Thursday, July 2, 2015

Exclusive Interview: IDI Inc. (IDI) Chairman is Bullish on the New Direction

As you will see below, Mike Brauser, the new Chairman of IDI Inc (IDI) (formerly Tiger Media) has enjoyed tremendous professional success.

He also happens to be a business partner of billionaire Dr. Phillip Frost.

But despite all his success Brauser is looking for more.

He believes IDI could be the greatest investment of his life.

He and I spoke this week:

MIKE BRAUSER: How did you start following Tiger Media IDI?

E: I manage money for people and focus on Chinese small-caps traded in the US.

I came to IDI long ago. I went to Shanghai in 2013 and met with Peter Tan (CEO, Tiger Media).

I don’t know if you follow Chinese stocks but Tiger Media seemed like a model similar to Focus Media (FMCN).

MIKE: Yes.

E: Tiger also had the credibility with Dr. Frost behind it – and everything seemed to line up. But then not much progress took place.

MIKE: Correct.

E: So, what happened?

MIKE: Well, I’ve worked with Dr. Frost closely on a lot of transactions.

I’m one of the founders of the data fusion business.

I was always looking to get back into it.

And the management team that co-founded the industry with me was looking for a new home.

Their company was bought out by TransUnion and Goldman Sachs (GS) and they didn’t want to work for them. It wasn’t the opportunity they sought.

So they approached me about starting a competitive business.

I then decided it was something I wanted to do – and so I laid the groundwork for acquiring the first company ID Systems in Atlanta so that we would have a base of operations.

E: You had the team…..

MIKE: I bought a small business just to have a platform.

Part of the purpose of buying that business was to have the qualifications and credentials to work in the regulated data space.

E: Can you tell me a little about the data fusion space?

MIKE: Data fusion is….

If you look up the name Hank Asher – Hank is the founder of the business (data fusion).

Hank was a brilliant man.

In the late 80s he figured out how to parallel many PCs together in order for them to do one thing.

There’s a very good Vanity Fair article on him that will give a lot of background. (see HERE)

I met Hank in the late 90s and invested with him in his first company and then further to that I invested with him as a founder of a company started in the late 90s called eData which changed its name to Seisant.

We then hired some exceptional programmers. You’re talking about a very different level of scientists and programmers in this business. They’re extraordinary individuals.

The lead scientist was a fellow named Ole Poulsen.

E: And he’s the guy you just hired for IDI?

MIKE: Yes.

He’s the guy that wrote the systems that are being used today by both Reed Elsevier (RENX) in their Accurint program and TLO or Transunion in their TLO program.

His software is the underlying machine to a multi-billion dollar industry – all created by him.

E: And did he have patents on that?

MIKE: He did not have patents on the one that was sold to Accurint -- but the one that Transunion bought out of bankruptcy, TLO, we are in dispute with them today in the courts regarding the software as we believe it is owned by us.

And we feel very confident of the outcome of that -- but it’s in the hands of the courts and we’re very happy with our position.

E: When do you expect a resolution?

MIKE: It will be forthcoming.

E: Is the foundation of this company based on the court’s decision?

MIKE: Negative.

Irrespective of that, Ole has no non-competes or anything of that nature.

In order to find a team to work with him with the level of talent that we seek there’s very few places that have such talent. Other than Silicon Valley, Boston, or possibly Austin. Seattle has been a hub for some brilliant programmers between Amazon (AMZN), Microsoft (MSFT), Boeing (BA), Starbucks (SBUX) etc.

We’ve opened a technology office in Seattle where Ole is running it.

We have 8 programmers half of which are PHDs in subjects like Quantum Physics, some of the most brilliant programmers – guys that were working at Boeing making the 767 faster.

Literally, we have rocket scientists working for us – where we’re building our own new, better, faster, smarter, more intuitive software.

So, we don’t need to win the court case.

We’re almost ready to launch most likely within the next 30 days our first product which we’ll be able to bolt on many others developed by that group over there.

E: So, again, even if the case goes against you…

MIKE: It’s irrelevant.

The purpose of the case is that we believe we’re owed royalties and usage fees from this system which belongs to the company as well.

I actually paid Ole for his software.

