Bill Foley

How Bill Foley built several multi-billion dollar businesses and generated one of the best long-term investing track records.

Dec 17, 2021

Bill Foley is one of the most interesting billionaires you’ve probably never heard of. Despite his massive success and extraordinary business acumen, there’s relatively little written about him. We first got interested in Foley because we were taking a look at the title insurer Fidelity National Financial (FNF for short). FNF is Foley’s baby, which he built from the ground up to be the dominant title insurer in the US.

It turns out that Foley is John Malone on steroids, which is to say he is one of the most active deal junkies you’ll ever come across (like Malone, he’s also a pirate 😉), so this is far from an exhaustive profile. We’re just selectively sharing what we found interesting.

How Foley got started

Fast forward to when Foley was ~30 years old. He had just finished law school and joined a law firm in Arizona. Foley is one of those people who cannot work for somebody else, so after only two short years in the industry he started his own law firm, Foley, Clark & Nye, in 1976. During this time, he was handling the legal work for a local savings and loan company, SS&L. He became a major investor in SS&L and joined it full-time in 1981.

While working for SS&L, he helped them acquire a small title agency as well as a small title insurer, FNF. The strategy was to cross-sell SS&L’s banking services to title insurance customers. Foley and Frank Willey (who worked at Foley’s law firm) began rolling up small title companies across California on SS&L’s behalf. FNF’s revenue grew quickly over the next three years, from $6M to $40M. Foley had some gripes with SS&L (including with their lax underwriting, which eventually resulted in their bankruptcy during the savings and loan crisis) and thought that FNF had huge potential that was not being exploited properly. He formed an investor group to purchase FNF from SS&L in 1984 in a $21M LBO. Foley’s equity check must’ve been quite small as most of the purchase price was vendor financing by SS&L. An old newspaper article seems to suggest that he bought FNF for just ~0.5x P/S and less than book value. Foley left his law practice that same year to become Chairman and CEO of FNF.

A Deal Junkie

Believe it or not, the chart above is a highly abbreviated version of Bill Foley’s deal making history. It excludes dozens if not hundreds of deals. The “Recent Developments” section of the old FNF annual reports was usually a multi-page affair, before FNF got so big that the materiality threshold began to cloak the ferocious deal making. Every year of FNF history is a real trip… just when you think you know what’s going on, he starts issuing LYONs (we had never heard of them either: Investopedia) and buying them back again at a gain, buying the high yield bonds and wiping out Buffett’s equity at auto parts maker Remy International1, or investing in timberland assets.

Beyond the insatiable deal-making at his public companies, he’s made many private investments across wineries, golf courses, hotels, ski resorts and restaurants, among others. Back in the ‘90s and early 2000s, his “side hustle” aside from running FNF was to roll up struggling QSR chains at CKE Restaurants, a public company at the time. He’s also built an NHL expansion team from scratch over the last several years (Vegas Golden Knights), taking it to the Stanley Cup finals in its first year.

That’s why we said John Malone on steroids...

Track Record

How well would you have done had you hitched your wagon to Foley by investing in the 1987 IPO of FNF, held onto all the spin shares you received along the way and reinvested all the dividends? You would have compounded at around 19% per year over the last 34 years. A 350 bagger. Barry Diller’s IAC has compounded at 15% from 1995 to today, over which time period Foley has also done ~19% a year. The S&P 500 compounded at ~10% per year over that time period. Needless to say, it’s a spectacular track record that makes Foley one of the best investors of the last 3-4 decades.

Foley has become a billionaire despite his humble beginnings of being born into a middle-class family. His stakes in public companies are worth ~$1.7B (FNF, FIS, Cannae, BKI, DNB, and various SPACs). Beyond that he owns many other assets including a majority stake in the Golden Knights (the franchise cost ~$500M and is valued around $750M-$1B).

