Adam Wyden：在 Stagwell $STGW 和 Driven Brands $DRVN 中买入别人的痛苦 | ADW Capital

You're about to listen to the Yet Another Value Podcast with your host, me, Andrew Walker. We've got a great one today. It's my friend Adam Wyden from ADW Capital. I'm laughing because uh most of the people in this small value investor uh value investing community have a story with Adam and you're really going to enjoy this one. We have a really thoughtful conversation on two interesting names, Sag Well and then Driven. We talk about both of them. Adam's got really interesting thoughts. Both are really interesting angles. Disclosure, I own Driven. This is my second podcast. You can listen to the podcast I did with Kyle Mowery for a full dive into it, but uh Adam's done interesting work on both and I think you're really going to enjoy the podcast. I really enjoyed the conversation. So, we'll get there in 1 second, but first a word from our sponsors. Today's podcast is sponsored by fiscal.ai. Fiscal.ai is a modern financial data provider for global equities. In addition to their web-based terminal, Fiscal is one of the leading data connectors for Claude and ChatGPT. With their self-serve API, you can connect in real-time fundamental data directly to your LLM. And look, I said it before and I'll say it again. I am They're not just an advertiser. I've been doing lots of cool stuff with Claude and Co-worker in particular building all sorts of awesome tools and I need a API. So, guess what? I signed up with my own money, tossed my own credit card down and said, "Hey, fiscal.ai, I I need you guys to plug into my uh Claude Co-worker for me so I can keep building these cool tools and have access to real-time fundamental data and stock prices everything." And that includes more than 20 years of financial statements, ratios, filings, segments, and all sorts of other things. Unlike other providers, their data updates within minutes of earnings reports, not days. So, whether you want powerful out-of-the-box terminal or the real-time AI connector with API, you can use my link at fiscal.ai/yav. That's fiscal.ai/yav to get 15% off. And they'll be a link in the show notes, too. All right, hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. With me today, I'm excited to have on Adam Wyden from ADW Capital. Adam, how’s it going?

Going well. Thanks. Looking forward to this—my first time with you.

Look, I’m super excited. I think back when I started the podcast, you were one of the first people I reached out to. That was in the first 10 episodes, and we didn’t quite make it happen then, but now here we are, 400 episodes later.

Adam, I think we’re going to talk about 2 stocks today. You keep telling me that the first stock we’re going to talk about is going to be quick, and I feel like I know you, so I think “quick” is kind of in the eye of the beholder. But the stocks we’re going to talk about today are Driven and Stagwell.

Let’s start with Stagwell. The ticker is STGW. Let’s just dive into it. What is Stagwell, and why are they so interesting?

Okay, so Stagwell is a marketing services company. For most listeners, you would think about an Omnicom or Publicis—a traditional ad agency or marketing services company. These types of businesses have been around for God knows, maybe even more than 100 years. If you go through Publicis, WPP, and Omnicom, these companies have been an amalgamation of a variety of different agencies throughout Europe and the United States, and now they’re truly global businesses. Obviously, Omnicom just merged with Interpublic, and so I think they might be the largest now by EBITDA.

Look, the reality is—and I think the reason why Stagwell is interesting today—is that a lot of time is being spent on the question of AI winners and AI losers, and what is the value of a human being today? What is the value of original thought and creativity?

I’m wearing my Audemars Piguet Swatch joint-venture watch, and I asked myself the question: Would a robot have been able to figure that out, or was that a human being basically going to the CEO of Audemars Piguet, who had never done historically any marketing, and saying, “Hey, we think we can do a collaboration between Audemars and Swatch and make Swatch—which is an accessible, entry-level watch—merge it with a penultimate brand of Audemars, create a watch for $400—the average Audemars maybe charges $20,000—and allow both brands, Audemars access to new customer and Swatch elevate their brand, to create business opportunities”?

That was a human being who did that. I don’t actually know which marketing services company did that, but I can promise you someone did. I think at the end of the day, our view is that the robots and the LLMs are backward-looking. They tend to try to generate solutions from the past as opposed to generating solutions for the future. Our view is that the combination of creativity and experience creates branding and marketing opportunities.

That’s why we’re interested in the space. I’ll tell you a little bit about Stagwell and the CEO, and how it came together. Mark Penn grew up in the Bronx, a middle-class guy. He went to Harvard for undergrad and, I believe, Columbia Law School, and very quickly figured out that he was very interested in computers, actually, and developed basically the first modern polling system.

For all intents and purposes, Mark Penn has a political background. He was a pollster; he was Hillary Clinton’s campaign manager and adviser in her campaign race. So he was sort of a Washington, D.C., insider. He sold his business to WPP, worked there for many years with his lieutenant, Jay Levitan, who is the president, or number 2, or sort of partner of Mark. They did that for a while, and then Mark went on to become the global head of strategy at Microsoft with Steve Ballmer, and continued to build his technology and strategy backgrounds.

Then I think Steve and he had the idea to say, “Hey, maybe we can build a better marketing services company.” With capital from us, Ballmer’s family office, and a few other independent sponsors, they basically started rolling up, so to speak, smaller ad agencies.

That business got to, I don’t know, $150 million or $200 million of EBITDA. I’m not really sure. They were actually approached—this is Stagwell—by, I believe, Eli Samaha, who had been involved in MDC Partners. His mentor, Jeff Hales, who was from Tindall [?], basically helped them start Newton Madison Avenue.

Jeff was a high school friend of Mark, and I think Jeff sort of said, “Hey, you should talk to Mark to see how to fix MDC.” Mark came in as CEO of MDC. I think Stagwell put some preferred capital into it to help resuscitate it. I think Mark quickly figured out that Stagwell and MDC together would be a very powerful force in the marketing services agency industry.

In late 2021, Mark and Stagwell—which was the roll-up he had done with Ballmer’s capital and his own—decided to merge it with MDC Partners. That’s sort of what I would call the modern Stagwell Inc.

