Ep 011 Marcus Magarian “Data Driven Investing”
Marcus Magarian is Managing Director at Chatsworth Securities, LLC. Marcus brings more than expertise in technology and data analysis experience to the investment banking industry. Marcus works with multinational corporations in origination and placing capital for private equity, feeder funds, and private placements, between the US, EU & Latin America for Real Estate, Energy, Oil and Gas, Infrastructure, and Corporate interests.
Listen To This Interview as Cliff and Marcus discuss:
- How data analysis of customer behavior in e-commerce drives investment advice.
- Examples of what data points to consider in pricing derivatives.
- Trends in the e-commerce space that affect your investment strategy.
- How COVID-19 has impacted the investor/advisor relationship dynamic with new clients.
- How data analysis works in determining risk or predicting ROI.
phone: (203) 340-2827 Ext 122
Cliff Locks 0:02
Welcome to the private equities profits podcast. I’m Cliff lox your hosts who With me today is Marcus Magarian, Managing Director of Chatsworth securities, LLC. Marcus brings more than expertise in technology and data analysis experience to the investment banking industry. Marcus works with multinational corporations in origination and placing capital for private equity, feeder funds, and private placements between the US EU and Latin America. For real estate, energy, oil and gas, infrastructure, and corporate interests. Mark is welcome. Please share with the audience a little of your backstory.
Marcus Magarian 0:40
Hi, Cliff. Good afternoon. Thanks for having me here. The pleasure. I’ve been watching a lot of your previous interviews, so very excited to be here. I’m a native New Yorker been here all my life, you know, started out working at my dad’s store at the time square area, got my first job at derivatives at Morgan Stanley Merrill Lynch. After that, then Business School, we opened a Brazilian bank in New York and London doing natural resources, private placements, when that whole thing died off, I was lucky enough to get a job at a tech company doing UX analytics for about three to four years. And coming back into banking, we’ve been focusing quite heavily in things in the payment space, analytic space, everything involving data, which is we’d like to call the new oil.
Cliff Locks 1:23
Very true. How does the data analysis of customers behavior and e commerce drive investment advice?
Marcus Magarian 1:29
The most important thing about data is that it’s free. And it’s so telling, I always like to tell my customers or prospects like you know, it’s kind of like, if you have people in a focus group, it’s like you like Coke? Or do you like Pepsi? And then give us your advice. The first person that speaks, they’ll say, I like Pepsi, or they like Coke, it’ll influence everybody in the room. And what happens with data is that like, it’s completely naked, you know exactly what the people are really thinking, without, you know, ever having to ask them, you know, this I gave an example of this was when we were working with Electrolux, we, I told them, like, Hey, 99.98% of your customers don’t want to buy an air conditioning system. And they have no idea why it’s because the most important thing is that the data told me that this was the case. So we are able to change things increase their sales is about 100 times. I mean, it was easy when you do and you have hardly any sales. But every but using that skill, those skills today, you could basically go to any company and say, okay, you have a million people going to your site, let’s say your average order value is $100, you have about a 2% conversion ratio. So I’ll do $100 times 20,000, you make $2 million. From there, we want to know exactly what their goal is, you know, they’re looking to buy a company, sell a company expand by market share, etc, etc. So, very good. It’s very telling. And it’s a way to advise clients without having to ask them questions.
Cliff Locks 2:56
Can you give us examples of what the data points you consider in pricing derivatives
Marcus Magarian 3:00
with derivatives, I mean, that’s I the one thing I love about derivatives is that it’s very similar to analytics. So back in 2000, when we saw and I started working at Morgan Stanley derivatives, were priced kind of like just taking market data, just same way you would take on through a Google Analytics or some kind of analytics capturing tool. And you know, you want to volatility, you want to know exactly what the buzz is on the stocks or some kind of technical analysis. And today, you have, you know, I use those skills from 30 days in order to price companies. Because everything with digital companies is dependent on data flows. And so like, it’s kind of the example I gave before you have a person that comes into a site, I know how the traffic is behaving, but the most important thing I have to know is where’s that traffic coming from. So if I’m selling fishing equipment, and I’m bringing my traffic from the Wall Street Journal, my sales won’t be as good as if I drove it from another site. That was where the person came into the site, thinking about fishing equipment. And it’s the same thing with so everything with data, it’s how do you manipulate the data, which is really the individuals that are going into your website or to your app, the same way that people engage in the stock market.
