Andrew: What are your considerations in terms of purchasing new companies? What are you looking at in terms of both augmenting your existing portfolio companies or new areas that you are looking at?

T.J.: Well, a bunch of things. We bought, two companies, one company that can do refreshing rebuilds for major chains across the United States. So, if you are a Walmart and you are putting in a drive-up window to pick up groceries you ordered online, this company has the capability of putting those windows in the 2000 locations in 90 days. And what we have done with the companies, we have migrated into a lot of cleaning services, and we have gotten some EPA-approved equipment that kills the virus and stays on the surface that has been sprayed on for many days. So we are providing those services to a lot of the national chains out there, which has been exciting. And we recently bought a business, which is the largest battery charging battery conversion business in the United States. And it seems to be doing very well. People were all, as Rich knows, in the automotive business, it seems like there are more and more used cars on the road than there are new cars, and they tend to need charges more. So that has all been very good. And we have products for the electronic vehicle market, which we are also ramping up. So that is what we have been doing. Now we drive to these companies. If I get in the car and drive 800 miles or 1000 miles, that is fine by me. And if you drive across the United States, it makes you proud as an American, because the guys in the trucks are all wearing masks, the rest stops have never been cleaner, you can bring a glove and grab the pump and pump your gas. So it has been relatively safe for us.

Andrew: Right, great. Are you seeing any other types of opportunities that are not industry-specific?

Mark: Yes, and I think T.J. started to touch on this before. One thing that again, pre-pandemic, we were watching was the amount of industry concentration that was going on, and not just tech, but across a lot of industries. The big kept getting bigger and there are two parts to this. I think one just in the public arena if you are a public company a small micro-cap, there are so many less analysts who are covering the public market right now. You cannot get the time of day, you cannot get access to investors. Now the trend is all index funds. So there is nobody on the other side of the phone to talk to. There is an index and they are buying your company at the end of the day. And so, I think this is interesting for PE, there is a fair amount of micro-cap companies out there that may have some really good economics, may be performing well but are in a sector or a category that is out of favor. And people make these allocations, I am going to get out of energy, I am going to get out of agriculture, whatever, and is probably fair for 90% of the companies, but there are probably a few gems hidden in there. From a public perspective where a company could turn around and take it private. So I think that is one aspect. Another one in terms of concentration is just what COVID has accelerated, right? Which if you are a smaller company, everybody is trying to survive right now. But staying power, and the ability to outlast COVID, right. That is first and foremost on a lot of people’s minds. But what everybody is not thinking enough about is, “Hey, there are other problems out there and there are other disruptions.” So everyone is trying to just work through what does COVID mean? We had a shortline railroad, another logistics business, that dealing with COVID had about 20% of its business coming out of the oil industry, which has been suffering, so that was a hit to the business, and then just got hit by a hurricane. And so I think something smaller businesses are starting to realize is, it is one thing to deal with COVID, okay, it is another thing to say, “Well, I used to have a cushion, that cushion just got dried up, it is gone. And the next time around, I am going to be in some real trouble.” I think small businesses, too, are thinking about post-COVID a lot of people going to have to change or revamp their business model, okay. So whether it is restaurants or retail, or warehouses, the way it works today, probably in the wrong place, and they probably are laid out wrong. I just started coming back into our office walking around the building, it is empty. That is one thing, but the layout does not work. It is not going to work going forward. There are a lot of businesses that may survive, maybe fine, but they are gonna look at their core business and go “Wait, this is not laid out correctly, my footprint is not correct anymore.” I think retail is a glaring example of that. So people on this call, there is a lot of opportunities for smaller businesses to help them grow, help them tweak their business model to adapt to what the future is going to hold for them post-COVID. And then, I think TJ touched on this, but just being under an umbrella, right, where it is, frankly, a little safer at the end of the day. I know there are a lot of families who have family businesses, who are calling us recently saying “All our equities in this one company, and COVID has been so scary, I just cannot see all the equity disappearing.” So this idea of, and Rich mentioned this too, we take a lot of stakes in companies where we are 55 percent, 60-70 percent. And we want the ownership with the family to have a decent stake in it. There are a lot more of that going on right now. Because I think families are saying, “Wow, I used to like to run this, I still want to be involved, but I got to take some chips off the table. So I think there is a lot of opportunities there.

Andrew: Any comments?

Rich: Well, I am going to stay after that, I am staying home, or I am going to get on Mark’s Hawaii deal. That is what I want to get in on.

