Pershing Square Challenge 2026 亚军团队谈 Baker Hughes $BKR

You're about to listen to the Yet Another Value Podcast. Today I have on the team that came in second place in the Persian Square Challenge, team Baker Hughes. And you know, I I I'll say it on the podcast, I'll say it here. I was told by multiple people this was the best set of presentations, the most competitive set of presentations to tons of teams, and the team Baker Hughes did just a great job. It's a real really awesome work on their end to come in second. And you're going to hear why in this podcast. You know, I'm looking they did over 30 expert calls, interviews, and everything. They went to some expos to prep for this contest. And I'll I'll be honest, the level of diligence they did here is like I was in private equity before. 30 expert calls is like kind of where you're going when you're like, "Hey, I might be about to buy a multi-billion dollar company." And these guys did it prepping for a a stock pitch contest, which I I think just speaks really well of them. And you'll hear me, I'll ask them questions, and they'll be able to respond with, "Oh, you know, when we talked to the former at GE." Or at one point they say, "Hey, they had this weird investment in C3.ai." Like, how did that end up? And they're like, "Oh, yeah, we talked to the former CFO there." So, I think you're going to hear the level of due diligence of the thing. I I I think it's awesome. Congrats to them. Think you're going to enjoy this podcast. We'll get there in 1 second, but first a word from our sponsors. You know what? I'll do what I've been doing. I'll just do the live read right now. Uh this podcast is sponsored by Tratta.com, t r a t a dot com. Look, you've heard me pitch if you listen to this podcast all the time, and why wouldn't you? You've heard me pitch Tratta, and it's because I love the product. Tratta is two by siders getting on and discussing a stock that they both follow. Sometimes you'll have a bull and a bull, and they'll just be amping each other up all the time. Sometimes you'll have a bull and a bear, and the bull will say, "Hey, you know, this company's about to do XYZ." And then the bear will say, "Yeah, but did you consider ABC?" And it's just a great way, you know, there's reading a 10K to learn about a company, and then there's hearing two people who've been following the company and had actually invested your money or actually considered investing money talking in real time about what they're seeing, what they're missing, what's happening, what they're worried about, what they what upsides they're seeing in this company. And Tratta brings you inside the room and let you do that. So, if you're one way I like to use it is if there's a company I'm considering, I say, "Hey Tratta, can you find me another investor who's looking at this so I can use them as a sounding board? I can see I'm just ramping up. I can see what I don't know, what I do know, all this sort of stuff." So, it's a great product. I really enjoy it. I think you'll enjoy it, too. Go to tratta.com. That's t r a t a dot com to check them out. And now, onto the show. All right. Hello and welcome to the another value podcast. I'm your host Andrew Walker. Today I'm Matthew Dabon, team Baker Hughes from the Persian Square Challenge.

Team Baker Hughes, you guys came in second in the Persian Square Challenge. Congrats, guys.

Thank you.

I'm going to let you introduce yourselves in a second. Just before we get there, disclaimer, remind everyone nothing on this podcast is investing advice. There's a full disclaimer in the show notes and at the end of the podcast. So, team Baker Hughes, I'd love it just to start if you could introduce yourselves, give a little bit of background. Whoever wants to go first is welcome to.

I can get us started. Thank you so much for having us on, Andrew. My name is Carl. I'm a first-year MBA at Columbia Business School. I started my career at McKinsey & Company here in New York, working on their semiconductor team a few years ago, and then spent some time in venture capital, where I invested in about 40 enterprise software companies from early-stage seed to Series A before coming here to Columbia. I'll hand it over to Cam to share a few words.

Hi, everyone. My name's Cam. I'm a first-year MBA student at Columbia. Before Columbia, I was in valuation work, doing valuation advisory for mostly M&A and private equity clients, analyzing their portfolio companies for everything from financial reporting to strategy. Now, at Columbia, I'm pursuing my passion for investing with this great team here. I'll pass it on to Greer.

Thank you, Cam. Thank you, Carl. My name's Greer, and I'm also a first-year MBA student at Columbia. I started my career in ESG consulting, working with middle-market PE firms across their portfolio companies. After a couple of years, I joined APG, the Dutch pension fund, where I originally was on their private equity team supporting impact investments. I later moved to the real estate and infrastructure team, where I was looking at impact across direct investments as well as fund investments. Then I came to Columbia to pursue restructuring. Thank you.

That's awesome. Carl, you and I are both NYU alums out of the McKinsey side. All softballs for you, nothing but fastballs for the rest of you.

