David Marcus: What Makes European Event Driven Investing A Unique Value Play

This is a multi part post on ValueWalk’s interview with David Marcus, co-founder, CEO, and CIO of Evermore Global Advisors. In this part, Marcus discusses the opportunities of investing in Europe, and why he finds the market unique.

See part 1 here: David Marcus: Lessons Learned From Michael Price

See part 2 here: David Marcus: How To Deal With Tough Moments

Q1 hedge fund letters, conference, scoops etc

And then, yeah, getting to Europe, what makes Europe unique and why you like it?

Well, look, when I first started in the business, whenever I would show a name to Michael Price in the US, he would pull out the proxy and because he had been doing this so long, he always had an opinion on the company or the management or whatever.  And so the bar was so high to sort of get some face time to talk to him about a name.  Because he already had a perspective, but I found out when he talked about a non-US name, it was like starting with a clean sheet of paper.  He’d listen, at least for a few minutes, to determine if it was worthy of him listening for more minutes.  He had a lot of guys pitching in the office.  And that coincided with where as I said before Sweden was going through a financial devastating crisis, where the banks were bust.  And that’s when I started going there and I just found there was nothing but cheap stocks in Sweden.  Then I went to Denmark, I went to Norway, I went to Finland and then somebody said, “If you think these stocks are cheap, there’s conglomerates in France.”  I went to France, there were stocks trading with … there were holding companies that had stakes in other conglomerates, at 65% discounts, crazy.  But they were sleepers, nothing ever happened.  And in some cases we nudged some of the companies to just wake up, and think about the shareholders, including themselves, they could create so much value with little tweaks.

And so what I found was that Europe was just chockful of opportunity that was in the early 90s, some of the best investments I ever made were then.  I feel that we’re in the same boat again now.  But instead of it just being in Sweden or Nordic let’s say, it’s all over Europe, you know, the financial crisis is still reverberated throughout Europe.  Europe is much slower than the US to get things accomplished because the EU is chockful of a variety of personalities, countries, leadership changes, Brexiteers or whatever, and it just adds more complexity and time.  But the fact is what has changed is the … it turns out the world’s shrunk in the last 20 years.  You’re not just competing with other companies in your industry in your country, you’re now competing with other companies in your industry wherever they are because transportation costs are so low, so that pushes companies to become much more competitive.  So for Europe which has generally been behind the US, from a corporate standpoint in terms of adopting technological advancements and efficiencies has been trying to catch up and jump ahead.  So you’re seeing … and I have to say, it’s guys like people at Fiat, that really push this, where they’re factories were at 20-25% of utilization.  You didn’t need all these factories and so they built new modern factories or modernize the existing one and they’d have to close other ones.  It’s just the world changed and they have to adapt to be competitive.  And somebody had to be the first one to push back against the unions, they were one of the first.