Title Insurance as a Platform

The four large title insurers in the U.S. are cash cows today. It’s an oligopoly with significant barriers to entry and scale as well as high returns on tangible equity. We may write up FNF in the future, but for now you can check out these VIC write-ups if you’re interested in the basics:

https://www.valueinvestorsclub.com/idea/FIDELITY_NATIONAL_FINANCIAL/4885281745

https://www.valueinvestorsclub.com/idea/FIDELITY_NATIONAL_FINANCIAL/1790653413

The industry didn’t look anything like this when Foley bought FNF. The industry was quite fragmented with slim margins. Of course, that was part of the allure for Foley. Foley recognized that title insurers could be bought on the cheap yet had some very attractive attributes:

Non-discretionary: mortgage lenders require end customers to get title insurance. Virtually every real estate transaction in the U.S. involves the issuance of title insurance.
Purchased by agents: real estate agents and loan officers are the primary gatekeepers in the real estate purchase/refinance process. They steer end customers towards a title insurer. However, they’re not the ones paying for the policy. For example, one of us bought a condo recently and the lawyer involved in the closing process simply chose the title policy (confession by the buyer: I didn't even remember the name of the title company until looking into my files for this project). It is illegal for title companies to pay realtors commissions to steer clients to them. This entrenches FNF, the scaled player, as they can maintain relationships through indirect means, such as cross-selling software to realtors, having by far the largest national sales team that does nothing but call on realtors, and aggressively hiring away rainmakers from smaller firms.
Low cost-to-value: title insurance premiums are tiny relative to the value of real estate transactions. We’re talking about basis points. This is a positive, both for pricing power and a lack of price shopping by customers.
A royalty on US real-estate: Title insurance is generally priced as a base fee plus a % of the value of the property. Real estate is an asset class that appreciates over time which provides automatic price increases for title insurers.
Insurance of past rather than future events: title insurance protects against events in the past that are often knowable (undisclosed deed against the property, unpaid property taxes, undisclosed co-owner etc.) rather than unknowable future events such as inclement weather. Thorough underwriting due diligence leads to very low loss ratios (~4%-5% loss rates) which makes title insurance unlike other types of insurance. Title companies are not really insurers as much as they are real estate transaction processors.

These industry attributes helped FNF become a great business over time as the industry further consolidated. Foley was also keenly aware that most title insurers were sleepy companies run by unimaginative management teams. By running the business much more cost efficiently than competitors and changing up a few industry conventions, especially around distribution, he vastly improved the economics.

While FNF’s economics back then looked far different from today, it was already a 20%+ ROE business, so Foley had plenty of cash flow coming in to plow back into the roll-up. While cyclical, the business could still carry some leverage, giving Foley yet more fuel for acquisitions. The third leg of the stool were the public markets. Foley took FNF public after just three years of ownership, in 1987, and was a big issuer of stock for acquisitions (by our math, FNF’s shares outstanding went up about 7x between 1993 and 2013, adjusted for stock splits and stock dividends).

Owning the Distribution

Arguably the most important change Foley and Frank Willey made at FNF was to pivot the business towards direct distribution. Historically (and to this day), title insurers relied on independent agents, not unlike many other types of insurers. Title insurance on its own can be a relatively commoditized product. The excess returns in title insurance, in part, come from controlling the local relationships with hundreds of thousands of brokers, lawyers and loan officers across the country. This is why to this day, despite a much more consolidated title industry, local independent title agents retain 70%-90% of the premiums they originate, passing on only a small fraction to the title insurer. Foley recognized this and aggressively rolled up independent agent firms.

Direct distribution becomes exponentially more valuable the more fragmented the customer base. As mentioned earlier, title insurers’ branch offices and independent agents court the gatekeepers in the real estate purchase and refinance process of which there are plenty: ~1.3M real estate agents, >300K loan officers, and myriads of attorneys and escrow agents. While rolling up distribution in every single town and city across the US is a tough slog, the cost savings are striking. Instead of paying independent agents 80 cents of commission for every dollar of title premium, doing the entire process in-house cost only about 50 cents per dollar of premium. Keep in mind that the industry was earning mid single digit pre tax margins at best!

