Xs and Os: Trader U, VORB, QXO
2024-06-21 00:34:03
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I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high-stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Bloomberg Audio Studios. Podcasts, radio, news.
Hello and welcome to the Money Stuff Podcast, your weekly podcast, where we talk about stuff related to money.
I'm Matt Levine, and I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
What's going on, Katie?
We're going to talk about trader school and hedge funds. Then we're going to talk about fake M&A. And then we're going to talk about kind of M&A.
Real but weird M&A. Yeah. Let's get to it.
Let's get into it.
So trader school, we're talking about Point72, Citadel, the list goes on. Other giant hedge funds basically creating an in-house trading school to turn their nines into perfect tens.
Yes. This is a Bloomberg News, Big Take article today. Yesterday. Doesn't matter.
Time is a construct, as we keep going over.
This is a Big Take article at Bloomberg about how these hedge funds are building their own in-house trading schools. Here we are talking about it.
Yeah. Reading this, I kind of feel like, shouldn't you have an in-house trading program anyway?
So a couple of points on that. One is that, no, historically, all of the buy side used to hire from the sell side, right? It used to be that if you're a hedge fund, the way you acquired new talent was from the banks. And one thing that's happening here is like the banks are a less of a source of talent for these places, in part because, like banks, got rid of prop trading. And so like, the ability to source good risk takers from banks has gone down, but also in part because these places have gotten huge, and it's just like, you're not looking to like identify one good trader from somewhere, you're looking to like mass produce them.
And so having a training program is kind of a new need for these big firms, right? Used to be a hedge fund was like one manager. And when that manager got rich enough, they just, the firm went away. So like having this very institutional structure is kind of a new thing. And so you need a training program.
The other thing about it, though, is it's not just training, you know, incoming people to be good analysts. It's taking the people who are analysts and have been there for a while and trying to find out if they will be good portfolio managers and promoting them to being portfolio managers as carefully and scientifically as you can. So, instead of being like, yeah, you've been here a while, here, manage a book. It's like taking the analysts and seeing if they'd be good at managing a book and teaching them how to manage a book.
So two points. So we're talking about it as trader school and the article talks about it as trader school. What's more fun to me is this sort of dystopian vision, where it's actually just like a factory and you're just putting this person into the machine. It does some combination of lights and sounds and things to the person, and then they spit out as this stock picker.
Well, that is sort of how these things are supposed to work, right? The idea of these multi-strategy hedge funds is they're very like scientifically managed and they really like carefully monitor your trading and they make sure you're neutral to all the factors. And if your portfolio goes down by a little bit, they like pull some capital. And if it goes down by a little bit more, they fire you. You know, it is like an alpha factory, right?
It is like trying to somewhat dehumanize the management of traders. So yeah, it is a machine that flashes some lights at you. But wait, I also want to take it seriously as a school, because I would like to go to trader school.
I want to audit a class at trader school. I don't think I would do very well. So I don't want to receive a grade at the end, but I would like to see what happens.
Apparently they grade them out of 10, right?
Yeah, right.
Usually the analysts come in as nines and they're supposed to leave as 10 portfolio managers.
I think I'd come in at-.
We'd probably come in at like a two.
I was going to say I'd be a solid one, maybe a two on a good day and maybe come out as.
a four. Yeah, I think a four is reasonable. Two points on that. One is that I hope that by saying that you want to audit a class at trader school, you have manifested that and that we will be invited to audit a class at .72 or anyone's trader school. Any multi-strategy hedge fund that wants to have us audit a class at trader school and maybe do some field recording, we'd speak with them.
It doesn't even have to be top tier, we'd go. We don't need to go to the Ivy League of trader school. I'd be willing to go in state, but yeah, I would love to do that. That would be our first field podcast recording.
I feel like we'd learn a lot at trader school, and so would our listeners, and so would possibly the hedge fund that hosts us.
I mean, .
72. sounds like it is the place to go, because the article mentions that more than half of Steve Cohen's stock pickers have come through its program, rather than big, expensive outside hires that they've had to make.
It does seem a lot cheaper to run a trader school than to pay someone a $50 million guarantee to come be a portfolio manager.
Yeah. I mean, maybe it's less good for you, that star stock picker, because you-.
It's like you're on the rookie contract, right? You get paid like an employee rather than in a bidding war for your talent. Yeah. The other thing about trader school is my dream has always been to do my job as like. I write my newsletter for like, and do my podcast for like- Right, thank you.
