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Capital Club Radio Hosted by Michael Flock
Guest: Stacey Schacter
Male Speaker: Broadcasting live from the Business Radio X Studios in Atlanta, Georgia, it's time for Capital Club Radio. Brought to you by Flock Specialty Finance.
Ryan McPherson: Hello, and welcome to another episode of Capital Club Radio. Today is December 22, 2015. I am producer and engineer here today, Ryan Red Hawk McPherson. Before we get started, I just want to tell you about Capital Club Radio. It provides listeners an opportunity to gain valuable business insights and perspectives to deal with market uncertainty. The only one who can bring that to you is the host today of Capital Club Radio, the charismatic Michael Flock.
Michael Flock: Thank you, Ryan. It's great to be here this afternoon. We are absolutely thrilled to have Stacy Schacter as our guest today. I want to disclose that Stacy was one of my first mentors in the debt buying industry. Before I get into my story though about Stacy, let me just introduce him as the current president and CEO of Vion Investments, which manages the acquisition and collection of consumer and commercial debt. Since 1990 Stacy has focused on receivable buying, servicing and collections in the financial services industry, serving as president, chief executive officer of Briannaco Investments.
He was also president of OSI Portfolio Services, and president chief executive officer and chief legal officer of EMCC. That's when I first met Stacy, in fact. He's also an attorney and adviser to several debt and receivable purchasing firms. It's also interesting to note that he's a member of the Ohio and Massachusetts Bar, and is authorized to practice before the U.S. Supreme Court. Ooh, but never had. Let me just start with my story about Stacy and how I met Stacy, which was actually, I think, 14 years ago, in 2001. I had recently left Dunn & Bradstreet, and I had a lead for a very big portfolio of performing receivables from Gateway Computer.
I knew nothing about marketing, brokering, underwriting, debt business then, debt portfolio business then. Bob Morris, my good friend, founder of Oliphant, had introduced me to Stacy as one of several investors that we were talking about relative to that very large transaction of Gateway. So Stacy helped us indicate that, and that was kind of my baptism into the debt buying industry. Stacy's one of the thought leaders in kind of our community here at Flock Specialty Finance, and we want to keep in touch with Stacy. He's really migrated substantially from the charged off debt world into the performing markets, which I think he views as really the future for a lot of the financing of consumer and commercial debt.
So Stacy, could you kind of – first, any comments on way back when, when we met there in that deal? Then lessons learned on that for the future of you and Vion?
Stacey Schacter: Yeah, I think we were both a little better looking back then.
Michael Flock: Definitely thinner.
Stacey Schacter: You know it's interesting. You talked about me mentoring you, which is very flattering, by the way. Thank you. Going back to those days of EMCC, one of my mentors back then was a name that several people that listen to your show will know, and that name is Arthur Levine. I don't remember if you actually got a chance to meet Arthur.
Michael Flock: No, I never met him.
Stacey Schacter: Quite a character. Some people would say he was difficult.
Michael Flock: Very imposing.
Stacey Schacter: Yes, a very imposing guy.
Michael Flock: He had a presence, yeah.
Stacey Schacter: I have some great stories about Arthur. We worked together over 17 years, and he would sort of chew through people from time to time. We had a very good relationship, and maybe it's because I started off just being his attorney and adviser before actually joining with him as a partner in the business, which was actually owned by the Schottenstein family. Going back to that time of Gateway, it was sort of an age where partnerships were becoming more common in that particular industry. I think this is all pretty much common knowledge.
We had Carval involved and Bardet and Greenwich and Asta, and people behind the scenes, even from that, to do that particular transaction. It was a fairly large transaction. Coming back to something you said before about transitioning from both the nonperforming to the performing, I sort of want to point out to you that back then, when you and I first met, that was a performing portfolio.
Michael Flock: Correct.
Stacey Schacter: I've always felt that that is the nature of the – that's where the real opportunity in the business is, and always has been, is in the performing side of things. We did the nonperforming because when we were buying portfolios, we were buying everything. We got the good and we got the bad, and we built platforms to handle both. Then as the debt purchasing market began to take off, that really became a focus for companies like OSI, where I ended up for some time. That business, as we all know, had its heyday, and now I don't want to say is in decline, but it's certainly a very different business than it was let's say before the CFPD and the financial crisis.
A lot has happened. I have certainly seen a lot. There's some stories I'm going to have to tell you during the show at some point about Arthur, but Arthur was certainly a –
Michael Flock: A mentor?
Stacey Schacter: – yeah, definitely a mentor of mine. While I don't want to think that I emulate his particular management style, I still have to say things about his ability to negotiate. Really, I think one of the things I learned most from his is negotiation. How to sit down with people and figure out how to get a deal done, when it doesn't look like there's an opportunity to get a deal done, with sometimes different or unusual types of structures.
Michael Flock: Let's expand on that because different and unusual types of structures to me are critical to bringing two parties together to find a financing solution. I know you've had great experience and expertise in that. Could you kind of expand on how you do that when you get into one of these transactions?
Stacey Schacter: A lot of people think that the highest price is often just how much cash can you pay up front for a transaction. Oftentimes there's non-monetary concerns. For example, just how safe are you going to be dealing with your counter-party? Some people want to sell, wipe their hands of it, and be done, and didn't realize that they still have legacy risk. One important aspect, just make sure the party you're dealing with is a good party, so that they don't get you in trouble down the road.
Michael Flock: So trust is important.
Stacey Schacter: Trust, oh of course, trust is always important. Most people would say, "Well of course, that's obvious."
