Long Lake acquires American Express Global Business Travel for $6.3B — the 30-deal AI-native acquirer's biggest bet yet

Speaker 5: should have our next guest, Alex.

Speaker 1: Alex from Long Lake.

Speaker 5: Long Lake. He recently bought a business that you very well know and likely have used at

Speaker 1: one Yes. Point or

Speaker 5: That's right. Him in.

Speaker 1: Oh. He's here? Fantastic. Is he here? We got him. Over in the colors. Oh, we do

Speaker 6: have him.

Speaker 1: Fantastic. How are doing?

Speaker 5: There he is.

Speaker 6: Welcome to the guys. How are you?

Speaker 5: Great to see you. Great to see you.

Speaker 1: Thank you and congratulations. But since it is your first time on the show, why don't you give us a little bit of the news? What happened?

Speaker 5: Intro first. Intro first.

Speaker 6: Yeah. Thank you guys for having me. I'm a big fan of the show. Thanks. Excited to be here for the first time. So on Monday of last week, Long Lake announced that we intend to acquire American Express Global Business Travel for $6,300,000,000.

Speaker 1: Fantastic.

Speaker 5: Long

Speaker 6: Lake is an acquisitive company that's bringing applied AI to services sectors globally. Prior to this, we'd acquired 30 businesses across various sectors of the services economy and we've built a world class Applied AI team, operations team, and an M and A team to help kind of bring AI to the real economy.

Speaker 1: And, yeah, there's 30 deals. Like, what was the shape of them? Because this feels bigger than anything you've looked at previously, but is that roughly correct? Are we is this an order of magnitude bigger? Two orders of magnitude bigger?

Speaker 6: Yeah. This is definitely our largest deal so far. We we have pretty big ambitions and we we see our target market as really the entire services TAM, which is over 20,000,000,000,000 in The US alone and and much larger globally, so

Speaker 8: I'd love to see that I'd love to

Speaker 5: see that slide in in the deck by the way.

Speaker 6: We well you know, it's a great fit for us this particular transaction. So it is our largest deal so far, but it's also probably you know, every deal we've done has been high conviction, but this is very high conviction as to what we can do in terms of adding value for the customers, for the suppliers, for the entire ecosystem.

Speaker 1: Yeah. What do you think makes the business special and durable? Obviously, you're optimistic about the future of AI, but not so optimistic that people will just be prompting a self hosted LLM to do everything in their business travel, I imagine.

Speaker 6: Yeah. That's right. So our vision is, and we talked about this in the press release, we basically want to give all the team members of MXGBT superpowers, and particularly the travel counselors who are interfacing with the clients. We basically have seen this in the 30 acquisitions we've done to date, but AI really does make, it does make sort of our human team members you know, able to service customers better, able to provide faster response time, more better accuracy, more products and services to the clients. And you know, we think that is going to drive better retention, better customer experience and better growth.

Speaker 1: Mhmm.

Speaker 5: 30 acquisitions. How many months have you guys been in business?

Speaker 6: Months? Let's see. I guess we we we started talking about the company you know roughly twenty eight months ago. And started so

Speaker 5: talking about the company.

Speaker 6: I know I guess we incorporated the company twenty eight months ago. We started talking about it maybe maybe a few months before that. But yeah, we're roughly coming up on our two and a half year anniversary here soon.

Speaker 5: And and obviously, you know, you've built out an incredible team with a lot of experience but talk about I guess like building that muscle and that capability. I'm assuming you weren't were you buying one company a month roughly right away or have you ramped up? What does that look like?

Speaker 6: Yeah, so we tend to cluster in service verticals. So we started in residential services with HOA management which we've talked about publicly. We made a lot of acquisitions in that space in partnership with our partners there, our operating leadership there. And we do tend to, know once we've sort of helped you know take, we have our Nexus applied AI platform which is our proprietary platform that we've been investing in heavily for the last two and a half years. And once we sort of do the work to deploy Nexus into an industry, we find that each incremental acquisition you know makes that much more sense, right? We can basically integrate them more quickly into that platform, you know help our team members become more productive quickly, improve the customer experience right away. And so we then tend to sort of pick up a pretty good cadence of acquisitions. So I think roughly one a month is the number looking back, and you know I would expect that to accelerate as we enter into you know additional service lines I would think. Now some businesses obviously are more fragmented than others, and there's more acquisition activity in some industries than others, but we do expect, you know, over time to to sort of be increasing our rate of acquisition.

