GPGI, Inc. ($GPGI)

Welcome, everybody, to kicking off the -- at least for my part of the session here, the 2026 JPMorgan Industrials Conference, new and improved from Washington, D.C. And we're starting off with a very special panel calling it a legends panel with Dave Cote, who you all know, has a storied career in and around the electrical and multi-industry -- electrical equipment and multi-industry world and most recently, Executive Chairman of GPGI, which we'll get into in a little bit as well as Tom Knott, who's the Chief Investment Officer of the company.

But I really wanted to kind of start this by taking a bit of a step back. And maybe, Dave, in this environment, if you think back to putting your operating hat back on as CEO of a multinational company with this kind of backdrop and what's most recently happened, what do you think is going through CEO's minds right now? Is this to the point where there start to be contingency plans put together? What do you think is happening in the boardroom these days with what's happening at least with the -- in the Middle East?

Yes, I would say it's tough for me to speak for other CEOs. And who knows that can be pretty varied what's going through their minds and what's in their industry. But I'm happy to share what's going through my mind. Sure.

Absolutely.

I actually think the economy is better than a lot of the media give it credit for. And there's always ups and downs, puts and takes. But I don't think the economy is all that bad. Depending on where Iran goes, I suppose you could end up with a recession at some point. But I don't see that thing going really badly. It could very well be that it goes on longer than we'd like, that it's not the quick resolution that we'd like. But I don't see it turning into a tragedy. There's always a probability that, that could happen or a possibility that could happen. I don't see it as especially probable. So I'm not that negative on the economy. I actually think things are not all that bad.

And when you -- you've been one of the few CEOs out there, at least that we've seen publicly that's gone from being an operator to an investor, more or less, I would say, in the last several years. I mean you're not running these companies.

Not exactly, but I'm not exactly casual either.

I can only imagine. But I guess what is -- talk about that transition and maybe how you view things, how you have to view things a little bit differently in the roles that you've taken on versus the more -- seem to be a lot more blocking and tackling at Honeywell, where there was a little more of a fix a job there, too. So maybe just a bit of a contrast and compare.

Yes, I would say, at Honeywell, I had to spend a lot more time doing it. And it was a much bigger company because we had $45 billion in sales, 135,000 employees, 100 countries. So I had to travel a lot, and I had to be out there a lot myself. So that was pretty time consuming. So I always said that you couldn't really understand what was happening at the top unless you had a really good understanding of what your people on the ground were doing and saying and thinking. And I oftentimes felt that it was important to get out there to tour a factory, meet with customers or the sales guys. So they knew that I knew what they did was important. And there's a lot of messaging that goes on just by showing up. It's really surprising. It's also surprising how few CEOs actually do it. So I spent a lot of time doing that. And there's a lot of day-to-day to your point. Meetings are pretty much jampacked. You probably know about the blue book exercises that I used to do in the X days to make sure that I got time to think. So the job is different now. Maybe talk about that for 1 second, delve into that for a couple of minutes, the exercise, how you kind of really -- how you looked at a portion of your time to make sure you were focusing on the things that had the most impact and the most value. Yes. I would say it's very easy when you get into a position of leadership to become a victim of your calendar, and everybody throws stuff on. And any of your people who are pretty bright are going to learn to get along with your secretary really well, your executive administrator so that they can get on your calendar when they need to by just schmoozing your EA a bit. As a result of that, if you don't control your calendar, it ends up controlling you. And I'd say that happens to most leaders that I've run into. So there were a number of things that I would do. And by the way, I always thought Donald Rumsfeld, love him or hate him. I know he didn't make this one up, but this line, I always thought was terrific because beware of letting the urgent get in the way of the important. We all have a tendency to do that. We know this is a big thing we need to do. But oh, I got to make this call. I got to send -- finish my e-mail. I got to get the shipment out. I got to get the order and you get consumed by the day-to-day stuff. So what I used to do at the beginning of every year is I'd go through my whole calendar and about 3 days a month, I'd put an X through it. And I would tell my EA, you're not allowed to schedule anything for that day. That is my day. I'm going to do whatever the hell I want that day, and I'll determine when I get there. Now some of those you lose because things do happen. And there are some days where the day before and next day, you find yourself with a series of 30-minute meetings just trying to get through everything. But as a result of that, you end up with a couple of days a month where you can do what you want. And I would do things like make surprise visits to factories or facilities where even [ Lowis ], my assistant didn't know I was going because I wanted to be very certain nobody knew I was showing up. I might decide to go visit customers. And about 2 to 3 days a year, I would take what I call my blue book exercise day. And I called the blue book because I just had this little blue notebook that I happened to carry around with me. And I would force myself to just think. And I might have 3 or 4 pieces of paper that I might use in order to stimulate various thoughts. But I would just think and I would think about countries, economies, my people, businesses, industries I might want to be in, which for somebody like me, is almost painful to do because you want to be doing something, you're kind of consumed by the need to do something. And to say, no, I'm just going to think. And as I make notes to myself, I'm going to follow up on them and pursue it. Well, it's really interesting what comes out of a lot of those days. Like for me, the whole Honeywell operating system came out of one of those days. the focus on number of leaders and saying that if I could control that, I could control the bureaucracy in the company. There's a number of things that came up just analyzing the portfolio to say what was time to let something go. So there's a number of things that came out of that, but it's a tough thing for a leader to do because, again, you get so consumed by the day-to-day that it makes it tough to just sit and think and to think by yourself and not have 10 people around you helping you think and stimulating ideas. But I found that worked out -- that worked very well for me during the course of the 16 years at Honeywell.