What’s interesting about it is the company went public at exactly the time that people were pulling back on marketing spending in technology. It was a reverse merger, so it did not get a lot of fanfare because it wasn’t a traditional IPO process. At the same time, they basically had peak numbers into 2022 with the political cycle.

It’s sort of a company that really escaped people’s radars over the last 4 years because the last 4 years have basically been about cleaning up some of the legacy messes at MDC Partners, divesting noncore and unprofitable businesses, and then building out the technology infrastructure to allow them to win the big business that they’re winning now. I’ll take a break there and have a sip of water, but that’s Stagwell.

All right. You said it was quick, and here we are 10 minutes in. You were just kicking it out.

I think there’s a lot to talk about. Let me start with this. I think the way you framed it was AI loser, so you were talking about the overall industry and then you narrowed it down to Stagwell. I’ll start my questions in a similar way.

Let’s talk about AI losers in the overall industry. Omnicom, WPP, and IPG are big names in media, but I think traditionally the issue has been, as you mentioned, that they buy lots of these small things and bolt them into the main company.

Traditionally, the issue has been that this is almost a consultancy model, right? The tough thing with consultants is that the consultant—you know, the famous Warren Buffett thing—is that the assets go out the door every day. There’s huge pay, and they’re paying up for all these things. WPP, IPG, and Omnicom haven’t done that well over 5 years, 10 years, or 20 years. They all trail the S&P 500, and I think that’s because the human intellectual capital sucks up all the excess returns.

So if I’m just building on that with AI, my worry would be, “Hey, we’re already in this industry where the human intellectual capital moves really easily and sucks up the economic returns.”

We go to an AI world where, if you think about the ad agency, or if you go to a music agency, a lot of the reason you go is the back-office support. Well, now you don't need that if you're one really creative individual. I agree with you: human creativity, especially in marketing, where you need unique things that kind of grab your eyes, will remain with humans. But the most creative humans might look and say, “Hey, I don't need the back-office tech support. I can service huge clients on my own with an AI bot running everything.”

I think I threw the overall industry structure at you and then brought it to AI, so I'll pause there for how you think about those.

Yeah, so a couple of things here. One, I think the stock market returns might be indicative of future returns. These things used to trade at larger multiples—12 to 15 times—and now the multiples have contracted. I mean, Publicis, I think, trades at like a 9% free-cash-flow yield. I'm not really sure what that translates to in terms of EBITDA, but probably a high-single-digit or low-double-digit multiple.

Historically, these things have traded at higher multiples. I think the multiples have contracted, maybe wrongly. Again, what happens is these things get very big and then they become hard to manage. People leave, all the rest. Assets walking out the door is totally germane, right? But that doesn't mean that there aren't human-capital organizations that beat the trend.

I think the way I think about Stagwell is that these are almost like investment bankers, right? If you think about smaller companies, they might be relying on going to Facebook or Google, or they might use some small agency or try to do their own creative with AI. But when I think about the companies that Stagwell has won recently—Mondelēz, Hershey's, Starbucks, Navy Federal Credit Union, Heineken—these are names where the marketing budgets are very, very large.

I mean, Heineken has its advertising on every soccer stadium in the world. How much money is Heineken spending on marketing and advertising a year? Enormous sums of money. These companies have investment bankers to decide which investment bankers to use.

A friend of mine was up in New York listening to a pitch, and the large CPG companies—these companies that are spending $200 million—are bringing in their own adviser to sit in the pitch. Think about that for a minute: you have an investment banker deciding which investment banker you're going to use. This is an industry that is not really going to be lost to AI very, very quickly.

I would also tell you that, yes, there are people who have great ideas. I have great ideas, but is someone going to hire me instead of Centerview Partners to do a complex spinout carve-out of United Technologies? I mean, United Technologies, Carrier, Otis, Raytheon—you've got bankers to do that. There's creative. This is the same thing.

There's a lot of plumbing that goes into this, right? There's media buying, there's technology, there's 1P data, and there's creative. Political is separate, but on the commercial side, they have so much legacy data that helps inform the decisions for their customers. Their customers are happy to pay a margin to someone who has that data.

I refuse to believe that some guy with a computer and AI is going to be more efficient and more accurate than a company that has years and years of data. Stagwell itself was started 11 years ago, but if I leverage some of the agencies that MDC has, we're talking about 30-plus years of data.

Obviously, what Stagwell is doing now is creating its own agentic operating system for its customers. If you look at IBM—which I forgot about, of course; that's the most recent one—I mean, IBM took all the products and took the machine, which is its new agentic operating system that it's developing with Palantir. Again, it's sort of like, all right, let me use their tools to interface with all the data I have on my back end as a CPG customer or whatever client.

Then it's, “Okay, can I access all the data that Stagwell has on its software systems, its software tools, and its 1P data?” Of course, it's basically its own agentic operating system and LLM that you ask to do stuff. Again, I think it's sort of a hybrid model where you're using your own operating system, your own software tools, and your own 1P data.

Then, of course, it's the AP watch example: are there people in the organization who have these things that the robots can't think of? At the end of the day, we're all prompting an LLM at some point in our lives. But as an activist—and we do a lot of activism—I ask myself the question: is the LLM going to be able to figure out who their Harvard Business School section mate was?

These are things that are behind walled gardens, paid—you've got to call somebody. There is information that requires creativity and ingenuity to get into the LLM. Whether you're an investment banker or a marketing-services guy, there's someone who has the experience and the chutzpah. It's really chutzpah, right? The chutzpah to do things that the robot can't think about.

That's why I like this industry, and that's why I like these people. These people had chutzpah, right? They started this thing with a blank piece of paper, got it to $200 million of EBITDA, merged with MDC, which was sort of like a shell, and now I've got a business that I think is going to do $700 million of EBITDA in 2028. That's pretty incredible in 11 years.