It’s also far easier to hold your own employees accountable for the quality of their work than independent agents. As explained earlier, title insurance protects against events that occurred in the past and roughly half of all title claims can be avoided by doing thorough upfront due diligence of public records. As per an article from the ‘90s, Fidelity’s loss ratio was about 5% compared to an industry average of 8%. FNF also fared better than its peers during the GFC. Shoddy independent agents that produce higher than average losses for the insurers has been a recurring problem in the industry.

Over the years, FNF has acquired hundreds of independent agencies. Even to this day, they routinely acquire 10-15 agent practices a year, spending to the tune of $100-200M. It’s gotten to the point where there simply are almost no large independent agencies up for grabs. Mostly it’s just small $2-5M agencies that hit the market. Foley rolled these agencies up at 4-5x EBITDA which (1) erected barriers to entry into the industry, (2) improved FNF’s economics, and (3) expanded FNF’s competitive advantage by taking share away from its competitors.

For example, FNF recently acquired the dominant agency in Hawaii. FNF only represented ~30% of their business with the rest going to its two largest competitors, First American and Old Republic. Post acquisition, that volume will immediately move to FNF. It is almost unholy how cheaply Foley was able to erect this powerful distribution moat.

Owning the distribution also unlocks the ability to cross-sell which Foley has always been a big fan of. He was one of the pioneers of cross-selling in the title industry back in the ‘90s:

“Fidelity had begun working, in 1997, on its bundled services capacity, including title and escrow, tax, credit, flood, foreclosure appraisal, document record, and electronic commerce… First American was probably the only other title insurer to have comparable ability to provide bundled services independently, that is, without having to contract out some services to other companies, thus increasing the package price.”

Independent agents offer a lot of these services in-house. For every dollar of title premium FNF originates itself, it tacks on about 65 cents of escrow fees and other title services.

Foley The Operator

“What we do is simple.” – Frank Willey

Foley-The-Operator hasn’t done anything that’s not been done by many other high-performance management teams. He identified the key building blocks and executed well on them.

Foley runs his businesses lean and mean. A few anecdotes:

19932: “the complexities of managing a much larger, nationwide company have forced Foley to add a bit of fat to his bare-bones approach to management. He has, for instance, broken one of his long-time corporate vows--to avoid bureaucracy--by hiring a regional manager to handle the company’s East Coast operations. “He’s not allowed to have a regional staff; just him and a secretary,” said the red-tape-hating Foley. His tenet now is “minimize bureaucracy.”
From 1997 when a series of Fed rate hikes took the title industry from boom (1993) to bust (1995): “the profit slowdown shows how tough Fidelity managers can be, having trimmed roughly 40 percent of the work force from its peak. That’s the only way to survive in a notoriously cyclical business, he says. “We’re not good guys. We’re not bad guys. It’s what you have to do”.
When FNF acquired Chicago Title in 2000 (the #2 title insurer at the time), FNF had about 2.3x as much revenue/ HQ employee as Chicago Title. Needless to say, the ax fell hard in Chicago.

Apparently, Foley was “a disciple of the management guru Tom Peters”, which reminds us a bit of Jay Hennick’s infatuation with Peter Drucker. According to some people who worked with Foley in the ‘80s and ‘90s, as well as some of his own quotes, he used to be quite the tyrant who was tough to work for. His view was “if there’s a failure, it’s my fault”. Tom Peters played an important role in shaping Foley’s customer-centricity and may also have contributed to Foley’s journey towards becoming “a very good delegator”. Of course, since Foley usually has at least a dozen things cooking at once, it would have been impossible for him to survive as a micro manager at all of his enterprises. His usual approach is to get in and take a very active role until operations have been improved, then gradually hand over day to day responsibilities.

FNF became the first employee-owned title insurer (back then you had to get permission to sell stock to your employees). As of 1993, Foley owned ~21% of FNF but ~1,200 employees owned a whopping 22% of the company “through contribution and matching grants”. Foley has always been very big on incentives (including for himself, but more on that later).

While Foley took care of productive employees, he had no qualms when it came to showing under-performers the door:

“We thanked [our salespeople], we sent them on trips. And we transitioned out under-performers." Meaning what? "Fired 'em...or established standards they couldn't meet so they left."