Six months of the year. And then I go like intern in a financial job somewhere for six months of the year. Like, wouldn't that be fun?
I feel like this company would let you do whatever you want.
I know, but like who would hire me for that? Like, hopefully, some of our listeners, but who would be like, oh yeah, come like, do a bad job at our job for six months and then go write about it, right?
This is the most heavy handed section we've ever done. I know, right?
Like. please, have us come into your thing. I didn't even mean it that way. It's so hard to know what these jobs are like unless you've done them in some way.
Yeah.
And I feel like I could learn a lot by like spending a few months.
Me too. I mean, I feel like I was born and raised inside this building. I've been here since I was 23 years old. Isn't the point of journalism to go out and have broadening experiences and really get to know the industries and the people that you cover? Yeah.
And I've had some jobs in finance and that was nice, but I haven't had all the jobs in finance.
Yeah.
You know, I'd like to, you know, manage a little portfolio for, for 0.
72.
. I feel like that could be good.
I feel like that's something you do in high school, right? You sign up and have like a paper portfolio.
Well, I think that the trader school is to train them to run a real portfolio. But yeah, some of these schools do. have you run a paper portfolio. Yeah.
I think I bought like shares of Hot Topic.
Okay. That sounds right. Yeah. I feel like this is at least the second appearance of Hot Topic on this show.
I, uh, I spent a lot of time at Hot Topic. What else should we say about this? I mean, uh, again, it seems like a cheaper way of doing things. There's a lot of conversation in this article about the talent war going on in hedge funds right now.
I think that it's just like, these funds pay so much to portfolio managers. They charge clients so much. There's so much demand for this. And I think part of it is like, these are places that are pretty good at identifying alpha and being able to say like, we can strip out all the elements of luck and market exposure and just identify who is skillful at managing investments. And then we can offer you that sort of pure uncut investment skill.
And the clients apparently love that because it's uncorrelated to everything else. And it usually goes up. And so they're willing to pay basically whatever fees these funds charge. And given that it's clear that there's the shortage of people who can generate alpha. And it's not clear that that would be like a natural shortage, right?
It's just like, there's only so many people who've like come through the pipeline of becoming portfolio managers at point 72 or whatever. So if you can train more of them, like you're filling this like enormous unmet demand and you can make a lot of money, right? If you can like bring someone in cheaply and turn them into a $50 million a year portfolio manager, like that, it's a great business.
I don't think I have any ideas, but wouldn't it be fun to like, do a thought exercise of like. what would your trading school look like? Like? what are they learning in trading school classes?
What are they learning in trading school classes? So I think that we're sort of exaggerating by saying this is trading school, right? Like this is like...
But isn't it fun to go along this flight of fancy?
Sure. So I think that this is like a lot of it is like some sort of combination of like actual classes and like mentorship and meetings and whatnot, for like existing analysts who want to move into portfolio manager roles where they're trying to figure out if they'd actually be good at it. But I will say there are people who run trading schools and those people are the big prop trading firms, right?
Oh, I thought you were going to say the people that keep trying to scam you on Instagram.
Oh, yeah. Like Bill Ackman. No, I don't think those people even run trading schools. No. I think those people just run Instagram ads.
But no, like Jane Street and Susquehanna and all those sort of big prop trading firms are very invested in training people how to think like traders, because you can't really hire people out of school who know how to do that. If you're hiring investment bankers, it's like some combination of like, can they do a DCF model and like, will? they work really hard? And there are ways to figure that out. But knowing if people are good at operating under uncertainty and like estimating probabilities in their head and sort of being decisive and like taking risks in the right way is just harder.
And so a lot of what these firms do, both in their like lengthy interview process and then like in their like internship programs, is like they sit them down to, like play poker every night and they play like fake trading games where they evaluate their ability to like, make these decisions. So it's a really like very organized trading school where they're trying to see who is like overconfident, who is too timid, and who has, like the right ability to take risk.
There were some examples in the big take. at Citadel. For example, trainees are taught how to back pitches from colleagues lower down the food chain. At Ballyazni, they get a limited pot of cash, then they have to deliver returns that match or beat the firm's older hands. Point72 wants its cadre to think like CEOs, meaning they'll need to create and run a book of ideas, all while getting total buy-in from their teams.
That doesn't quite fit my fantasy of my dream trading school.
Right. Because this is not really a trading school. This is a like developing.
It's like soft skills.
