March 3, 2021- In today’s podcast, we welcome special guest John Delaney, Founder & CEO of Revolution Acceleration Acquisition Corp.
Revolution Acceleration is a special purpose acquisition company that recently announced a $2.2 billion business combination with Berkshire Grey, a developer of integrated artificial intelligence and robotic solutions for e-commerce, retail replenishment, and logistics
On the podcast, John discusses:
- Transitioning from a successful business career to politics, and pursuing the presidency
- His return to business and why he decided to start a SPAC
- The operation of a SPAC from a sponsor’s perspective
- What leads to success as a SPAC sponsor
- Why he and his business partner, AOL co-founder Steve Case, are so excited about their SPAC’s deal with Berkshire Grey
- And more
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Transcript:
Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate financial technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.
Julian Klymochko: John welcome to The Absolute Return Podcast. Thank you for being on the show. Really excited to get into a lot of interesting discussion topics today, whether it be your wide-ranging career. Successful in both business and politics. The recent SPAC transaction that you got into with Berkshire Grey and where you see things going on a go forward basis. But before we get into that, you’ve of course had a long and successful career in both businesses and Politics. Co-Founding two startups that went public prior to pursuing politics. Can you tell our listeners how you made that transition and talk about some of the synergies that you found exists between business and politics?
John Delaney: Sure, well, first of all, thank you for having me Julian. It’s great to be with you and your listeners. I had always wanted to do public service, so that’s really what prompted me to make the transition from starting and leading two companies that ultimately took public to running for Congress. And the transition was difficult initially. The skill set you learn in business from just a pure communication perspective, as you know, you want to be thorough and detailed in your analysis because when you’re running public companies, for example, that’s what your investors expect for. And in politics, you know, it’s somewhat different. It’s the soundbite, it’s the talking point, it’s, you know, it’s kind of a different communication style that takes a little bit of time to get used to. And you also have to realize that in, you know, in business, you certainly have stakeholders, you have your investors, you have your team members, you have your community and your customers, but in politics you have so many more stakeholders.
The transition is difficult and any business person who says it’s easy, I think is not being honest with people and it is different, right? I mean, too many people say, well, Government should work more like business. Certain aspects of Government should work more like business, best practices efficiencies, but fundamentally Government has a very different role in our society than the private economy, and it is different. So, the transition was difficult, but you know, you make it, and it was amazing, was extraordinary experience. I think what is similar is not so much, obviously there’s a lot of similarities in the job, but I think there’s a convergence going on right now. Whereas I actually think public policy has a much bigger impact on our economic systems now and into the future than it has historically. So, I think understanding public policy, which I feel like I do, having served, you know, very high levels of Government and the Congress of The United States and understanding how the Government works and how policy makers think about things and having those international relationships in the same way. I think that’s a significant asset now that I’m back in the private sector. So, you know, I think there’s a real convergence and we’re going to see more of that. I mean, whether environmental policy or economic systems. Public policy is just going to matter more and understanding it is important to, you know, looking to where the economy’s going and being able to make good investments or build great companies.
Julian Klymochko: So, you went from this career in business and then politics, and at that point, you know, I’d say the average person would have considered retiring, but you came back to business and basically picked up where you left off, getting back into the public markets. What ultimately brought you back to the private sector?
John Delaney: Well, after my career in Congress, I ran for President as you noted which was an amazing experience as well. And that didn’t end the way I had planned, obviously. But you know, after that, I was thinking about what my next chapter was going to be. And fortunately, you know, Steve Case and I have known each other for about 20 years, it started as a business relationship. And then we became good friends while I was actually in Government, quite frankly, but Steve does a lot around entrepreneurship and public policy around startups. And so, when I left the race, Steve and I started talking about ways we could work together and that led to the decision to do this SPAC. So, you know, when I left the race, I wasn’t quite sure what I wanted to do. But I think, you know, I’m really intrigued about the pace of innovation and its impact on the world and how disruptive it is. But also, how many opportunities there are to actually make the world a better place for innovation. And I spent a lot of time when I was in Government on those kinds of issues, which is, how do we encourage the private economy to actually tackle some of the big problems in the world, mostly through innovation? Because ultimately innovation solves every problem, whether it’s climate change, we’re going to have to innovate our way out of all these issues. So, you know, I viewed it as somewhat an extension of that. I mean, life’s a series of chapters and, you know, I had this wonderful career in starting companies taking them public, and then I served in the Congress of The United States. And now I think I can bring those two perspectives to some very interesting and pioneering companies like we just announced we’re combining with Berkshire Grey, which is an extraordinary and innovative company.