Let me just ask one more question. We start with AI, and I think you said why you don't think AI will take over the industry. One thing you identified in there was that Stagwell has the data, right? And this data—I guess I would ask: if I'm just thinking of the industry, and you used investment banking, which is how I was thinking about this industry that I'm not crazy familiar with, but I was thinking investment banking too, right?

At the top, you've got the J.P. Morgans and everything, and Stagwell kind of fits into the middle to me, right? They've got some scale, but they're more focused. I was thinking of a Houlihan Lokey or something. If I frame it out like that, would you agree or disagree with that framing? And then why do you think, going forward—because I mentioned how the industry has been tough for returns and everything—Stagwell in particular generates economic profits, excess returns, and all that type of stuff?

Yeah, I think they're just approaching the industry differently. A lot of their focus is on digital transformation: helping these guys utilize AI. Again, we are active owners and engagement players with our companies. We are not passive owners. Whether we are a 13D activist or actively engaged constructively with owner-operators, I think we spend a lot of time talking to CEOs, and I think this model is quite different.

Remember, Mark owns whatever he owns—15%. Jay owns a bunch, and then, of course, Ballmer. This is an owner-operated endeavor. These guys are owners. I don't think they want to consider themselves strictly in the marketing box.

A couple of things to think about. One is the digital transformation and their ability to help use these tools. I think that is very much a consultancy and an area where people need to do that fast, and you need smart people and you need margin. It's not some cheap BPO thing over in India.

The second thing I would riff on is that when I look at McKinsey and those traditional strategy-consulting firms, I think about them almost in that bucket and say, “Okay, is there an opportunity for these guys to get beyond digital transformation and really get into strategy and how to create bigger economic outcomes?”

At the end of the day, yes, the most interesting man in the world, Jose Cuervo—someone came up with that in advertising. I believe we have that account now. But my point is that you're always going to have that.

I also think there's an element to this where it's like, is the guy at McKinsey going to be the better guy, or is the guy at Accenture going to be the better guy to help you develop your iPhone app, integrate all this stuff, and think about that? I do think the lines are blurring a little bit. That's why I keep going back to investment banking.

By the way, maybe these guys start helping launch a small venture-capital firm.

I mean, maybe they're starting to incubate some of these companies. I do think that I have an investor who says to me, “The old ways are the right ways,” right? People in the ’80s were doing greenmail, and now everyone's afraid to do it. But that's where the money is going: making offers for companies that are really cheap that no one wants to touch.

I look at this and say, well, look at the merchant banking model. In the old days, we used to be investment bankers, but we also used to be principal investors, right? If you think about all these firms that you're talking about—JPMorgan—they were all merchant banks, right? Look at JPMorgan. The guy was funding Thomas Alva Edison and all these things, and they'd be like, “I'm going to short the stock so he goes out of business.” These guys were multidimensional: they were advising and investing.

I do think on some level, when I think about Stagwell, I think about it multidimensionally. It's a consultant. They're doing digital transformation. They're doing marketing. Longer term, I think there are opportunities for them to employ these skills into other principal-investing opportunities. I think it's not black or white, is what I would say.

That goes nicely into one of the questions I had. How much is this a jockey bet? Because you clearly like the people here. I think you use “owner-operator” and “founder-operator” a lot of times. Penn—he's got a fabulous track record, all this other stuff, right? But he is 71.

So you're talking about, “Hey, we're going into this evolving AI world, whether you believe it or not, but you're going with a 71-year-old.” Even if you think he's sharp, time catches up to all of us pretty quickly. I do kind of worry: even if we're talking, “Hey, in 3 years we're going to sell this whole company,” when you sell it, you've got a 75-year-old at that point and he's kind of stepping away.

How is a buyer going to value that when the key man will not be here forever? How much is this a jockey bet versus how much is this, “I like this kind of mid-tier advertising agency” bet?

I would say that in the beginning it was more of a jockey bet. If I look at the team he's built with Jay and some of the agency heads, when he buys these businesses, these guys oftentimes take half the consideration in stock and cash, and our view is that there's been relatively low turnover. Whether it's Code and Theory, Anomaly, or some of these other things, they've had very, very good retention at the top.

Obviously, there are other people involved and invested. We know about Ballmer, obviously, and Madison Avenue. I think there's a number of jockeys. Clearly, I do not want to belittle Mark. He's obviously done a tremendous job, but I do think this business survives and thrives without him. Obviously, I'd rather have him walking into IBM to win the next big contract, but that doesn't mean that Jay, his number 2, couldn't fill his shoes tomorrow.

But again, I come back to it: if the culture is an ownership culture and they're continuing to expand, I do think that can take on a life of its own. In any organization, there's less risk as the business goes on and more risk at the beginning. When Blair Effron started Centerview with Robert Pruzan, or whoever it was, it was all them. Obviously, Centerview has a huge private-equity business and advisory business; it will survive without them.

Same with KKR, right? Any human-capital business, the longer it does well, the more the brand stands as opposed to the people. But yes, I think Mark is a very young 71, and I do think that there is a very good succession plan.

I'll tell you something else: there's a season for every business. I think the season from 2021 to 2026 was a season of recalibration and right-sizing. I do think that this season from 2026 to 2030 is going to be—I mean, their guidance is $1 billion of EBITDA by 2029. I think they could exceed that. They're definitely going to hit it.

A billion dollars of EBITDA is a real company. To go from $0 to $1 billion in 15 years is pretty incredible.

Yeah, I completely agree. That was a really interesting point on human businesses as they evolve over time, becoming more businesses than just key-man businesses. I'm thinking about that in a lot of different areas. The one place that seems to escape this is hedge funds. They generally tend to be one-man shops—not always, but the value-investing style that we practice tends to be a one-man shop. When Adam is gone, ADW, which is named after Adam, is self-sustaining. But that's neither here nor there.

