Yet Another Value Podcast - Pershing Square Challenge 2026 runner-ups on Baker Hughes $BKR

Episode Date: May 25, 2026

Team Baker Hughes, the second-place finishers in the 2026 Pershing Square Challenge, discuss their Baker Hughes thesis and why they believe the market hasn't fully appreciated the company's evolution from a cyclical oil field services business. They discuss how the long runway for the IET business, and they back their thesis up with 30+ expert calls, a trip to the Western Turbine Users conference, and a sum-of-the-parts case that leans on growth, not multiple expansion.See the team's full pitch deck hereThis episode is sponsored by Trata. Check them out at https://www.trata.comChapters0:00 Intro and sponsor2:21 Meet Team Baker Hughes4:39 Why they backed into Baker Hughes6:56 Watching the stock run from $45 to $65 mid-pitch7:21 The differentiated work: 30+ expert calls and the turbine conference8:27 The two businesses: oil field services vs. industrial energy technology10:10 What the market is missing on the IET transformation12:56 Is this just another cycle? The chart hit $65 three times13:59 Why this gas turbine cycle is structurally different17:01 AI as a distraction: onshoring and electrification17:51 The installed base flywheel and recurring service revenue21:13 The three turbine segments and the supply chain squeeze23:34 Honoring 70-year customers vs. mercenary pricing27:44 Valuation: a sum-of-the-parts story, not a multiple story29:36 The Chart acquisition: can they really double their money?34:56 The GE merger history and the GE Aero Alliance today38:27 Management, alignment, and insider ownership42:41 The C3 AI anecdote and wrap-upLinks:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimerProduction and editing by The Podcast Consultant - https://thepodcastconsultant.com/

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You're about to listen to the yet another value podcast. Today I have on the team that came in second place in the Persian Square Challenge team Baker Hughes. And, you know, I'll say it on the podcast. I'll say it here. I was told by multiple people this was the best set of presentations, the most competitive set of presentations. Tons of teams and the team Baker Hughes did just a great job. It's a real awesome, really awesome work on their end to come second. And you're going to hear why in this podcast.

You know, I'm looking they did over 30 expert calls, interviews and everything, went to some expos to prep for this contest. And I'll be honest, the level of diligence they did here is like, I was in private equity before, 30 extra calls is like kind of where you're going. We were like, hey, I might be about to buy a multi-billion dollar company. And these guys did it prepping for a stock push contest, which I can just speaks really well of them. And you'll hear me.

I'll ask them questions. And they'll be able to respond with, oh, you know, when we talk to the former at G or at one point I say, hey, they had this weird investment in C3AI. Like, how did that end up? and they'll say, oh, yeah, we talked to the former CFO there. So I think you're going to heal the level of deal and show your thing. I think it's awesome. Congrats to them.

I think you're going to join this podcast. We'll get there in one second, but first a word for ourselves. You know what? I'll do what I've been doing. I'll just do the live read right now. This podcast is sponsored by trota.com, T-R-A-T-A-com. Look, you've heard me pitch. If you listened to this podcast all the time, and why wouldn't you?

You've heard you pitch Trotta, and it's because I love the product. Trada is two by-siders getting on and discussing a stock that they both follow. Sometimes you'll have a bull and a bull and they'll just be amping each other up the whole time. Sometimes you have a bull and a bear and the bull will say, hey, you know, this company's about to do XYZ and then the bear will say, yeah, but did you consider ABC? And it's just a great way, you know, there's reading a 10K to learn about a company and then there's hearing two people who've been following the company and had actually invested

money or actually considered invested money talking in real time about what they're seeing, what they're missing, what's happening, what they're worried about, what the upside they're seeing in this company and try to bring you inside the room unless you do that. So if you're, one way I like to use it is if there's a company, I'm considering. I say, hey, Trada, can you find me another investor who's looking at this? So I can use them as a sounding board. I can see, I'm just ramping up.

I can see what I don't know, what I do know, all this sort of stuff. So it's a great product. I really enjoy it. I think you'll enjoy it to go to trotta.com. That's t rata.a.com to check them out. And now on to the show. All right. Hello.

Welcome to yet another value podcast. I'm your host, Andrew Walker. Today I'm happy to have on Team Baker Hughes from the Persian Square Challenge. Team Baker Hughes, you guys came in second in the Persian Square Challenge. Congrats, guys. Thank you. Thank you. I'm going to let you introduce Shills in a second.

Just before we get there, disclaimer, remind everyone nothing on this podcast. Investing Advice. There's a full disclaimer in the show notes and at the end of the podcast. So, Team Baker Hughes, I'd love it just to start. If you could introduce yourselves, give a little bit of background. Whoever wants to go first is welcome to. Yeah, I can get us started here. Thank you so much for having us on Andrew.