Mark: But you know Rich, some of these companies we all find to get that they are all so interesting in themselves, but you say, “Okay, well, we would love to find another deal like that, because it is really neat.” There is always a catch. All right. And the catch was, this company got in trouble because they were trying to build a new ship and they lost their financing. And they were gonna lose the berth to build the next ship there was going to be given away, and they had 34 days to close. And so the day we heard about it, we had 34 days until we wire the money, alright. So that is like another thing we can do because guess what it is Sam’s money, he is across the hall, we have some flexibility there. Nothing is free out there, right? There is always a catch to it. I will not bore you guys with how we did it. But a lot of structuring went into that. It was not just we dropped equity into the company because you cannot diligence a company properly in 34 days. So there is always a twist to making these things work into getting outsized returns. But yes, it is a great business as well.

Andrew: Given that, in terms of what is going on in markets, there is simply so much capital out there, but prices do not seem to fall and that much in terms of what these companies are looking for. So, how do you invest and how do you create the outsized returns that you are going to expect? Any comments on that?

T.J.: I will be happy to take this one. Because we have actually had very good pricing. It is driven by, and I think Mark made this point before, there is a lot of things going on besides COVID. Part and parcel of that if you were the owner of the business, it certainly puts front and center your mortality and the fact that maybe you cannot manage through it, or you get something else like a hurricane. And you have a presidential election coming up, there is a lot of owners of businesses who say, “Hey, can you close this before year-end, because I do not want to risk paying higher capital gains next year.” There is a big concern about that. So actually, we have we closed on one business, that was we paid a little bit more than five times EBITDA, which was in less than six times free cash flow, a market leader. And, now a part of it was we cut the price before the performance really took off. So it has gotten a little bit of a COVID lift if you will. And then another business, we have in it seven times. So what we found, although it is changing, right now, but we found the last three months was a great time to be in the market mind. I am told that is going to begin to change a little bit. But part of it was, we were very fortunate. Thank God, we did not have a lot of problems in our portfolio. So we had the bandwidth and the availability to go out and look and buy things. Secondly, we are willing to do what it took. We had to get hold of a couple of lenders and split the cost to charter a plane or hopping on an automobile, we did it. And I did stay at one hotel in Kansas and when I checked in, there was a sign that the reception desk that said bird plucking room in the back. I was not quite sure what that meant. But we were willing to do that to look at the business.

Rich: See, Andrew, that is the heart of it. T.J. talks about it and I think the fact he would get in a car and drive 1000 miles like he mentioned before, I think the nature of relationships in this environment, and specific to the type of businesses in the middle market that we all focus on, really plays a huge factor. Because as I tried to differentiate us from others, and I think that both Mark and T.J. have seen this movie many times, there is a huge group of private equity firms that seek 100 percent or 95 percent control and full ownership, they want to cut costs, use high leverage to achieve their target returns, and they have their own playbook. It is very different when you come in and you invest in partnership with many of the companies that T.J. and Mark have highlighted because nowhere the body buried. They have a plan, they are looking for additional resources, they appreciate operators that have become investors. And on the far end of the other side of the spectrum, they are probably getting cold call by 10, if not 100, growth equity firms that are targeting businesses where they can make a minority investment and have preferred security on top of it and it is not true partnership. And I just think that in this environment, no matter how expensive things may become when you have great relationships with sellers who become as much a buyer as a seller, and to T.J.’s point when you have great relationships with lenders who are going to give you a wide berth to structure something that could be creative. I think ultimately, you weather the storm here.