Michael Kesslering: We talked to a lot of target companies such as Berkshire Grey, but it’s a little bit unique for us to have on our podcast, someone on the other side, on the sponsorship team. And so, can you provide a little bit of a background and a little bit of the day-to-day life as you’re looking at deal flow as a SPAC CEO and a little bit of an insight into that perspective for our listeners?
John Delaney: Sure, I was the CEO of two publicly traded companies before my last one had well over a thousand employees. So being the CEO of a SPAC is obviously a very different thing because you’re on the hunt for a great company. So, there’s obviously managing the public markets, taking it public, those kinds of things, but really what you’re doing is you’re reaching out to your networks, and that’s what really matters. I think to be successful in a SPAC, is to have networks of people who know of great companies, have invested in great companies, have relationships with great companies. Fortunately, Steve and I have very big networks and they’re very complimentary because even though we both had business careers and been involved in policy, we come at it from very different perspectives. So, we reached out to our networks and we had a very clear view as to the kind of company we wanted to buy, and we had a thesis around it. So, sorting through those things, having some criteria quickly to make quick yes or no decisions. And then when you find a company really trying to figure them out and demonstrate to them why we as a sponsor group can add value because you know, in life at the end of the day, you always have to add value. And I think SPAC sponsors need to be thinking about it the same way, which is how do I add value to its business.
Julian Klymochko: Right, and you launched the SPAC of which your confounder with Steve Case, and you’re also CEO, Revolution Acceleration Acquisition Corp, you launched that in December. You guys were quick out of the Gates, recently announcing a business combination with Berkshire Grey. It was one of the fastest deals that we’ve seen of the year. So, congrats on that, wasting no time and Berkshire Grey as developer of integrated AI, artificial intelligence and robotics solutions for e-commerce, logistics and retail replenishment, what ultimately attracted you to the company such that, you know, that was the one that you were going to select for your first SPAC business combination?
John Delaney: So, the first thing is that it fit our thesis. Our thesis was very clear. I think what’s going on in the world right now is, there were trends that were playing out in our economy and we all knew they were happening, but COVID has accelerated them. And, you know, when some instances, things that would have taken 5 to 10 years to play out, have been brought forward a year, and so that’s what we were interested in. A company that was benefiting from that, and the biggest of those trends is the transition to the digital economy, right? E-Commerce is exploding. So, Berkshire Grey enables companies to basically compete with Amazon in the e-commerce sector. So that was the immediate appeal, great macro thesis, right? Huge market opportunity, the TAM for Berkshire Grey is estimated to be $208 billion dollars. That’s the amount of money, you know, that value that they could add by automating the entire supply chain for groceries, retail, e-commerce company, package companies, they basically having robots in the fulfillment centers and big market opportunity, very little penetration and best in class technology, you know, in other words, we believe strongly they’re the best at this stuff. So, you’re a market leader in a huge industry, that’s very little penetration and it had a great management team and terrific investors. I mean, two of the touch points to Steve and I had with the company early on were two of their founding investors if you will, with the CEO. Vinod Khosla, who Steve Case has known for 30 years and Peter Barris who runs NEA, who I’ve known for a long time and Steve known, and Ted Leonsis, who’s involved in SPAC with us, also known. So, we had good relationships early on with investors. We trusted, they weren’t selling stock, always a good sign. They believed in this company and they were looking for financing for the reasons you should go public.
At the end of the day, some of this stuff is pretty simple. The public markets were designed to give access to capital for companies so they could grow. That’s why they really exist at the end of the day. And the closer you are to that use of funds, if you will, oftentimes the better, the situation is, no selling shareholders, all the money used to grow the business based on the pipeline of work in orders that the company has and is working on. So, all those things really attracted us, you know, we call it kind of Tam technology and timing, huge market opportunity, best in class technology. And the timing is right because their pipeline has just exploded in the last year and they need the money to grow.
Julian Klymochko: Interesting, and so what we like to get into is some of the background going on behind these transactions. So, we’re wondering with the Berkshire Grey deal, you know, where you looking at other potential companies to combine with, or was this the only one and from their perspective, was it a competitive process or was it, you know, a proprietary would that you know, you are the only guys involved?