Cliff Locks 4:19
I’m excited you’re going into a forensic analysis on those companies that you’re looking to help raise funding at this point. But really understanding what drives revenue. And the sources of that traffic. It’s critical at this point for sustainable sale. What trends are you seeing in e commerce space that affect your investment strategy?
Marcus Magarian 4:40
Right now with COVID? Right now, actually, I have a group out of the UK that I’m a board member of here in New York. It’s called it’s a retail group. And what we’re trying to do now is take possession of stores on Bleecker Street and make it into a COVID store. So it’s it’s important because everything we’re doing in e commerce Everything is becoming more omni channel. So what does a store look like in the future with COVID V is put out a report saying that you had 60% of people were paying by phone or the stores have the ability to pay by phone. Now it’s like 85%. And everything is digitally transforming to this contactless payment world and all these things that didn’t exist before. So what you’ve really had is a really massive acceleration in that market, the digital world online shopping has really converted over into the brick and mortar side. Amazon was way ahead of this when they had the thing where you could go into a store, which, you know, there’s more to it, but you go into a store, you can only go in if you have a phone. It’s a problem. If you don’t have a phone, surprised, no one’s saying about discrimination. But if I go into the store, I could walk out without even talking to a cash register person or paying or pulling out a credit card or anything like that. And the concept that we’re trying to do is saying, okay, 70% or 60% of stores on Bleecker Street, are empty. There’s all these things happening with moratoriums, landlords aren’t getting their rent monies. And Nope, because I was walking in safer give stuff stay home because of social distancing. And all those things. Let’s take stores and do virtual fitting rooms and fulfillment centers. No, no inventories are items that stores and make it like an e commerce store, but with a physical presence. But when you have all that information, you’re collecting the data on your customers store. The way this used to be done when we were much younger, used to see guys in the corner of the streets tapping on these little metal things. And what those guys are doing was counting the foot traffic going left to right. Nowadays on you that everything is digitally tracked, you have you carry a mobile device, the beacon captures everything. So in business school, they were went to business school in France. So we obviously the Louis Vuitton case study, when somebody walks into the Louis Louis Vuitton store one on shawnzy, the likelihood is that a Westerner will turn left. So they put their most expensive and most popular items there like women’s handbags, the ones that you see whatever men’s stuff was to the right. And all the way in the back right was smaller handbags, which were more popular for Asian communities. And so they took an old way of doing a method, which today everyone can do, because it’s very expensive to have someone sit there and click all day. And you also have to understand that the data probably won’t be accurate, if someone’s clicking themselves manually, versus a computer collecting all these things.
Cliff Locks 7:32
So how has COVID-19 impacted your investor advisor relationship dynamics with clients,
Marcus Magarian 7:40
we’ve gone from less private placements to more m&a. And I prefer m&a versus it’s harder to do. Because everything. It’s it’s like a marriage. Because the thing is that a private placement, you’ll probably most people will accept 10% 20% of the company. There are those that one like you know more than 50%. But like because of the acceleration that we saw from like those things like the visa reports or contactless payments, or how people are using more digital means. There’s so many players that are completely out of the market. Now they have no choice but to consolidate. And so right now it’s a rush, because it’s like, like, we’re focusing very heavily in the payment space. A lot of our European clients, what’s happening is that they know that they’re having some kind of adverse event happening. But then you have companies like you know, I mean, toast is a bad example. But a company called lightspeed, they’ve raised so much money, they go in, and they just buy out markets. And they’ll overpay, they’ll pay massive multiples. And we’re seeing a lot of those things because and the problem with that is that if these companies don’t sell, because raising capital, forget about it, like because it’s just they’re not gonna be able to be fast enough. This other company, though, they’ll they’ll they buy one player, they’ll have, you know, 10,000 stores or 5000 stores was installed in there with a technology, and then we’ll just start cannibalizing market share, kind of like that scargo thing that, you know, that Walmart did when they first opened and started expanding through the United States. Right now we’re seeing massive land grabs happen. And it’s the Luddite players that either have to move, or they’re going to be out of business. And there are many people that we speak to, who are who know that because of COVID, you had this massive jump in technology, that they know that they have to move somehow it’s either going to sell the company or they get integrated into another company. And we do like a stock swap kind of thing. And that’s really been the play.