Mark: Yes, and I will add one more thing to that. I think that is dead on. So, I used to be an operating partner too and what I think is so interesting about the private equity industry is we all buy these companies and analyze the markets and the competition, all that and people do not think enough about ourselves as an industry. And I think there is a lot of commoditization of what a lot of people in private equity do. And when there are 25 people bidding on the same asset, and we have all got the same cost of capital and the same people running the same models. I do not know what you call it, but it sounds commodity-like to me. The idea of getting a car and driving a thousand miles that is elbow grease, right? That is actually a value-add at the end of the day. And I think what you are going to see over time, and this is not a COVID issue, I think this is just where the industry is headed. I think it is obviously there is so much capital out there, it is getting harder and harder and harder just to go find a bargain, right? I think we would all if we could find a great company really cheap, we would all do in a heartbeat. I think and for people on this call what is great or important is going to be to find really outsized returns we use the word complexity a lot. You have to go places and do things that a lot of other people will not go and do. Okay. And that could be financial complexity, that can be operational complexity. But you have to find situations where there are not 25 people, just like you bidding on something because by definition, you know, it is going to be much more competitive. And so where is that, at this point in time? Well, it is within the company, right? If we can buy something cheap, that is great, but the value creation in the company is going to be more and more and more important over time and I think we all kind of believe that anyways. But I think you are going to see even more of it because there are plenty of people, you can pick almost any topic you want and there are five or six funds that focus on it. We do some energy and I know a fund that all they do is invest in Frack drilling in the Permian Basin and that is the fun. It is not the company, that is the fun, that is literally all they do. Well, guess what, they are probably really darn good at that and pretty focused on it, right. And so, you know, if you are going to create outsized returns, you got to be a little better at people at doing certain things. And that, to me means finding things that are really hard to do. And so we like to say all the time, if you only need capital, and that is all you want, we are absolutely not the people to be talking to, okay. And so if you want to buy 100% of something, and you are going to sell it to the highest bidder, and you are going to race a process, and we really cannot get to know management, you really cannot understand what the company is and what they are doing. Okay, fair enough, that is your prerogative, it is not for us, at the end of the day. It is easy to say it, it is really hard to do, obviously. But I do think you will see more and more and more of that going on.

Andrew:

Right. Great points, great points. In terms of doing these deals, and the uncertainty, and I think T.J.’s point about the year-end capital gains and people wanting so to do everything, as it changed the way you structured deals. I was hearing early on the day that people are escrowing a COVID premium, to make sure the business comes back. And you talked about working with the debt lenders? Are you saying that you are approaching things in a different way with the current environment?

T.J.: Who would you like to take this, Andrew?

The answer is yes. There is some thinking that has to go into pricing vis-à-vis getting a COVID bump, or the other way around is if the company is hurt by a one-time event, maybe you realize that you can pay a certain price because it is a non-recurring event. That is something you have to think about. The other thing is in the PvP loan business is that a number of these companies we have looked at, have gotten some government support? And then you have a question, well, do they have to pay that loan back or is it going to be forgiven? It is still unclear, some banks will not even process applications for the forgiveness of these PvP loans. So do you have to escrow that? There are a lot of these questions and I think, you know, you have to look at all the issues very carefully.

Andrew: Rich, any comments?

Rich: Yes, Andrew. I think in a couple of cases that we have seen when you are dealing, a lot of times your sellers are actually not just founders or management teams, they are actually sponsors, right. They might have gotten to the end of a fund, or looking for an outcome, they think it is too early to sell the business. There are a lot of innovative ways that we have had discussions and dialogues about how you would structure something. So, in the founder and management team cases, we have had folks that have been so successful running their own businesses, the last place they want to go when watching a stock market that is completely dislocated from reality is to have some big outcome and go put it in the market. So whether it be some seller financing at a significant level, almost eliminating whether it be a DDTL for add-ons or just some large loan package with some type of second lien component. We are seeing very creative financings from folks that actually can afford to do it, they have run that business for a while. And then there is just been a number of different, rather interesting ways that sponsors have found ways to team up and you read about them all the time, different by the organization. But we found that to be also an interesting way that people are navigating the last six months.

Andrew: Mark, any comments?

Mark: Again, I would not add much. I think what they both said is right, I mean, look there is a lot more plan a little higher on the capital structure, this converts is more preferred opportunities out there. There are not just seller notes, but there are more earnouts that we are seeing things like that, where you know, the buyer sitting on this side of the table going I do not know how to underwrite the next two years. It could swell, you know, is there going to be a bump up in COVID again, or not in the numbers swing wildly, right. So, you are trying to push a little bit more of that risk onto the seller to the extent you can, and there are a lot of techniques to do that. Again, it is just what the market is willing to bear if somebody needs to sell and I think this issue of year-end with taxes is bubbling up with people. There are, we have got a couple of things that are raised in the close right now. You know, worried about next year and so you are able to demand a little bit more to make sure that the transaction gets done. But I think, look it all just revolves around this. There is so much uncertainty and trying to predict the next two years that I keep thinking about the underwriting. And another thing people do not talk about enough, it is when you try to underwrite right now, it is not just, “Hey, what do you think about the next couple of years” but what do people think exit multiples going to look like. Right? And it is, I do not know, it is tough, right. But how much of the value is tucked in the x multiple? And what do you think that environments will look like in a few years? So it is really difficult right now, with certainty or any reasonable amount of certainty to feel good about some of those predictions. And so, taking a little less risk. And again, maybe covert things like that, and we are just seeing a lot more.

