Martha Stewart, Generational Dynasties and the coming PE liquidity event
It's a whole new year
P.s Prefer to listen to this rather than read? New (experimental) voice over above!
New Year, same stuff — welcome back. I was reading recently a piece quoting an economist who said they don’t try and predict anything until the end of Jan — of course, as we know, most economists are wrong most of the time (look at the geniuses who dreamt up austerity, or even just free market economics1). What I mean is — I don’t try make many predictions at all, because the market can remain stupid longer than you can remain solvent.
I spent a lot of the break thinking about the Martha Stewart documentary that’s currently on Netflix. Martha Stewart Living Omnimedia is one of the first stocks I remember looking at as a little fetus — she was on TV and I was a passionate consumer of TV. It was a shit stock, of course — it was a stock centred around one individual (not always nesc a bad thing — Tesla is a stock about Elon Musk, not about cars or technology); more importantly it was a company dealing in almost entirely legacy products — linear television and magazines — and it was a company where a lot of the revenue from merchandise centred on a licensing deal with Kmart2. Of around ~1bn in merchandise sales, Martha Stewart Living Omnimedia (MSO) was entitled to about ~50mn in revenue. It seems like a lot, but remember that MSO was spending all that money building a brand and Kmart was merely reaping that marketing spend and reward3 . The bulk of MSO’s revenue was from publishing, which even in the early 2000s was a declining empire.
I kind of contrast this to the empire built by the Kardashians. Skims, Kim Kardashian’s shapewear line, is on track for $1bn of revenue this year. Kardashian has a direct stake in the brand and thus directly reaps the profits from it — not merely royalties. The two are chalk and cheese, of course — hard to imagine Martha Stewart having an interesting conversation with Kim K — but I think it’s a useful illustration of the limits of royalties or relying on a single source (in this case Kmart ending up filing for bankruptcy when the trainwreck that is Sears collapsed).
On the other hand, I think the publishing question is one we are still coming to grips with. Traditional publishers, like Conde Nast, are constantly cutting and in secular decline — people just don’t buy print like they used to and the readership online for these types of publications was never enough to make it as profitable as those halcyon days of the 80s and 90s. To a degree the news question has been solved (i.e. the NYT model — paywall it). But there’s still a lingering question mark over other types of publications, like Vogue, which is why I watch the area with interest — in a sense the content they offer has transmuted into the influencers of TikTok, Instagram, etc, but it lacks the whole vision that a great editor can bring to the table. Martha Stewart was an early bellweather for what is now de rigeur in the industry — the “publishing” question is still here, in 2025.
I also spent a lot of time thinking about the Bingham dynasty, and reading The Patriarch, the rise and fall of the Bingham dynasty. The Bingham’s controlled The Louisville Courier-Journal and The Times for three generations, effectively making them the most powerful family in Kentucky. By the time it passed to the third generation the family found itself in shambles — Barry Jr Bingham ran the paper (and printing operations, etc), while his sisters and mother sat on the board. Barry Jr requested that his sisters and mother (!) be removed — they were impeding his management, he said. They all resigned bar his sister Sallie, who lost her seat later at the ASM after a shareholder vote. Sallie then demanded her shares be bought out — the family lowballed her, she said no, and eventually her father Barry Sr said that either they work out their differences, or the entire operation be sold.
The entire operation, of course, was sold, for about $400mn in total (about 1.1bn today, adjusted for inflation). That was the end of that. Goodbye, Binghams.
All things change in value. The Washington Post was very well run for a long time by Kay Graham, as documented by her biggest fan and major shareholder, Warren Buffett. When the Washington Post IPO’d in 1971 it traded for $26 a share. By the end of Kay Graham’s tenure, in 1991, it traded for about $888 per share. And yet when it was finally sold to Jeff Bezos, it was sold for a mere $40.00 per share. The Binghams could’ve perhaps wrung another decade out of their papers with the mega-profitable economics that papers used to enjoy. Yet, all things being equal, it’s likely they’d be in the same situation many papers are in today — the economics just aren’t as good as they used to be!
The bigger thing I’ve been thinking about re: all this though is the dynamics of family-led businesses. They can blow up like the Binghams, or be run very well like the Grahams did with the WashPo. The best family-led businesses4 tend to have a very clear view of the future, and how they will accomplish their goals. They tend to have a very clear view of their values (no ESG frippery here!) and a clear plan of succession, as well as a plan of how they look after the whole family. The ones that do less well fail to do this.
There’s also genetic luck. I like to compare it to Buffett’s coin flipping analogy. Ok, you flip a coin once for the first generation — odds are 50/50 of success of x business. Second generation? Three children? Flip a coin three times. You still have roughly the same probability for say, 2 heads out of three. By the third generation let’s say there’s 8 cousins — and you want about 6 heads — the odds fall to 14.45% after 8 flips of the coin.
The good news is that the genetic lottery isn’t the only component — how one is educated and raised and taught values is important too, which is why we see families like the Dumas’ at Hermes continue to find strength, from generation to generation.
