What’s the old bromide—never judge a book by its title? In the case of Christopher Mayer’s Invest Like a Dealmaker: Secrets from a Former Banking Insider (Wiley, 2008), my mind conjured up understuffed chairs in a sleepy room filled with Donald Trump, Wallace Wattles, and a confused Hank Paulson. Perhaps my imagination runs further than others.
In truth, Invest Like a Dealmaker is less about deals, secrets, and banking insiders, and instead a readable and useful introduction to valuing companies and uncovering undervalued securities. Author Christopher Mayer, who edits two newsletters Capital and Crisis and Mayer’s Special Situations for Agora Financial, surveys the analytic tools used by prominent investing gurus and peppers his text with interesting tales of underappreciated characters in the field.
Most simply, Mayer argues that investors should value a business by what a control investor (the mythical “dealmaker”) would pay for the whole thing. Relatively immune from the vagaries of technical charts, macroeconomic issues, earnings reports, earnings forecasts, and dividend rates, the mature investor concentrates on the “dealmaker’s ratio”—that is, enterprise value (EV) to earnings before interest, tax, depreciation and amortization (EBITDA). And for certain industries, asset values deserve attention and scrutiny. By scouring the newspaper and SEC filings, the investor can observe the business valuations that dealmakers use in acquiring their targets, and then can apply those valuations to other businesses trading publically.
Like Jay Gould, dealmakers never have the habit of selling what’s gone down and buying what’s gone up (3). Like Seth Klarman, dealmakers concentrate on tangible assets, which “usually have value in alternate uses, thereby providing a margin of safety.” (41) Like James Tisch, dealmakers invest where other fear to tread—in his case, in empty tankers trading for scrap value (49). Like the seventeenth century Josef Penso de la Vega, dealmakers opportunistically take advantage of panicky sellers (56). Following Marty Whitman, dealmakers realize that “the most inefficient tax way to create wealth is to have reportable operating earnings… the most efficient way… is to have unrealized appreciation of asset values.” (64).
With the principles in hand, where should the investor prospect for targets? For one, Mayer’s “all-time favorite hunting ground” is tracking the recent purchases of successful investors—Seth Klarman, Bill Miller, Marty Whitman, and the like. Second, net tangible asset screens have consistently produce valuable ideas. And third, taking his lead from Joel Greenblatt, Mayer closely tracks spin-offs and employs the “Magic Formula” screen (which ranks stocks with high returns on investing capital and low earnings yields).
All told, Mayer offers a useful and readable introductory text for the relatively green investor with some business sense. Unfortunately, there is little here that the more experienced investor or analyst will find original. Though it offers a few brief vignettes describing Mayer’s investing successes, the student of investing will desire more detail and deeper analysis. Here familiar investing principles and rules abound, yet many readers may wish that Mayer was more candid in showing how he used those principles to better his own work.
Disclosure: I requested and received a complimentary review copy of this book from the publisher.