Hopefully, my son will be old enough by the time—how old is your son? My son is 7 and I'm 42, so I'm being told I can do this at least until my 80s. Well, he'll be 50 by then, so you know. Maybe he doesn't want to be an investor. We might be at that point.

Yeah, maybe he doesn't want to be an investor. I do not wish the Icahn-style succession on anyone. So, let me go back to something different: the Q4 call. I think if anyone's interested in Stagwell, the place to start would be their Q4 call from this year.

One of the reasons why is that right at the end, the IR guy comes on and says, “We have a question from ADW,” and they start breaking through their sum of the parts, right? You actually built on something that the CEO, Mark Penn, says earlier, where he says, “Hey, look, we think we've got $1.2 billion—I believe that's the number—of value coming from our political business and their cloud marketing business.”

I'd love to ask you: what is he referring to? Can you walk us through the sum of the parts and how you view value here? As you and I record this on July 3, Stagwell is trading at $7.40 per share. You guys both come out with sum-of-the-parts analyses that are clearly higher. We'll talk about this, but the CEO's out here saying, “We're not doing acquisitions right now. We're buying back shares like crazy.” I think they buy back around 20 million shares in 2025. So he's saying we are way too cheap. He'll tell it to anyone who asks. It's in every conference he does. Why does he think it's too cheap? What is the sum of the parts here?

What are the sum of the parts? To be honest, I look at it both ways. I actually prefer not to look at it on a sum-of-the-parts basis. Right now, we think they're going to generate about $340 million of free cash flow over the next 3 quarters—Q2, Q3, and Q4. They burn cash in the first quarter just because of seasonality.

We think they'll buy back about $150 million to $175 million of stock based on what we know about the restricted payments baskets and what they're allowed to buy within their credit agreement. There are carve-outs. I think they can buy from blocks and insiders.

From here, I think we could probably buy another $150 million to $175 million, and then there's another $170 million of cash. The way we look at it is that they can probably buy, depending on the share price, another 20 million shares from here.

I think about it in terms of the year-end balance sheet and year-end share count. I'm at about $2.8 billion of enterprise value, and I think they've communicated that the business is going to grow next year. The midpoint of the guide is $500 million this year. We think they'll beat that. Next year, I think the number is—I don't want to pick a number—$570 million, and then the year after, in 2028, you're going into a big political cycle, and we're at around $700 million or so.

This is without M&A. Our view is that next year, with the buyback and hitting the EBITDA target, we think they're going to do about $1.60 of free cash flow per share. Publicis right now trades at around a 9% free-cash-flow yield, I believe. If this were to trade at a 9% free-cash-flow yield—and there are arguments that it should trade better than that—that would be about an $18 stock.

If it were to trade at, say, 6% or 7%, 6% would be a traditional market multiple. That's a $25 or $26.50 stock, right? Sixteen times earnings, 16 times cash flow.

The software business is a good business, but at the end of the day, I think it comes down to what you think the business is going to generate in earnings. If this is a company that has good software and allows the business to grow, maybe we just look at it on consolidated earnings. I look at this thing trading at 16 times earnings and being a $26 stock, absolutely.

We're sitting here at $7.40. The company, on our numbers, has a 22% free cash flow yield in 2027 and 26.5% in 2028, not including any capital allocation. These businesses are priced as if they're going away, not like they're growing.

I completely agree with you on the sum-of-the-parts valuation, and I know you're not an investor who is opposed to using sum-of-the-parts valuations. To me, it's all one piece. Let me come at it with one thing I thought when I was researching this.

You mentioned Stagwell and MDC merging. I thought one of the things I was going to say as a bear case was, “Oh, they merged and missed all their targets,” but they've actually hit all of their targets since they merged, or they've come within spitting distance of them. I guess one thing I would ask is this: They're out here saying, “We're cheap.” They've been saying they're cheap for years, right?

I went back and looked at the Q2 earnings calls for the past 3 years. In Q2 2022, they said, “We continue to view our shares as being grossly undervalued.” In Q2 2023, they said, “At an estimated 80 cents of adjusted EBITDA, we remain way undervalued versus both this year and what we're going to do in 2024.” In 2024, they're talking about selling a small piece of their business, and all of the multiples they're getting suggest that they're way undervalued.

So I guess my question is: Now they are acting, right? They're getting more aggressive on the buyback. They did announce a big buyback in 2022, but they're getting more aggressive on the buyback. At some point, they've been saying they're undervalued for 4 years now. At what point do you look in the mirror and say, “Why, for 4 years running, is this market undervaluing this business? What risk, or what is the market picking up on here that maybe they're missing, I'm missing, or everyone is missing?” Because, again, for 4 years running, they're saying their stock is undervalued, and the stock is going nowhere.

Well, okay, you've had some multiple contraction over that period of time, right? Some of it is just the multiple contracting. They've continued to grow, but, as in all value investing, you know that the multiple can only contract for so long.

Again, I don't want to get into too many specifics, but there was a dual-class structure before, there was a TRA, and there were a number of reasons why people couldn't be invested in this, right? You bought MDC, and MDC was screwed up. I dealt with this at APi Group. No one likes declining revenue in the stock market, right?

Everyone likes revenue. They want revenue and earnings. They want speed and power. In basketball, it's LeBron James—you call it speed and power, right? You want revenue growth and earnings. You want revenue growth and margin expansion. They want the trifecta.

There was a really nice underbelly inside of MDC, but they needed to figure it out. You're getting to the other side of the divestiture, and you're getting accelerated earnings growth and margin expansion. We, as public-market investors, oftentimes take for granted how hard it is to build a business.

So many of these businesses are done in the private markets. If they had done this thing in the private markets, I think it would have been a lot less messy. You say, “The market doesn't care,” and I'd say, “The market doesn't care until it cares.” I've seen this so many times in my career, and it's absolute torture. You see this and you're like, “They're doing everything right, and no one cares,” and then suddenly you have that “aha” moment and the stock is up 300%. It's happened to me more than once in my career.

