A maker of commercial and industrial kitchen equipment may seem like an unusual company for Tom and David Gardner to fall in love with -- no matter how how high-quality those ovens and food processors are -- but Middleby (NASDAQ: MIDD) is a bit more than that. And the biggest reason why has a lot to do with its CEO, Selim Bassoul, who was brought in specifically to give the company a culture.
In this segment of the Rule Breaker Investing podcast, Motley Fool co-founder David Gardner talks with Bassoul about the ideas and mindset he brought to Middleby, as well as what he has learned over the years.
A full transcript follows the video.
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This video was recorded on May 9, 2018.
David Gardner: One of my favorite people in business, Selim Bassoul is chairman of the board of directors and chief executive officer of The Middleby Corporation. As I mentioned earlier in the show, a leading developer and manufacturer of commercial cooking equipment, and food processing and packaging equipment.
Mr. Bassoul is responsible for the strategic direction of the company and leading the senior management team. And, as you'll find out from our interview, at least two more things. First of all, he's responsible, in many ways, for a hugely winning stock over the last decade plus and he's a gentleman with a really interesting backstory.
Without further ado, Selim Bassoul.
Gardner: It was, I'm going to say, February of 2013. My brother came back from an interview he'd done with a public company CEO and he insisted that all his executive team watch the full 60-plus minutes of this privately taped video interview that we eventually shared with our members. But Tom was so passionate about it. He said, "I insist that all of my direct reports watch this." It was an interview with Selim Bassoul, the CEO of Middleby.
And Selim Bassoul I'm very pleased to have with me here on Rule Breaker Investing. Selim, I watched that video, I loved it, and then I noticed that no Motley Fool service at that moment was actively recommending Middleby stock. Hidden Gems Tom had started, found your company early on, and had a great run with it; but, somebody had sold it, I think, at some point. And so, I said, "I'm going to recommend Middleby for Rule Breakers".
That was one month after, so it was March of 2013. The stock right then was around $49. Today it's around $125. It's been an awfully good five years. Selim, thank you for all that you've done [not just for investors and Rule Breaker members listening right now], but through your business for the world at large, and I want to try to talk about each of those three things as quickly as we can.
Let me start by asking. How did Middleby start?
Selim Bassoul: Well, it started in the '80s by Bill Whitman. It was a company that had good brands. They were selling everything to everybody. They had ovens, and refrigerators, and mixers. And it was a company like everybody, a "me too" company. Almost growing [...] Not a lot of innovation and there was a lot of turnover. We had a lot of turnover of employees. There were a lot of turnovers of customers. We did not have a process. There was no culture.
In fact, the smartest thing that Bill Whitman did was to hire me. He went and recruited me...
Bassoul: ...to come in and change his company and change the culture.
Gardner: What year was that, Selim?
Bassoul: It was in 1996. And he gave me free hand to set a new culture. And that's lesson No. 1. Lesson No. 1 is surround yourself with the best. When you are struggling and sinking, the best thing is to go find the best. At the time I was a rising star in the food equipment business. He approached me, and he said, "Selim, I want you. I want you to come in." Lesson No. 2 is to give full empowerment to your employees to do what they need to do. No. 3 is he said to me, "Selim, we do not have a culture. Create a culture."
Gardner: And Selim, you came as a rising star from another company. Did you borrow anything from that experience? What did you learn and what is the culture that you've now created? And the number I think is right -- 22 years later.
Bassoul: David, I learned from being in healthcare that you cannot survive without speed, agility, and innovation. You can't. In healthcare, those are the three major factors of being able to be relevant. And I adapted that in every one of our businesses. Speed -- speed of execution. Speed of innovation. Agility -- remaining lean and efficient and agile.
And No. 3 is just innovation. You have to innovate. You have to be ahead of your customers.
Gardner: Selim, as I think about the success that Middleby's had, you have been a master of acquiring other companies. You have great organic growth, and a wonderful vision. We're going to talk about your vision for the world at large in a little bit, but sticking with Middleby, here, you have grown the company through any number of acquisitions over years now. Integrating them.
And the way that I cast it -- as we wrote up your stock five years ago -- tell me if we have this right. We always have things a little wrong, so correct me here, Selim. I was saying that Bassoul has this wonderful story that he can tell talented, up-and-coming companies.
He said, "You're great. I like you. If I like you you'll stay on and be within the leadership, but two things we can offer you. No. 1, we can make you global. Many of you are smaller companies or regional companies. We can take you and make you much bigger. And No. 2, we are a technology company, ourselves. We can improve your technology, so we can make you better and bigger."
That, as it turns out, has been a siren song for dozens of companies that you've acquired over the years. Is that an accurate portrayal of the company? I know it's not fully accurate. What else needs to be said?
Bassoul: I think this is quite accurate. I will go back and tell you what we do not do. We do not buy markets or competitors. We buy technology innovation. If you aim to acquire a market or to take out a competitor, you will always fail, so that has never been our model. A lot of people come to me and say, "Selim, but if you buy this market, it's easy." I'd say, "We can grow in the market organically. We don't need to buy somebody."
No. 2: What we always do is find the people that fit us. They should be disruptive in their own world and they need to have a culture of winning.
And the third is a culture of empowerment. So, I look at lots of entrepreneurs and I find that a lot of them have technology, they have a winning culture, but they are not able to empower their people. They have such control that they become control freaks. And many times, I walk away from this, because then the culture doesn't work for us.
We do not embrace control freaks. It doesn't work. When you have only three layers of separation between me and the lowest-ranking employees, you have to create a lot of autonomy, otherwise we cannot do our job. We cannot grow.
Gardner: Maybe the hardest thing to do in business is to acquire something else. A different culture. Even if it's a like-minded culture, ultimately, it's a separate group of people. You've not met them before. All of a sudden, they're part of you. And so, this is not a fair question, but why would we ask fair questions on Rule Breaker Investing? Selim, could you give a 90-second or so short course, maybe with three points? A master class for those of us who would like to do our acquisitions better. How have you made it work? Ninety seconds or so.
Bassoul: No. 1 is to make sure that you are able to get a return on your investment. That's No. 1. It's not how much you pay. It's how much you get back in terms of return. Our format is simple. We like to get back our cash in five years or less. Including synergy and everything else, if I pay $100 million for an acquisition, I want to get back all my cash in five years or less.
No. 2, I want to be able to know that this company I can take globally. We do not buy regional players. At the end, this is not what we need. We need scale.
No. 3, we need to make sure that the management team can stay with us; not only the founder or the family that owned it or the owner, but deep in the organization, because we want to have people on the bench. If we cannot keep that management team, we'll not buy that company irrespective of how good they are.
Gardner: That's really interesting. And many people take an opposite approach. I remember John Mackey of Whole Foods often says it's very hard for us as an acquisitive company [Whole Foods, over the course of a few decades], to let those CEOs in place. Usually when he buys, he lets them know that's going to be their last day on the job for that company.
Of course, Warren Buffett, sounding a lot more like Selim Bassoul, here, prefers to find those great managers and put them in place. I guess it can work either way. We each need to find what is the music, what is the rhythm that works for us, and that's a brilliant master class in 90 seconds. Thank you, Selim.