Let's get it.

Before we get into the Baker Hughes investment thesis and everything, I'd love to ask: You guys came in second in a highly competitive field, and I know some of the judges told me this was the best set of pitches they've ever seen. So, congrats on that. What made you guys want to choose Baker Hughes? What was the thought process, and how did you settle on choosing Baker Hughes?

I can get us started from an idea-generation perspective. We really started by looking around at the world around us and what was changing. We kept coming back to this theme about energy and power: What is the backbone of societal growth going forward? We look around and there's electrification of fleets across the globe. There's, of course, huge data-center demand, but outside of that, too, there are so many structural tailwinds in how societies across the globe are consuming more electrons per capita.

We dug in a little deeper and realized that that's just going to continue to grow. Regardless of where the economy goes, the structural backbone really is this growth in energy. So, we backed into an energy name from there and started looking at our universe. Of course, the market had caught up to the theme and has rewarded lots of the names in the space, but Baker Hughes was very interesting given its ties to the more legacy oil field, in addition to, of course, its energy technology business. This sort of dichotomy of a stock that, in a way, we realized—or settled on—being slightly misunderstood or less understood than the market was where we settled on the name. But I'd love to hear my colleagues' thoughts as well.

I think Carl summed it up really well. We looked at a lot of different ideas, from energy to industrials to consumer names, and what finally narrowed us down on Baker Hughes was that it had this combination of the energy story that we are seeing around us, along with a business that had a transition going on under the hood. We felt there were 2 different opportunities presented there, which really made us interested in digging deeper and finding out where the opportunities were.

It's got to feel like both validation and also kind of terrifying when Baker Hughes starts the year off at $45, hovers in the 40s all through January and February, when I'm sure you guys were picking this, and then it rocket-ships. It's trading at $65 by the time you're pitching. I'm sure that's a little bit of validation and a little bit like, "God, gosh darn it." It does not feel great.

If I could just give you guys one piece of props, I think my favorite piece of the deck, in all, is in the appendix. For anyone who's listening, there will be a link in the show notes where you can look at the deck and see all their contact information and everything in there.

I think my favorite piece of the deck is in the appendix. You guys have the differentiated work, and you have the pictures of you at the Western Turbine Users Conference. Then you have all of the expert interviews you've done, which—I mean—you guys got some great expert interviews on here to differentiate.

But I love it because it's not like you're going up and leading with, "Hey, look at all this work you've done." You're telling people, "Look at all these interesting things in this differentiated work we're doing." It backs up, A, when you're pitching and talking to people, you can back it up; and B, I can just look through the deck and be like, "Oh, these guys actually put in the legwork and put in the differentiation."

Greer, I think you had a broken arm at one of the conferences. Did I see a cast in there?

It is healed. My cast is off. Bill Ackman did sign the cast, if anyone's concerned, but yes, that was definitely something I had to deal with during this show.

These days, if I wake up with a sore back, I'm like, "I'm not traveling. I can't go. I can't do anything." So, I respect going to the West Coast with a broken arm.

All that out of the way, let's turn to the stock itself. Baker Hughes—any of you can jump in and start with this—but what is Baker Hughes, and why are they interesting right now?

Baker Hughes, in a nutshell, has 2 primary business units: Oilfield Services & Equipment, which essentially manufactures and services the equipment used to extract crude oil from the ground, at its simplest form, and Industrial & Energy Technology, or Industrial & Energy Technology, which is their energy technology business.

Essentially, the equipment used in converting natural gas into electricity. That was sort of the bulk of where our work went: understanding at a deeper level what Industrial & Energy Technology is, what the economics look like, what their per-unit economics look like, and how it impacts the stock going forward. But that’s Baker Hughes in a nutshell.

Yeah, an important thing to add to that is that it’s really at an inflection point between these 2 companies. Historically, the company has been dominated by the cyclical Oilfield Services & Equipment business, but as we’ve looked at the history and trajectory of this business, more and more of it is being defined by this IET business, which is much more about longer-term buildouts of energy infrastructure. We think there’s a lot of opportunity for continued growth in this area.

No, look, you have to know that I haven’t looked at this in a while, and this might lead into the next question I had, but when I saw Baker Hughes, my first thought was up and down, up and down, oil out of the ground. When I saw that they had natural gas turbines, all this LNG, and exposure to a lot of these businesses with all these bottlenecks—and kind of where the puck’s going—I couldn’t believe it was the Baker Hughes of old, if that makes sense.