Cliff Locks 9:38
I really do get it you have to disrupt yourself at this point.
Marcus Magarian 9:42
Like when I I was an engineering student in college and like I didn’t touch coding for a long time. But I will not go into a deal with I go into a deal I never asked for a pitch deck. I think it’s a waste of time because it is marketing puff and having worked at it. The problem with working at a tech company when you come from an investment bank They have FINRA, so everything has to be transparent, clear. And all these things, how does data analysis work in determining the risk or predicting ROI? It really with data, or with a website, it’s all about your goal. And it has to be very clear. Like, if you take a company like WeChat, they do everything in the United States, WeChat wouldn’t really work. And so the closest thing you have is like Facebook, or like an Amazon, which is not really, it’s still pretty specific. When you work with data analysis, the first thing you want to know is what the purpose of the data is for. So like, if you’re capturing data from a pharmaceutical company versus a cosmetic company, the purpose of the data changes significantly. And this goes back to a point that I was trying to bring up before is that an investment banker today really has to understand database language. So I don’t ask for presentations when I asked for schemas. And I want to know what data you’re capturing and how you’re capturing. Because many times when you’ll speak with a company that’s like in the healthcare space, they said they want to do something with analytics. Great. Are you allowed to get that data? The answer is no. So then you can not do anything with that data, nor will you capture any of that information.
Cliff Locks 11:11
It’s interesting, because we’ve had some conversations with an organization called burst IQ. So it’s the blockchain, HIPAA compliant. And then I’m working with a team and I’m on their board. And we’re using an activity band, you something you and I would like it. And I will watch from Apple at this point in that data is being uploaded to the blockchain permission granted by the user at this point, and then we’re putting analytics against that. And then there’s a chat bot that goes back to the individual to try to motivate them to be more active. And they will actually reward that individual with tokenization, meaning similar to a cryptocurrency, yeah, to be more active than they can convert the crypto to buy organic food products in our Shopify store. So it’s an ecosystem, but it’s really about the wellness of the individual that is our customer at this point, utilizing the app.
Marcus Magarian 12:04
So yeah, like, one thing that you mentioned I love was the tokenization technology, because it prevents credit card fraud. It’s a way where you basically say I want to do a payment. But instead of sending the credit card information, you send a token. It’s like those little grasshoppers used to get back in the day, it’s like you want to log into your email from random country, you had to use the token, despite having to know your username and password.
Cliff Locks 12:29
The technology is accelerating. And the cost to actually build something is decreased substantially, which is somewhat of an equalizer, but you need brilliant people like yourself, Marcus, to step in and analyze, do we really have a market at this point is addressable? Is it going to be vibrant? Do they have the ability to pay? You know, what’s the vision of the future look like? What’s the vision of success, and then work it backwards at this point, it’s got to be profitable, it’s got to iterate. It’s got to be fun, you got to have a really strong team around, you know, when you’re building it out, it’s not just engineers, you need to know business, you and I had a conversation there, you know that the CEOs really need the vision Plus, they got to be able to run a business and allow the company to flourish. And the engineers are really more on the product side and the seamless in the user interfaces. It’s an exciting period of time. That’s the way I look at it. At this point is we digitalize in pretty much everything we’re touching at this point. Yeah.