My name is Carl. I'm a first-year MBA here at Columbia Business School. started my career at McKinsey and Company here in New York working on their semiconductor team a few years ago and then spent some time in venture capital. We're invested in about 40 enterprise software companies early state seats through Series A before coming here to Columbia. I'll hand it over to Cam to share a few words. Yeah, hi, everyone. Name's Cam. May first year at Columbia, before Columbia, I was in valuation work doing evaluation advisory. for mostly M&A and private equity clients analyzing their portfolio companies for everything

from financial reporting to strategy. And now at Columbia, pursuing the passion of investing with this great team here and pass on to Greer. Awesome. Thank you, Cam. Thank you, Carl. My name's Greer. Also, first year MBA student at Columbia.

I started my career in ESG consulting, actually, working with, like, middle market PE firms across their portfolio companies. And then after a couple years, I joined APG, the Dutch pension firm, Dutch pension fund where I originally was on their private equity team supporting impact investments. And then later moved to the real estate and infrastructure team where I was looking at, you know, impact across direct investments as well as fund investments. And then I came to Columbia to pursue restructuring. So thank you.

It's awesome. Carl, you and I are both NYU alum's out of the McKinsey. So all softballs for you, nothing but fastballs for the rest of the rest of it. Let's get it. Look, before we get into the Baker Hughes investment thesis and everything, I'd love to just ask, you know, you guys came in second, and a highly competitive deal. I know some of the judges told me this was the best set of pitches they've ever seen. So congrats on that.

Let's just start. What made you guys want to choose Baker Hughes? What was the thought process? How did you guys settle on choosing Baker Hughes? Yeah, I can get us kickstarted from an idea generation perspective. we really started by looking around at the world around us and what was changing. And we kept coming back to this team about energy and power, right? What is this backbone of societal growth going forward?

We look around and there's electrification of fleets across the globe. There's, of course, huge data center demand. But outside of that, too, there's just so many structural hailwinds and how societies across the globe are consuming more electrons per capita. And dug in a little deeper and realized that that's just gonna continue to grow, right? Regardless of where the economy goes,

structural backbone really is this growth in energy. And so we backed into an energy name from there, right? And we started looking at our universe. Of course, the market got up to this theme and has rewarded, you know, lots of the names in the space. But Baker Hughes was very interesting, given its ties to the more legacy oil field. And in addition to, of course, their energy technology business. So this sort of dichotomy of a stock that in a way realized or settled on being slightly misunderstood

or less understood than the market was where we settled on the name. But I'd love to hear, you know, my colleague's thoughts as well. Yeah, no, I think Carl summed up really well. We looked at, you know, a lot of different ideas from energy to industrials to consumer names. And really what kind of narrowed us down on Baker Hughes finally was that it had this combination of this, you know, the energy story that we were seeing around us along with, you know, a business that had kind of a transition going on under the hood. And we felt there was kind of two different opportunities that presented there and really made us interest in kind of digging deeper and finding out. where the opportunities were. It's got to be both, it's got to be both feel kind of validation, but also kind of terrifying when the huge starts the year off at 45. It kind of hovers in the 40s all through January and February

when I'm sure you guys were picking this. And then rocket ship, you know, I ran more a rocket chip and it's trading 65 by the time you're pitching. I'm sure that's a little bit of validation, a little bit like, God, gosh, darn it. Like this thought's been up. If I could just give you guys one, piece of props, you know, I think my favorite piece of the deck, and all, for anyone who's

listening, there will be a link in the show notes. You can go look at the deck, fine, see all their contact info and everything in there. I think my favorite piece of the deck is in the appendix. You guys have the differentiated work, and you have the pictures of you at the Western Turbine Users Conference, and then you have all of the expert interviews you've done, which, I mean, you guys get some great expert interviews on here to differentiate. But I love it because it's not, it's like, you're not going up and leading with, hey, look at all this work. But you're telling people, like, look at all these interesting things in this differentiated work we're doing. And it kind of backs up, A, when you're pitching, you're talking to people, you can back that up.

And B, you know, I can just flip through the deck and be like, oh, these guys actually put in the legwork and put in the debt differentiation. And Greer, I think you had a broken arm at one of the conferences. Did I see a cast on there? I did. It is healed. My cast is off. Bill Ackman did sign the cast, if anyone's concerned. But yes, that was definitely something I had to deal with during this show.

These days, if I wake up with a sore back, I'm like, I'm not traveling. I can't go to, I can't do anything. So I respect going to the West Coast with a broken. All right. All that out the way, let's turn to the stock itself. So Baker Hughes, any of you can jump in and start with this, but I just ask, what is Baker Hughes and why are they interesting right now? Yeah, Baker Hughes, in a nutshell, his two primary business units, oil field services,

which essentially manufacturers and services, the equipment, used in extracting crude oil from the ground at its simplest form. And industrial energy technology, which is their energy technology business, essentially the equipment used in converting natural gas into electricity. And that was sort of the bulk of where our work went, was understanding at a deeper level what industrial energy technology is, what the economics looks like, what their per unit economics look like, and how impact the stuff. going forward.