Speaker 1: How do you think about financial engineering in these deals? Is this sort of like the classic leverage buyout playbook or are you taking a different strategy or approach? How how do you think about structuring all of these deals?

Speaker 6: Yeah. We've traditionally been under levered. Okay. So our existing businesses, you know, have very little debt, almost no debt. We will be using you know financing as part of this acquisition, as in the press release you can see JP Morgan and others. But typically we can afford to be, we're more growth oriented than traditional We're investing in the products and services pretty heavily, especially in the early years as we sort of, we want every business that partners with us to have world class customer experience and technology, and that requires you know a multi year horizon. That's why we're set up as a permanent capital operating company and not as a fund. We see this as a long term you know a long term strategy that requires upfront investment of time and energy and capital. So being under leveraged relative to some of our private equity peers is a big advantage, allows us to move faster. But over time, you know this is a capital intensive strategy, so driving down our cost of capital, this is when we start to think out in the future several years. We think hopefully Long Lake will go public. That will help our cost of equity and potentially help our cost of debt as well as we become a public debt issuer.

Speaker 1: So on the equity side, how is it I I I think you've partnered with a number of venture capital firms. They have particular they have a nonpermanent capital time horizon. How are you communicating with them? How they can participate while still benefiting their LPs? Is there overlap with with with VC's LPs? Like how do you think about the timeline

Speaker 5: Well, going public would be helpful there.

Speaker 1: Yeah, I suppose. But but but is there anything that that Yeah. Wait. Like I I guess like this it feels like an incredibly exciting business. Very cool. I I completely buy the pitch, but there's a little bit of, like, oh, this might be in not like not every LP agreement or there might have had to be an extra conversation. I'm wondering if you can just give me more color around that conversation.

Speaker 6: Well you know, VCs tend to have longer hold periods in general. I mean VC is a power law business, and when you have great companies, you obviously want to keep compounding with them for a long time. Yeah. So I think our partners, know, and then there's a list of them in the press release, we have extraordinary partners, And their investors in turn, they really, you know, they kind of see the vision here, and I think they do, they want to be partnered with us for the long term. I think many of their, you know, investments take ten plus years to play out, and that's obviously very different than the traditional three to five year private equity roadmap.

Speaker 1: Yep.

Speaker 6: So I think in general your starting point is much longer term in nature. And as you know, know the public markets may solve this and providing everybody liquidity for our shareholder base over time. But even the private markets now have become very liquid and, you know, there's a lot more sort of liquidity we had even as a private company.

Speaker 1: If I didn't know the label like service oriented business, like what what financial KPI would I look to to understand if a if a company fits in that bucket?

Speaker 6: Fits for for Long Lake?

Speaker 1: For Long Lake or just like a service oriented business broadly. Is that like particularly like low CapEx or low revenue per employee, so it's highly leveraged to the operating expenses? Like what metrics are typically like popping out at the businesses you look at relative to, you know, some super like ARM, like super clean, like like I imagine that ARM is the exact opposite. Right?

Speaker 6: Well, look, first of all, this is like US is a services economy, it's kind of like 80% of the businesses would fall in this category. Okay. But second of all, know, what we look for really is business quality. That's kind of our orientation at Long Lake. So within the services sector, we're looking for businesses that have many decades of established customer trust

Speaker 4: Sure.

Speaker 6: High customer retention. Yeah. You know, we typically on our businesses see 100% plus net dollar retention. And these are ten, fifteen, twenty plus year customer relationships typically across our portfolio. And you know obviously, MXGBT is over a hundred and eleven year old business at this point founded in 1915 to help American Express travelers check customers get out of Europe. Yeah. That's amazing. World War One. Wow. And actually they bought a business called CWT Yeah. Carlson Wagonleet, is actually over a 150 years old.

Speaker 3: Wow.

Speaker 6: So these are these are very, you know, we were joking about this, but in terms of managing tech transformations, AmexGBT literally was created before the invention of the airline or around the time of the invention of the airline.

Speaker 5: There's this new platform. We think it's going be big. It's like they're they're like birds, but you can can fly in them as a human.

Speaker 6: Yeah, exactly. So in terms of managing text transformations, know these businesses have already managed you know many of And but yeah, so coming back to your question, I think what you typically see is even though these are really extraordinary businesses with incredible customer trust and decades or century plus of operating history, you know the margin structures in these services businesses traditionally have been you know have been lower than software.