And when you think about -- you're still obviously engaged, as you said, with Vertiv and you obviously -- you didn't really take a step back and play golf, sit by the pool after you retire from Honeywell. What do you see as this kind of the current generation of CEO, where have you seen maybe those that are better performing, those that haven't quite lived up to the expectation? What do you -- are there some common threads there that we as investors should be looking out for during those types of transitions? Because obviously, I mean publicly, Vertiv, you guys made a change there. So what were maybe some of the things we as investors should look out for during those transitions? Who are the most successful guys these days?

Yes. I would -- well, first of all, I'd like to see the standard distribution in everything. So even if you look at like the S&P 500 and CEO performance, there's a standard distribution to that also because just because you're an S&P 500 CEO, it doesn't mean you actually know what you're doing. So...

It's like the sell side.

I'm sorry -- we...

Tighter. Much tighter.

We know where you... So at the end of the day, I mean, finding the right leader makes a lot of difference. And I'm a big believer that if you can get that great position in a good industry, hence, GPGI, and put the right kind of leader in place, the leader is going to generate the culture that you're looking for and culture matters a lot. So a big believer first, you got to have a great position in a good industry because that's the backdrop against which everything can happen. You get a really good leader in there. It makes all the difference in driving the culture and the results. So what makes for a good leader? I wish I could discern that in an interview. And I've oftentimes said I'm okay as an interviewer, but it's not my particular strength. What I am good at is being able to, after 2 or 3 months, determine, okay, does somebody have it or not in the job. So I would say it's one of the good things I'd say that I kind of got is, I won't be diluted for very long. I'll try to work with somebody. But at the end of the day, if they're not driving change and not getting results -- early, and not one of these, hey, it's going to be great in 3 years, but it's going to be great in 3 years, and here's what you're going to see in 6 months because you're going to start to see it already. Some might call that winning now, winning later. That's a lead for you, Steve.

Yes. We'll get to that, I guess.

