by Peter Kaye
- A core part of my thesis hinged on a skilled capital allocator presiding over Real Industry.
- The resignation of Mr. Bouchard detracts from the attractiveness of RELY as an investment.
- I’m adjusting my target price from $13.92 to $10/share in light of the uncertainty surrounding this management change.
This morning Real Industry (NASDAQ:RELY) announced that Craig Bouchard would be leaving the Board and the CEO role. I view this as a very negative development.
Loss of a Capital Allocator
I have no doubt that the rest of RELY’s management team is capable; however, a large part of my thesis around the company was that the presence of a skilled capital allocator and investor at its head would be something that added “platform value” to the company. Mr. Bouchard illustrated throughout his career an impressive aptitude for capital allocation and investing, and the lack of his presence at the company is a severe loss.
Mr. Bouchard’s most important job, and the job he spent the most time at (at his own admission) was thinking about new acquisitions and how to allocate capital. In this respect, his role was very similar to Warren Buffet’s, and the loss of Mr. Bouchard is a loss similar to if Mr. Buffett was to step down from Berkshire. It would not cripple the company, as both Mr. Buffett and Mr. Bouchard have skilled people in place to continue after they leave, but it does change the picture significantly.
I did not explicitly account for this platform value in my valuation; however, my expectations around the company’s ability to execute, and its long run value proposition hinged on Mr. Bouchard being at the company. I fail to understand the board’s reasoning for this decision: they claim that, because the Real Alloy integration was “finished”, it was time for Mr. Bouchard to step away from the company. My understanding was that he would lead the company’s growth into a diversified industrial conglomerate.
Additionally, Mr. Bouchard illustrated he was very adept at using innovative financing methods to get deals done. I think the board and management certainly learned from him, and can probably execute in a similar fashion, but I have less confidence in them than I do in Mr. Bouchard.