So that’s the business. Let me go to the next question I always like to ask. The market is a competitive place. You guys just spent a semester diving into this company and putting a pitch together, saying this is a long, risk-adjusted alpha opportunity. The market has to be missing something. What do you guys think the market is missing that makes this a risk-adjusted alpha opportunity?

Yeah, I’d love to jump in. Obviously, since we started looking at the market, we started realizing more that there is value in this IET business. The stock has gone up significantly as investors have looked at that, but where we think they’re still missing is really the momentum of this transformation.

As I mentioned, we’re really at the point of this still being a 50/50 business: the industrial technology that people are excited about and the cyclical oilfield services business that people remain cautious about. Where we see the opportunity is the continued trajectory into this stronger IET business. The market understands that it’s powerful, but it’s not fully understanding the magnitude of where this growth is or how long this transformation into the more IET-oriented business will continue.

Yeah, and frankly, to add to that, before Greer jumps in, the part of the framing that I thought about a lot was: Is this a 2029 story? Is the market pricing this in as a 2029 growth-and-demand story for IET because there’s such a large backlog that starts to convert over time? Is that priced into the stock?

What we realized through all the work we did is that this is a 2030-and-beyond story. I know we have a 3-year price target in there, but realistically, when we think about it over the long term, the primary research really points to the beauty of this business being a long-term compounder. I like to think of it as a 2030 story that the market’s missing the asymmetry in.

Yeah, Andrew, did you want to add anything?

Yeah, I will. I think another point is that we heard a lot throughout the semester and in conversations that there’s a fear that this is just another cycle, that this is just a boom that we’re experiencing. But as you talked about with all the conversations we had, we really were able to drill into why this is a unique moment and how this is not just like 2010 or the ’90s. This is really a unique moment in time. I think the market’s missing that as well.

Well, Greer, you can be my backup if I ever need a podcast host, because that was exactly the next question I was going to ask. The first thing I did was zoom out on this stock chart. I hate to be a technical analyst and zoom out, but the stock is trading at 65 right now. It’s not lost on me that it’s hit around 65 3 times in its history.

One was around 2015, which was kind of the peak of the shale boom, right before oil prices collapsed and the shale fields really dried up. The other was in late 2007, when you had the peak oil fears and $100-plus oil, right before the global financial crisis and everything fell apart.

You guys started hitting on this, but I do want to ask: These are still cyclical businesses. It feels like the LNG demand will never go anywhere. It feels like the data center bottleneck demand will never go anywhere. Fifty percent of the business is still the old-school oil and gas stuff, and at some point there is going to be a cycle in power.

If I just zoomed out, it kind of looks like we’re buying businesses and paying for them while everyone really likes them right now. I do a lot up there, so I’ll let whoever wants to take a crack at it.

Yeah, I think it goes back to when we look at what the business mix looks like between the 2 segments, oilfield services and Industrial & Energy Technology. In 2020, it was in the high 30s—37% was Industrial & Energy Technology—and then, fast-forward to 2025, that’s closer to a 50/50 split.

If we’re right, hypothetically, that number continues to grow. The cyclicality shifts from being an oil cycle to the question of whether this is a gas turbine cycle. We realized that was also a thing and a part of this whole equation that wasn’t super obvious from the jump. I’ll lightly touch on what that means and what that looks like, and Greer alluded to it as well, with gas turbines having their own unique set of booms and busts.

The uniqueness of this phase in history is that there are these converging factors that previously just didn’t exist. When gas turbines first became a thing and had a boom in the early 2000s, that was because of deregulation of energy. Enron happened, the market popped, and that was it for gas turbines. There were a few years of some really big headwinds.

Then, fast-forward to 2015, you start to see subsidization of renewables. Solar came out and took off, so a lot of the capital expenditures around energy went to renewables, and gas turbines were falling out of favor. Now we’ve reached this point where no one can keep up with demand. A large part of it is AI and data centers, but beyond that, it’s also the utilities—the utilities across the country and really across the globe as well.

We met with a few people internationally who are relying on gas turbines for grid capacity in the gigawatt ranges, which is huge. That’s the uniqueness: The cycle now starts to diminish in this phase in history because we’ve seen this convergence of factors. Coal plants retiring is another big example. There was one in Youngstown, Ohio, that replaced a huge coal-burning plant with 16 natural gas turbines of utility scale.