E: And is there any risk that Reed or others– can they come after you for anything?


The only thing they can come after us for is non-competes against 2 of our employees which we’ve prevailed on one and the other is in dispute.

So, no. They’re in a defensive position, not offensive.

Our CFO right now is not working. He has approximately 4 months left until he’s done with his non-compete. It’s a non-issue.

We’re not losing any traction regarding that and we’re not looking for any more of their talent.

There’s nothing there.

Regarding the business, our products will be released shortly.

And the scale and leverage of the business is second to none because what we do is we buy data, we buy significant amounts of data and our process is to re-sell that data over and over and over and over into infinity. And we can sell it over and over in different formats.

What we’re able to do is amass massive databases from credit headers to motor vehicle bureaus to election bureaus to all public records to buying phone records etc.

We amass these enormous databases from which we’re able to deliver actionable queries.

For instance, Ezra, if we were to put you into our system and even spell your name incorrectly we’d have some general information about you.

Within seconds, I’ll know everything about you. I’ll know that you graduated from Cornell, that you moved to Shanghai,

I’ll know who you worked for. I’ll know everything….in seconds.

I’ll know every place you ever lived, every car you ever bought.

I’ll know your neighbors, the value of your neighbor’s home.

I’ll know if you have any liens on you.

I’ll know if you have any criminal background….

So, the product has unlimited uses.

Our customers for the regulated side of the industry are collection agencies, law enforcement, insurance companies, bankers, media…..

And it goes on and on and on.

E: And what kind of model do you intend to sell that information?

MIKE: There are multiple ways of acquiring it.

By way of example, the business that I founded originally with Ole and Hank Asher, Accurint, now under Reid Elsevier is doing well north of a billion dollars a year in sales selling information, and their profit margins are very high because of their costs are really only administrative – and you’re talking about 80% margins.

It’s a very substantive, very valuable, very scalable business.

Now, one of the things none of the competitors have ever done is leverage this into marketing data, to go outside the regulated data space.

Our company will do that.

Of course you can’t use certain data. But we will have data that you can use for that.

E: Can you give me an example?

MIKE: An example is a chain of automobile dealerships such as AutoNation (AN) or CarMax (KMX) or any of the big ones or even the local dealerships.

They want to identify qualified individuals who have the credit they can finance. And they want to do mailings.

So they would be able to hire us based on multiple aspects such as geography, income and credit scores that we can then identify their target customers.

They pay very handsomely for that.

That can go into multiple interest industries – homeownership to rental industries to furniture to jewelry to everything.

E: And you’re expanding on the product Reid Elsevier offers?

MIKE:  We’ll be offering a highly competitive product to theirs.

Of course, our belief is that they’re using software we developed over 15 years ago.

So we believe we’re going to have a much more robust, user-friendly competitive product.

In my opinion, I KNOW we’re going to have a better product.

E: Because you have the team that built the product?

MIKE: Yes. We have the team that founded the industry – yours truly amongst them.

We know that our opportunity is in the multi-billions.

I ‘ll take you back a step.

I’ve had a very successful background. I’ve made hundreds of millions of dollars personally and I’m not doing this and I’m not taking the active role that I am to simply build a small company.

E: If you didn’t see a big payday you wouldn’t be here.

MIKE: I wouldn’t touch it with a barge pole.

…as well as Dr Frost, based on the issues and history of IDI and our working relationship.

He would not get himself involved in something that’s an “if”.

He would only get involved in something that’s a “when”.

In this case, it’s sooner than later.

E: He’s worth billions of dollars. If something’s not going to move the needle why bother?

MIKE: Yes.

And as our largest shareholder I expect him to make something that will impact his net worth.

Anything less than a billion dollars doesn’t impact his net worth.

E: Why did you need Tiger Media?

MIKE: Let me be clear. I didn’t.

E: But you wanted it to be a public company?

MIKE: Not necessarily.

As I explained from the outset, I have a strong working relationship with Dr. Frost and he was looking for something significant in there (Tiger).

I believe that the dilution that took place by the historical Tiger Media shareholders will pale in comparison to the cache and value that the Dr. Frost factor brings in.

Having his guidance, friendship, relationships are significant and we will leverage them.