But what you want to be able to do is somebody needs to be able to say it's not going to be great in 3 years and you're just going to look like hell for a long time, then it's going to be great. They've got to be able to show progress. And I often refer to them as inch stones. So you want these inch stones that show, here's how you're going to make it happen. The other thing along those lines that I look for is somebody who starts to create that drumbeat of daily management. And you think about one of the foundations of like what we call the Resolute Operating System now, a lot of that is just daily management create that daily drumbeat so that whatever big initiatives you're driving, you don't check on it once a quarter. You're getting a sense every day that people are working on it, that they're driving and making that difference. But the thing I wish I could discern in an interview that I've been unable to, is a capacity to grow. You take a look at Giordano Albertazzi, for example, now the CEO, very successful CEO of Vertiv. When Tom and I first met them because Tom was at Goldman Sachs, and we did the SPAC together that acquired Vertiv, I can remember us talking after we met with Gio in Europe, geez, I'm not sure this guy is going to make it. Gave him some early challenges and he made them. Then said, geez, let's try them in the Americas, and he did well. And then said, geez, maybe we had to take a chance on them for the big job, largely because the CEO who was there, quite honestly, wasn't getting the job done and refused to move to Columbus, even though we had a company in crisis at the time. So I thought, well, Gio seems to be doing well. I'll take a chance on him. He's been just tremendous. And he has responded to coaching like nothing I've ever seen. As soon as like there was nobody above him so that it was just the two of us kind of talking about stuff and where things needed to go, he would grab a hold of it and make it happen in ways that just -- he'd make me feel great. It was like, okay, my kids won't listen to me, but at least Gio does. This is -- this is tremendously rewarding, and he would make things happen. And that ability to make things happen to truly make change now, not 6 months from now, not a year from now, but you actually start to see it soon. Man, that's the thing you want to look for.

I'm sure you guys are still relatively bullish on the Vertiv thesis. What do you think is still underestimated by investors about where that company is going, putting aside $8 billion in orders in the fourth quarter. What do you think is the most important thing that people continue to not appreciate?

Yes, I'd say the one thing I continue to underestimate about investors is their ability to panic. It's really something we're seeing at GPGI now. I just kind of shake my head. We went through the same thing at Vertiv. We still go through it periodically. Oh my God, it's a bubble. Oh my God, Amazon came up with something. Oh my God, there's a China thing. And it's like nobody thinks they just sell and the stock goes down and you look at it and say, okay, well, stupid, but their money, I guess, not much I can do about it. So that just surprises -- continues to surprise me about Vertiv is as well as it's doing right now, there'll be some blip in news at some point that will cause it panic and everybody starts to say, oh my God, it's a bubble, it's a bubble. I've been reading, it's a bubble, I've read it's a bubble. I 've heard it's a bubble, it could be a bubble. And before you know it, it's like the herd just scares itself. And I don't -- if there is a bubble, I think it's still a ways off before it gets pierced.

Well, people keep bringing up the DeepSeek moment. They say, well, what's the DeepSeek moment? And it's like the DeepSeek moment was just one gigantic buying opportunity in the end. It wasn't really a moment. It was the start of the inflection more or less.

Well, that's one -- I mean, I can remember reading the DeepSeek news and saying, this is good for us because this means that if it's less expensive, people are going to use more of it, and oh, it's going to be great. And then we started crashing and what -- does anybody connect dots? It's really surprising sometimes.

So maybe we get on to the new investment here and give you a chance to pitch a little bit around that. Just a little bit of background on what the thesis is and where you're going with it?

Well, when Tom and I first did Vertiv and Tom was the Goldman Sachs lead for them. He and I talked a lot about how if we looked in the private equity model, they -- most of them talked about how they had operating expertise, and that's how they differentiated themselves. But I said more than once, I never saw one that actually had it. I mean they might hire some CEOs from various places, many of which weren't all that successful, but they were advisers. I was an adviser at one point. I was kind of surprised at how little anybody listened to anything I had to say. It was kind of like being at home again. And I thought, okay, well, I'm not sure how well this model works. And Tom had this interesting point about permanent capital, about how if you took a look at PE firms, they couldn't really invest in a good business for the long term. They were always kind of stuck having to think about exiting right away, which also concerned their operating practices because if something was going to take 3 or 4 years to get done, you probably weren't going to spend a lot of time doing it. So we talked about was there some way to marry a permanent capital with superb operating practices. We actually -- after he left Goldman, we worked on a couple of things, a couple of ideas, which didn't work out. And then CompoSecure became available, and we heard about it through JPMorgan, just so make Ked happy over there. We heard about it from them and said, oh, this could be a way to inexpensively create a permanent capital vehicle that we could then use superb operating practices with the right kind of Board so that we've got something that would really be superb overall and fill a real niche in the market, which Tom can go into even better than I can in terms of how private equity is stuck today. So we acquired majority interest in CompoSecure, started doing very well with it, made a lot of people who didn't deserve a lot of money. But at the end of the day, we started growing pretty well.

Can you [ expand ] on that?