We’re starting to see these factors converge. Another interesting example was grid-scale battery storage. Utilities are now storing energy in batteries, but the question is: How do you generate that energy when the sun isn’t shining over Texas in these solar farms?

Those converging factors, plus the fact that Baker Hughes’s business mix is shifting toward a dominant position in Industrial & Energy Technology, make this growth algorithm much more sustainable than past cycles, where you see the stock chart peak at 65 and go back down.

Does anyone want to add anything there, or should I follow up with another question?

Yeah, I’d just add that I think AI and data centers can almost be a little bit of a distraction. Thinking about these converging factors and the conversations we had, onshoring trends and electrification trends aren’t all related to AI and data centers. There’s so much industrial buildout happening right now in the United States and around the world that is also going to continue driving this demand.

Yeah, that makes sense, but there is a lot of AI power generation out there that’s turning a lot of wheels.

I’ll be honest: When I started reading this deck, my first thought was, “Oh, Baker Hughes, the oil and gas company.” Then I saw the natural gas turbines, and I couldn’t believe the stock wasn’t up more, just considering the way all these things have traded. You guys have the case study on GE Vernova, and I know everything’s not directly comparable, but I thought, “This has turbines and it’s not up 300% this year. What’s going on?”

There are 2 interesting angles that you had in the deck that I’d love to talk about. The first is the compounding installed-base flywheel that’s underappreciated. I would have never thought, with the Baker Hughes of old—or even Baker Hughes now, servicing these LNG facilities and so on—that they would get this compounding flywheel.

This relates to the services, where you’re saying it’s not all, “We’re ordering equipment for the oil and gas field, and if the oil price goes down to 50, everything shuts off.” You’re saying that, especially in IET, it’s services. That’s recurring revenue, and it’s growing over time.

So, I'd love to ask: What are the recurring revenues? How is that driving things? How is that increasing going forward?

Yeah, love to talk about that. The big thing is, similar to—as you alluded to—Siemens Energy and GE Vernova, this IET business is much more dominated by installing the equipment and then servicing it over a longer period of time, often through 10-year-plus service revenue contracts that are layered onto these installed bases. And so, that's really the second part of the story we see.

Obviously, we talked to many people who see this growing demand for the equipment being installed, but where the economics really become much more interesting, which hasn't fully taken shape yet, is the increase in service revenue, which, talking to people throughout the industry, has nearly doubled the margin that they're getting on the equipment. Similar to the transformation we saw in businesses like GE Vernova or Siemens Energy, they start with installing the equipment, and as time goes on, more and more of their revenue comes from this higher-margin service revenue.

And that's really where we see this flywheel: As they continue to install more and more equipment with this demand—whether that's just the demand for energy, LNG infrastructure, or even the incremental build of data centers—they continue to install more, which ultimately comes with more and more service contracts. Baker Hughes is equipped to win that work and continue gaining revenue for years to come at a higher margin.

Yes. So, right now, under a third of the business is recurring. By 2030, you guys have it at over 35%, so it's growing and increasing its share. Greer mentioned earlier that everybody thinks of AI when it comes to gas turbines, but there are a lot of other industrial drivers.

I'll just ask this off the cuff. I do not know the answer, but if I went to the AI bear case—and the AI bear case would be that NVIDIA is investing in all its customers, and their customers buy from NVIDIA, and you've got this circular flywheel, and demand is going to collapse at some point and the AI bubble basically bursts—what would that imply?

Would that create a lot of slack in the system, with Baker Hughes' great growth story that you guys are projecting going away? Or would it actually be that, to Greer's point, there is a lot of industrialization? There's a lot of Middle East rebuilding and a lot of work, and I'm sure a lot of countries are going to be looking and saying, "Hey, we might need to be reassessing our power." How much of this is relying just on AI?

We'll talk in multiples in a second. Obviously, it's the multiples, too. But how much does this rely on AI versus something else?

Yeah, I can get us started there. When we thought about AI, of course, it's a piece of the story. It's a piece of the tailwind. But if we wake up and it's gone tomorrow for whatever reason—NVIDIA chips are a billion times more power-efficient—it really doesn't change the math around what demand will look like in the long term, because there are a few interesting and somewhat elegant dynamics at play around this sort of demand cycle.

And I think it ties back to the categories of gas turbines. That's how I frame it in my mind for how this demand persists should AI not be a thing tomorrow. There are 3 primary categories. The small-scale turbines, sub-20 megawatts, are the turbines that are going in data centers. Particularly for Baker Hughes, that's their NovaLT line of turbines.