But that's been confused in a nutshell. Yeah, an important thing to add to that is just that really it's an inflection point of these two companies. I mean, obviously, historically, the company's been dominated by this cyclical oil field services. And as

we've looked at the history and the trajectory of this business, more and more of it's being defined by this IET business, which is much more kind of longer term buildouts of energy infrastructure. And we think there's really a lot of opportunity for continued growth in this area.

No, look, you have to know that I haven't looked at this a while, but, and this might lead into the next question ahead, but, you know, when I saw Baker Hughes, my first thought was up and down, up and down oil out of the ground. And when I saw, hey, they've got Nat Gas turbines and all this LNG and exposure to a lot of these businesses with, you know, bottleneck is a cliche term, but all these bottlenecks and kind of where the fuck's going, I couldn't believe it was the Baker Hughes of old, if that makes sense. So that's the business. me, you know, the market, let me go to the next question I always assess. The market is a

competitive place. You guys just spent a semester diving into this company, putting a pitch together saying this is a long, you know, something is a long, it's a risk-adjusted out of opportunity. The market has to be missing something. What do you guys think the market is missing that makes this a risk-adjusted alpha opportunity? Yeah, I'd love to jump in. I mean, obviously, since we start looking at, the markets start realizing more that there is value in this IET business. The stock has gone up significantly as they've looked at that. But where we think they're still missing is really the momentum of this kind of transformation. As I mentioned, we're really at the point of this still 50-50 business of the kind of industrial tech

that people are excited about and the cyclical oil field services that people remain cautious about. Where we kind of see the opportunity is the continued trajectory into this stronger IET business that the market understands is powerful, but it's not fully understanding kind of the magnitude. of where this growth is and how long it maintains this transformation into the more IET business that it's becoming. Yeah, and briefly virtually add to that before career jumps in, part of the framing that I thought about a lot was, is this a 2029 story? Is the market pricing this in as a 2029 growth and demand story, right, for IET because

there's such a large backlog that starts to convert over. time, right? So is that priced into the stock? And what we realized for all the work we did, that this is a 2030 and beyond story even, right? I know we have a three-year price target in there, but realistically, when we think about it over the long-term, the sort of primary research really points to the beauty of this business being a sort of long, long-term compounder in that regard. And so I really like to think of it as a 2030 story, that the market sort of like to Like you mentioned Andrews sort of missing asymmetry in. Yeah.

Rue, did you want to add anything? Yeah, well, I think another point is just, you know, we heard a lot throughout the semester in conversations that there's kind of a, you know, a fear that this is just another cycle and that this is just like a boom that we're experiencing. But I think, you know, as you talked about all the conversations we had, like, we really were able to drill into why this is a unique moment and how this is not just like 2010 or the 90s, like this is really a unique moment in time. So I think the market's also missing that as well. Well, Greer, you can be my backup if I ever need a podcast.

Because that was exactly the next question I was going to ask, you know, if you just, the first thing I did was I zoomed out on the stock chart, right? And I hate to be a technical cloud analyst and zoom out. But the stock is trading at 65 right now. It's kind of not lost to me that it's hit 65-ish three times amidst history. One was around 2015, which is kind of the peak of the shale boom right before, you know, oil prices. collapse and the shills, it gets really dry, dry out there. And the other was late 2007 when you have, you know, the peak oil fears and $100 plus oil and, you know, right before the global financial crisis and everything falls out. So you guys started hitting out. But I do want to ask,

these are still cyclical businesses. It feels like the LNG demand will never go anywhere. It feels like the data center bottlenecks demand will never go anywhere. 50% of the business is still the old school oil and gas stuff. And, you know, at some point there is going to be a cycle in the power. So it just says, hey, if I just zoomed out, it kind of looks like we're buying businesses. It kind of looks like we're paying for these businesses while everyone really likes them right now. So I threw a lot out there.

