The Age Of The Trillion Dollar Company | The Acquirer's Multiple®

During his recent interview with Tobias, Alex Rubalcava, Co-Founder And Managing Partner at Stage Venture Partners, discussed the age of the trillion dollar company. Here’s an excerpt from the interview:

Tobias Carlisle:
You’ve written some interesting blog posts on the side. The first one I want to discuss is the trillion dollar company idea. So let’s talk about that. What’s the thesis of the blog post and then I’ve got some questions for you.

Alex Rubalcava:
The thesis of the blog post is that we now have a handful of public companies in the United States, Apple, Microsoft, Google, and Amazon, in addition to dozens of other companies that are almost as big as them that are so big that I think that they have escaped regulation from their investors, from the regulatory bodies in this country, and from consumers and that we have this issue where there’s a fundamental mismatch between the ability of people to exercise any kind of governance or accountability on companies of this size. When you think about a trillion dollar company and you think about the fact that the largest activist hedge fund in the world has what? Thirty or forty billion dollars in assets under management that-

Tobias Carlisle:
Who’s that now? Elliot?

Alex Rubalcava:
Someone like that, yeah. So they can put 1% … if they bought $3 or $4 billion worth of a trillion dollar company, they would have a 1%, 1.5%, 2% position, and I don’t think you can rattle sabers with that little power. There’s no one, now, who can exercise governance over companies of that scale.

Tobias Carlisle:
Yeah, you made the point in the blog post that the biggest P fund has about $26 billion, biggest activist fund say $40 billon. They can’t dedicate the entire fund to one position so they have to-

Alex Rubalcava:
Right.

Tobias Carlisle:
Maybe they can get 25% of the fund into one position, although that would be pretty concentrated. That’s $10 billion for the activist fund into a trillion dollar company. There’s no influence at that level. So what’s the solution to that? Do we need to regulate them more, or what happens? Do we need bigger activist funds?

Alex Rubalcava:
I think ultimately we’re going to have to have activism go hand in hand with passive ownership of public companies, because that’s where all the ownership lies. That’s where the capital is going. It has been anathema to the corporate culture of large, passive owners of public equities to exercise any kind of influence or activism on their holdings, but there’s nothing that says that has to be the case. You could have a passive, ETF oriented manager that exercises very strong activism and accountability on their underlying public companies, even if they’re invested in thousands of them.

Alex Rubalcava:
I think something like that has to happen. How that works, how you pay for that on a few bits of management fees is a really interesting question and I don’t have a good answer for that. You know far more about that world than I do.

Tobias Carlisle:
Well, CalPERS, of course, was always willing to support activist, but it’s been … index funds have largely been passive as the name suggests, but then looked like there might be some moves on the ESG front by firms, so I think it is BlackRock that has come out and said they’ll move on environmental issues. Do you think that extends perhaps to governance as well?

Alex Rubalcava:
I think it’s a start. I’m hesitant to ascribe anything resembling strategy to announcements out of CalPERS. They’re blown in the wind pretty easily, and so I’m not looking expectantly as Sacramento as a savior here.

Tobias Carlisle:
What about from a policy prescription? Do we need to bus these companies up through anti-trust or something like that?

Alex Rubalcava:
I guess the challenge is so many of these companies have not grown through anti-trust. A few of them have an excellent track record in M&A. Google’s acquisitions in the middle part of last decade from Android itself, which my prior firm was involved with, to YouTube and Double Click and a few others. Applied Semantics here in southern California. That’s a hell of track record. But no acquisition they have made recently has or will move the needle as much as those did and Google was not perceived as a threat on an anti-trust level back then in the way that they are today.

Tobias Carlisle:
You don’t necessarily need to stop at the acquisition stage of this. Certainly precedent for this things being busted up like the Ma Bell and the Baby Bells. There’s an argument to be made that Google has this sort of stranglehold on many different industries. It’s a travel OTA. Travel companies that sell over the internet have encountered the issue where you have Google coming in and now sales are competing. Flight travel service. So I just wonder if that inspires them to do something.

Alex Rubalcava:
It could, and certainly Google making any attempt on a transformative and anti-competitive acquisition today would be met with a lot of skepticism that would prevent something like that. Most of the deals that they made that put them in a position that they are today were done over a decade ago when nobody perceived them to be as dangerous as they perceive them to be now.

Tobias Carlisle:
Yeah, I remember that YouTube acquisition. A billion dollars seemed outrageous at the time, and it’s probably outrageously cheap in retrospect.

Alex Rubalcava:
Yeah, when he was asked about, Eric Schmidt said at the time, “I will have either wildly overpaid or wildly underpaid.”

Tobias Carlisle:
Don’t know which.

Alex Rubalcava:
He was right about that.

You can find out more about Tobias’ podcast here – The Acquirers Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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