Yeah. It's like developing, like senior portfolio managers, like that's a management job. That's an investing job. But it's also like a risk-taking job, whereas, like if you're like a 22-year-old at Jane Street, you're being taught to handle risk.
Indian options. Yeah. Yeah.
Right. There's great stories in Michael Lewis' book, Going Infinite. Who?
Just kidding.
About Sam Backman-Fried's training days or internship days at Jane Street where he like learned to like make positive expected value coin flip bets with his fellow interns, right? Part of the goal of the training program was to like have the interns bet against each other and sort of see who was good at betting and who was good at like finding and exploiting edges. I would not want to go to that trading school, but I like the idea of the trading school as a sort of like Darwinian fight between the interns. for, like, you know, there's only so many jobs and whatever intern can like out-trade, the fellow interns gets the job, you know?
See, again, that's something I would like to audit, since I would do terribly in that program. But boy, would it be fun to watch.
Right. Right. I find it stressful.
This podcast is supported by Apollo Global Management. When it comes to building and financing stronger businesses, Apollo turns some of the world's most complex challenges into growth opportunities. Apollo's customized capital solutions help drive innovation and growth, turning the great businesses of today into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment grade credit, helping to fill gaps in America's financial ecosystem, and providing greater access to more resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth.
Apollo, investing in tomorrow, today. Learn more at Apollo.com slash private investment grade.
I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
I would find fake M&A stressful.
Yeah. It's just so good. Virgin Orbit, a space company, went bankrupt last year. Right. But before that, it sort of announced that it was in its last stages, like it furloughed all of its employees.
And this guy named Matthew Brown sent them a LinkedIn message being like, hey, I would like to invest $200 million in your company. And they were like, hey, great. That sounds good.
Thank God.
And they like negotiated the deal with him. And eventually, the deal fell apart, probably because he didn't have the money. Yeah. The SEC brought a case against him this week, certainly claiming he didn't have the money. And in fact, he sent a screenshot of his bank account showing like $182 million to Virgin Orbit.
But it was a doctored screenshot and actually had less than $1.
. Yeah. Strange amount of money to have in your bank account.
Yeah. Quite a discrepancy.
So deal fell apart and the SEC sued him for fraud, saying that it was a fake takeover offer. But what I think about it is like I read a lot about fake takeover offers and they're all the same, which is that someone, like, buys stock in a company and then, like, puts out a press release saying, hey, I'm taking this company over and the stock goes up and they sell the stock and then they like fizzle away. But this guy did not do that. He did not buy stock in the company. He did not put out a press release.
He might have just been doing it for fun.
This upsets me because I don't understand the motivation.
So he says it's real, right? I mean, like he gave a statement saying, no, no, the SEC case is full of misrepresentation. I love his statement, actually.
Let me read it for you. The SEC's complaint is filled with egregious errors, fabrications, and biased allegations that undeniably favor the culprit, and the culprit is Virgin Orbit's management. I love that. he says that they're the culprit here for doing due diligence.
Yeah, right. I mean, I have talked to previous fake takeover guys and they're like, why won't this company take my calls? I'm offering to give them all this money as soon as I can raise it, but the company won't take my calls. Virgin took his calls. Like they signed an NDA.
They sent him a term sheet. They like sat down and negotiated a deal with him and eventually started asking questions like, do you actually have this money? Could you put it in escrow? And he walked away. But I don't know.
It was the motivation. Like he says it was real. I would like to think that he just wanted to be on TV. Like he did this thing and he did eventually get on CNBC to talk about his proposed deal.
He could have just started a fake AI company and gotten on TV that way.
But this is so fun. I don't know. Right. There are a lot of ways to get on television, but this is a good one. And you grew up in this building.
I grew up as an M&A lawyer and I always thought that like drama of negotiating deals was kind of interesting and exciting. And he not only got to go on TV to talk about his deal, he got to like actually negotiate a deal. Like he like got a term sheet. He was like doing calls with the CEO. He had a lawyer involved, but he's like, let's not bring the lawyers into this too much.
I'll just, we'll negotiate this deal together. So I don't know. It seems like it would be fun. I would totally role play negotiating an M&A deal. This is another thing I would do.
Like, besides go to trader school, I would role play negotiating M&A deals for fun. And this guy might've done that.
I would find that so enormously stressful.
Not. if you knew, you weren't going to do the deal.
That's true.
You know, Oh, you know, instead of $200 million, like $210 million, you're like sure $210 million. I'm not paying that money anyway. But the other thing is like. the SEC claims that what he was trying to do was extract money out of Virgin. So what happened is that, you know, he was like, I'll put in $200 million.
