Best Idea Show - David Marcus, Evermore Global Advisors - Do You Sell Things That You Like To Buy Things That You Now Love? | #285

Episode Summary

Executive Summary: David Marcus, CIO of Evermore Global Advisors, discusses his 'best idea' of investing in European special situations. He shares his career journey from answering phones during the 1987 crash under Michael Price to founding Evermore. Marcus argues that Europe currently offers the best opportunity he has ever seen due to a confluence of factors: record M&A, rising shareholder activism, massive EU stimulus (€1.5-2 trillion) for green and digital transitions, and cheap valuations. He details his investment philosophy focused on catalysts (spin-offs, breakups, restructurings) and family-controlled businesses, providing examples like Exor, MTG, Atlantic Sapphire, and Vivendi.

Main Topics: Career Under Michael Price and Lessons from 1987 Crash (Priority: 4/5): Marcus describes starting as a phone rep during the 1987 crash, learning the importance of not panicking and using weakness to average into high-conviction positions. This foundational experience shaped his temperament and value-oriented approach. Evermore Global's Special Situations Philosophy (Priority: 5/5): Marcus explains his focus on cheap stocks with catalysts: spin-offs, breakups, restructurings, and compounders. He emphasizes betting on jockeys (management/families) and using keyword screens rather than traditional numerical screens to find unique opportunities. Europe as the 'Today Story' (Priority: 5/5): Marcus argues that Europe's convergence of record M&A, adapting activism, and massive EU stimulus (green deal, digitalization) transforms it from a perennial 'tomorrow story' into a compelling current opportunity with cheap valuations relative to the US. Family-Controlled Businesses and Value Creators (Priority: 4/5): Marcus highlights the long-term compounding advantage of family-controlled firms like Exor (Agnelli family) and Bolloré, which think generationally and unlock value through spin-offs (e.g., Ferrari IPO). He contrasts them with value destroyers. Navigating the 2020 Pandemic Volatility (Priority: 3/5): Marcus recounts how Evermore used the 2020 crisis to prune positions, sell into weakness for tax-loss harvesting, and rotate into 'value plus growth' opportunities like LPK Laser and IAC. The portfolio emerged positioned for a 'coiled spring.' Concrete Special Situations Examples (Priority: 4/5): Marcus provides detailed examples: Atlantic Sapphire (land-based salmon farming disrupting the fish industry), MTG (esports/gaming spin-off), Scorpio Bulkers (transitioning from shipping to wind farm installation), and Vivendi (hidden assets like Universal Music).

Key Arguments: Europe offers the best opportunity in Marcus's career due to cheap valuations and a confluence of catalysts (record M&A, activist adaptation, €1.5-2 trillion EU stimulus). Active investing in special situations (spin-offs, breakups, restructurings) can generate alpha because the market often misprices or ignores these complex, catalyst-driven stories. Family-controlled businesses compound better over the long term because they invest for generations, not quarters, and are prone to unlocking hidden value (spin-offs, IPOs). Investors should not just 'buy Europe' but carefully curate a list of companies benefiting from the stimulus and self-help catalysts. Understanding local rules (e.g., Swedish nomination committees) is critical for successful activism in Europe; an aggressive US-style approach often fails. The pandemic created an exceptional special situations opportunity: many companies used the crisis to restructure and emerge leaner, with explosive earnings potential from even modest revenue growth.

Data Points: EU Stimulus Package: €1.5 to 2 trillion - Over the next couple of years for green transition, digitalization, and PPP equivalents. MTG Market Cap Growth: From ~$680 million to $1.1 billion - Post-spin-off, after breaking the conglomerate into focused esports and streaming businesses. Atlantic Sapphire Capacity Expansion: From 3,500 tons (Denmark) to 13,000 tons (US), eventually 200,000 tons - Land-based salmon farming facility in Homestead, Florida. KKR Ownership by Employees/Founders: Over 40% - Indicating strong alignment with public shareholders. MagnaChip Net Cash from Fab Sale: ~$5 per share - Representing over half of the sub-$10 stock price, leaving high-growth OLED businesses at ~4.5x cash flow. Vivendi Return Over 7 Years: Tripled (from 12 to 27) plus $11 in dividends - Highlighting the value of hidden assets like Universal Music.

Pivotal Quotes: "I think that for value investing, there's two camps in value investing. There's the guy who wants to buy a dollar for 50 cents and says, well, over time, it's going to revert to the mean. That business died. News flash, it's dead. And so you want to be in the other camp. It's a cheap stock. You understand the reasons, but you're looking for what's going to make it go up." — David Marcus: Explaining his 'value plus catalyst' approach as distinct from static deep value. "I always would tell people: when you see spin-offs, look at them because most times there's a window of opportunity where the market doesn't exactly understand what they got or why they got it. And you could really take advantage of it as things are evolving." — David Marcus: Advice on identifying mispriced opportunities in corporate spin-offs. "I don't think investors have focused on it because it hasn't started yet in our portfolio. We have businesses that are in industrial internet of things... this crashing down from the top in Europe and the bottom up, where you have self-help, companies doing the right thing... it's going to smash into each other. And I think it's going to create phenomenal profits and opportunities." — David Marcus: On the convergence of EU stimulus and company-level catalysts creating a unique investment environment.

Implications: For investors, Marcus makes a strong case that European special situations offer a rare convergence of cheap valuations and powerful catalysts, driven by structural changes (stimulus, activism). This suggests a compelling opportunity set for active value investors willing to do deep fundamental work. The key is selectivity and understanding local dynamics.