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In this installment of our series of “Executive’s Corner,” featuring articles from guest writer Charlie Perer of SG Credit Partners, the author sits with Ken Frieze to gain an understanding of his views on leadership, market cycles and the competitive environment, among other topics.
Charlie Perer: Thank you for your time. It’s incredible to think that Gordon Brothers was founded over 100 years ago. Can you talk about the legacy of Gordon Brothers and what your family has done to preserve and maintain its culture?
Ken Frieze: Thanks Charlie. First, let me thank you and ABL Advisor for inviting me to share the Gordon Brothers story…and yes, it’s a long one. Gordon Brothers was founded by my great-grandfather in 1903. I actually remember going to see him as a young child at the small Gordon Brothers office in downtown Boston in the 1970s. While the operation was small back then, the values he, then my grandfather and then my father championed, still guide who we are today. Always do the right thing; follow through on commitments, even if it hurts; embrace change; take risks and learn from your mistakes. That same strong integrity and entrepreneurial spirit still underpins our now 25 offices worldwide.
Perer: What does the Gordon Brother’s brand stand for?
Frieze: Put simply, and we hear this from clients, their capital providers and professionals, that above all else, “Gordon Brothers closes on transactions we propose.” In an industry often maligned by “bait and switch,” “left at the alter” and other negative connotations, we are proud that our reputation stands out and connects back to the values established by J.B. Gordon in 1903.
We often talk internally about why we do what we do. Today’s workforce is purpose-driven. We discuss how we can help companies transform to meet changing market conditions; keep client companies alive and employees employed; recycle assets to their highest and best use; mitigate uncertainty and lock-in outcomes; keep lenders safe and informed; and use our success to benefit our employees, shareholders and communities.
Our mission is to successfully guide companies through major transformations. This is the core of who we are and what we do. We actually refreshed our brand and updated our logo a few years ago. It now includes a symbol we call the “portal” which graphically represents Gordon Brothers guiding clients through such transformations. We make that happen through the three operative words of our mission statement: rapid, customized and guaranteed.
Perer: When did you become CEO? Can you please talk about your leadership style and how it has evolved?
Frieze: My career at Gordon Brothers dates back to 1998 and I have served in various capacities and divisions since. I was appointed by the board to CEO back in 2014 after being president for a period. Of course, you’d have to ask my colleagues at Gordon Brothers to get a true sense of my leadership style. That said, I strive to lead by example, be transparent and inclusive, and focus on the objective facts. I’m much better today, now in the second half of my own century, at focusing on what truly matters instead of the daily distractions of running a complex business. As a firm, both employees and clients are the top priority–which we believe drives long-term enterprise value.
Perer: How has Gordon Brothers’ legacy strength in retail liquidations led to multiple strong businesses, including lending, appraisals and valuations? Can you please describe the breadth of your offerings?
Frieze: We have such an established heritage in retail, it surprises some that we actually do more commercial & industrial transactions than retail. Today, Gordon Brothers is the only firm that offers the combination of disposition, valuation and capital solutions globally. While some of our competitors have strong and established offerings in certain geographies or products, we have the unique ability to bring it all together under one global integrated solution.
We are currently the largest appraiser to the commercial finance industry in the world (stemming from the combination of the Gordon Brothers legacy global appraisal businesses with AccuVal and Emerald Technologies). We purchase and sell more C&I assets than our direct competitors combined. We conduct more retail events than anyone – including country exits, customer migrations and SKU-reduction programs.
What’s interesting is the vast majority of our clients are healthy companies going through proactive paring of assets or liabilities to remain healthy as their market environments invariably change.
We often combine our segments – inventory, receivables, real estate, brands, machinery & equipment – into one comprehensive solution we call “strategic optimization.” A great example of this is a concept we pioneered in retail that we coined “Opti-channel.” Opti-channel is the next evolution of omni-channel focused on ROI, not just cross-platform integration.
Ultimately, we leverage both art and science to narrow the standard deviation of estimated outcomes – the essential ingredient for accurate appraisal to successful transaction results for our clients. Fortunately, we maintain the world’s largest database of asset values along with the most ASA accredited appraisers and the most tenured team of deal-professionals in the industry. We pioneered bringing these analytic and merchant capabilities together by industry segment. We maintain expert teams and databases in over 30 major sectors and hundreds of subsectors.