And then, at some point, he sent them an email complaining that the deal had leaked. This is before he went on TV, unclear why the deal leaked, but he said, I want a breakup fee. So if this deal doesn't go through for any reason, if I can't actually invest the $200 million, I want you to pay me like 3%, like $6 million, right? Which is an unusual ask, but I think people get breakup fees, but not for like deciding not to do the deal. But if it had worked, if Virgin Orbit had said, sure, we'll give you $6 million.
If you can't give us the $200 million, then he might've walked away with $6 million.
But wouldn't that have been clawed back?
Yeah, of course. It's not a good plan, because they were going into bankruptcy, and they didn't in fact go into bankruptcy. Like the idea that they'd pay him $6 million for like pretending to do an equity investment, not that likely.
Again, this just seems totally, totally stressful. The CNBC appearance in and of itself was pretty weird. I didn't watch it. I don't think I could watch it. I find it very stressful to watch.
It was stressful to watch. We fully plan on transacting with the company within the next 24 hours.
I have positions in over 13 space companies and I view them all as neighbors.
He did not seem like an experienced investor in space companies.
Yeah. I would also struggle to name 13 space companies, but that's...
Oh, I think he would have as well.
That's a good joke.
It felt stressful and it did not make me confident that the deal was going through.
What do you do after this? He's 34, right? So, I don't know. Maybe he has a long career of fake M&A in front of him, but I feel like this kind of blew his cover.
Sometimes these things are like people who actually do do a little investing and bite off more than they can chew, right? Maybe he can go invest money in other companies and be like, the SEC got it all wrong that time. Yeah. I'm good for this $1 million investment. I don't know.
I mean it this time, but you also think about Virgin Orbit's perspective during all of this, because this was sort of like a white night, save your moment. Yeah.
They did start asking him questions like, do you have the money? But they definitely... He sent them an email and they engaged, right? Yeah. He sent them like a cold LinkedIn message.
Anything done over LinkedIn, I mean, come on.
There's like no record of him, right? He's like, I've invested $750 million in space companies and they're like, sure you have, right? Anyone. Yeah. It was good, right?
They would take anything at that point, right? This is not the top person on their list of potential investors, but at this point they're like a week from bankruptcy. They're like, yeah, we'll take what we can get. And so they'd returned his calls, right? It is tough for them, right?
Like? they jumped all in on engaging with this guy who turned out to be fake. apparently. They had not a lot of other good options.
Yeah. I think someone from the company I read called it an unneeded distraction at what was a very critical time. And I'm sure they...
Yes and no, right? I mean like...
Yeah.
Was he distracting them from other better investment?
Maybe. Probably not. But maybe.
This podcast is supported by Apollo Global Management. When it comes to building and financing stronger businesses, Apollo turns some of the world's most complex challenges into growth opportunities. Apollo's customized capital solutions help drive innovation and growth, turning the great businesses of today into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment grade credit, helping to fill gaps in America's financial ecosystem, and providing greater access to more resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth.
Apollo, investing in tomorrow, today. Learn more at Apollo.com slash private investment grade.
I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Let's keep the conversation going on, M&A, and let's talk about a weird M&A that's going on with Brad Jacobs and QXO.
I'm not familiar with the naming structure for his companies, but he's like a.
XBO, QXO.
Right. He's like a logistics guy who likes... I guess it's just...
He likes.
. There's certain letters that he likes.
Right. He's a fan of an X, but not only an X. Like Elon Musk. He needs some O's.
He also likes O's. Yeah. Yeah. X's and O's.
Anyway, so he ran XBO. He's made a lot of money doing logistics, and he wrote a book called How to Make a Few Billion Dollars.
It's a great title. I have it on my desk. I still haven't made a few billion dollars, but...
No, but it's such a good aspiration. It's not one billion dollars, not a lot of billion dollars, but a few billion dollars.
A few billion.
You know, get comfortable. Yeah. He runs these businesses where he rolls up smaller businesses, really. He goes out and acquires a bunch of smaller companies. And he's decided he's going to do that in the building products distribution business.
Sexy.
Yeah. It's like companies that distribute... I don't know.
It's important. Okay.
I haven't read the book, but this is apparently how you make a few billion dollars. Yeah. You find a large, lucrative, kind of boring niche, and then you buy all the companies in that space and make them more efficient.
You consolidate an industry. Yeah.
