Umberto P. Fedeli has been making deals since he was a young boy who had to think fast after he forgot to bring his lunch to school one day. In return for an apple and a half-sandwich, Fedeli promised homemade pizza from his mother later in the week. The pizza was a hit and Fedeli’s career as a dealmaker had begun.
He’s built The Fedeli Group into one of the largest privately held risk management and insurance firms in the state. He serves on the board at the Cleveland Clinic Foundation, chairs the Clinic’s Government and Community Relations Board and is a member of the World Presidents’ Organization. He’s also a prolific investor and a voracious reader who has bought stock in hundreds, if not thousands of businesses, banks and other organizations over the years. At his core, Fedeli has a hunger for knowledge. His humble, friendly demeanor belies the fiery passion he has to win, no matter what it is that he may be doing.
“I have no interest in getting involved in something just to play,” Fedeli says. “If we’re on the playing field, we’re playing to win.”
Smart Business Dealmakers spoke with Fedeli about his approach to dealmaking and investing, his read on the M&A sector today and the value of being really good at something.
The dealmaker’s mindset
Dealmaking has always been kind of sexy.It’s an area that most business people enjoy working in — the strategy of making a deal and growing your business. However, many acquisitions start off with good intentions, but sometimes lack execution. I’ve never seen a bad projection in my life. You start off with, ‘This is going to happen and we’re going to lay this out and we’re going to do this.’ But the execution falls short or some of the assumptions that were made were overly optimistic.
There are some people who have a fear of missing out.If I don’t jump in, I’ve missed this opportunity. The hardest thing in the world about being a good investor is controlling your human emotions. You have the business and the economic piece. But then you have the interpersonal and human nature part. It’s controlling those emotions. When people are afraid, they don’t want anything. When they feel like they’ve missed out and there is a lot of money to be made, they want to jump in. Things move faster today, but there is nothing new about human emotions when it comes to investments in both the public and private sector.
I’ve made the mistake of buying value traps, something I couldn’t pass up because it was such a good deal.If you buy something really cheap and it isn’t very good, you might say, ‘Well, I got a really good deal.’ But it isn’t very good. That’s why Charlie Munger told Warren Buffett, 'Aren’t we better off buying wonderful businesses at a fair price, not fair businesses at a wonderful price?' When you stick with quality – quality real estate, quality companies – the cream usually rises to the top. If you stick with the mindset that you buy quality businesses with some type of durable, competitive advantage, you’ll usually come out ahead.
Today’s M&A climate
What’s happening locally is a microcosm of what’s happening globally. We had some of the highest corporate tax rates and now the rates are coming down. So a lot of overseas money is coming back. Because of that, you’re going to see a lot of M&A activity. Companies are going to have money to now invest and redeploy and I think M&A will significantly increase. The president’s style is unique for some. But when businesses feel there is less regulation and the environment is favorable, they are more apt to make investments.
The cost of acquisitions keeps increasing. There is more capital chasing deals than there are deals. It’s a simple matter of supply and demand. When you have more money chasing deals, the price people are paying for companies in the public and private sector is going to go up. The more you pay for something, now you have to cut costs and you have to grow because you made a major investment. The more you spend, the more execution risk you have.
You could hurt the economy by having a trade war.If it’s just to get China’s attention and try to get things a little more balanced — and then they back down — that’s one thing. But you can’t hurt Canada and Mexico. You could have the right intentions, but have adverse consequences if we end up in too much of a protectionist environment. I hope that won’t happen and I don’t think it will.
March to your own beat
I didn’t start off thinking about being an entrepreneur. The biggest thing was the ability to control my own destiny and be independent. It was basically so that I could do things the way I would like to with who I would like to and how I would like to. I march to the beat of my own drum. I was in my late teens and I had worked for some places and I just decided that’s not for me. I wanted to do things differently.
The Last Word
When do you tend to be really good at something?There was a book that did a lot of research and concluded that people who do a lot of something tend to be better at it. It sounds too common. The best trumpet players played more trumpet. The guys who are really good at golf played more golf. How are you going to be really good at something if you never do a lot of it? Toby Cosgrove did 20,000 heart surgeries [at Cleveland Clinic]. It’s pretty hard to be the best heart surgeon when you’ve only done five of them. It’s that principle.
But just because you do something a lot, don’t ever confuse activity and resolve. Some people just never improve. There are people who have great knowledge and who do tremendous studying, but they are horrible investors. It’s because they don’t have the human nature stuff. It’s not the brain part, it’s the emotional part. They just don’t have that knack.
How to reach:The Fedeli Group, www.thefedeligroup.com
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Read Umberto P. Fedeli's column, Entrepreneurial Investing, every month in Smart Business Cleveland