Improvising on a pivot: how a messy org chart became a 15x deal

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 23:11

   and on the music side it's being able to improvise because my training was originally classical but then i had the fortune to study with um african-american musicians in in um in bennington college milford graves bill dixon and part of that whole training was to be spontaneous and to be improvising and to be in the moment and there is no wrong note if someone plays a note that's just a new note it's not the wrong note it's like okay we changed key let's go with that come on let's get going now now we're on so so that ability to go with the flow in music you need to have that in business shape a lot of people have a rigid I did.

2. 24:00

   business plan that's spelled out for many years and that's it. And it's very non-flexible. That doesn't usually work. Why? Because life changes, markets change, economies change, people change, results. You get opportunities that you hadn't even thought of at the beginning. So you need to improvise. You need to capitalize on that and to make money from that. And if you're rigid, if you're just rigid thinking, if you're not a musician, if you're not a musical business person, you're going to lose opportunities. You're going to have things come your way to make money for shareholders and feel, well, it's nice. It's great, but it's really not our thing. Well, that's a bad way of thinking. I'll share with you one of the best business deals I did in my life was I bought in 2015 a less than truckload trucking company called Conway. It was based in Ann Arbor, Michigan.

3. 24:53

   It was a few billion dollar deal. It was a pivot because this was a hard asset business. It had tens of thousands of trucks and drivers. It was as asset heavy businesses as you're going to get with fixed costs and depreciation and amortization. It was not an asset light brokerage business, which is how I started XPO as an asset light, non-asset based business. But here was an opportunity to buy something really, really cheaply at a small fraction of what it was worth, and even a smaller, tiny fraction of what I knew we could make it be worth within a few short years. This is a company that had a lot of excess overhead. The organization chart was not mathematical, going back to symmetry and formula, things that relationship make sense. I like to take, I love org charts. I just love to geek out on org charts. An org chart

4. 25:43

   should be pretty. Org chart should be simple. They should be elegant. They should be geometrical. They should not be really complicated like you took some spaghetti and threw it like an abstract art on a canvas. This was a bad org chart. This had three things of three different HRs and three different IT organizations and a lot of duplications. And it just didn't make any sense. A lot of silos and heavy, heavy on the non-revenue generating top part of the organization, which should be the lightest part of any organization.

5. 26:15

   The heaviest part should be parts of the organization that make money, that generate revenue, that you're close to the customer, that generate sales. So I looked at that org chart and said, this is a messed up org chart, which is great for making money. If you can find something that's messed up and easy to un-mess up, booyah, there's your money. There's your opportunity to make a lot of money. And that was it. It was just like, I got so excited about the opportunity to take this company and I saw a way we could significantly grow the profit margin, the cash flow, that I pivoted, I pivoted and go ahead and do the deal.

6. 26:50

   I got beat up real bad by the market. They said, oh, it's a change. And I said, give me some time. And I remember, I remember Eli Gross, who now runs investment banking from Oregon Stanley, but at the time he was covering me, XPO, as a transportation banker. And he said, you know, you're going to be in the doghouse here for a little while because it's a pivot and markets don't like pivots. But assuming you're right, and I know you have high conviction, and you deliver the numbers, over time, you're going to be a hero here. And everyone's going to understand what you did. And fortunately, he and I were right. And you look at that deal, even though it was a pivot, it was a change, it was an improvisation. We bought it for about $3 billion. Roughly half of it was equities. It really bought it for a billion and a half dollars plus some leverage.

7. 27:36

   today it's worth something like 15 billion dollars and that's after having taken out many like five billion dollars of net cash from it that's after selling off 550 million dollars of the truckload business that's after taking its warehouse business its supply chain business which was called menlo and putting that into our gxos of that was after taking the brokerage business and putting that with our RxO brokerage business.

8. 28:05

   So this was the gift they kept giving Conway. It's been an amazing, amazing, amazing ride. And the returns, it's been a, I can't do it in my head, but something like a 20-bagger, 15-bagger. It's a huge, huge return on invested capital. And had I not been trained as a musician and a mathematician, I don't know that I would have saw it, Shane. I don't know if I didn't have the mathematical skills, I would have been able to see, okay, this is a mess, but we can make it clean. I don't know if