Oh, LeBron James—he's unsigned as a free agent right now. So do people still want him? He's got offers, but he is 42. I'm not sure if people want him.

Let's go with 26-year-old LeBron James: speed and power, right? You want revenue growth and earnings. You want revenue growth and margin expansion. They want the trifecta.

What I would say is that they're pruning bad businesses, they're getting rid of the SMB, and they're making investments in technology. Investments in technology are leveling off, so CapEx and G&A are leveling off. Now you have the benefit of AI.

They have the highest revenue per employee of any of the advertising holdcos. I should know the number; I can't remember what it is. But they have the highest revenue per employee of any of the advertising holdcos. They're getting efficient. They're using AI to reduce their costs, right?

On top of that, they're now winning high-margin software. They're getting the machine, they're getting all this stuff, and so, again, we as public-market investors think it's so easy. It's just a light switch: You turn it off, you turn it on. What I would tell you is that it's just not that simple or that streamlined.

At the same time, when I think about the earnings growth, the organic revenue growth, the free cash flow, the free cash flow margin, and the free cash flow growth, all of those metrics are going to improve. These companies go through what I call growth spurts, and I think Stagwell is about to go through a meaningful growth spurt. That's why we think it's going to re-rate.

I agree with so much of what you said there. But let me ask this, and then we can turn to Driven. Last question: You mentioned that you are active owners of your companies. Sometimes you're activists, and sometimes you're just talking to the CEO and pushing.

You run a concentrated portfolio. I'm just pulling numbers from Bloomberg, but you have 7 positions, and Stagwell is your 5th-largest. It's a meaningful position. These are Bloomberg numbers, but you're the 9th-largest holder of Stagwell according to Bloomberg. It could be right, it could be slightly wrong, whatever, but this is a big, meaningful position.

You're an active owner. If you have your way, what is the push here? What is the suggested activist push, whatever it is, from ADW to Stagwell?

This one's not that crazy. They've been buying back stock. Obviously, we think the business is worth more than—what do we have it here? In 2028, I think it's worth more than 4 times 2028 EBITDA, but it's at 4.9 times 2027 EBITDA, given the organic growth rate and the cash flow and the growth in cash flow.

If there's no multiple expansion, we're getting to almost a 50% return on Buffett math. What Warren Buffett looks at in companies is the free cash flow yield and the growth rate, and that's what we call our Buffett return—the way Buffett looks at securities. That obviously doesn't contemplate them using that free cash flow to buy back stock or invest in companies. If that incremental cash flow is deployed intelligently, then obviously we can get a higher return than the Buffett return.

I don't think this is a 50% cost-of-capital investment, right? I think buying back stock here is very intelligent. They are doing it, and we have continued to encourage them to do it.

There is some seasonality in the business such that the free cash flow is really going to start getting going in the middle of Q2, Q3, and Q4. I think you'll see a meaningful buyback in the back half. Obviously, they have been buying, but I think they're going to put their foot on the gas. That's my guess, just based on the seasonality.

Then, obviously, you're going into 2027 and 2028. In 2027, you're going to get more software and continued efficiencies from their AI investments. Then, obviously, you're going into 2028.

I'll just abbreviate it: The holdings you have there are 5 million, with 1 million of options. I would just tell people to stay tuned for the August 14 filing. They might be amused by what we have. But yes, it's definitely a nice position for us.

We think that, with the stock trading at $7.40 and at a market multiple, the thing is in the mid-20s. We've got capable human people who have extensive imaginations and see the power of a human being. Alex Karp does not do business with everyone.

Stagwell is headquartered—I believe Mark is in Miami, and they're in New York and D.C. The locus of power in the United States has been moving to Miami.

Yes, I'm biased. I live there.

But yeah, I was about to say, where do you live?

But I would say that, zooming out from Stagwell for a minute, I do think that the power of the human being is actually more valuable today in a post-LLM world because I think so many people just rely on what's being spit out of the LLM. I think the ability to find smart people and come up with interesting things is more powerful.

And so, look, I do not think this business should be trading at 4 times earnings. You could argue with me whether it should be trading at 16 times earnings, but it shouldn't be 4 or 5. I think they should be buying the piss out of the stock, and I think they are and will. As I said, it's like buying everyone else's pain—the investments they've made and the time and energy they've invested to build this sort of company—and I'm just sitting around in the passenger seat, reaping the benefits now.

It's a conversation, but I do think you're right: in a post-LLM world, especially for smart, creative people, I actually think it increases, quote-unquote, alpha—not necessarily in an investment world, but just in general. I think as more of the world is AI, people who are doing niche, creative things actually stand out, and there's more opportunity for them.

Now, neither here nor there: activist thing for you. You mentioned The Machine, the thing they're working on with Palantir. I think the first activist thing you do is say, “Hey, guys, if you're building something that's AI-powered, you cannot call it The Machine. People are going to think you're building a death robot. You just cannot call things The Machine.” But let's move on to Driven.

Driven Brands—you have been activist there. You are not above 5%, but you're close. You put out a lot of press releases. You put out an offer to take them private. I disclose that I have a big position here, too. I've done a podcast with Kyle Mowry, but as long as we've got the man who is, in my mind, holding management's feet somewhat to the fire—because I think they really need it—I think they've done minority shareholders a disservice with their overall stewardship of Driven Brands. But maybe I'm putting words in your mouth. Let's just talk Driven Brands, and we can start anywhere you want.

Yeah, I mean, look, Driven Brands is—how would I say this?—Driven Brands is a sad story, but it's interesting. I think the genesis of Driven Brands was good. Take 5 was basically built inside of Driven, and that's worth more than the entire market cap. So don't take that away from them.