They have sort of a mid-size segment. These go in LNG plants and industrial plants. Those are anything below 100 megawatts. And then you have the grid-scale ones that are greater than 100 megawatts, which are being ordered by utilities.

There are different dynamics between these segments. OEMs can charge a premium right now at the top of this stack—the smaller turbines—but the components that go in each of these are very similar. So, they're all competing for supply-chain resources with each other, even though they now have completely different end customers.

At the top end of the spectrum, you have customers for Baker Hughes that have been their customers for 70-plus years. Do you go to that customer and say, "Well, hey, you're going to wait 36 months while I deliver to Google first?" That's a dynamic that we've validated with management and people in the industry that just isn't something they're willing to do.

When we think about growth, we think about it across these segments, and how they interact with each other is quite elegant. If the small-scale turbine sizes do start to weaken in demand, they're almost taken over immediately by the mid- and large-sized turbines because of these other factors that we alluded to earlier.

That was really—so, what you're saying is, based on your talks—and obviously, again, I see the list: You guys have a long list of industry experts you talked to—do you think that Baker Hughes, this storied company, as you said, 70-plus years, is kind of—I don't want to say honoring their commitments—but if you've been a customer with them for 70 years, they might be sacrificing margin and delivering supply to you right now, when Google, Anthropic, or whoever would pay a huge premium? You see it with CPUs and all sorts of stuff.

Baker Hughes is kind of saying, "Well, we've been with these guys for a long time. We're going to make sure we supply them. Obviously, all the excess goes to Google and stuff, but we're going to kind of honor the commitment to the legacy utility in Portland that we've been working with for 40 years."

Yeah.

Yeah, I think that's the sentiment, and I'd love for Cam to jump in. I think it comes back to their legacy of who they've served and the types of customers they served, starting in oilfield services, and honoring that legacy in a way and staying true to that culture, which sort of disseminates across—I think they have 55,000-plus employees.

Whenever we've had the opportunity to interact with them, that's the cultural philosophy they go by: We take care of our customers; customers come first. These customers have been with us for decades, so we need to make sure they're happy.

Yeah, and the point on the other side, too, is just the business dynamic itself. As we pointed to, where the real margin of this business is, it's these long-term service agreements, which means you have to maintain these long-term relationships with your customers.

And so, really, we saw both with Baker Hughes and across the industry that people in the industry aren't willing to make a quick buck on the equipment when they're giving up the potential to maintain and keep that long-term relationship that ultimately drives their economics long-term and is really the main driver going forward. Yeah.

Oh, go ahead, Guru, please.

All right, that's just something we heard when we were at the turbine conference in Long Beach, just talking to different people along the value chain. The emphasis on reputation related to services was something that we heard over and over again, and that was really interesting to learn about. So, that definitely comes into play.

You know, maybe I'm just a stock jockey who reads 10-Ks and looks at numbers all day, but I always do wonder, because I feel like every time I've had a company tell me, "Hey, we're doing the right thing. We're kind of acting how I hope I act in my everyday life," every time I've seen that, on the other side, when they're like, "We're relying on our customers," the customers are kind of like, "F you, man. Cut your prices."

I do want you to like it, but on the other hand, I'm like, "Man, I don't know. Maybe they should just be more mercenary and say, 'Guys, Google is going to pay us $2,000 for this little light bulb. You guys can pay us $2,000 and we'll give it to you. If not, we're going to go to Google. And if you say $2,000, we're going to see if Google is going to pay us $2,100 before we sell it to you.'"

It's a really interesting example because it's happened with other OEMs that I'd be cautious to name, given the forum that we're in, but it is something they've fallen prey to. And their customers, which we found at this conference, are very unhappy, let's call it, with competing OEMs and how they've changed with the change in the market dynamic.

That's something that we pushed really hard to validate: Was Baker immune to this? From these conversations, the conclusion we landed on was that they really tried throughout their organization not to be susceptible to these short-term grabs of margin.

You know, and it's cool because, as I say this, if you leave that money on the table, the nice thing is, A, maybe private equity will come and buy you and pay a premium and say, "We're going to pull that lever." But it does tend to come back in other ways, and it gives you guys a margin of safety, right?

If this gets a lot hotter, they're going to be able to realize that at some point. And if it gets colder, maybe the customers do stick with them. So, that's interesting.