Even today, FNF is known for aggressively poaching “rainmakers” from its competitors as well as having tough performance targets for its employees. The FNF culture is very hard-charging in what is a relatively sleepy and boring industry.

Foley espoused the concept of healthy internal competition. FNF did very little integration and didn’t re-brand title companies after acquisition. This was inspired by P&G’s approach of creating competing soap brands. He took this a step further by IPOing American National Financial in 1999. ANF was one of FNF’s larger in-house agencies in Northern California. Foley remained chairman of ANF and there were certain contractual arrangements between ANF and FNF, but he let ANF loose to expand and acquire. ANF mgmt. owned ~40% of the business and could easily be incentivized using stock of their own company rather than the larger FNF entity. It’s reminiscent of the Topicus spin-off from CSU. FNF ended up taking ANF private again several years later. This is classic Foley. He is a master of experimentation, no matter how unconventional, but also pivoting quickly if it doesn’t work as expected.

The outcome of his pivot to direct distribution and the exceptional operational execution has been industry-leading margins:

“Foley, the president and chief executive officer, and his top aides also have made Fidelity the envy of the industry by achieving what no other major title insurer has been able to do in the past five years--generate annual profits solely from operations [as opposed to returns on the float]. And it will do it again this year.” – 1993 article

Even FNF’s largest competitors had FNF margin envy. FAF, the #2 title insurer behind FNF, went as far as including a chart in their 2007 investor day about their attempt to close the gap with FNF:

Foley the Deal Maker

Value Investor

When Foley was attending West Point in his early 20s, he was a middling student, not least because he preferred spending his time making money. He bought his first stock when he was 16 and during his time at West Point he turned $2,000 into $40,000 (about $340,000 in today’s money). It’s very unlikely that you’ll make a 20 bagger in a number of years if you invest in boring companies and Foley was doing anything but. He ended up round-tripping, losing every dollar he had made. That’s a lot of money to lose at any age, but almost unfathomable in your 20s. This quick large gain and even quicker complete loss had a profound impact on him. Foley turned his back on speculative investments and became a big fan of boring companies.

Foley turned into a self-professed “bottom feeder”. Foley absolutely loves getting deals done on the cheap. He will gladly buy turnarounds, deal with unique situations that scare away other investors, venture into industries that have been decimated by a cyclical downturn etc. to get a good deal.

Being a very price-sensitive, shrewd deal maker was a key success factor in Foley’s title industry roll-up. Title companies were (and still are) viewed as low quality businesses so FNF always traded at a low multiple, usually in the single digits P/E. Foley needed cash from the capital markets to fund his acquisition spree but didn’t have a strong currency, unlike Singleton’s Teledyne in the conglomerate heydays. Foley had to buy title companies for even less than his own weak currency. During the ‘80s and ‘90s, Foley and Frank Willey did this by playing the role of “buyer of last resort”. They’d buy troubled title companies for bargain prices and fell back on Foley-the-Operator to bring them up to FNF’s standards.

Deal Junkie

Foley is a compulsive deal maker. To quote an article from 1996:

“Foley also admitted that his ambitious deal making could get out of control. ‘I’m my own worst enemy; I keep ﬁnding transactions to do.’”

An interesting example that should give you a flavour is his purchase of CKE Restaurants:

The ‘Burger Wars’ were price wars which started in the 1980s between McDonalds, Burger King, and Wendy’s and culminated in Burger King introducing the 99c Whopper. Unsurprisingly, industry profits were crushed and stock prices took a dive. Foley had plenty on his plate at the time at FNF, which was in peak rollup mode, but the blood in the water invariably drew him in.

Foley’s thesis on the industry was that struggling QSR chains often had restaurants in prime locations and could be turned around relatively easily. They had simply lost their focus on the customer. “Just clean the bathrooms and make sure the burgers are made quickly”.