Michael Flock: They take it for granted.
Stacey Schacter: Yeah, but you know what? I have seen a lot of transactions where the deal, it could be a month later, actually went bad. I know of a particular deal that I was advising on to a well-known debt buyer that will go unnamed, at a well-known bank that will go unnamed, and it was about six months later, they were both suing each other because of how the transaction was structured and the lack of disclosure. It can happen to the best of them. When I talk about structure, it's about more of a partnership type of transaction, understanding what the seller is trying to accomplish, more so than just saying, "Well, here's a bucketful of money."
There's a transaction that we did where the seller was trying to actually improve their balance sheet. They didn't need liquidity. So since they didn't need liquidity, how could we help out their balance sheet? We found out a way –
Michael Flock: Without giving them cash?
Stacey Schacter: – without giving them cash.
Michael Flock: Okay, that's interesting.
Stacey Schacter: Yeah. So we found a way. We worked with our techs and other experts and accounting experts, and came up with a way to purchase a product at a price that was frankly higher than what it was worth, but structuring it so that they could take full value of that on their financial statements, while, from a cash perspective, we actually were not paying that higher price. That type of structure in the end won us that particular transaction because we solved for the problem.
Michael Flock: So what are the details? Was it like an earn-out then? You didn't pay much up front?
Stacey Schacter: I don't want to give away state secrets, but –
Michael Flock: We want state secrets. Now, come on, Stacy.
Stacey Schacter: No, it was not an earn-out. It had to be a guaranteed deal –
Michael Flock: Okay, guaranteed.
Stacey Schacter: – or else under accounting principles, you can't recognize it. If we start talking about accounting rules, your audience is going to go to sleep really, really fast. I'd rather go back and talk about the fun stuff.
Michael Flock: Right, right. Before we talk about more fun stuff, you learned from Arthur, I guess the art of negotiation. At the same time though, at the beginning of our conversation, you said he chewed through people. I know your management style, and it's not that at all. I'm wondering, is there still though a blend when you negotiate, of having the right technical negotiation skills, but also the interpersonal skills and the ability to create trust between two parties? To me, and we talk about at Flock, being more than a transaction. I think you need the relationship and the trust to have a transaction. You certainly have a terrific management style and a great time at Vion.
You couldn't have built that by chewing through people. Do you want to elaborate on that a little bit?
Stacey Schacter: Yeah, and the one thing that Arthur really had for people, he always had a great phrase, which is, "Don't put your head on their shoulders, but still create empathy for their position." You have to understand what their motivations are, what it is they're trying to accomplish. It is sort of Negotiation 101 that some people want to take that very last penny off the table, to make sure they felt they got absolutely everything that they could out of the counter-party. That's not my style. My style is far more collaborative on how can we get to an equitable solution?
I think that's been sort of my reputation of going down and trying to say, "Okay, what's the problem? Let's try and figure it out together," as opposed to leaving nothing for the other party.
Michael Flock: Right. So it's got to be win-win.
Stacey Schacter: Yeah, I mean again, a lot of people might say, "Well, yeah, that's obvious." Yet I've spoken with a lot of – I'm working on a transaction right now, speaking with the broker. He said some of the other people they're talking to, they just don't get it. If you don't get it, it's hard to go into a transaction and have somebody that will understand both sides of it and actually get something done. Again, if they throw enough money at it, they're going to get it anyway. There are better ways, I think, to do things.
Michael Flock: Right, right. So the art of negotiation was one thing that you've learned that's made you successful through all these different companies you've been with, Brionico, EMCC, OSI, now Vion. Anything else? Are there any other kind of personal traits that you've developed and learned were important to your achievements over the years?
Stacey Schacter: Yeah, I think it always goes back to your mentors. A lot of people say their parents were their mentors, and certainly my father was one of my mentors. He came up through the Great Depression, not the last recession we've been talking about, the Great Depression, the big one, and he held down many jobs in order for me to be able to go to college. For him to do that teaches you a certain amount of ethos about needing to just hard work. Nothing can substitute hard work. So of course my dad bestowed in me a lot of the principles that are important to me. But then there are other people you would never – these people probably have no idea they were a mentor to me.
My freshman in college English teacher. My writing was simply atrocious. I don't mean the appearance. The appearance is still atrocious, but the actual style. I had –
Michael Flock: The syntax, the grammar.
Stacey Schacter: The syntax, the grammar, nothing. This is a guy that, when he walked in the classroom, had torn jeans, hair down to his shoulders, absolute –
Michael Flock: You had hair down to your shoulders?
Stacey Schacter: No, no, no, no, the professor, the professor. Absolute hippie type, right? I was pretty good in school, and I was going through and I was getting D's on my papers, and I was just appalled. So I spent a lot of time working with him. He taught me how to write, so that by the time I was done with his class, he actually had submitted one of my stories – I did a short story – for a competition, and it ended up getting published. It was night and day, and yes, of course I got a much better grade than the D that I started off with. But that particular teacher. Then after law school, they don't teach you what it's like to be in a law firm in law school.
Any of you lawyers who are listening would probably say that. Maybe they do today. They certainly didn't back then, and I was thrown into a large law firm, where they don't really – when you learn how to write a brief, in law school, you put everything in there and the kitchen sink. I was writing briefs, and the partner in charge, I was getting, again, tons of red ink all over my paper. He probably would have given it an F. He taught me how to write succinctly. He was actually a huge mentor for me, and he has no idea.