Let's go to valuation. I am looking at, I believe, slide 16 of your deck, and I'll include a link to the deck in the show notes. You guys have, at the time this episode is recorded, it's about where it's trading right now. Baker Hughes is trading at just shy of a 14-times EBITDA multiple, and your sum-of-the-parts actually says 2028 is going to trade for 14.5.

So, you're not forecasting a lot of EBITDA expansion, margin expansion, or multiple expansion. What you're really forecasting is that IET and Chart are going to grow a bunch. I'd love to just start with a high-level view of how you guys look at the valuation, where you think the fair value for Baker Hughes stock is, and then, obviously, I have some questions on the valuation on the back end.

Yeah, of course. One of the things we wanted to stick with is making this a multiple story. We think the market has really seen the opportunity of the IET business, but what we really want to differentiate, and what our research found, is the value in looking at this as 2 separate businesses and using a sum-of-the-parts approach to evaluate the momentum of what this looks like years down the line.

With analyzing both the Chart acquisition and the trajectory of backlogs that they've been booking on the IET side, we really felt the market was underappreciating the magnitude of revenue growth in this IET business, along with how that revenue transitions from the equipment margins it has today to more and more service margins that are structurally higher as revenue comes more from that.

On a valuation approach, we really kept the valuation fairly flat in the sum-of-the-parts approach and just expanded on this story that we heard from talking to multiple people and analyzing their backlog, as well as how it's transitioned to revenue over time, into what the trajectory of this looks like down the line.

You know, I think maybe it's just because I've got the legacy Baker Hughes oil and gas business, but the first thing that jumps out at me is: Is it saying this is worth 14.5 times 2028 EBITDA? It's a big number, and there's real CapEx here. There's real taxes here. You're really starting to give it quality credit as a big, quality company once you throw that in.

The 2 places I was looking at were, number 1, Chart. You mentioned Chart. In 2028, it will be about 20% of their EBITDA. If I remember correctly, you guys have forecasted $2 billion in EBITDA.

The acquisition hasn't even closed yet, right? They announced in mid-2025 that they're buying Chart. It's going to close, I think, in the next 30 to 60 days or something, but it hasn't even closed. They're buying it for, if I remember the numbers right, $13.5 billion, I think. You guys are saying it's going to be worth, in 2028, I think the number is something like $28 billion.

So, you're saying they're going to double their money inside of 4 years. That's a great IRR. But you look at it and say, “Hey, they paid an acquirer's premium for this business. There are real synergies that they're going to get, but they timed it gosh darn well, too. But can they really create that much value in that sort of time frame?”

I think that would be the first question, because that's $5 billion to $10 billion of value on a $70 billion EV company. That's a big piece of the value creation you're talking about here.

Yeah, it's a great question. When we looked at the Chart acquisition, we also looked at their history of acquisitions. The real focus was that management, over the past years, has been using a combination of acquisitions and divestitures of businesses that really don't make sense for this IET platform.

Where we saw the opportunity in Chart, and really think that Baker is the perfect platform to grow it, is how it fills out the LNG services that Baker provides and really accelerates the services that they're building out through their equipment installs. It really makes Baker the one-stop shop for all things in the LNG value chain.

Through that, we've looked at past management's projections of synergies, which have tended to be on the conservative side, and ultimately looked at how this business was helping this greater IET transformation. That's really where we became comfortable with this pretty significant rise in the value of this business, given how much it unlocks with the trajectory of IET.

A few more data points that I think could be helpful to the listeners: Official guidance from management on the acquisition is about $325 million in cost synergies, but they've been very close to their chest on what it would unlock from a revenue-synergy perspective.

Where that gets really interesting is that Baker's been a client of Chart over the last decade-plus and has gotten to know this business through and through, really deeply. Our question then was, “Okay, well, how good are they going to be at integrating this business?”

Historically, like Cam mentioned, they've done a great job divesting things that didn't make sense. We also probed into how this new business will interact with IET. Are they just going to merge them over 30 days and hope for the best? What we landed on is that it's probably going to be 2 separate businesses for a while.

They have this legacy and culture of very slowly, over time, integrating businesses. Sure, it is a big step change up for what we think the value of the business is, but from a potential list of acquirers for this business, Baker really does have deep contacts from this decade-plus of having done it now at almost this perfect time, like you mentioned, when their IET business is really taking off.

Having this value-add that they can tack onto the back of all of their contracts that they're negotiating right now with utilities, with infrastructure, and with customers across value chains that need energy really does make it exciting for us.