Marcus Magarian 13:22
But I think because of where we are in the market today, this is why like, now you’re just seeing massive consolidation, or you’re seeing companies that received way too much cash, trying to go public. I haven’t seen as many IPOs since my days, like, you know, Merrill Lynch, where they’re having like an i one to five IPOs a day almost every week, that was like dude, just throwing them out. And what was interesting is that like, the reason why I find it interesting is because there’s the index called the Wilshire 5000. Sure. And it used to have in 1997 7500 stocks on the market. Us USA Today, a couple years ago came up with an article saying like today that 7500 stocks is now 3500 stock, less than half, or at least it’s around half a little more than half. It’s telling because what does it say? The IPO or the publicly traded company isn’t as well, it doesn’t have the same value as did before. So what does that mean? Take, you know, we have the credit crisis in 2008, you had the mortgage backed security. And those things were put into one piece of paper securitize. And yet, let’s say a million mortgages be broken up into millions of pieces and send it to a bunch of pension funds in Scandinavia, Europe or Asia. Today, if you want to manage those mbss there’s a tech company which will cover every single thing for you using analytical data. So you’ll buy the mortgages individually and you say I want specifically these kinds of mortgages, so you no longer have to buy these pre packaged mortgage backed security things. And the way it works is You go to like a bankrate.com, I need a mortgage, you put the mortgage, they sell the lead to a loan provider. The loan provider is like crossover bank. And their job is to structure the mortgage provide the capital in three months, they’ll resell that to a hedge fund. But the hedge fund obviously needs to track it using this technology, which friend of mine actually was one of the founders for its company called pure IQ. And they and so the the, you know, then you could track every single thing individually, but because the computers doing it, and they have a very homogenous way of looking at it, the computer just has to track everything over and over and over again. Did you pay that you’re not paying foreclosures? And what are the risk profiles? When you customize,
Cliff Locks 15:48
strong analytical tool in the right hands?
Marcus Magarian 15:51
Yeah, and you basically it’s like, you invented dishwashers, or washing dishes. And that gives you the opportunity cost to do something else. It’s like hiring a secretary or, you know, getting a car to get you to point a to point b faster, or using a plane to go to another country.
Cliff Locks 16:08
Describe the culture and the philosophy of your firm.
Marcus Magarian 16:12
Well, we are a firm that’s been around for over 30 years. It’s got a lot of great people we had, it started out really as a big IPO shop. And over the course of time, it’s obviously been transforming to now we’re doing tech deals started to become very successful. And the great thing is that you have a lot of people that are very willing to grow. And it’s interesting because a lot of the players come from very top end Ivy League schools, they were founders of divisions at Goldman Sachs worked at UBS worked at family offices, like the Qatari family fund, and a lot of a lot of very intelligent people. About the opportunity today is taking that knowledge and transforming it to something more digital for the younger generation at Chatsworth, what we’re trying to do, make it more, make it younger. And so like, the great thing is that they’re very open to it, we’ve been successful at it. I know it’s very exciting. I can tell you, it’s better than having a nine to five job at a bulge bracket bank, because you but you have to have a group of people that are open to going next steps,
Cliff Locks 17:19
describe your approach to helping companies structure their corporate direction, great strategy, preparing them for long term and capital stack.
Marcus Magarian 17:28
A lot of the times today on top of all those things that we do is a lot of times CEOs are looking at things at a very granular level, they only see their company’s day to day problems like problems that we will never know. And a lot of times it takes months or weeks to fully understand what a company is going to because people like CEOs exaggerate. They’re afraid there’s a performance factor and the CEO, you know, as we said before, he’s the number one sales guy or company. So he’s he’s selling even if he’s not supposed to sell to me, because my job is to be the buffer for him with investors or buyers. Nowadays, it says we mentioned before, it’s all about acquisitions, for you to be a company, you know, looking to do a startup and do some new idea, etc. It’s a little more challenging today during the Age of COVID. Unless you’re doing some it’s very COVID link, but we’ll have continuity after that. A lot of times we’ve had opportunities where we’re working with the CEO, one CEO for 10 years was paying over 20% cost of debt. Like how do you survive, you’re selling, you’re selling airplanes. And when I looked at the balance sheet, I started noticing they’re putting things like on their current light current ratio, or the current liabilities, making the current ratio going on, like 1.7 or something. And what happened was, I was like, well, no one’s gonna give you a loan. Because you look like you have terrible books. When we restructure the entire balance sheet. We got no current ratio of like four and a half, which is ridiculous, because you’re basically, you know, you’re destroying the value your company, got them alone right away. After 10 years, we cut the cost of the debt from 20 something percent like 22%, down to like 910 depending on what the line of credit was. And it was all because of format. And it was the reason was we had to get rid of the the bookkeeper or the accounts and hire new one restructure the thing cleaned it up.