They didn't, but they got it. And Tom and I started talking about, is there a way to create a management agreement here so that we have an asset management company that's aligned with it so that we can maintain a core of some expertise at Resolute Holdings, have an asset management company, and with GPGI, have basically no overhead. So there's no CEO, no CFO. There's nothing above it. As a way of being a significant attraction for people who are really good operators. And we started talking about it as, hey, this is a chance to do what the Wall Street Journal referred to as Honeywell 2.0. And you take a look at everything that we dealt with in Honeywell. So we beat the S&P 500 by about 2.5x over 16 years. Yet we did it by carrying 5 boat anchors through the process. First one was we had really bad accounting practices and bad distribution -- distributor practices to close the quarter. We had a significantly underfunded pension plan, a defined benefit plan that I had to take care of. Asbestos liabilities, neither recognized nor dealt with; environmental liabilities neither recognized nor dealt with. And if you take a look at the original $22 billion in sales we started with, I sold off $8.5 billion of it because it didn't even come close to a great position in a good industry. Here, we get to start with what we want. So thinking back to the acquisition profile that we had at Honeywell, where we had the 6 criteria. We always looked at great position, good industry, tech differentiation, organic and inorganic sales growth and margin expansion, we had that possibility here to start from scratch with the things that we wanted. And with the asset management company, we did get some multiple arbitrage out of the exact same earnings, but the foundation of all of it was GPGI as the currency and the vehicle. You saw us put that into motion with Husky, and we were able to use our shares as a currency in addition to the cash that we generated as a way of acquiring Husky, which is going to turn out to be a very good business for us. And we'll be able to do it with others. So we're able to start with businesses we like. We have this growth day mentality that we use. It's the same thing that I did at Honeywell. We've got it at Vertiv. We're doing it at CompoSecure and at Husky, the monthly growth day, where we take strategy and make it a daily activity. So you start with businesses you like, put in leaders who truly are going to lead the businesses and establish the culture that you're looking for, put those growth days in place and GPGI is going to do very well. Now Resolute only does well if GPGI does well. And I know there's always some questions about that one, but I'm not sure what I understand why there's a question. So we feel pretty bullish about where this is going. We're quite surprised by the reaction last week. I was talking with Kurt Martinson about it earlier. Shocked actually at the reaction last week when we posted our earnings, I thought it was going to go the other way around, which it will. So I'd say now is a buying opportunity. I see this as a good time, Tom, for, I think, you to jump in to talk about why this is so appealing, especially for the PE guys, why it worked with Husky, et cetera.