So he's done that before. His plan is to do it in this building products distribution business. So he started QXO. And QXO, he's raised like $4.5 billion. Some of that is his own money, some of it is from big outside investors.
And he's got a $4.
5 billion fund to go out and buy building products distribution companies and roll them up into a big QXO thing and then make a lot of money on it. But he didn't do it as a fund or as a private company. He did it by acquiring this little public company called Silver Sun Technologies, which is like a real company. It sells... Yeah.
It's like, it like sells business software to, it, like resells business software to businesses and then consults them on how to use the software. It sort of seems like it's vaguely in the same, like building products universe, but it's like selling software instead of building products. Anyway, it exists. It's a real company. It's a public company, publicly traded, small, has, like, you know, $1.5 million of net income a year on like 50 million of revenue.
It was like a, like 15, $20 million market caps. It's like a small company, but it's a public company. And he called them up, apparently through Goldman, like his investment bankers, called up Silver Sun and was like, we want to put in a billion dollars into Silver Sun, take it over. We'll own basically all the stock, but not all the stock, most of it, 99% of the stock. And we will change its name to QXO and make it into this, you know, platform for rolling up building products, distributors.
And Silver Sun was like, yeah, sure. And so he bought Silver Sun for a billion dollars. And so now he owns basically all of it.
It was like a $25 million market cap. Yeah.
It was like as low as like 15-ish or something, not that long ago, but yeah, it's like double digit millions. So now he owns like basically all of it, but there's a little bit, there's like 600,000 shares that trade. And all these people, not that many people, but like the people who buy the 600,000 shares, you know, there's like retail demand for people who want to invest alongside Brad Jacobs, right? They're like, oh, we've read, he's, he's the guy who can make a few billion dollars a few.
times. He's the guy, yeah.
This is a good plan. He's going to make money doing this rollup. So let's put our money into it. But like, there's so few shares that are publicly available that they're trading at like, they've gone down there in like the seventies now, but like there were like $230 a share a couple of days ago, which if you multiply that by like the total shares, like the people who put in the $4.5 billion to actually do this company, you get a market cap of like almost $200 billion. So I think that the retail investors buying the stock do not quite understand how the capital structure works.
And so they're buying the stock at a price, implying a $200 billion valuation for a company. that again is just a fund of cash, right? It's just a $4.5 billion pot of money that Brad Jacobs will use to go out and find companies. But right now it doesn't do anything except has this tiny little tech business.
Well, to be fair, this is an extremely weird capital structure. Like why is my first question, like why not just do this the normal way and eventually IPO and go about it that way? Like, why buy this small cap with the plan to spin it off? I went back to a December 2023 interview that Brad Jacobs did and he said, basically we're putting it into a small cap. We're going to spin that company back to the legacy shareholders.
in a few months, when the deal closes, the Silver Sun shareholders will have their company back. They'll also have a $2.5 million dividend and they'll get 0.3% share in my new company. Like that is a lot of steps.
Yeah. By the way, they didn't do that. They were planning to do that. Yeah. They changed their mind and they didn't spin out the legacy business to the old shareholders.
They're keeping the legacy business, which, by the way, is like, it's a small business, but it has like 200 employees. It's not like a nothing. It's like a real company that does stuff. So they're keeping the legacy business. They're not spending it out to the shareholders and instead of paying them $2.5 million, they're paying them like $17 million, which again is like sort of around where the market cap was before Brad Jacobs came along.
Why do it? I don't know. It's weird. I mean, he had Goldman Sachs like calling small caps for it.
Importantly, they called and they didn't send a LinkedIn message.
Yeah, right. I mean, that's the normal way to do. M&A is like your banker knows someone who calls them, rather than sending a cold LinkedIn. But anyway, the answer is it's nice to be publicly traded. sometimes.
It gives you some advantages in fundraising. I think that a big part of the answer is probably if you're doing a rollup, you want to be able to give people stock, and it is perhaps more convenient to be able to give people publicly traded stock. So if he's going to buy a small building products distribution company, he can be like, you know, I have this pot of money, I have like $4.5 billion, I can give you some money for your company or I can give you some of my publicly traded stock or some combination of them. And so, you know, if you're rolling up these businesses, people who have built these businesses over time want to have some continued economic exposure to the thing they built. And so, like you can give them stock, it's like, you know, you'll still have some diluted economic interest in the thing you built.