Carl’s Jr. was a regional burger chain in California that was on the brink of bankruptcy in 1993. Foley knew the founder and swooped in to buy Carl’s Jr. in 1994. Foley initially thought he’d make a quick double and move on but this was the proverbial ‘kid in a candy store’ situation. There were just too many burger chains that could be bought on the cheap. He ended up buying more and more chains until CKE was the 4th largest hamburger chain in the US in 1999. (We’re not entirely sure how well his forays into QSR played out in the end. The Hardee’s acquisition, which one newspaper dubbed “CKE’s Vietnam”, appears to have been a mistake but we did not go down too deep into that rabbit hole).

This brings up a very underappreciated ability: handicapping, with speed and at scale. Investing is a challenge of optimizing breadth (how many rocks you turn over) and depth (how well you understand them). Some investors dive deep and know a small number of companies very well. The downside is a limited opportunity set to draw from. Conversely, some investors cover a lot of companies but are unable to go very deep, leading to mistakes. Executing well in both areas is what makes for a hall-of-fame investor.

Foley reminds us of Buffett and Munger in that sense. To paraphrase Buffett (describing Munger), Foley has a great “30 second mind. He goes from A to Z in one move”.

Foley has unusually accurate and quick judgment when it comes to understanding and handicapping deals. He’s had a very high hit-rate across many deals in many different industries.

Some Case Studies

If you had invested a dollar in FNF’s IPO and done nothing since then, you’d have ~$350 today. Your primary holdings would be FNF (~50% of the total), Fidelity National Information Systems (~20%), Black Knight (~20%), and Cannae (~7%).

Case Study - FNF

We already talked a fair bit about the FNF roll-up. There are a few more deals that are worth taking a closer look at.

1994-1995 buyback:

In the early ‘90s, interest rates dropped dramatically in the US, providing a large stimulus to the real estate market. The value of residential real estate transactions doubled from 1990 to 1993, a boon for FNF. The Fed started raising rates aggressively in 1994 and 1995. This led to the title industry going quickly from boom to bust. FNF went down to ~4x P/E. Foley pivoted in response and went full Singleton. He issued 15-year zero coupon convertible notes in 1994 and used the proceeds to buy back around 1/3 of FNF’s shares over a two-year period.

Chicago Title:

After pursuing dozens and dozens of cheap tuck-in deals, FNF was the #4 title insurer in 1999. The industry had become quite consolidated with the top 5 players having a combined 89% share. Title is a scale game which made it very important for FNF to get to the top spot with not many different ways left to get there. Chicago Title, the #2 title insurer, had just been spun out of Alleghany in 1998 and was more like FNF than any other large title company. It had strong direct distribution in the East and Midwest which was highly complementary to FNF’s footprint in California and the South.

Unfortunately, it could not be had on the cheap. FNF paid ~$1.1B for Chicago, half of it in stock. 1998 was widely considered another top-of-the-cycle year for resi real estate, and FNF was paying ~10x Chicago’s 1998 adjusted net income. FNF on the other hand was trading at only 5x 1998 P/E. Deploying their operations playbook to the bloated Chicago Title, FNF eventually unlocked ~$133M worth of synergies which means it paid a more reasonable 6.5x 1998 P/E after synergies. The stock component of the Chicago Title deal was still dilutive to FNF shareholders.

While Foley is a bottom-feeder, he’s certainly not dogmatic about it. It wasn’t a cheap deal but Foley’s cost control and use of 50% debt along with 50% stock still made it a win for FNF. Along with ~20% EPS accretion, FNF’s unmatchable scale in the title industry is a direct result of that deal. As aforementioned, title is a scale game, so the deal was well worth it.

LandAmerica:

LandAmerica was one of the leading title insurers in the U.S. before the GFC. It got itself into trouble by investing escrow funds from commercial real estate transactions into auction-rate securities. When the bubble burst, LandAmerica faced a severe liquidity crunch3. This was a tough time for the title insurance industry in aggregate, leaving FNF as the only player to take advantage of the situation. LandAmerica had a book value of ~$1.4B before the GFC, yet Foley picked LandAmerica’s two title insurers up out of bankruptcy for ~$235M. As far as we know, FNF was the only serious bidder. This transaction put the title industry close to its end-state with 4 title insurers (FNF/FAF/ORI/STC) controlling about 80% of the market. This virtually guaranteed that no other title insurer could ever overtake FNF in its position as the industry leader.