Yes. So I'll first just say, I mean, I think GPGI, Dave and I have always said, the entire goal of all of this is how do we buy businesses with great positions in good industries, deploy the operating system into them consistently to drive above-market revenue, EBITDA, EPS and cash flow relative to the very best-in-class industrials. That is the point of the business. And I think the structure will lend itself to that because we've observed that some of the larger businesses that are diversified, they begin to run into problems when they lose focus on underlying businesses. They stop pushing the businesses to be all they can be and they start thinking incrementally. Well, this structure where there's no corporate overhead at all, there's no CEO, CFO, allows us to focus exactly on each business. CEO and CFO of each business own that. They're responsible for going out and making the businesses be what they can be. I would also say we went to great lengths to put a significant amount of our own capital in. I think that's got more than $1 billion invested into GPGI. So we are the biggest individual investors in the company, and that was important to us. So that was the foundation of it. But why now? Why is this such a unique opportunity? And we've -- I've been trafficking and looking at businesses in private equity portfolios of real scale since 2018. I mean I started looking at it when we launched Vertiv because we recognized back then the real areas that were challenging were businesses that private equity firms owned that were large enough to need to go public for an exit. And I think you've had an interesting dynamic develop over the last 20 years where for a long time, the fundraising capacity of private equity seemed to be boundless. They were raising bigger and bigger and bigger and bigger funds, and so they were buying bigger and bigger and bigger businesses, almost thinking that there would always be a bigger fund to buy it from them. Well, that has now slowed or stopped. And you have businesses that are $300 million, $400 million, $500 million, $600 million, $1 billion of EBITDA, where there isn't a fund big enough to buy it. Or if there is, maybe it's one or two and the competition is not enough and you actually can go map multiples paid. If you look at businesses $50 million to $150 million of EBITDA, the multiples for the exact same business profile are 2x, 3x, 4x higher than when you get to $300 million, $400 million, $500 million. And that's because of a competitive dynamic that's a problem. You look at businesses that are private equity owned and they are employing 6x to 7x leverage. That does not work for a public listing. And so what you have is you have this big and growing list of very high-quality businesses, almost high quality in spite of being levered for a very long time and having to make operating trade-offs that don't make sense for those businesses. They're still good businesses. But if you have to take that business public as a sponsor, which you're being forced to consider now because there aren't funds big enough to buy it, you cannot raise enough capital in an IPO to delever the business to an appropriate public company amount and not still own 80% or 90% of the stock. What does that create? It means if you take those businesses public, they're going to be zombie companies because you've got a forced seller for a very long time whose only incentive is to sell. Why GPGI works so well is we have a good track record of identifying businesses that actually do have great positions in good industries. That is really important because you have to have a great position in the good industry to make the work around deploying the operating system be worth it. You've got to have a market structure in a position that allows you to capture the benefits of the proven operating system. But we can find great businesses that we really like. We can buy them at prices that perhaps are even lower than where the private equity firm has been marked or would otherwise sell them because we can deliver significantly more capital that provides GPGI, a return of capital, which is top of mind for every private equity fund in the world. The investors are saying, give me my money back. Well, we can do that. We can delever the business to an appropriate level where it's public company, reasonable and appropriate. And then we can allow them to retain stake in an overall business that has other businesses that are great positions in good industries where their stake is not an overhang on the stock. So in the Husky transaction, none of our investors cared about what Platinum did with their shares because it was 19% of the business. They said, we actually like more liquidity in the stock. We think that's a good thing. That compared to if they had gone public regular way and owned 80% or 90%, it's a totally different conversation. And so right now, we believe that there's a structural opportunity where there are not homes for businesses that are very high quality, that are of scale that have been private equity owned. We think we provide a really, really transformative solution, and we know we can deliver once we own them because we've got a proven operating system and a proven capital structure to go and do that.

And how wide is the diversity of opportunity on the acquisition front? I mean, I don't think -- I don't know the business well. It's covered by Reggie Smith at JPMorgan. He's the expert here. So if anybody is interested, give me a shout. The diversity of opportunity, I mean, these 2 businesses don't really look like they belong together. So you really have a wide birth, if you will, to find these assets.

Yes. The way that we've talked about it is it's going to be any industry or business where all of you as investors would look at it and say, yes, with the backgrounds they bring, that makes sense. So that's a pretty wide variety of things and allows us a pretty good breadth of opportunity when it comes to how do you find a great position in a good industry because it's aerospace, controls, it's not going to be automotive. Could be some chemicals, could be health care where there's manufacturing or services involved, any kind of service business. I think you'd have to look at it and say, with the backgrounds these guys bring, they've operated businesses in those areas, so that would make sense. So the big thing will be that credibility and then being able to show you that it's GPGI.

Yes. But you want to stay within a certain size, obviously, this is -- or not really?

No, we've looked at stuff in the $1.5 billion, $2 billion EBITDA range.

And again, there's a real structural problem if you're trying to take those businesses public as a private equity firm. Our view is we can sit down with any private equity owner for their best assets that they want to take public. And we think we can deliver a much better outcome while offering a lower price for the asset because it doesn't work well to have an 80% or 90% owner to then sell down over time. It just doesn't work. And so a lower upfront price with more capital allows them to roll less but benefit more from a re-rating. And that's a powerful tool, and we think we can do it, and there's a lot of opportunities and they continue to grow because some of these really good businesses keep getting larger.

In terms -- sorry, in terms of proof of concept, if you take a look at the $2.1 billion in equity that we raised to do Husky, we did it in 3 weeks, and we didn't use a bank, no offence, Ked, but we didn't use a bank. We were able to do this on our own. And I think that's pretty challenging when it says the kind of interest there is out there in the model that we've created.

What -- how far would you stretch leverage for the right deal?

