He bid $5.1 billion for Yahoo and lost to a $4.5 billion rival
Lu Fubin's offer was $600 million higher than Apollo's, and he never got an answer. Five years later the other side told him to his face: you don't have their golf club membership. In M&A there is a threshold beyond price that you cannot see.
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The argument · tap a timestamp to hear it
Amazon fed AWS on two pizzas
When Lu Fubin joined Amazon his team had only five people, no assignment, and one meeting a month asking what he wanted to do. The mechanism was called Two-Pizza Teams — a team is only as big as two pizzas can feed, you experiment on your own, you fail fast. AWS was incubated in 2005 out of a single Two-Pizza Team in South Africa. He spent six months figuring out he wanted to do advertising, then pitched it to the S-team. The cost of this mechanism is that the vast majority of internal experiments fail; outsiders just remember the super-successful ones.
— Lu FubinBezos convinced the skeptics with parallel worlds
When Lu Fubin pitched the advertising business, the S-team tore him apart, because Amazon is customer-centric and advertising was seen as disturbing the user experience. Bezos said nothing the whole time, and only spoke once everyone had finished arguing: imagine two parallel worlds, one with no ads that protects the user experience, another with very aggressive advertising but ad margins of 50% to 60%, and that cash can be used to lower prices, improve logistics, and incubate things users never imagined — which one is more customer-first? Once the frame changed, the conversation changed. That meeting ran two or three hours; normally it was one.
— Lu FubinM&A is work that only starts once the check is signed
Lu Fubin doesn't consider himself an investor; he says he's an operator. A VC can write a check and hold a board meeting every quarter, and if the project fails you write it off and move to the next one; in a control buyout you own 90%, and if the project fails you can't be a hands-off boss — what about labor law, what about legal liability. He tells his team that the minute the check is signed, the work has only just begun, because the wool comes from the sheep: you bought this sheep, you have to raise it well, grow the wool out, and only then do you make money. That's also why he doesn't do small equity stakes and only does TMT M&A.
— Lu FubinRate hikes killed leverage as a tool
Lu Fubin walks through the history of global M&A: in the 1980s Reagan loosened antitrust regulation, giving rise to classic cases like KKR's buyout of RJR Nabisco; after 2000 private equity funds rose; the longest cycle was global low interest rates, when the cost of leverage was near zero and the growth demanded of a business could be set very low. Today the base rate is 5.5%, so using leverage means growing at least enough to pay the interest, and on top of the interest you need a 6% to 8% investment threshold — as a GP you have to guarantee the business grows 15% a year. So since rate hikes M&A cases have fallen fast and there are far fewer deals, because leverage is no longer a usable tool.
— Lu FubinHe fired every Grindr executive the day he took over
After buying Grindr from Kunlun Tech, Lu Fubin's first move was to call AWS and renegotiate the server contract. The company had about 270 people when he took over; the day he arrived in Los Angeles he got rid of every executive and everyone above VP except legal, and 70% to 80% of frontline managers and engineers, on the grounds that ‘they were all the wrong people’ — kept only because they were obedient, because they spoke the language, because they were old relatives and friends. The company now has about 120 people and this year will do $140 million in profit, roughly $1 million of profit per employee.
— Lu FubinLook at defensive capacity first, not growth
Lu Fubin's first test for a good asset isn't how much it can rise but how much it can fall. If a business has growth capability, the existing team would already have done it; most people selling are selling something with problems or growth risk. The second test is that a good business doesn't need an outstanding manager — an average-quality manager can run it well; if it takes a brilliant person to run it well, the business's core competitiveness isn't strong enough. Grindr's core advantage is social effects and marketplace: more people here bring more people, pulling each other in to form a loop.
— Lu FubinYahoo didn't pick him because he wasn't in the same club
Two years ago Lu Fubin did a lot of work to buy Yahoo, had an investment bank deliver a $5.1 billion offer, and was ready to take on debt with LPs putting in more money. He submitted it on a Friday; Sunday night he read in the news that Verizon had sold Yahoo to Apollo, for $4.5 billion. He never got an answer, until last year at a dinner in New York he ran into the other side's banker, who said he'd feel guilty writing it in an email or saying it in conversation, and only said it face to face: the other side felt you weren't one of their kind of people, you didn't have their golf club membership, your vacation isn't at the Yellowstone Club. Lu Fubin says at that moment he first felt he didn't care, and second that what the other side was really saying was that their trust in him wasn't high.
— Lu FubinThe Philippine management tried to hijack the deal before closing
When buying the Philippine crypto exchange Coins, a week before closing the money was ready, and the other side's management jumped out saying they didn't want the deal to go through, they wanted to buy it themselves at half the price and then flip it. Lu Fubin called an LP, who lives in the building above the other side's chairman, and the LP said give me five minutes; ten minutes after hanging up he came back and said this will not happen again. The LP later told him he'd told the other side: you've pissed James off, from now on he'll spend $5 million a year writing black PR pieces to destroy you — for such a small business you've blackened a $40 billion book. Lu Fubin says he never thought of writing black PR; the LP said I know, I just scared him.
— Lu FubinIn their own words · checked verbatim
The minute we sign the check, our work has really only just begun, because the wool comes from the sheep — where do these sheep come from, where does this wool come from? We bought this sheep, we have to raise it well, grow the wool out, and only then do we make money.
我们写完支票的那一分钟，我们的工作其实才刚刚开始，因为羊毛处在羊身上，这些羊哪里来，这些羊毛哪里来，我们买了这羊，我们得好好的养这头羊，把这个羊毛给养出来，所以我们才有钱赚。
Lu Fubin21:19
The hardest part is really the operating — after the acquisition, doing the business well, how to make its growth, how to make its profit, that's still the hardest.
最难的其实还是经营啊，收购完以后，你把这个业务做好，怎么把它的增长，怎么把它的利润做出来，这个还是最难的。
Lu Fubin1:17:00
For a person at any single point in time to manage two or three companies well is already extremely.
一个人在任何一个时间点能管好两家公司三家公司已经是非常。
Lu Fubin1:30:20
Figures
| Lu Fubin's total M&A investment over five years | $2.1 billion | 2:02 |
| Amazon advertising annual revenue | $45 billion | 14:06 |
| Grindr's current market value | a bit over $2 billion | 49:43 |
| Investing.com acquisition price | 400 million | 53:44 |
| Yahoo acquisition offer | $5.1 billion | 1:12:57 |
| Apollo's price for Yahoo | $4.5 billion | 1:13:58 |
| Google's acquisition of Israeli security company Wiz | $23 billion | 1:21:06 |
Glossary
- Two-Pizza Teams
- An Amazon management mechanism: a team is only as big as two pizzas can feed, experimenting autonomously and failing fast.
- LBO
- Buying a company with borrowed money and repaying the debt from the target's cash flow — the standard play when KKR rose in the 1980s.
- CFIUS
- The US national security body that reviews foreign acquisitions of American assets, and that blocks Chinese buyers.
- AUM
- Total assets under management; many PE firms earn management fees on it, and Lu Fubin says he doesn't look at it.
- skin in the game
- The manager has to put his own money in too, rather than just holding a check.
How to listen
Founders and investors watching M&A, overseas investment and PE practice; anyone who wants to understand how a Chinese operator runs control buyouts in the US, Israel and Southeast Asia.
The opening NASA and Amazon résumé section can be fast-forwarded; the M&A steps and operating methodology after 1:00:48 are worth more.