I'll let you whoever wants to take a take-up. Yeah, I think it goes back to where we look at what the business mix looks like, it looks like between the two segments, oil field services, industrial energy technology. 2020, it was in the high 30s. So 37% was industrial energy. technology. And now fast forward to 2025, that's closer to a 50-50 split. And so we're right hypothetically, that number continues to grow. And so that cyclicality shifts from being an oil cycle to now the question emerging, is this a gas turbine cycle, right? Which we realized was also a thing

and a part of this whole equation that wasn't super obvious from the jump. And to likely touch on what that means and what that looks like, and Greer alluded to it as well with gas turbines having its own unique set of booms and busts. The uniqueness of this phase in history is because there is these converging factors that previously just didn't exist, right? When NAC gas turbines first became a thing and had a boom in the early 2000s, that was because of deregulation of energy. Enron happened, market popped, and that was it. for gas turbines. It was a few years of some really big headwinds. And then you fast forward 2015, you start to see subsidization of renewables. So solar came out and happened. And so a lot of the

CAPEX or energy went to renewables. And so gas turbines were falling out of favor. And now we've reached this point where no one can keep up with demand. A large part of it is AI and data center. But beyond that, it's also the utilities, right? It's the utility. across the country and really across the globe as well, right? We met with a few people internationally as well that are relying on gas turbines for grid capacity in the gigawatt ranges, right, which is huge. And so that's sort of the uniqueness where the cycle now starts to diminish in this phase in history because we've just seen this convergence of coal plants retiring.

That's another big example. There's one in Youngstown, Ohio. that replaced a huge coal-burning plant with 16 nat gas turbines of utility scale. So we're starting to see these converge. Another interesting example was grid scale battery storage. So utilities are now storing energy in batteries, but now the question is how do you generate that energy when the sun isn't shining over Texas, right, in these solar farms?

And so those converging factors plus the fact that Baker Hughes's business mix is shifting towards dominant position in industrial energy technology makes this sort of algorithm for this growth much more sustainable than past cycles where you see the stock chart, you know, peak at that 65 and go back down. Does anyone want to add anything there or I'm happy to follow up with another question? Yeah, I just would add in. Like I think AI and data centers can almost be like a little bit. of a distraction because I think, you know, just thinking about these converging factors,

a lot of conversations we had, just thinking about like on-shoring trends and electrification trends, like it's not all related to AI and data centers. There's so much industrial buildout happening right now, like in the U.S. and around the world that is also going to continue driving this demand. So that makes sense, but there's a lot of AI power generation out there that's turning a lot of wheels. No, look, I will be honest when I started reading this deck. A, my first thought, was, oh, Baker Hughes, the oil and gas company. And then I saw the Nat gas stuff.

And I was like, I kind of couldn't believe the stock wasn't up more just the way all the things have traded. Like, you guys have the case study on G. Baranova, and I know everything's not directly comparable. But I was like, this has turbines and it's not up 300% this year. What's going on? There are two interesting angles that you guys had in the deck that I'd love to talk about. The first is you guys have the compounding install-based flywheel that is underappreciated.

And I would have never thought, you know, with the Baker-Hus, old or even Baker Hughes now kind of servicing these LNGs and stuff that they would get this compounding flywheel. And this relates to the services where you're saying, hey, it's not all, oh, we're ordering equipment for the oil and gas field if oil prices go down to 50, everything shut off. You're saying, hey, especially on IET, it's services. That's recurring revenue. It's growing over time.

So I'd love to just ask, what are the recurring revenues? How is that driving? How is that increasing going forward? Yeah, I'd love to talk about that. I mean, the big thing is similar to, as you allude to Siemens Energy and G. for Nova, this IET business is much more dominated by installing the equipment and then servicing these over a longer period of time, often 10-year plus service revenue contracts that are thrown onto these install bases. And so that's really kind of the second part of the story we see.

Obviously, we talk to many people to see this growing demand for the equipment install, but where the economics really becomes much more interesting, which hasn't fully taken shape yet, is the increase in service revenue, which talking to people throughout the industry has nearly doubled the margin that they're getting on the equipment. So similar to kind of the transformation we saw in businesses like GE Renova or Siemens Energy, they start with kind of installing the equipment. And as time goes on, more, more of their revenues coming from this higher margin service revenue. And that's really where we see kind of this block. wheels that as, you know, they continue to install more and more equipment with this demand,

whether that's, you know, just the demand for energy, LNG infrastructure, and even the incremental build of data centers, they continue to install more that ultimately is coming more and more with service contracts that Baker is equipped to kind of win that work and continue gaining revenue for years to come at a higher margin. Yeah. So right now, you know, under a third of the business is recurring. You guys have by 2030 you guys have, it's going to be over 35%. So it's growing. It's increasing share. Greer mentioned earlier, hey, everybody thinks AI when it's the gas turbines, but there's a lot of other stuff, industrial driver. I'll just ask this off the cuff. I do not know the answer. But, you know, if I went to the AI bear case and, you know, the AI bear case would be Nvidia is, you know, they're investing in all their customers and their customers buy from Vivida. and you've got this circular flywheel and demand is going to collapse at some point and the AI bubble basically burst.