John Delaney: So, we were looking at a lot of situations. We were fortunate to have a great pipeline out of the block. So, we had a lot of situations and we’ve gone down the path with several of them, you know, not to the point of having a deal, but like, you know, into diligence with several and trying to figure them out. You know, I don’t want to speak too much about the process, cause that will be disclosed in the proxy. But, you know, I think where we are now with good high-quality companies, they can be selective about who they work with. And, you know, they typically will consider a few options but not be broad in the way they think about that, right? If you’re running a good company and you thought this was the right way to go public, you know, what you all would do is, you’d say, okay, who do I want to partner with? And that would be a big kind of, I think, gating issue for you.
Julian Klymochko: So, with respect to this process and your job as the CEO, you mentioned specifically the importance of business networks, yourself and Steve Case of which had a pretty significant one, and not just with, you know, potential combination targets, but also, I’m assuming venture capital firms, you mentioned Cosla and a few others, private equity, investment bankers. How important are those fellow investors within this whole process?
John Delaney: Well, incredibly important. I mean, in this situation again, when we just, you know, Berkshire Grey was a company that had been backed by two investors that we knew very well. We have the utmost regard for, in terms of their investment track record and their judgment and their assessment of people. So, what that allows you to do is really lean into a situation quickly, right? Because you go in with a positive bias, do you know what I mean?
Julian Klymochko: Yeah.
John Delaney: I mean, we obviously did all of our own diligence. We did bottoms of diligence on the company. We surveyed the market, we talked to Berkshire Grey clients. We did our own due diligence, but it’s nice when you’re not starting from a cold stop. Like when, you know, the people who have invested in, you know, their track record and you have the opportunity to talk to them early on and get their perspective on the business, you immediately start the conversations much smarter with the company,
Julian Klymochko: Right, and with respect to this deal, you did have a concurrent, $150 million dollar pipe financing, which we’re seeing more and more often, it seems like every high-quality transaction contains a pipe financing. So, did you see this as a must have in your deal? And were you involved in, you know, sourcing and negotiating that specific aspect of the transaction?
John Delaney: Yeah, so it was 165.
Julian Klymochko: Okay, sorry.
John Delaney: And yes, again, it came down to, Berkshire Grey has a very specific plan. Set of projections, which have all been disclosed and they have a certain amount of funding they need to execute on that plan. And between the money in our SPAC, we needed another 165 million to optimally execute that plan. So, we sized the pipe, yeah. There were no selling shareholders. So, we didn’t need any money for that. We size the pipe to effectively pop up to the amount of money the company needed. And then we did a road show with investors, which I participated in every single one of the meetings with the full management team of Berkshire Grey. So, we had, you know, one-hour meetings with over 20 institutional investors which was great because it gave us an opportunity to, you know, meet some investors that we believe will be good long-term shareholders for the company.
Julian Klymochko: And you certainly got some high-profile backers whether it be a Chamath Palihapitiya, BlackRock, et cetera, so kudos to you on putting together that pipe financing. So, in addition to some of the topics that you already touched on, what sets Revolution apart as a SPAC sponsor, because clearly, you know, you got a high-quality business combination, you got investors to sign on for the pipe, and it happened very, very quickly. And so, what do you think enabled you to do that?
John Delaney: So, the two things that I think Revolution and our backgrounds is, Steve and I are business builders at our core, right? We’re entrepreneurs. We started companies; we took them public. I mean, Steve started and took public, one of the most famous companies in the public markets ever, AOL, which was the best performing public company in the nineties. I started two companies, took them public. So, we look at it like, so Tom Wagner, the CEO of Berkshire Grey, we can immediately relate because we’ve been there, we’ve sat in his chair, right? And we understand what he’s going to have to deal as a public company CEO. And we think we can add value and help them with that. So that at the end of the day, I think is what differentiates us. We don’t come to this as financial engineer. We come to this as business builders.