No, it's a fascinating—just on Chart, you mentioned their customer diligence. It's fascinating because they paid a tip-top multiple for this, right? Chart was in a merger with Flowserve. That's a merger. Baker came in, and not only did they have to beat Flowserve's price with a cash offer, they also had to pay a breakup fee to Flowserve.

So, you're talking about about the highest price you can pay for this business, but again, it was very well timed. My dumb-dumb value-investing brain just keeps saying, “Winner's curse, buyer beware.” It's just so hard, but it does seem like they timed it very well.

Anything else from you guys on Chart? I do have a couple more questions on the valuation stuff I want to talk about.

I would just say—and I think this adds to what Carl said real quick—that at the Turbomachinery Conference, we were able to speak with a lot of different people. Baker is known for being really strategic about who they acquire, having a very successful track record in the space, and being smart about how they integrate employees and culture.

That was also just an interesting narrative to layer on and make us more comfortable.

Okay, can I follow up on that? Baker is a combination of the old Baker Hughes, which they merged with GE's oil and gas business after the shale bust that I talked about earlier. They merged with it, and it was a big deal. I think GE at one time owned 2/3 of the stock, and they sold it all and everything.

How have people viewed the integration and the results of that combination? I think there was a little bit of cyclicality and timing, but I won't bias the witness anymore. How have people viewed it?

Yeah, I don't know if, Carl, you could speak to that.

Yeah, there are some intricacies to that relationship between GE and Baker Hughes that still stand today. At a high level, when we talked to folks who have been in the space, who saw Legacy Baker Hughes, saw the merger, and then saw the spinout, what they tied to was that Baker Hughes, as a standalone business, gained a lot more from this merger than they lost.

As a company, that's the high-level thinking or view that consumers, their customers, and experts in the space have on it. When we fast-forward to today, what this has meant for Baker Hughes is that they were really able to bring this Industrial & Energy Technology business and create it because they were able to merge with GE at that point.

Had they not merged with GE's oil and gas business, they would not have had the gas turbine business. So, they came away, realistically, much better off than when they went in.

Thinking back, GE probably isn't too happy about what's happening right now and giving up so much of that value by way of spinning out the business. To summarize what it looks like right now, they still interface with each other pretty closely—Baker Hughes and GE Vernova—through what they call the GE Aero Alliance.

What this is, is 3 separate entities. It's GE Aero, which manufactures turbines and blades—very specific IP that goes in the turbines that both GE Vernova and Baker Hughes sell. So, the IP is pretty closely tied there.

The intricate part about this setup is that GE Vernova, per the spin-off, is able to sell these gas turbines, essentially IET equipment, into any end industry except oil and gas. Baker Hughes is able to sell these gas turbines only into oil and gas as an end customer.

This is what happened in 2019. Fast-forward: There were a few filings that were made, agreements changed, and negotiations made internally—a lot of it redacted—but that has now loosened pretty significantly. 2024 was a big change, and we're starting to see it now in filings where Baker Hughes is selling into different end markets.

Data centers are one, with NovaLT, which is completely their own IP.

None of that is shared with GE Vernova. They’re very intentionally making the shift away from this business while still being super cordial. The relationship still seems pretty great between the two, and they still do a lot of referring and such, but there is the sentiment that these are now 2 very standalone, different businesses.

That makes a lot of sense. Let me go to management. That’s kind of where I want to go. Lorenzo has been the CEO. I think he comes from the GE side. He’s been the CEO here for 10 years and was CEO on the GE side before that.

When I look at this board and management, I get completely obsessed with alignment, insider ownership, and all this sort of stuff. Lorenzo owns about $50 million of stock, and that is obviously a lot of stock. It’s a lot more stock than I own—I’ll tell you that much. But it’s a lot of stock, and he makes $22 million per year, while the board is very skinny on ownership.

The reason I’m kind of hammering that home is because they did just go buy Chart Industries for all cash. They also did this big GE acquisition. I do kind of wonder: Do you have full alignment? If you’ve got a board and management team that don’t own a lot, and they’re in a heavily cyclical industry, they get paid when they go buy stuff, get bigger, and grow. Then they can take their salary from $15 million to $20 million, all that sort of stuff—not necessarily when shareholders do the best.

I’m not saying that’s the case, but it’s not lost on me. I was flipping through their proxy, and there is a lot of stuff that is nice. I think there are ROIC and FCF metrics, but it’s never per share. It’s never shareholder return, for the most part. So how do you guys feel about the management team, their track record here, and the alignment?