Speaker 1: Yeah.

Speaker 6: And I think what we're seeing is a convergence basically of services and software characteristics over time. Where if you can make your team twenty, thirty, 40% more productive, which is what we're seeing in our existing 30 businesses, then that actually allows you to deliver more customer value, deliver more goods products and services to the customers, which allows you to sort of grow your revenue per employee over time. Mhmm. And then you can grow much more easily, and you can, and delivering you know more operating leverage as you scale, which has historically been what's more associated with software companies and that's why software companies historically were so highly valued and we see that trend as starting to, you know, now in the services market in the next five to ten years we think will start to play out there as well.

Speaker 5: How do you think about your advantage of starting the business twenty eight months ago? Like you said, I I imagine a lot of the other groups and firms that would be in the running to buy the same kind of companies that you are or trying to lean in and and benefit from AI, they're dealing with these big portfolios full of companies that they bought without thinking about what would happen if the cost of producing software

Speaker 1: You're talking about older companies. Yeah. We're talking younger ones too. It's like a sweet spot story.

Speaker 5: Yeah, It's an incredible sweet spot where if you're I won't name any names. Let's say you were buying SaaS companies for billions and billions of dollars, you know, over the last twenty years you're now sitting there and you've got a bunch of you can't you want to think about the future but you're like how do we exit all of these positions or in some cases you know turn them back to Turn the cruise private credit. It's tough.

Speaker 6: Well I think it is a big advantage to be purpose built. We have our entire focus is on our you know partner companies in our existing business. We didn't have any legacy portfolio to have to focus on. So being purpose built, that's one advantage. But the other big advantage is I think it's actually quite hard to do this. You really need to bring together world class team across applied AI engineering which Long Lake was founded with, and our founding team actually was primarily applied AI engineers and our co founder and CTO, Rascoff Lohstroh who's world class and has built our whole team from the beginning for this purpose. And then on top of that you need sort of a really core function in change management and growth which we've also built out. And then of course M and A, world class M and A. And we've got folks that have joined us you know, just to give you a flavor, folks from Palantir, Ramp, Glean, you know Robinhood, etcetera. Many many of our tech folks actually were founders before, and you know it turns out it's pretty hard to sell software into these industries, and we have a dynamic of if you actually want to go and change these industries it's easier to do it from from the inside and actually you know partner with the companies themselves the way that we do here. Yeah. And then on the finance side folks you know from Blackstone, TPG, GTCR, HIG, some of the very best firms. And you know, I think part of what we've been able to do along with this by focusing on this core mission from day one, it's a pretty exciting mission which is basically bring AI to the real world and help drive the mythical AI GDP growth. Yeah. You know, that's what's been able to attract bring

Speaker 10: people together.

Speaker 1: That's accurate. Last question.

Speaker 5: The prophecy. Fulfill the prophecy.

Speaker 1: The prophecy. Truly.

Speaker 5: We're relying on

Speaker 1: Satya Nadella's prophecy of 10% GDP growth. Show me the numbers. Last question for me. Do you are you surprised that we haven't seen SaaS companies that are getting sort of beaten up make a services acquisition? Or do you expect that, that would change, not that there I want more competition in your sector, but it it it feels like there there might be a thesis there. Is that misformed? Do we do we not expect that to happen for some structural reason, or do you think it will maybe happen at some point?

Speaker 6: You know, it's interesting. I wouldn't be surprised. I do think there's a convergence happening, and whether it's services companies buying software or software, you know, buying services Yeah. It wouldn't surprise me. But I do think there's a distinct advantage in being, you know, having a singular focus and being purpose built for our strategy. Yeah. You know, think if you're an existing software company, you have your own set of vested interests around your existing customer base, are you then competing with your customers?

Speaker 11: Yep.

Speaker 6: I think it could get a little tricky. Some people I'm sure will navigate that and find find great acquisitions to do, but I think we have a a strong advantage in our in our focus.

Speaker 1: Amazing. Well, thank you so much for taking

Speaker 5: the It's time to come on the an honor to finally have you on the show.

Speaker 1: It is.

Speaker 5: And let's make it a thing every time you maybe Well, announce a new you you like to Once announce

Speaker 1: a month then.

Speaker 5: Yeah. Once a month. But no, you like I'm I'm assuming you like to announce that you've been in a category after you're already done with said category. Mhmm. But you can just come on here to take victory laps.