. That’s changing.
It’s changing for a few reasons. First with technology and the massification of digital and technology stacks that are turnkey. It’s a little bit like the advent of the euro. You can be in business in any country in Europe if you have a strong technology stack. You don’t need to wait five years and have a team in Stockholm and a team in Barcelona and a team in Milan. And so it accelerates the way that you can do business all around Europe.
And then there are also a lot of money: private capital, public capital, entrepreneurs starting funds for the succession. And even the governments are at it. So I think a combination of technology dissemination, money and I think also ethos, because people know that the UK is offshore and they haven’t been to the US in a long time. Let’s make it in Europe.
Legal Disclosure: The above transcript was obtained independent of Bloomberg LP. Any errors or typos are not intentional and Aragon is not to be held responsible.