Yeah, I’d love to add to that. Ideally, we’d have more management control and so forth. Where we gained comfort was more in the capital allocation, as we alluded to. Acquisitions can be hit or miss, but the combination of divestitures is really where we see that alignment.

The company’s not just focused on building out as much revenue or as much growth as possible. They’re willing to sell these businesses that have worked in the IET platform before and have worked in oil and gas before, but aren’t directionally what they’re looking for long term.

While we would prefer additional management ownership, as you alluded to, with any business, the fact that acquisitions come with strategic divestitures gave us a lot more comfort that this management is focused not just on short-term growth, but on the long-term trajectory of where this business is going.

You guys had a lot of expert calls here—competitors, former executives, all this sort of stuff. When you guys were talking to all these people—and forget the company’s reputation, which I think Carlos especially spoke to as being pretty good, given their servicing and everything—what did you guys get as a read of how people thought about the management team here?

Yeah. Current employees, past employees, and customers—they love them. The reviews that we heard, not just of top management but internally as well, including middle management, were pretty stellar. I don’t have a large sample size, particularly with oil and gas executives, or much experience hearing what their reviews are like, but it seemed pretty stellar.

I think their longevity—how long they’ve been a part of it—is a strong signal. Lorenzo has been there probably 2 decades, if not more.

Yeah, 2027 will be 2 decades for him in the organization. A lot of folks referred to him on a first-name basis. They said “Lorenzo” when referring to the leader of the company. There are some interesting heuristics at play that I hadn’t seen in past work.

Yeah, and I’ll just add to that the general employee satisfaction that we saw. Obviously, the management teams have been in the industry for years and years, but even a lot of the general employees we talked to had a similar message: They were happy with where their careers were, where the opportunities were, and really the long-term focus of opportunity.

I don’t know how, but obviously I went through the proxies and everything when I was prepping for this. Baker Hughes had an investment in C3.ai way back in 2022, and Lorenzo was there and served on that board.

That’s obviously a—let’s just use the term “fun”—it’s a fun stock and a fun story and everything. But I’m just curious: How did they get it? You don’t have to know this; this is far, far long ago, during COVID. How did they end up involved with C3.ai?

They blew out $100 million-plus of stock at a very good price. How did they get the stock? How did they get involved? I was just fascinated by that involvement. I thought it was kind of funny.

If you all know the story, you can tell me, but if not, there’s no judgment on not knowing the results of a lottery ticket that paid off 6 years ago.

The nuances of the deal are something that we didn’t get into, but a fun anecdote is that the CFO of that business went to Columbia and was one of our first conversations. He’s now leading a lot of gas turbine work and IET work at Baker Hughes. So potentially, it might have been a talent acquisition play.

They place a lot of importance on their software stack. That’s something we heard a lot as well. I believe it’s called Crescent. Essentially, all of their gas turbines are monitored 24/7/365 across thousands of data points to run some pretty complex data science and get predictive analytics on when a certain part is going to break. Then they preemptively work on manufacturing it and delivering it to the client.

Because of the way the service agreements are set up, they’re more based on runtime as opposed to more traditional servicing agreements. If I were to venture to guess why and how this happened, it was probably for that predictive analytics software stack that they have. They’ve brought over some pretty cool talent as well.

Yeah, I have no idea, but it is crazy. I’m not the first to make the joke, but it’s like a billion-dollar market-cap company. I wonder how much of the value of that company is just that they have the ticker AI. How much is the value of that company the ticker AI?

Well, guys, this has been great. I think we’ve gone through all my questions, and I think we’ve gone through the deck. I’m just looking: Is there anything else you guys think I should have hit, that we should talk about, that our listeners should know, or can we kind of wrap it up here?

Damn, Greer.

I have nothing else to say. Also, apologies if I’m frozen.

You are frozen. I was looking just now.

So maybe that was a good endpoint.

Well, look, guys, I want to again congratulate you. I’ve loosely talked to all the judges for the past 4 years, and they told me this was by far the most competitive, best set. So congrats. Coming on is just—it’s awesome.

I will include a link to the presentation in the show notes, and people should feel free to reach out. These are all first-year, rising second-year Columbia MBA students. It’s just awesome. People should feel free to reach out. I can also connect to anyone, but thank you guys so much for coming on. Congrats again, and we’ll talk soon.

Thank you so much.

Thank you guys so much. It was a great conversation. Thank you.

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