What would that imply? Would that create a lot of slack in the system where Baker Hughes would, you know, this great growth story that you guys are projecting is going away? Or would it actually be, no, to Greer's point, there is a lot of industrialization. There is, you know, there's a lot of Middle East rebuilding

a lot of work and I'm sure a lot of countries are going to be looking and saying, hey, we might need to be reassessing our power. Like, how much is this reliant on just the AI? And we'll talk multiples and stuff. second, obviously it's simply the multiple suit, but how much does this rely on AI versus something else? Yeah, I can get us started there. When we thought about AI, of course, it's a piece of the story, it's a piece of the tailwind. But if we wake up and, you know, it's gone tomorrow for

whatever reason in video chips are a billion times more power efficient, it really doesn't change the math around what demand will look like in the long term. because there's a few interesting and somewhat elegant dynamics at play around this sort of demand cycle. And I think it ties back to the categories of gas turbines. That's how I frame it in my mind for how this demand persists should AI not be a thing tomorrow. And there's three primary categories, the small-scale turbines sub-20 megawatts. Those are the turbines that are going into data centers, particularly for Baker Hughes. that's their Nova L-T line of turbines.

Then they have sort of a mid-sized segment. These go in LNG plants. These go in industrial plants. Those are anything below 100 megawatts. And then you have this sort of grid-scale ones that are greater than 100 megawatts that are being ordered by utilities. And there's these different dynamics between these segments where OEMs can charge a premium right now at the top of this stack, right, the smaller turbines. But the components that go in each of these

are very similar. So they're all sort of competing on supply chain resources between each other, right, which now has completely different end customers, right? So at the top end of the spectrum, you have customers for Baker Hughes that have been their customers for 70 plus years. Do you go to that customer and say, well, hey, you've got to wait, you know, 36 months while I delivered Google first, that's a dynamic that we've sort of validated with management and people in the industry that just isn't something they're willing to do. Right. So when we think about growth, we think about it across these segments and how they interact with each other is quite elegant in that if the small scale turbine sizes do sort of start to weaken in demand,

they're almost taken over immediately by the mid and large size because of those other factors that we alluded to earlier. That was really, so what you're saying is based on your talks, and obviously, again, I see the list, you guys have a long list of industry experts you talk to. You think that Baker Hughes, you know, the storied company, as you said, 70 plus years, you think right now they are kind of, I don't want to say honoring their commitments, but if you've been accustomed with them for 70 years, they might be sacrificing margin in delivering you supply right now when, you know, Google, you see it with CPUs, you see

with all sorts of stuff, Google, Anthropic, whoever, they would pay a huge premium. And Baker's kind of saying, well, we've been with these guys for a long time. We're going to make sure we supply them. And obviously, all the excess goes to Google and stuff. But we're going to kind of honor the commitment to the legacy utility in Portland that we've been working with for 40 years. Yeah. I think that's the sentiment and life for Cam to jump in.

I think it comes back to their legacy of who they've served, the tech. of customers, they serve starting in oil field services and honoring that legacy in a way and staying true to that culture, which sort of disseminates across, I think, 55,000 plus employees. Whenever we've had the opportunity to interact with them, that's sort of the cultural philosophy that they go by, right? We take care of our customers, customers come first, and these have been with us for decades that we need to make sure they're happy. Yeah, and the point on the other side, two of just the business dynamic itself. As we pointed to where the real kind of margin of this business is, it's these long-term service agreements, which comes with, you have to maintain

these long-term relationships with your customers. And so really, we saw both with Baker Hughes, but industry across the board that people in the industry aren't willing to, you know, make a quick buck on the equipment when they're giving up the potential to maintain and keep that long-term relationship that ultimately drives their economic. long-term and really the main driver going forward. Yeah. Oh, go ahead, Greer, please. Sorry, that's just something we heard when we were at the turbine conference in Long Beach,

just talking to different people along the value chain and the emphasis on, you know, reputation related to services was something that we heard over and over again. And that was really interesting to learn about. So that definitely comes into play. You know, maybe I'm just a stock jockey who just like reads 10Ks and looks at numbers all day. But I always do wonder because I feel like every time I've had a company tell me, hey, you know, we're doing the right thing where, you know, we're kind of asking how I hope I act like ever in my everyday life.

Every time I've seen that like on the other side when they're like, we're relying on our customers, the customers are kind of like, F you, man, cut your prices. So I do. I'm one year to like it, but on the other hand, I'm like, man, I don't know. Maybe these should just be more mercenary and just be like, guys, Google is going to pay us $2,000 for this little light bulb. You guys can pay us $2,000. we'll give it to you.

If not, we're going to go to Google. And if you say 2000, we're going to see if Google's going to pay us $2,100 before we sell it to you. It's a really interesting example because it's happened with other OEMs that I'd be cautious to name, given the forum that we're in. But it is something they've fallen prey to. And their customers, which we found at this conference, are very unhappy, let's call it, with competing OEMs and how they've changed with the change in the market. dynamic, which is something that we pushed really hard to validate, right? Was Baker immune to this? And from these conversations, the conclusion we landed on was, you know, they've really tried throughout their org to not be susceptible to the short-term grabs of margin.