Case Study - FIS

By the late 1990s, Foley was looking to diversify FNF’s revenue stream. He had acquired several real estate-related information services businesses by the early 2000s, but it was still a side-show to the title business. In 2002, PE firm Thomas Lee got Foley into the auction process for Alltel’s information services division, which was a big player in the core banking software and mortgage processing space. Alltel was a telco that had gotten into the business by acquiring Systematics in 1990 for half a billion. However, by the late 1990s/ early 2000s, Alltel had lost interest and was selling non-core assets to fund their roll up of small rural wireless providers. This was good timing for Foley as interest in tech-related deals was low in the aftermath of the dot com crash - it was a buyer’s market.

Alltel’s software business was an ugly duckling. It only accounted for ~13% of Alltel’s revenue and was under-invested in. Revenue was about flat from 2000 to 2002 and was declining LSD organically. The 2002 annual report mentions contract terminations and some one-time projects that didn’t recur. Alltel didn’t want to sell the entire division as it wanted to keep a small part of it that catered to other telecommunications companies. This checked three boxes for Foley: (1) complex, (2) turnaround, (3) industry downturn.

Interestingly enough, Fiserv, which was the 800lb gorilla in the banking software space (~3x the size of Alltel’s division), was trading at close to 30x PE in 2002. On top of that, they were busy rolling up the industry, making plenty of acquisitions every year. All-in, Fiserv’s revenue was growing mid-teens. This would have checked a fourth box for Foley: line-of-sight to a far higher multiple.

FNF ended up buying Alltel’s division for $1.05B (primarily cash), ~7x EBIT, in 2003. This was less than the money Alltel had spent to acquire the business in 1990 and the money it subsequently spent on tuck-ins and R&D. A classic bottom-feeder’s bargain.

This acquisition formed the foundation for FNF’s new division, Fidelity National Information Services (FIS). Foley wasted no time. He spent another $1.2B over the course of two years, tucking in about a dozen companies to build out FIS’ software offering. One of those companies was Sanchez Computer Systems which had only ~$60M of revenue but was on the cutting-edge of technology. Foley put its founder, Frank Sanchez, in charge of FIS’ product road-map and upped the R&D budget to overhaul FIS’ two flagship products in close collaboration with customers. In his mind, FIS could be a 10% organic grower with enough M&A on top to double revenue over 3 years. FIS’ revenue and EBIT went from $820M and $151M in 2002 to $4.1B and $520M in 2006.

One FIS customer put it as follows: “They’re still one of the most expensive providers, but we feel that the way they’re headed is worth what we’re paying for it”.

In his never-ending quest to unlock shareholder value, Foley thought the time had come for FIS to separate all ties with the title business in 2005 in order to realize a higher stand-alone multiple. A complex series of transactions followed: (1) Foley created FNT, a tracking stock of the title assets inside FNF, which artificially separated the title business from FIS. He then did a $2.8B levered recap at FIS to return to FNT (the title business) all the cash it had spent on M&A to cobble together FIS (FNT in turn paid a massive special dividend). Foley then sold a minority stake in FIS to Thomas Lee and filed a prospectus to go public. Not satisfied with the IPO prices he was quoted by the investment banks, he withdrew the IPO and instead did a reverse merger of FIS into Certegy (a previous spin-off from Equifax). By the end of all the deal making, FNF shareholders were left with ~$3.4B worth of FIS stock and had recovered their entire original investment via the levered recap. A tidy ~2.7x MOIC and ~60% IRR.

The Alltel acquisition also formed the foundation for Lender Processing Services, today known as Black Knight. FIS spun this business out in 2008 and it has become a very successful financial technology business in its own right.