The second thing is, you know, we have actually a public policy orientation. I mean, I have actually served in Government, but Steve from Revolution as had a strong policy orientation for a long time, because he’s been leading an effort around entrepreneurship. He was involved in President Obama administration with startups and entrepreneurship, you know, not working there, but he was a key advisor and chaired committees on that. And then he has this part of his firm called Rise of The Rest, which is effectively a venture capital firm that is investing in places other than the big cities. So, his thesis for 10 years now has been, we need more venture capital in the middle of the country. We don’t need any more venture capital in New York, San Francisco, and in Boston, where 80% of it goes by the way. And if we’re actually going to have equitable economic opportunity in this country, we need people investing in Des Moines, Iowa, and places like that. So, Steve has been leading that effort. So, he’s had a strong policy orientation. I’ve had obviously served in Government, as I said earlier. I think public policy is going to be more important for all businesses. So that also differentiates us, but I really think it’s the business builder thing that makes us different.
Michael Kesslering: And so, when you, I guess back out a little bit and look at the macro picture, you know, 2020 seemed to be the year of the SPAC and 2021 as well, that momentum has really continued. When you look at this broader trend within public markets and companies choosing SPACs to go public, you know, why do you think that has really taken hold in specifically with target companies and then looking from an investor’s perspective as well? You know, do you think that access to these different companies has been really beneficial?
John Delaney: So, I think it’s happened for two reasons and I do think it’s been beneficial. Let me go through the two reasons. The first is I think, you know, I took two companies, public traditional IPO route. It’s still amazing and it’s an important tool, but there are limitations to it. And there are aspects to it that are in fact broken. So, the IPO process which hasn’t really changed, you know, Steve case took AOL public in 1992, I took my second company public in 2003, you know, most things in the world looked completely different over 30 years, IPOs, you know, as of two or three years ago, kind of looked the same. So that process needed some innovation, it needed competition. And we’re seeing that with direct listings and SPACS. SPACs are faster, you can do a deal faster. You have the opportunity to get a sponsor team, help you with the process and add value. And you also have an ability, I believe so more successfully tell a growth story in a SPAC process.
And that gets to my second point, which is, we’re seeing extraordinary destruction in this economy right now. Let’s face it, there’s just been this explosion in computing power, coupled that with so much information that consumers have, that they’re thinking differently about decisions. And that’s where the ESG movement, it really come from at the end of the day, its consumer driven. They want it, we want it. And so that’s disrupting everything. So, you just have a lot more disruptive companies. I don’t know if there’s an index of measuring the percentage of disruptive companies in the world, all the companies, but, if there were, I bet it would be an all-time high. And so, and those companies need capital to grow. They’re doing things, they’re growing. So, I think that’s, what’s really happened. And we’ve had favorable equity market conditions.
Julian Klymochko: Yeah, I think you’re definitely right about those various aspects of some of the advantages of SPACs and what they bring to the market. As for your experience, you brought Revolution Acceleration public, December 8th. Announced the Berkshire deal, Feb 24th. So less than three months from IPO to deal announcement. You seem like a natural regarding this process. Not sure if you’re entitled to say, but will you be launching another SPAC in the future? Can we look forward to Revolution Acceleration Acquisition II?
John Delaney: Well, I’ll use your framing there Julian. I’m probably not entitled to say, and I don’t want to comment on specific plans, but I will say this. We believe it’s an important asset class. We believe it’s a great structure for the right company. And we think we have some natural advantages in this business, so I’ll leave it at that.
Julian Klymochko: Great, and this asset class has really proliferated over the past year. More and more SPAC sponsors joining the market without giving away your secret sauce. What general advice would you have to other SPAC sponsors or someone considering getting into this specific asset class?
John Delaney: I mean, you have to add value at the end of the day. You just have to add value because the market is going to get a lot more competitive because a lot of people are doing this. And so, I think good companies are going to say to themselves, who do I want to partner with, or what do they bring to the table? And unless you can actually sit there and make the case that you’re going to add value to the company, and that can be in lots of different ways, depending upon the company and what it needs. Like, you know, you could be an absolute, you know, expert and well connected in early stages life sciences. And, you know, you might’ve run a big company in that field, served in Government at high levels and understand that, you know, for the right company, that’s a real value. You know, in our case business builders, we understand public policy. You know, so I think you have to add value, if you just view it as financial engineering. I don’t think those people, I don’t think there’ll be as competitive.
Julian Klymochko: Right, and speaking of adding value, you’re actually going to stick around, become a director of the proforma company. Once the business combination closes, which I believe you forecast for the second quarter, ultimately once it completes the business combination and commences its own life as a public company, how would you communicate the investment case for the stock, above and beyond what you’ve already discussed? Obviously, the trend, the macro thesis, then a total addressable market, tech and timing.