But at the end of the day, I'm personally very bullish on the automotive aftermarket. I believe cars are being driven on the road for longer. I think it's getting cheaper to service these cars. I think the technology is actually changing much slower than people think. New cars are very expensive, and then you have all the K-shaped economy dynamics.

I like the macro factors that they're exposed to as it relates to the aftermarket. I think people are getting away from the dealer. People are doing more and more work outside of the dealer because it's cheaper. An oil change at the Porsche dealer where I go is, I think, like $400. I hope they're not listening to this, but at Take 5, it's $75.

Would you take your Porsche to Take 5 for an oil change?

Yeah, sure. Why not?

I have no clue. I'm not a car guy. I was just wondering. You know, people get used to using Porsche, I thought.

If they have the right oil—if they have the right synthetic oil—it's easy. You just basically take it—you know, think about the labor, right? At the Porsche dealership, I bet the labor is probably like $200. I don't know what it says on the receipt. I should know. I don't know if it's $175 an hour or $270. It's something ridiculous.

They pay these techs, you know, at $275—maybe $75 or $100. The numbers are crazy. The prorated labor is crazy. You can get a guy to do an oil change for $15 or $20 an hour.

And by the way, that's why they won't do it at a Midas or a Meineke, because that same tech is doing mechanical work and charges more. That's why I like the quick-lube model at Take 5.

I think the unit economics are good. Obviously, they don't have the same capex that Valvoline does, so the build-outs are cheaper. All these things that I'm sure you've talked about with Kyle—I just think the unit economics are better for franchisees.

I think people want to get in and out. They don't want to leave their car at the dealer. Obviously, there's a skew toward synthetic, so their margins are going up. They'll figure out ways to sell them windshield-wiper blades and other stuff.

I like that business, and then I like the whole ecosystem. I like the Advance, AutoZone, O'Reilly ecosystem. I just like the ecosystem. I think people are keeping their cars for longer. There's also a trend a little bit away from DIY to DIFM—do it yourself to do it for me. I think they're really in the sweet spot of DIFM versus DIY.

When I first started researching the space—and this was several years ago—I could not believe how many people still do it themselves. I actually think it has to be an error in the data, because I just can't believe so many people are still doing their own oil changes.

Yeah, well, do you need a lift? I mean, how do you get under it? How do you pull the plug out? You need a lift. You need to have it on a thing. It's just an occupational hazard. People don't have time.

So, yes, I think at the end of the day, getting your oil change is sort of a—

An oil change. I mean, I feel like I have to debunk this, but the most frequent pushback I get when I talk to smart friends is, “Hey, man, we understand electric vehicles aren't going to take over the car parc tomorrow, but if you run this out and start saying where electric vehicles will be in 2032, my bear case for Driven is actually, ‘Hey, Chinese tariffs come way down and we get flooded with cheap Chinese EVs the same way that Europe is right now.’”

That's kind of a scary bear case. The pushback I keep hearing from people is, “Electric vehicles could start taking over a big share of the car parc at some point in the next 15 years.” Then you start saying, “What's the terminal multiple of this value when electric vehicles start accelerating?”

Yeah, I mean, look, we've done the math on the car parc and all the rest. Chinese EVs? That's not happening, given the political climate. Again, I don't know all the math on getting the EVs in here, but you need the charging infrastructure.

There are so many parts to the electric ecosystem that are just like, “Oh my goodness, it's fantasy land.” Whether it's the charging stations, the grid, or the power, we're just so far away from that.

And look, the statistics do not support that, right? Last quarter, 97% of new vehicles were ICE, by the way. This is new-vehicle sales, right? It got down to, like, 92% or 93% ICE and 7%, and now it's like 97% and 3% or something like that. This is new-vehicle sales, right? You're still getting 97% or whatever—pick a number, pick your number—of ICE sales.

Then, of course, you have the car parc aging. You have more and more people keeping their cars longer. It used to be a 7.5-year average age of the vehicle; now I think it's like 13. Why can't it go to 17?

In the end, I think the cars are getting older and they're getting more expensive. Again, this is not a conversation for enthusiasts, but I will indulge my auto-enthusiast side because, as you know, I was a big Ferrari guy, and my first business growing up was car detailing. I do love cars. It is my weakness, shame on me.

Everybody's got their thing, man. There's no shame. If you like cars, you like cars. What's the big deal?

More and more people are rejecting hybrids. If you see the resale prices on manual-transmission cars, whether it's Porsche or anything, people really enjoy the act of driving.

In fact, I will go as far as to say that there was a video I was watching the other day about a guy driving manual-transmission cars, and they actually said that it's very therapeutic. Driving a manual-transmission car is therapeutic because it focuses you on the act of driving, as opposed to being on autopilot, and it's good for your health and good for mental decompression.

I won't say that Driven and oil changes are going to be around for longer, but I will say that if you're out in, you know, middle Texas, Saratoga Springs, horse country, whatever it is, and you've got your Dodge Ram or your old F-150 and it's a manual transmission, you're going to keep it because it's doing better, because you're used to it, and because you like driving. It's an opportunity for you to be therapeutic.

You have your Jeep Wrangler with a manual transmission. Let me tell you something: you can’t have a manual-transmission EV. You can’t do that, right? I do think people like driving, and all the economic and structural factors lend themselves to owning internal-combustion engines for longer.

I would also tell you that the unit economics on a company-owned unit are compelling. Remember, they’re at around 1,300 or 1,400 units—or what are they at?—and they said they’re going to get to 3,000 or something. The cash-on-cash returns on a new Take 5 are 40%, so you’re getting paid back all your money in the next 2 years anyway. And what we haven’t talked about, Andrew, is what the other businesses are worth, right?

We can, and we should. There is real value there, but Take 5 is such a crown jewel and represents so much of the value. If you get Take 5 right, then the other businesses are a cherry on top. If you get it wrong, the other businesses matter, but Take 5 is so much of the story.