Case Study - Ceridian

Foley wrote a $490M equity check for 33% of the business in 2007 and FNF shareholders (if they held onto the Cannae spin-off) over time earned a 55% IRR and 5.8x MOIC. A total investment of ~$540M turned into ~$3.1B. However, how Foley and Ceridian got there was a departure from the original thesis.

Foley teamed up with Thomas Lee to buy Ceridian in May 2007. Back then, Ceridian was a large but sleepy payroll processor. It was widely considered to be poorly run and had a couple large, unrelated payments processing businesses. Bill Ackman had launched an activist campaign in January 2007 which had scared Ceridian’s board into initiating a strategic review by February.

Foley and Thomas Lee had two thoughts: (1) we can lever the heck out of this business given the stable revenue stream, and (2) we can cut a lot of costs.

Ackman wasn’t pleased at all with the offer they put on the table as it was 17% higher than Ceridian’s share price before the board announced the strategic review, and it was only 5% higher than the share price the day before they announced the offer. Ackman waged an aggressive campaign, including suing the company and trying to replace the board. However, the onset of the GFC eventually made him realize that this was the best offer he was going to get. Foley and Thomas Lee closed the deal for $5.2B in late 2007 with FNF contributing $490M, in exchange for a 33% equity stake. Ceridian was now saddled with around $3.5B of debt which meant interest ate up most of the EBITDA.

The GFC was very inopportune timing for Ceridian. Unemployment went up which hurt the payroll processing business, and interest rates went down which hurt float income. For the next few years, Foley & Co were busy assuaging investors on FNF’s earnings calls about Ceridian’s performance and that the debt was well structured. In 2013, they finally admitted that they overpaid for Ceridian. They had bought it at the top of the cycle for ~21x 2006 EBIT. (They ended up selling the non-core payment business to FleetCor in 2014/2015 for a pretty penny but even when you adjust for that they still paid a high teens EBIT multiple for the payroll business)

However, Ceridian made a transformational pivot in 2011. They bought a 20% stake in Dayforce, a small workforce management SaaS company based in Toronto. Dayforce was founded by David Ossip. He had previously built Workbrain, also a workforce management software, and he had sold it in 2007 for $227M. Ceridian’s software was still in the dark ages, being a mainframe-based solution, but Ceridian was the second largest payroll processor behind ADP which gave it a powerful distribution platform. Ceridian bought the rest of Dayforce in 2012 and made Dayforce “the technology backbone for the Company”. Ossip became CEO of Ceridian in 2013, a move very much reminiscent of when Foley put Frank Sanchez in charge of technology at FIS - he has a good track record of putting the right people in leadership positions.

Dayforce was a home-run for Ceridian. Dayforce revenue went from ~$27M in 2012 to $220M in 2016. With the non-core payment processing business sold to FleetCor in 2015, the cloud business had grown to >50% of Ceridian’s recurring revenue by the second half of 2016 (Dayforce comps like Workday and Ultimate Software were already trading at around 10x P/S at the time).

Today, the Cannae proxy statement extols Foley’s foresight and commitment to the Ceridian investment. And that’s not wrong. But it is interesting just how different the outcome was from the original thesis and how contingent this outcome was on a tiny acquisition and its visionary leader.

Foley gets paid

Warren Buffett once made the following comment about Henry Singleton:

“…he made a fortune for shareholders that stayed with him. But he was — to some extent, he looked at the shareholder group as somebody to be taken advantage of…”.

(h/t Transverse Slice and cdnvaluestocks)

The quote actually applies far better to Foley than to Singleton. For Singleton it was more about maximizing shareholder value by taking advantage of Mr. Market’s mood swings whereas Foley always makes sure he gets paid handsomely.

Foley’s net worth already exceeded a hundred million many moons ago and at that point it’s frankly hard to spend the money. But the following quote from an article back in 1999 stuck out to us: “Foley and his wife, Carol, also own a home in Aspen and one in Indian Wells. They have seven cars. “I’m spoiled – it’s terrible,” Foley says. “I’m used to living a good lifestyle, and I’m a very big spender.”