Cliff Locks 19:18
It’s a millions of dollars worth of savings there.
Marcus Magarian 19:21
Oh my god. It was crazy and getting too specific on what the who the company is. They were not an American company outside. They were operating out of the United States.
Cliff Locks 19:31
What do you love about what you do? And what do you find most rewarding personally,
Marcus Magarian 19:36
at a place like Chatsworth, it’s kind of like a sandbox, you have a lot of free rein to do what you want. It’s very important that we focus in a very specific sector. So we were very focused on things like in the payment space, which payments means everything. It starts with payments, because it’s credit card processing, which became digital banking, which became things like you know, digitizing things like Western Union and things Like analytics companies, which is just, you know, data flows all about the law of large numbers, solving those puzzles for those CEOs is the best, the hardest part is getting cost that barrier where like, you don’t, you can’t tell the client that they’re doing something wrong, you have to give them the idea for them to come up with the idea and then solve the problem. But usually, it’s something that it becomes a difficult thing for people in positions of power, is that you have to do things in a way that makes it seem like it’s where we’ve transformed, we’re doing things very successfully. And we’ve been successful at it, we’ve been transforming those things. And it’s a lot of fun.
Cliff Locks 20:41
So it’s really a partnership between you and the client at that point. 100%.
Marcus Magarian 20:43
Okay, 100%. And the clients use it on an understand like, in the beginning, they’ll have an idea of how things are supposed to be done, when they actually go through it. It’s like, like, I’ve had my last deal, I, we had a, we had an issue with the lawyer, if the lawyer comes, once we pass the deal to the lawyer, it becomes no longer our deal, we have to be polite to the lawyer making sure whatever. And then you have to make sure the lawyer has experience, I’ve had three or four deals where like they hired the wrong kind of lawyer, or they mix the one lawyer to do something else. So simple things like, you know, registering things with the Department of State to transfer the share with the ownership of the shares, or declare that the transfer owner shares the state, you know, lawyers not knowing how to do that, because they’ve never done it never done it before, or lawyers creating adverse things in order to increase billable hours or, you know, sometimes before everything is happening, the client starts getting worried about things like fees. But and I always tell them, it’s like, you haven’t even sold the company yet. So you have a long, long, long way to go. And there’s the issue with clients, the buyer could go away. And then you have to, there’s a lot of massage. So it’s very complicated.
Cliff Locks 21:58
So you had to hold the deal together. That’s really what you do. But you have to make it seem seamless, very positive. You know, I’ve had the privilege of building three companies and selling them and you really, it’s people like yourself and your fine organization that allows these deals to get done. But there’s a lot of emotion involved in it, you know, especially for the entrepreneur. And it’s a privilege to work with professionals, and deals get done now. And that’s the exciting part. What will be your personal legacy?
Marcus Magarian 22:28
My personal use, just enjoy it. That’s it, there’s no The most important thing is not having ego in this business. So like, legacy just got to be make sure you have a good family that you pass the education along and move things forward. The culture of everything I think has changed significantly. Like one thing that Chatsworth used to be was a very private bank, the world has done Facebook and Instagram and Tiktok now and etc, etc. The way you have to present yourself as changed significantly. Like try joining a private club. With a family. We don’t have to just join Facebook and everything shared private clubs have social media things, putting pictures of their parties in there. Things like that. So old legacy systems, or legacy social circles have changed significantly.
Cliff Locks 23:15
I look forward to being back with you shortly for another episode of the private equity profits podcast. The show is produced by market domination, LLC.
Transcribed by https://otter.ai