You know, and it's cool because, as I say this, like, if you kind of leave that money on the table, like the nice thing is, A, maybe perhaps I'm to come and buy. you and pay a preview, be like, we're going to pull that lever. But it does, it does tend to come back in other ways. And it kind of, it gives you guys a margin of safety, right? If this gets a lot hotter, they're going to, they're going to be able to realize that at some point. And if it gets colder, maybe the customers do stick with them. So this is true.

Let's go to the evaluation. I am looking at, I believe it's slide 16 of your deck and I'll include a link to the deck in the show notes. But you guys have, at the time, this is the president. And it's about where's trading right now. Bigger Hughes is trading for, just shy of 14 times you, but I'm multiple. And some of the parts actually says, 2028 is going to trade for 14.5.

So you're not forecasting a lot of EBIT expansion, or a margin expense, multiple expansion. What you're really forecasting is, hey, IET and chart are going to grow a bunch. So I'd love to just start with high level, how you guys look at the valuation, where you guys kind of think the fair value for Baker-view stock is.

And then obviously, I have some questions on the valuation on the back end. Yeah, of course. So one of the things we wanted to stick way is making this a multiple story. We think the market has really seen the opportunity opportunity of the IAT business, but where we really want to differentiate and where kind of our research found is looking at this as, you know, two separate businesses and the momentum using

a sum and parcel approach of what this looks like years down the line. And so really with, you know, analyzing both the chart acquisition and just the trajectory of backlogs that they've been booking on the IET side, we really felt the market was, you know, under appreciation in the magnitude of revenue growth in this IT business, along with how that revenue transitions from, you know, the equipment margins that has today to more and more service margins that are structurally higher as revenue comes more from that. And so on a valuation approach, we really kept valuation fairly flat on the some parts approach and just expanded this story that we heard talking to multiple people and doing kind of the analysis of their backlog and

how it's been transitioning to revenue over time into kind of what the trajectory of this looks like down the line. You know, I think, maybe it's just because I've got the legacy, Baker Hughes, oil and gas. You know, the first thing that jumps on like, man, is saying this is worth 14 and a half times, 2008 EBITDA. Like, it's a big number. And there's real KepX here. If we haven't started, there's real taxes here.

Like, it's a big number. You're really starting to give it quality credit as a big quality company. once you throw that in. And then, you know, the two places I was kind of looking is number one chart. You mentioned chart. In 2020, it'll be about 20% of their EBITDA. I think if I remember correctly, you guys have forecasted at $2 billion in EBITA. And chart, I mean, the acquisition hasn't even closed yet, right?

They announced in mid-2020-five their buying chart. It's going to close, I think, in the next 30 to 60 days or something. But it hasn't even close. And they're buying it for, if I remember, the numbers right, 13 and a half billion, I think is. And you guys are seeing it's going to be worth in 2020. I think the number is like $28 billion. So you're saying they're going to double their money inside of four years. Like that's a great IRA.

But you kind of look at and you say, hey, they paid an acquires premium for this business. There are real synergies that they're going to get. But they didn't say, hey, they tied to gosh darn well too. But can they really create that much value in that sort of time frame, I think would be the first question? Because that's $5, $10 billion of value on a 70 billion EV company. Like, that's a big piece of the value creation you're talking about here. Yeah. Yeah, you know, it's a great question.

I think when we looked at the chart acquisition, we also looked at really their history of acquisitions. The real focus we looked at is that management over past years has been using a combination of both, you know, acquisitions, but also divesting in businesses that really don't make sense for this IET platform. And where we saw the opportunity in chart and really think that Baker is really the perfect platform to grow it is how it really fills out the, LNG services that Baker provides and really accelerates the services that they're building out through their equipment install. And so it really makes Baker kind of the one-stop shop for all things in the LNG value chain. And through that, we've kind of looked at past management's projection of synergies,

which tended to be on the conservative side and really just ultimately looked at how this business was helping this greater IT transformation. And that's really where we became comfortable with this pretty significant rise in value of this business, given how much it unlocks with the trajectory of IT. Yeah. A few more data points. I think that could be helpful, the listeners is official guidance from management on the acquisitions, about $325 million in cost synergies.

But they've been very close to chest on what it would unlock from a revenue synergy perspective. And where that gets really interesting is Baker's been a client of chart over the last decade plus, gotten to know this business through and through really deep. And so our question then was like, okay, well, how good are they going to be at integrating this business? And historically, like Cam mentioned, they've done a great job, divested things that didn't make sense. And it also sort of probed into how this new business, how will chart interact with IET, right? Are they just going to merge them over 30 days and hope for the best? And what we land on is it's probably going to be two separate businesses for a while, right?