An endnote on Martha Stewart — it reminds me of a few IPOs of more recent times, like Jessica Alba’s Honest Co, which makes homewares and so on. Stock is down about 65% since listing. Oof-a.
Public Markets are the new Public Markets
An old Matt Levine saying is “private markets are the new public markets” because so many companies have been taken private and there’s so much off-the-books trading in currently private companies, like Space X and so on. But there’s an issue — most private equity funds are not interested in being permanent capital in a business5 and most of them target an “exit” date — often 5 yrs after buying in. If you do that and exit at a good price after 5 years, your IRR looks great and your investors are happy6. The problem is there’s now a lot of PE funds that haven’t exited, and they can’t do the good old PE move of selling to another fund/allocator/etc7. This poses an issue. How do you get your investors back your capital?
Well — you can go several routes. But the most obvious route is going public, as per the FT here. The advantage of going public is you get liquidity — because we, the general public plebs, get to buy the stock8.
Buffett again — if you’re playing poker and you don’t know who the patsy is, you’re the patsy. Think back to the travesty of My Food Bag — Waterman wanted to dump, and dump it they did — on the mum & dad shareholders of NZ. Think also to Dr Martens, which was dumped on the market at about 4 and a half quid before descending as low as 55 or so p (that was a Permira special). Of course, many brokers at the time would say that these IPOs are fair dinkum great deals — as will many “institutional” investors9. But the truth is most IPOs — especially those of private equity — are liquidity events where PE looks to offload their shares and sell them to the willing masses of retail investors (and fund mngrs, allocators etc).
Why would anyone ever do this? It’s very hard to be apart from the pack — so many “institutional” investors fall prey to peer pressure, like teenagers smoking behind the back sheds10.
Often a better strategy is to wait — much like Dr. Martens — until the selling pressure is over and the stock has “popped”11. This kind of thing happens all the time. Puig, the small fashion conglomerate, listed at around 25 euro. It’s now 18 euro. Etc.
Here’s the opportunity, then. A bunch of international PE guys want to sell and create a liquidity event. That’s selling pressure. Eventually the stock will likely find the gravity of a public market, and it will likely go down. There’s perhaps good buying there — especially if we are in the mother all of bubbles.
To qualify my statement, you need to consider that there’s a lot of money in private market assets — per McKinsey about 13.1 trillion. That’s trillion. How much of that is stuck in funds looking for a liquidity event? How many employees of likely-to-IPO-companies (Klarna, etc) are looking for liquidity, too?
Tom Waits sez “I wanna know how it’s gonna end”. So do I.
And I want to know the same thing
Everyone wants to know
How's it going to end?
In brief
I know am going on about the booze stocks a lot, but the US surgeon general just said alcohol causes cancer and all the booze stocks — already heavily hit — fell even more. Brown-Forman is now well below its 5 yr low. I won’t bore you too much with this — either people keep drinking Jack (I think they do) or everyone goes sober. Sure, there’s normalisation, but BFB was never a growth stock to begin with.
This piece from AQR is hilarious:
Of course, we gave back any gains from our ingenious 10% Fartcoin allocation when many of our active stock pickers loaded up on the stock of a levered bitcoin play. It turned out that paying double the very high price of bitcoin for essentially a bitcoin closed-end fund wasn’t the "arbitrage" we were told it was. Also, it turned out bitcoin didn’t actually have a "yield," at least in the sense anyone ever has used the word "yield" since the Roman Empire. This one we do not even feel bad about. I mean, our active stock pickers listened to the crypto oracle leading this firm who, to our knowledge, had absolutely no history of loading up on and grossly overselling bubbles, and nobody else with any credibility told us we shouldn’t.
China had some good PMI numbers (+52.2) — translates to more spending on our luxury stocks that we love.
You will note that the biggest proponents of free market economics are always the ones who are quickest to ask for a bailout!
N.b. Not the Aussie Kmart, which is different.
A Nick Sleep concept I adhere to — marketing spend is treated by accountants as an expense, but it’s obviously an investment in brand — think of all the marketing spend by the Coca Cola company or Apple and the payoff…. or LVMH’s spend at last year’s Olympics
Robertet, LVMH, Hermes, Walmart, Nintendo…
I.e. this is the difference between Berkshire Hathaway, Exor, etc and PE
You gotta include the fees though…
Essentially this is what Macquarie did with Thames Water — bilk it for dividends it couldn’t afford then sell it to pension funds, etc.
Said Shane Solly at Habour Asset Management of MFB, 9 June 2021 — “My Food Bag is doing exactly what it says on the packet. The recipe calls for ‘slow, consistent growth’ and that’s what they have delivered”. MFB revenue in 2021 was ~190mn, YTD is it 162, per Bloomberg.
Also, many offloaders will know roughly the demand there is for the shares of x co — that is the job of their brokers — they can estimate who will buy, and at what price
There will be people who say “oh, but look at Google, or Meta” etc — this is true — but you need to factor in survivorship bias.