Here are some things we came across during our research:

Foley’s incentive pay at all of his companies was always very generous (but that’s not unusual in the US)
Management contract at Cannae:
- Fidelity National Financial Ventures, FNFV, was a tracking stock created in 2014 to contain FNF’s non-title investments. Basically, it was to be Foley’s PE vehicle. In 2016, FNFV was separated from FNF and renamed Cannae.
- Cannae pays Foley and the rest of its mgmt. team a 1.5% management fee on its invested capital. For realized gains of 1-2x cost it also pays a 15% carry above an 8% hurdle. For gains of >2x cost, the carry goes to 20%.
Management contract at FNF:
- FNF’s title business has an investment portfolio due to the statutory capital it has to keep. The employee who managed the portfolio resigned in 2019 and Foley assumed responsibility together with another employee.
- When Foley took over the investment portfolio, FNF created an annual cash incentive program. Foley and the other employee managing the portfolio would get up to a 5% performance fee on the investment portfolio AUM.
M&A fees:
- MVB Management, which Foley co-owns with Chinh Chu, seems to be his personal investment bank through which he charges M&A fees for deals he’s involved in (Cannae in turn gets 25% of those M&A fees). When a consortium led by CC Capital, Cannae and Thomas Lee acquired Dun & Bradstreet in 2019, MVB pocketed ~$29M for “unspecified services related to the transaction”.4
- Foley has done numerous SPACs. In 2017, one of these SPACs, CF Corporation, acquired FGL. FGL is a fixed annuity provider and so has a large investment portfolio. Foley and Chu hired Blackstone to run the investment portfolio. Blackstone’s fee was a fairly standard ~0.3% of AUM. Foley and Chu in turn made a deal with Blackstone to receive 15% of Blackstone’s management fee via a sub-advisory arrangement. That’s pretty aggressive. Some shareholders weren’t happy when this came to light and there’s currently a lawsuit.5
SPAC King:
- To quote a recent WSJ article, “few SPAC creators have raised as much money as Mr. Foley.” Foley has created six SPACs to date and three of those have made acquisitions: one acquired FGL, another Paysafe, and the third acquired Alight (a fourth one was actually just announced but has not yet closed – System1). According to the same WSJ article, Foley supposedly turned an ~$8M investment in FGL into ~$150M. The original investments in Alight and Paysafe were likely also minimal and are currently worth ~$400M in the case of Alight and ~$125M in the case of Paysafe. SPACs are typically a ‘heads I win, tails you lose’ type of affair.

Some takeaways

Pivoting the business model: going direct was a game changer for FNF, especially as the industry consolidated. An industry can have attractive attributes but if you don’t control the key parts of the value chain, those profits won’t accrue to you. Usually, you can’t acquire those parts on the cheap, but that wasn’t the case in the title industry. Foley created a lot of value by changing a key part of the business model.
Handicapping-at-scale: this is an incredibly valuable skill. When you find someone who fits that mold, join their team.
High-performance culture: Like Cap Cities or TDG, being able to squeeze out better performance at lower cost versus competitors can be a huge advantage in the long run. To quote the title of the great book on Cap Cities, this is how FNF was able to be “the minnow that swallowed the whale”
Joining a pirate: managers like Foley tend to give investors cognitive dissonance: some investors choose to ignore the bad altogether, joining the fanboy club. Some get so dogmatic about the bad that they can’t see any of the good and may end up giving up good long term returns. Foley’s ultimate quality is that he is a true and tested moneymaker. But caveat emptor, he always makes sure to extract his chunk of change for doing so. He’s no Mark Leonard or Buffett in that regard.

Appendix - Quotes and Newspaper Clippings

At CKE Restaurants: “You've got to make more acquisitions -- or exit the business," he says. "Grow or die. I'm not a maintenance manager.”

"I have a very short attention span and end up having a lot of things going on at once," the 63-year-old Foley said. "I am just an entrepreneur who loves the fun of doing business."

"Every year, our revenue would go up by 50 percent, 100 percent,” said Foley in the Florida Times Union (September 1, 2003)

“Investing in our own stock represents one of the best investments we can make.” - Oct. 1999/ Jan. 2000 articles