And they have this legacy and culture of very slowly overtime integrating businesses. And sure, it is a big step change up for sure on what we think the value of the business is. But from a potential list of acquirers for this business, Baker really does have deep context over this decade plus. and having done it now at almost this perfect time, like you mentioned, when their IET business is really taking off, and having this value add that they can tack on to the back of all of their contracts that they're negotiating right now with utilities, with infrastructure, with customers across value chains that need energy,

really does make it exciting for us. No, it's a fascinating, you know, just on chart, you mentioned there, customer and the diligence. It's fascinating because they paid a tip-top multiple for this, right? Because Chart was in a merger with FlowServe. And Baker came in, you know, not only did they have to beat FlowService price and, you know, with a cash offer, they also had to pay a breakup fee to flow serve. So you're talking about the highest price you can pay for this business. But again, it was very well-timed. And it seems like it's going to create value. But it's just, you know, my dumb, dumb value investing brain just keeps saying, buyers, curse, winner.

beware, like, it's just so hard, but it does seem like they timed it very well. Anything else from you guys on the chart? I do have a couple more questions on valuation stuff I want to talk about. I would just say, and I think this adds to Carl real quick, is like also at the turbine conference. I mean, we were able to speak with a lot of different people. Baker is known for, you know, being really strategic about who they acquire and, and just having a very successful track record in the space and being smart about how they integrate employees

and culture. So that was also just interesting narrative to to layer on and make us more comfortable. Can I follow up on that? So Baker is a combination of the Baker Hughes of Old, which they merge with G's oil and gas business in like after the shell bus that I talked about earlier. They merge with it and it's a big deal. I think G at one time owns two thirds of the stock and they they sell it all and everything. How often people view, you know, I think there was a little bit of cyclicality timing, but how if, I won't bias the witness anymore, how have people viewed the integration and the results of that combination? Yeah, I don't know if Carl, you could speak to that.

Yeah, there's some intricacies to that relationship between GE and Baker Hughes that stand today. High level when we talk to folks that have been in the space that have seen legacy, saw the merger, and then saw the sort of spin out. What they tied to high level was, you know, Baker Hughes is a standalone business, right? They gained a lot more from this merger than they lost, right, as a company is the high level, you know, thinking or thought that consumers, so their customers have on it and experts in the space. And so when we fast forward today, what this is meant for Baker Hughes is they were really able to bring this industrial energy technology. technology business and create it because they were able to merge with G at that point.

So had they not merged with G oil and gas, then they would not have had the gas turbine business. So they came away realistically much better off than when they went in. And thinking back, probably in hindsight, G's probably wasn't too happy by what's happening right now and giving up so much of that value by way of spinning out the business. So to summarize what it looks like right now, they still interface with each other pretty closely, they being Baker Hughes and GE Renova through what they call the GE Arrow Alliance. And what this is is it's three separate entities.

It's GE Arrow, which manufactures turbines and blades, very specific IP that goes in the turbines that both G. Vernova and Baker Hughes sells, right? So the IP is pretty closely tied there. The intricate part about this setup is that G. Vernova, the spinoff, is able to sell these gas turbines, essentially IAT equipment, into any end industry except oil and gas. And Baker Hughes is able to sell these gas turbines in only oil and gas as an end customer. And this is what happened. 2019. Fast forward, there were a few filings that were made, agreements changed, negotiations made internally, a lot of it redacted, but that has now loosened pretty significantly. 24 was a big change, and we're starting to see it now in filings where Baker Hughes is selling

now into different end markets, right? Data Center is one with Nova LT, which is completely their own IP. None of that is shared with Gerenova. And so they're very intentionally making the shift away from this business while still being super cordial, right? The relationship still seems pretty great between the two and they still do a lot of referring and such. But there is, you know, this sentiment. These are now two very standalone different businesses. Let me go to management.

And that's kind of where I want to go. You know, if I just, so Lorenzo, he's been the CEO. I think he comes from the G-D side. He's been the CEO here for 10 years and was CEO at the G-D side before that. You know, when I just look at this board and management, and I just get completely obsessed with alignment, insider ownership, all this sort of stuff. So Lorenzo owns about $50 million of stock, and that is obviously a lot of stock. There's a lot more stock than I own.

I'll tell you that much. But it's a lot of stock, but he makes $22 million per year. And the board is very skinny on ownership. And the reason I'm kind of hammering that home is because, hey, you know, they did just go by chart for all cash. hey, they did do this, I mean, he's from the G-E side, but they did do this big GE acquisition. And I do kind of wonder, do you have full alignment, right? Like, if you got a board and management team that don't own a lot and they're in a heavy

cyclical industry, they get paid when they go buy stuff and they get bigger and they grow and then they can take their, you know, their salary from $15 million to $20 million, all that sort of stuff, not necessarily when shareholders do the best. So I'm not saying that's the case, but you know, it's not lost me. I was looking to their proxy. There is a lot of stuff that is nice. I think there are RIC and FCF, but it's never per share.