I agree, but again, when I look at my sum-of-the-parts analysis, I say, “Let’s say, for my numbers, I have them at around $550 million of EBITDA in 2027.”

And by the way, one of the things I really like about the story—and we can talk about this later—is that they’re going to do, let’s call it, $450 million in 2026. This is the company that loves to add back everything, but for some reason, we can’t add back the accounts receivable.

You start running 2027 with the Take 5 growth that they’re doing, the seasoning of the 2025 Take 5 stores—these stores take about 2 to 3 years to season—and all these adjustments and accounts receivable go away. I actually think you’re low at $550 million. I would take $550 million from here, but I think you’re going to be proven low. I hope to be correct—to be smarter than you on this one.

This never happens to me. I’m always the too-high guy, so I’ll be the too-low guy for a minute. Whether it’s $550 million or $560 million, remember, they have inflated corporate overhead. When you think about whether they can get corporate lower, I don’t think they’ve really communicated that because they’re focused on hitting numbers and tripping over themselves.

I look at Auto Glass Now. Pick a number—$30 million or $35 million. We think that could be sold for 15, 16, or 20 times. That’s a big number. Someone could use that as a platform because they’ve invested an enormous amount of money to basically get that insurance business. If you were to go back to a cash-pay business, that business could do $60 million to $75 million of EBITDA. Saying that’s worth $600 million is not a stretch.

Would you want them to sell? To your point earlier on Stagwell, you want to be there once you’re buying other people’s pain. I’m not saying they put pain into Auto Glass, but they put so much into it. I know they’re convinced they’re going to land a national insurer in the next 2 years. They’ve been saying that for a while, but would you want them to sell when they’re perhaps on the cusp of getting the big contract that takes it over the edge?

If the stock is at a $2.4 billion market cap, and you could get $600 million or $700 million, pay no tax, and buy back 30% of the company, I’m open for business.

I would say the same thing about Collision. People don’t realize that Collision is a $50 million to $60 million EBITDA business, we think. If they can get 13, 14, 15, or 16 times for that, that’s really, really powerful. We think they can, just poking around.

The other thing is that these company-owned systems, like Boyd Group and Caliber, need businesses to buy. If you bought that franchise system and then, as those franchisees retire, they sell you their businesses, that’s like a built-in drop-down—like a GP/LP, like an MLP-type deal—where you have built-in drop-downs, but the opposite of drop-downs: built-in buy-downs. We like that dynamic.

Not to mention, as you join a larger system, you’re going to get leverage on your DRP program, your supply chain, and whatnot. There’s obviously lots of opportunity there. We think Collision is very liquid as a tradable asset. I’d say Auto Glass is, too. You start thinking about what you’re paying for Take 5 when you reverse those out, and you’re really, really getting a good deal.

I mean, you just paid down—and I’m using your numbers, not mine, off the top of my head—but you basically just paid down all their net debt with those 2 businesses, right?

All their net debt—sorry. You’re saying if I do $600 million for glass—no, not quite all of their net debt, but it’s very accretive on a multiple basis, right?

When you think about the multiples you’re selling at, and the fact that you’re not paying tax on those assets, on glass you’re clearing 20 times or whatever it is versus 7 to 13 turns. On the Collision side, you’re clearing 6 to 9 turns also.

You said Collision at 15 times, and you think—and they have not disclosed this number, right?—that it’s doing $60 million to $70 million inside of Collision?

They don’t disclose it. This is just me doing my own primary scuttlebutt, but we think $50 million to $60 million, and it could easily be $70 million. Sure, why not?

Let’s just use $60 million because it’s going to make my numbers work. $60 million at 15 times is $900 million; $600 million for Auto Glass makes $1.5 billion. Their net debt is $1.5 billion, so this is covered.

Then you’re left with a $2 billion market cap that still has the franchise business. There’ll be some stranded costs, but that’s $100 million in EBITDA without the Collision business, you said.

Hopefully that’s worth at least 7 times. I would also challenge this: this is a pure franchise business. How many times have you seen franchises with 50 years of history in a pretty stable industry go for 7? I don’t know—maybe, maybe. It’s probably been a little bit mismanaged, but who knows.

So you get $100 million of that, and then you get Take 5, which is a crown jewel. I think it’s doing $400 million of EBITDA. There is a massive corporate drag behind that, which I acknowledge, but we just paid down all their net debt, and I just laid you a path to $500 million-plus in EBITDA before corporate on a $2.4 billion market cap company. This is why I’ve got to be in position, right? I think the math really starts to work. I’ll let you riff off that, or I’ve got some other questions for you if you want.

I mean, Valvoline trades at 11 times EBITDA. Again, don’t laugh at me, but the old data said that Driven—that’s the Take 5—had better comps last week.

Last week, okay. Last week—ha-ha. I will say I was a little disappointed by Q1. Take 5 was a little lower than I thought. We’re splitting hairs, but Take 5 was a really hard comp. That’s the problem.

If you look at it on a 2-year stack, they were doing growth in the 20s last year—or something like that—for some of those weeks. Everyone likes to say, “Oh, it was a hard comp. We did great last year.” It’s like, “Okay, well, unless you’re talking about a fitness brand, where a hard comp means your business is topping out—you can’t get another person in the club or the class—that’s one thing.”

But then you’re saying, “Our business no longer deserves a growth multiple,” and they’re saying, “Hard comp.” You were still opening stores. I don’t know. I never know.

We mentioned activist angle. I think you have really lit a little bit of a fire under this company. It’s not lost on me. I can’t remember the exact timing, but you came out with your first or second letter, and the company finally started putting out numbers within 48 hours.

Now they’re going to put out numbers. I think they’re feeling some pressure, despite the fact that Roark owns more than 60% of this. They can tell everyone to go after themselves if they really have no regard for the public market.

The returns analysis we did for Roark in our third letter?