John Delaney: So, I don’t think we’ll ever change from that because those are the enduring macro thesis. I think what Berkshire Grey has done that differentiates from its competitors, and I expect it to continue to do. A lot of people are talking about this space and their prototypes and all these things, Berkshire Grey in with all the right clients, they’ve got systems installed, they’re getting repeat orders. And I just think across the next several years, there’s just going to be more and more of that. So, I think the story will be amplified with even more proven execution.
Julian Klymochko: Right.
John Delaney: And the other thing that I think will happen, and I heard this from Berkshire Grey clients is, they have other problems that they want Berkshire Grey to address. So, if you think about the future, again, a hundred thousand items delivered same day, that’s where this market’s going. And when you talk to the clients, they envision themselves building massive warehouses, much bigger than the scale we see now. And then lots of little ones close to the customers, right? So, they’re planning major investments, Berkshire Grey solves a very specific problem right now. It’s a big problem, which is the picking and sorting aspect of the warehouses. But we heard from clients, and what was interesting. We heard from two clients that they wanted Berkshire Grey to solve the same problem, was a very specific problem. We hadn’t prompted it, so I think the other thing we’ll see from Berkshire over time is, there’s adjacent opportunities that leverage their technology and relationships that they’ll start doing.
Julian Klymochko: That’s interesting to hear. And you mentioned the execution of the company and its success thus far, how far it’s come, what are some of the key differentiating factors over competitors or potential competitors in the market?
John Delaney: I’ll say it this way. If you look at Berkshire Grey website, you’ll see videos of what they do, and they have picking robots. In other words, robots that can look at, you know, tens of thousands of items and using their cameras, identify the items, pick them. If they pick two items by mistake, let’s say picks two of my ear pods by mistake. It’ll know that it picked two because it sees two and it puts them down and picks one. I mean, that’s how smart the robots are. So, these picking robots can pick thousands and thousands of items. They can see the package that they’re dropping them into and see the size, and they can kind of articulate the packages, so they go in there. So, they have robots that do that. They have robots that sort, and then they have robots that shoot all around the floor and deliver things all over the warehouse. And then that’s all tied together like an orchestra with their software. So, the individual robots are AI enabled. They have multiple robots and they work together in an orchestration. Our view of the competitors, a lot of the competitors just offer one of those components. And when you talk to the clients, they’re like, we don’t want to be a system integrator. We don’t want to pick five different robots and figure out how to make them work. We want someone to come, solve this problem.
So, these companies don’t view themselves in the business of “buying robots.” They view themselves in the business of automating the supply chain. So, they want someone to do that. If that company uses three robots or five, they don’t care. You see what I mean? And that’s what Tom Wagner figured out so well, because this company was in stealth mode for a long time. He knew what the customers wanted. They didn’t want a robot that makes good YouTube videos, dancing around to some music, looking at those things, which by the way, those robots are just programmed by human beings to do that.
Julian Klymochko: Yeah, frighting.
John Delaney: Right, but it has no commercial applicability.
Julian Klymochko: Right.
John Delaney: Right? What he built with robots that solve a huge problem for the e-commerce supply chain, and then guess what? The e-commerce supply chain just exploded.
Julian Klymochko: And it certainly sounds like all the technology developed by a Berkshire Grey provides a nice competitive moat around their business model with respect to gaining new clients and, you know, fending off competitive threats. Now, before we let you go, John, is there anywhere that investors can learn more about what you’re up to and more about the transaction that you announced?
John Delaney: Yeah, the best thing to do is to go to our website, which is revolutionaac.com.
Julian Klymochko: Okay, great.
John Delaney: revolutionaac.com.
Julian Klymochko: Well, there you have it folks. Thank you, John, for joining us on the podcast today. Really appreciated your insider insights into being a SPAC sponsor, the Berkshire Grey transaction, and wish you the best of luck as a director on the company. And obviously hope that the business does great as it completes the business combination.
John Delaney: This was a great conversation because it’s nice to have a little more time because to talk about AI enabled robotics in the supply chain. You need more than 30 seconds.
Julian Klymochko: Yeah, no doubt. So, we gave you a good platform. Not like you’d get in Politics where it’s a thirty second soundbite.
John Delaney: Right, exactly.
Julian Klymochko: All right. Great.
John Delaney: Alright, thanks guys.
Julian Klymochko: Yeah, Thanks. Cheers.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