There's a bit of a problem where, like what price do you give them the stock at? Because he is like raising money at. call it $9 a share, which is like kind of roughly like you're putting in cash into a fund, right? Like you're, you're buying it at like sort of the cash value of the fund. But like meanwhile, the stock is trading like $70 a share, because it's like people's hopes.
So I don't know the first roll up he does, the first acquisition he does, like, is he going to pay in stock value at $9 a share or $70 a share?
Yeah, it feels, I mean, in some ways similar to the Destiny Tech situation and DXYZ when we're talking about enormous, enormous premiums here.
Right, exactly. Like Destiny Tech is a pot of money that it's like a pot of shares in private companies. And you know, it's like cool private companies that retail investors can't invest in. It's like, you know, SpaceX and whatever. And so when they took Destiny Tech public, there was more demand for the shares than the actual value of the companies it owned.
And so it was trading at like a thousand percent premium to net asset value. This is a little bit like that, right? Like this is your chance to invest in Brad Jacob's private investment vehicle, rolling up the building products distribution business. But the trade-off is like, you're not really investing in that. You're really investing in like the sort of meme-y retail premium to the actual value of the company.
Because like if he does really well and like triples the value of the company, that's still way less than what people are paying for their retail stocks today.
Yeah. I also am curious about how Silver Sun executives feel, because in some ways it kind of feels like winning the lottery, I would imagine. Like, how did he pick this company? I don't know.
I think that the bankers must have had a list of very small companies that we could acquire. Because it's not like he paid them a billion dollars, right? Yeah. It's like he put a billion dollars into the company. And, like the existing shareholders, what do they get?
They get a dividend, right? Which is in round numbers, like 50 to 100% of the value of their shares, right? They're getting paid on cash. And then they also keep their shares, which have, you know, gone up from like nothing to $200, right?
I would sell them right now. Yeah.
I think a lot of them probably would have. Yeah.
Yeah. Again, it just feels like winning the lottery. Yeah. This is so strange.
It's very strange.
Yeah.
Now, there's always been this sort of like industry of little public companies that are useful for reverse mergers. Because every so often someone wants to become a public company, not by doing an IPO, but by like merging with an existing public company that doesn't have much there, right? And so with SilverSun, the idea was like, there's a little bit of a business there and we'll spin it out to the existing shareholders. So we'll end up keeping its listing, but getting rid of its business. Then they changed their mind and now they're keeping its business too.
And why do you think they did that?
I don't know. My guess would be, it's just logistically easier, but I don't know.
I would be curious.
A lot of like reverse mergers are done with companies that, like, don't really have any business at all anymore, but they did exist and they closed down. So you see all these companies that were like gold miners and then they became cannabis companies, and then they became crypto miners, and then they became AI companies. They do like, they hit like every buzzword because they keep being like reused for their public listing. Yeah. This isn't quite like that.
This is like the sort of high-end version of that, but it's still, you know, a $25 million company. This is like a billionaire calling Goldman to call a company. They're not going to call, like the worst of the cannabis companies, but like it's a small company. Yeah. The best of these is, of course, the New Jersey deli.
Oh, my God. Your hometown deli.
Your hometown, deli. Hometown International is a public company that had one deli. And at some point in like 2021, David Einhorn called it out because it was a single deli that was trading at a hundred million dollars.
That was such a moment. That was great. That was a gleeful time.
It was amazing. And, like I wrote a column about it, pointing out that actually the fully diluted value of the deli, when you counted for all the warrants, was $2 billion.
Yeah.
And like the deli, was very perplexing, but like ultimately it sort of turned out. it was like some reverse merger promoters who were hoping that you would have a sort of valuable enough public company that someone would want to do a reverse merger with it and go public by merging with the deli. And the deli was just sort of like an easy business to hive off the eventual public company. But then they were sued for fraud because they were sort of allegedly manipulating the stock.
Is the deli still in operation? Like, is there a physical deli?
I believe the deli closed, but at the time there was so much financial journalism about the deli, like several business reporters went to this town in New Jersey and ordered sandwiches to make sure the sandwiches were good. I always found that puzzling because if you looked at the financial statements of the public, because it was a public company that was also a deli, their employee costs were so low. Like I was like, how could they be open even 10 hours a week? So I don't know. But apparently financial journalists would go to the deli and order sandwiches and the sandwiches were pretty good.
So it was a real enough deli, but also somehow a fraud. But anyway, this is a real public company that was kind of small and now is like a tiny part of a big fund.
Yeah. Now let's do some roll-ups and consolidate this industry.
Yeah. Yeah.
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