That's one where we're a little careful because at the end of the day, if you want a good public company, you got to have a good debt profile. So we felt comfortable enough at [ 3.5x ] and being able to bring it down. And we want to maintain fidelity with our bond investors in addition to our equity investors. So whatever we did do, we would construct in a way that maintained a sound debt profile.

But ultimately, the multiple that you're kind of targeting is really kind of the classical compounder, if you will. That's how you'd like to be viewed over the long term.

Honeywell 2.0. We -- keep it going.

Yes. Our view and why we're doing this is we want to deliver better than the best-in-class compounders organic growth, top line and earnings and cash flow. And we think we can do it because you're able to buy really good businesses that have as cyclical exposures, deploy the operating system into them. There's real benefit to that, and we think we can do it. And we're doing it here with these 2, and there's more out there that are available, and we'll -- we don't need them. We can be very disciplined, and we're going to be. We're going to find businesses we like that make sense for GPGI at the right time. If not, we'll just operate these 2, and we know we can compound this.

Now the obvious question that comes from that is, well, wait a minute, is that kind of building a conglomerate and isn't there an anti-conglomerate push right now? And I always say I found it kind of interesting that the world loves focusing on industrial conglomerates, but media conglomerates, financial conglomerates, those are okay. I don't quite understand why there's such a difference there. But either way, one of the things that we were able to say at Honeywell when confronted by the same question is, the argument from investors is, look, you can't pick the sectors. Let us pick the sectors. So break it up, then we can pick what sectors we want to be in. My argument back on that always was, well, that's true as long as you can beat the S&P 500, which, as you probably know, a lot of investors don't, not to say that any of you in the room, but a number of investors can't. So if you have a company that can, now it has a reason to exist. So they're able to -- that company is able to make those kinds of decisions to trade-offs, where to invest, where to sell, where to buy a company. And I think our proof point at Honeywell was, again, we beat the S&P 500 by 2.5x over 16 years. And that's proven out to be pretty darn good. That's going to be where we're going with this, to Tom's point. You'll see us consistently beating the S&P 500 when it comes to the earnings and cash we generate because that's the reason for a conglomerate to exist.

And it's interesting because Honeywell was a lot of -- like you said, there were the 5 anchors and removing those 5 anchors were pretty big. Vertiv was definitely more of a growth story, and this seems like a pure-play growth story, if you will. This seems like it's something -- it's growthy. It's -- you're building the business.

We can pick what we want. Yes. I would say Vertiv had its share of problems, which have been -- I mean, there was at one point, I always said, okay, I'm going to devote about a day a month -- a week to this overall. And at one point, when we were going through the price troubles, it was more like 2 to 3 days a week to try to get it out of its trouble. So we had more than our share of issues there, but we've been able to resolve it. Here, we're starting with businesses that we really like that are not run poorly, but have a lot of upside to them and with good leaders right from the very beginning. So Rob Domodossola that we now have in Husky; Graham Robinson, who a number of us knew from Honeywell is running CompoSecure. Our Board, by the way, if you were to look at our Board of GPGI, all people who have run stuff. We don't have a bunch of lawyers and academics. We've got people who have run stuff. They know how to operate a business.

And I think just the model separating the two, the focus on each business, like there is nowhere to hide, and we are maniacally focused on helping each business achieve what's possible. And that is a really unique structure. I think the private equity world has grown quite significantly doing that well. They have the manager in each business. This is permanent capital, lower leverage, true operating capability, daily liquidity for investors, and we think much better returns, and we're very excited about that.

Any questions out there? Maybe a chance to plug the book since you brought it up. And anything we didn't talk about that comes out of the book that you really want to highlight and tease people to go out and enjoy the [indiscernible]?

Oh, they should buy that [indiscernible]. If they want to know what we're doing, where we're going, read the book, and you'll -- because at Vertiv, they hand it out and just say, if you want to know what we're doing, just read this. It happened at CompoSecure also, it's started to happen at Husky. The book is relevant, except for the chapter on succession, you can -- but the other 9 chapters, feel free to read those. You'll find those pretty handy, pretty useful.

That's pretty tough. Thank you so much for making the effort to get in here from Atlanta. I know that was a little bit of a choppy one, but...

Quite a morning, yes.

Congrats on all the success, and thank you so much. Best of luck.

Thanks, guys.