I’ll let you speak to that if you want to. I guess I would just say that Roark controls a lot of this. I think Roark is a creature of the public markets because, whether they want to be or not, they are a private-equity firm. They’re going to IPO Inspire Brands, and they need to deal with the public markets in 15 different ways going forward.

What do you think the go-forward path should be here, or where would you nudge them to?

I would say we made an offer for the company. It was public; you can look at it. We obviously have also posted our sum of the parts. Our offer underscores what we think the company is worth, because we put what we think our sum of the parts are in both letters.

We made an offer that we think is good value—immediate value—for shareholders, but also underscores the underlying value of the company, as evidenced by the sum of the parts that we disclosed. It's all public. I don't know what Roark's going to do. Roark obviously has a different time horizon. They always do, and that's part of the schematic. We can talk about fiduciary duty and doing things, but when the stock was at $12, offering $18 seemed like immediate value for them.

What? That's what I did. [Laughter.] What is wrong with putting the offer?

Now, to be fair, Valvoline's multiple has expanded dramatically. Since we made our offer, Valvoline's multiple has expanded massively, so obviously you have to take that into account, right? Given how much of the EBITDA is Take 5, what are they going to do? I don't know what they're going to do.

I think they should be repurchasing shares right now. I don't know why they are not. I think this whole leverage thing is ridiculous in terms of them saying, “Oh, well, we're not going to be taken seriously if we don't hit our leverage targets.” I'm like, “Really? How about all the money you blew on car wash and the accounting misstatement? You really think that the people buying Driven stock right now are people like Adam Wyden and Andrew Walker—people who are willing to really buy the dirty, garage-find Porsche?”

To go back to cars for a minute, right? The Porsche in the garage that has rusty wheel wells, but an engine with 25,000 miles on it. Do I think Driven can be a public company on a standalone basis? I don't know. I do think it's subscale if you were to sell off all the pieces. Their corporate costs are very high, so I do think it's subscale.

Could they sell collision and glass as non-core and return a lot of capital? Absolutely. Do I think Take 5 could be sold to somebody else? Could it be merged with Valvoline? I don't know. There's probably some antitrust issues. They'd definitely have to—actually, you know what? No chance. No, Valvoline—

Valvoline couldn't buy Breeze.

Valvoline couldn't buy Breeze because of the geographical locations. I'll just make one point on that, for that matter. When I look at where the Take 5 locations are, they are primarily in lower-income and more rural areas, and they're not main and main. I actually asked myself the question: Would there be too much market share in the country if they did that?

I think Valvoline and Take 5 are about 10% or 15% of total oil changes in the United States. It's not that much. Obviously, you have oil changes moving to quick lube from dealers. I think the issue with Driven was more so that they had sold. The FTC issue, at least my understanding—we actually know who bought the duplicate Breeze locations—had to do with the fact that they guaranteed certain geographies to Valvoline franchisees.

What had happened is they were basically putting a Breeze location adjacent to a Valvoline franchisee location. It was a breach of—I believe it was—again, this is just my understanding. There was some sort of breach with the franchise agreements.

Why would the FTC care about that in terms of antitrust? Wouldn't that just—

I don't know is the answer, but I know that on the Valvoline side, that was a big issue. I'm not sure. It might just be that they didn't care about the franchise agreement. They just cared about them owning too much at main and main.

But if we're going back to the original question, which is whether Take 5 and Valvoline could merge, if Take 5 is the lower end, or more of a middle-class, value-conscious customer, could they merge and get through antitrust given the total number of oil changes? I think they could, actually.

I don't think it's here yet.

But there are other buyers. Look, there's Mavis. There are lots of other companies.

I just think this belongs in the private markets. It's clearer than public markets a few years ago. I don't think there's any public-market franchise outside of growthy fast food. Even growthy fast food—I mean, it's not growthy, but look at Wendy's.

I just don't think the appetite is there in the public markets for—and Take 5 is not slow growth, but—slower-growth, high-leverage businesses that deserve the whole-company securitization thing. I just don't think the appetite's there. This clearly belongs in private equity hands to me, or with a strategic, which would be awesome.

After Breeze, I don't even know why you'd bother if you were a strategic. This should clearly belong in private equity, with somebody who is going to take a sharper eye to those corporate costs. I know the company keeps saying to look at it on a revenue basis, which is insane, and I don't think we have time to talk about that, but the corporate costs here are too high. Somebody who owned 100% of this and was actually taking an axe to the corporate costs, I think, would make all the sense in the world.

Anyway, Adam, I've got a hard stop in 1 minute. We got it in under an hour. I didn't think we would. I'll be honest: In my head, when I was planning this, I was like, “I'll give them 50 minutes for Stagwell, and we'll get 10 minutes of Driven if we're lucky at the end.” But I think we split it nicely—40/20. Any last thoughts or anything?

No. I think this is an interesting time to be involved in event-driven and value. You and I have been suffering—I say it's like Moses wandering in the desert trying to get to Israel. We've been sitting here wandering in the desert through AI and semiconductors, and suddenly we're talking about Stagwell and Driven, or getting hyped up about them. That feels like it's turning, right?

I'm always hyped up on it, but I do feel like the rubber band has just stretched so far. For the first time, doing this whole Dark Arts series, I've seen, across the board, all these companies that look cheap to me. I'm seeing insiders getting really bullish on all these companies.

Two years ago, I would say they should be private equity, and now private equity barely needs to borrow to take these things out. I think it is fascinating. Everything gets hit with the AI loser label, and you think Stagwell is an AI winner, not an AI loser.

There are going to be a lot of companies that are AI “losers” today that are going to be AI winners and generate massive returns, but we can talk about that on a future pod. Adam, ADW Capital, thanks for coming on. Thanks for the work at Driven, because I do think that holding their feet to the fire a little bit has been really helpful. We will chat soon.

Thank you.

A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.