Andrew: We talked about V-shape recoveries, we talked about W-shape recovery, a lot of people saying we will not be back to normal until the end of 2021-2022. Do you see another distress cycle coming? And do you see that we will be approaching another like, going into the portfolio companies and trying to emphasize being defensive mode and being prepared, Rich?

Rich: Oh, wow, Andrew, I was just going to say I was just going to follow the order and follow T.J. Go first you are going to mess me up.

T.J.: It is all yours Rich, have fun.

Rich: Oh, well, in that case, that is a tricky one, particularly out here in the state of California, where everyone has their own opinions about how things are going. You know, we spend so much of our time sitting in Silicon Valley in a lot of tech and tech-enabled service businesses that have been less impacted. So when we think about that recovery, so many of our businesses have cashflow characteristics that are less attuned to some of the challenges that what I would call, mainstream businesses are going through like other parts of our portfolio. Thousands of people affected on the auto-side or end markets, as we talked about before, geographically that would also be impacted as well. So it is really hard because you just cannot, I think Mark says, what you just cannot, you just got to go and you got to figure out a way to navigate this. I do not think anyone has the right answer. But we are looking for resilient businesses. And I keep coming back to it because it is easy thing to do. We are really looking for really strong people where we can bring an operating bench of folks, much like many on this call today that can support those companies through whatever this recovery may look like. Or if I had $1 for every accurate, having lived through a number of these cycles that the guys have seen the movie in the past for I do not think I was right in any one of them. It is like when you tried to underwrite a deal, right, and price a deal at a 25 percent IRR with 80 percent confidence never happened. And I do not think it is too dissimilar to this situation.

Mark: The other thing I would add is, look I think it absolutely depends on what sector and industry you are talking about. Energy is in distress right now. So have at it is distressed, retail’s distressed, right. All that logistic stuff I was talking about they are bullying, and probably will for a while, and you got everything in between we own a hospital chain. Alright, so yeah, we went through all that stuff with the respirators and PPE and all that and the safety issues, but we are getting government money. As TJ said, it is confusing as heck, like, some of that money came in as grants. Now, they are saying we have got to pay back. But at first, we did not have to pay back and try to weave through all that stuff, you know, is crazy. So I think there is a spectrum. I think you can find distress right now if you are willing to step into certain parts of the economy. I think there is probably more coming, unemployment is not good, right. If you just do the word COVID out for a second, there are some metrics out there that do not look good at all. The flip side is there is a lot of capital, there is a lot of government support, there are low interest rates. So, you got to toggle all those things. And I think the answer is there is no generic yes-no, there is just each individual, sector text, lots of techs are booming. You know, anything surrounding the home is booming. That shortline railroad I talked about, they ship lumber. Okay. It’s unbelievable. Right? The inflation on lumber right now, because people are trying to build homes in the suburbs, okay. Well, that piece that is just booming along, but boy, if you want to do anything with oil right now, forget it. So I think you got to parse what part of the economy or the sectors you are looking at.

Andrew: All right. T.J.?

T.J.: I agree with both Mark and Rich. I think first of all, with regard to what Rich said is, if you had a nickel for every prediction that was out there, you would be a rich man. It is amazing to me to listen to these people on television. And sometimes I have been fortunate enough to have lunch or breakfast with them. And they make these predictions of what the economy is going to look like in a year. And I remember what they said, I cannot remember if anybody has ever been right. It seems like every single time they are wrong. I remember three years ago, futurists from Stanford, drove hands-free from Silicon Valley down to LA and he predicted in six months 100% percent of the country would be in autonomous vehicles. I am like, “Well, I do not know. I am still driving my suburban around.” So I guess. And then, I think, to the point that Mark made, which is a very good point, and frankly, I have made this mistake in the past over time is coming out of the 2008  Great Recession. I was very slow to deploy. I underestimated, queueing continuing. And what you realize is there is a lot of microclimates out there, it is industry-specific, and you can go through a rough time nationally, or even in a geographic area, like the Permian, as Mark mentioned. But you can still do well if you pick your spots and you are in the right industry. So there are microclimates, and be wary of the people that predict the future.

Andrew: Okay, I think we have come to the end of the session. Any closing thoughts here to our participants?

Rich: Appreciate you having us Andrew.

T.J.: Thank you

Mark: Thank you very much

Andrew: Thank you