E: But while this is not an area Dr. Frost knows well he recognizes you will make this a success?

MIKE: He’s wildly brilliant and he’s a quick study and I would say he knows it well now.

E: And will IDI follow the Frost model of acquiring companies, putting them together and then selling?

MIKE: I have a history of acquisitions myself.

I sold my first company to a fellow named Wayne Huizenga.

It was the first acquisition in what is now known as Auto Nation (AN).

So I have a good background in M&A – growing through acquisition and organically.

So the answer is “yes”. When we see an opportunity, we’ll go for it.

I’m looking at certain things as we speak.

E: So you’re steering the ship and Dr. Frost is a passive shareholder?

MIKE: Passive, in that he’s not active in the operational aspect.

But from a standpoint of my speaking with him and learning from him and seeking his knowledge and advice on decisions – I do that on a regular basis.

E: I know the stock float is not large…..

MIKE: Will he acquire shares (in the open market)?

I can’t speak for him. But I’m hopeful that he’ll be a buyer.

I wouldn’t be surprised if he is.

E: In terms of acquisitions, have you identified companies that could be interesting here?

MIKE: Yes.

E: Just to circle back, is there anything Reed Elsevier, TransUnion or others can do to stop you guys?

MIKE: No. Nobody can stop us. Nobody can and nobody will.

I’m not in any litigation with them, have no issues with them.

E: You can imagine that an entrenched player who sees that an all star team who built their product are now going to go after them…..

MIKE: The product was built by the team in 2000.

E: My point is there’s nothing they can do to stop you?

MIKE: We’re not infringing on anything of theirs and we have no intention of doing so.

In fact, we’re hopeful that we can work together with them.

E: Stepping back again, you didn’t need the Tiger Media public shell. You’re just using it because it was an existing Frost company.

MIKE: Yes.

E: And if investors are looking for public company comps for IDI….

MIKE: It’s difficult because Reid Elsevier (RENX) trades but they have other divisions and there’s also Transunion. There’s Corelogic (CLGX). There’s a part of Thomson Reuters (TRI).

E: So there’s no pure play comp?

MIKE: No. I don’t believe so.

But we can compete with other folks. We can actually compete with Palantir at some point. They’re raising money at $15B….

E: 20 billion

MIKE: So can we compete with the likes of them? Yes.

We’re not just going to be narrowed into a narrow focus. We’re going to have a broad focus. Of course, we’re going to focus on one vision at a time and be very smart about how we do business.

I believe we will be building a very significant company with a very large market cap – based on our fundamentals.

E: And the China business. Still there?

MIKE: You’ll be reading about that shortly. But it’s not our focus.

And it’s not the success it’s supposed to have been.

E: In the past, investors were disappointed there were no consistent earnings calls. Will you be reporting on time?

MIKE: My plan is to be exceptionally transparent, to be very clear with Wall Street, and give guidance when appropriate to do so.

We will have regular earnings calls when it becomes appropriate.

We’re still at an early stage of development of the business.

But we’re growing rapidly and we’re going in the right direction.

I would say as an important note that the plan is unfolding as anticipated.

E: I saw that Blackrock started purchasing stock. How did they learn about IDI? Are you on a roadshow?

MIKE: Negative. Not yet. We plan on doing all the appropriate things.

We did the LD Micro conference in LA (Presentation).

We had a good showing there.

I suspect there should be significant buying.

We were added to one of the Russell indexes.

We’re not actively promoting anything at this point.  But we’re happy to talk about our story and give out everything that’s public.

E: Are you surprised that the stock has moved up so much lately?

MIKE: Not surprised at all.

Anyone who recognizes my track record, Dr. Frost’s track record has an understanding of the value of this business and the amount of cash it could ultimately spin off.

In my opinion, it would be very smart to be building a position in this company.

I’m proud of what we’re doing.

I’m proud of the story.

I’m proud to tell it.

I’m excited about it.

I worked very hard.

I’ve had some very nice successes.

I‘m hopeful this will be my greatest of all time.


1 comment:

Peter A Delgado II said...

A great and informative piece Ezra! Well done. Only a matter of time before the investor public recognizes this opportunity.