All of this adds up to roughly $10 billion of transactions annually and over $1 trillion of appraisals to-date, making Gordon Brothers one of the largest firms of its kind in the world.
Perer: Where does international expansion fit into the picture?
Frieze: We’ve been on a steady march to build out Gordon Brothers globally over the past 15-plus years. We conduct business in over 35 countries representing the vast majority of the global economy. We have centered our global footprint in the US/Canada, UK/Europe, Japan, Australia and South America, but we reach far beyond this. For example, last year we did our first deal in Russia and we’re right now operating a major deal in Indonesia and Malaysia. Each jurisdiction presents its own unique challenges and opportunities, so we always build out local teams to serve these geographies.
What’s interesting is that while local laws, language and customs are always different, the fundamentals of our business tend to be more common than you would think. Consumers respond to retail sales similarly regardless of where in the world they are. Also, brand and machinery markets are often global rather than local.
Perer: What is the most innovative line of business at Gordon Brothers?
Frieze: Innovation is a core part of all our business efforts, but I think one of the more interesting areas for us right now is our brands business. We have been buying, selling, developing, licensing, appraising and lending against middle-market brands for years. We are the only firm, as far as I know, that fully integrates a brand capability seamlessly with our other asset solutions. Our recent transactions have ranged from the purchase of Bench, to financing of Cherokee, to supporting the conversion of Ben Sherman. These follow on from a long and successful run owning brands like Polaroid, The Sharper Image and others with partners.
There is an uncomfortably wide range of brand valuation opinions out in the market, which is why we built our own in-house ability to value and underwrite brands. We’re often surprised by the lack of disciplined approach in this segment exhibited by otherwise respectable firms.
Perer: It was publicly announced that Stone Point Capital invested in Gordon Brothers. How much of this had to do with timing of market cycle given you are in a counter-cyclical business?
Frieze: Ah, that’s one of the common misconceptions. While we certainly benefit from recessionary periods, our opportunity set is driven as much by sector dynamics and company-specific circumstances as the overall macro environment. Our decision to take on Stone Point as a partner had more to do with potential for collaboration with the Stone Point team and their portfolio of other financial services companies than anything else. Now, with a year and half under our belt, we couldn’t be happier with the partnership.
Perer: You have tremendous insight into the economy given your firm’s reach. Where do you think we are in this market cycle?
Frieze: Well, the pundits are now predicting a U.S. recession in 2021. We’re certainly due for one if you look at sine wave of past cycles. It’s easy to point to many indicators on both sides of the argument (e.g. inverted yield curve vs. low unemployment). One thing is for sure, this time around has greater uncertainty around geopolitical risks than before. When we will look back at the cause(s) of the next recession, my guess is it’s going to be more than one or two focused disruptions or bubbles, but the overall correction will still not risk the total meltdown at the core of the Great Recession. More specifically, we’re certainly at the high end of the cycle with high asset values, cheap and easy credit and low interest rates. As those fundamentals shift, it will place even more pressure on poor performing companies and their lenders to work out of these tough situations. However, there simply aren’t as many experienced work-out professionals at these lenders today, and the “boot collateral” of the past has mostly been soaked up as additional collateral in the run-up since 2009.
Perer: Lastly, tell us something you are worried about that the rest of the market has yet to figure out.
Frieze: At the highest level, it’s the deepening global division between populists on the right and socialists on the left – leaving a void in the center. Healthy economic activity is rooted in stability and the world is less stable now than in recent times. One always looks back at disruptions to easily see the lemmings who didn’t stop to think or look ahead. This is proven human and business behavior, so it will be no surprise to reflect back on to what the market didn’t figure out at the time. I have often commented that the press and social media overamplifies while the markets are short term and don’t price in what’s around the next corner too well. Somewhere in the middle is the most likely. So, what am I ultimately worried about? Time. With little buffer in the system, experienced decision makers are spread too thin and face too many distractions to guide us through the next cycle.