It's never a shareholder return for the most part. So how do you guys feel about the management team, their track record here and kind of the alignment? Yeah, I'd love to add that. I mean, obviously, ideally we have more management control and so forth. Where we kind of gain comfort was more in the capital allocation. As we allude to, obviously, you know, acquisitions can be, hit or miss, but the combination of divestures is really where we see kind of that alignment,

that the company's not just focused on building out as much revenue as possible or as much growth as possible. They're willing to sell these businesses that have worked in the IET platform before, have worked in oil and gas before, but aren't directionally what they're looking for long term. And so, while we would prefer additional kind of management ownership, as you alluded to with any business, the fact that, you know, acquisitions come with strategic investors gave us a lot more comfort that this management's focus, not just on, you know, short-term growing the business, but long-term trajectory of where this business is going. You guys had a lot of expert calls here, competitors, former, executives, all this or stuff.

Just when you guys were talked to all these, and forget the company's reputation, which I think especially Carl spoke to us pretty good, given their servicing and everything. What did you guys get of the read of how people thought about the management team here. Yeah, current employees, vast employees, customers, they love them. The sort of reviews that we heard, not just top top management, but internally as well, middle management was just pretty stellar. I don't have a large sample size particularly in oil and gas executives and hearing what their

reviews are like, but it seemed pretty stellar. I think their longevity, how long they've been a part of it. Lorenzo's going on probably two decades, if not more. Yeah, 2027 will be two decades for him in the org. And I think that's sort of a strong signal. A lot of folks referred to him, first name basis that said, you know, Lorenzo, when referring to the leader of the company, they did bring up that first name basis. There's some interesting heuristics at play that I hadn't seen in past.

work. Yeah, and I'll just add to that the general employee satisfaction that we saw, you know, obviously the management teams have been in the industry for years and years, but even a lot of the, you know, general employees that we talked to really had kind of the similar message that they were happy with kind of where their career was, where the opportunities were, and really the long-term focus of opportunity. You know, I don't know how, but obviously, I put through the proxies and everything when I'm prepping for this.

But Baker Hughes had an investment in C3 AI way back in 2020 and he served on that board. And that's obviously a, let's use this term fun. It's a fun stock and a fun story and everything. But I'm just curious, like, how did they get it? And you don't have to know this. This is far, far long, long ago, the COVID time. But how did they end up involved with C3? And like, they blew out of 100, 100 million plus of stock at very good price.

Like, how did they get the stock? How did they get involved? I was just fascinated by that involvement. I thought it was kind of funny. If y'all know the story, you could tell me, but if not, there's no judgment on not knowing the results of a lottery ticket that paid off six years ago. The nuances of the deal is something that we didn't get into, but a fun anecdote is the CFO of that business went to Columbia

and was one of our first conversations. He's now leading a lot of gas turbine work and IT work at Baker. So potentially might have been. sort of talent acquisition play, they do play a lot of importance to their software stack. That's something we heard of a lot as well. I believe it's called Crescent. Essentially, all of their gas turbines are monitored 24-7-365 across thousands of data points to run some pretty complex data science to get predictive analytics on when a certain part is going to break. And then preemptively work on manufacturing it and delivering it to the client because of the way the service agreements

are set up. They're more based on sort of runtime as opposed to more traditional servicing agreement. And so if I were to venture to guess why and how this happened, it's probably for that predictive analytics software stack that they have and brought over some pretty cool talent as well. Yeah, I have no idea, but it is crazy. And that is one, I'm not the first to make this show, but it's like a billion dollar market. market cap company. I wonder how much of the value of that company is just they have the sicker AI. Like how much is the value of that company that's sicker AI? Guys, this has been great. I do. I think we've gone through all my questions and I think

we've gone through the deck. I'm just looking. Is there anything else you guys think I should have hit that we should talk about or listeners should know? Or can we kind of wrap it up here? Damn, Greer? I have nothing else to say. I'm also apologies if I'm frozen. You are frozen. I was looking I was looking at maybe that was a good end point but well look guys I want to again congratulate you all the judges told me I've been loosely like I've talked to them for the past four years all they just told me this was by far the most competitive best set so congrats coming in sight it's just it's awesome I will include a link to the presentation in the show

notes and everything and people should feel free these are all first year rising second year Columbia MBA students it's it's just awesome people should feel free to reach out. I can also connect to any once. But thank you guys so much for coming on. Congrats again. And we'll talk soon. Thank you so much. Thank you. So much. It was a great conversation. Thank you. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.