Tuesday, May 15, 2012

Second Interview with Tim Klusas, President of The Marketing Alliance, Inc.

Below is a link to a follow-up interview that my colleague, Matt Miller, conducted with Tim Klusas, President of The Marketing Alliance, Inc (MAAL.pk). The first interview Matt conducted with Tim occurred in October of 2009 (HERE). I also wrote an article for Seeking Alpha mentioning The Marketing Alliance last year (HERE).


Matt Miller: With this acquisition, the model for The Marketing Alliance appears to be changing.  Can you provide your vision for the company in five to ten years?  Are you attempting to build a diversified holding company, something perhaps akin to a Berkshire Hathaway?  Are there other models out there that you hold in particularly high regard?

Tim Klusas: We continued to build the company over the last five or six years. It is a wonderful company with distributors and customers we admire and we try to operate the business like our life depends on it - simply because for many of our customers we know their agencies are the largest asset they have.  We have invested in the business to grow and increase its attractiveness to distributors, but have resisted the feeling that we have to put capital to work now or lose it.  We feel that being compelled to do so could lead to destruction of value.
We continue to look for ways to add value in the current distribution business, but rather than feeling compelled to invest we opted to also look for ways to put capital to work in other areas that might result in the same sorts of returns, even if it is outside of the insurance distribution business.  As an example, if you could equate what we are doing to finding another asset that generates cash, a “cash machine”, what we are trying to do is use one cash machine to develop other cash machines.  By cash machines, I mean one that generates cash returns for our shareholders.  And we look for characteristics that we see in the current insurance business and try to look for some of those characteristics in other businesses to try and build those up as well.  If we do our job correctly, what we’ll have in the future is a few cash machines that throw off returns for shareholders and generate excess cash that we can use to go find others.  I guess this is why you mention Berkshire Hathaway as a comparison.  And so my vision for the company would be to have various machines that generate returns for shareholders in the form of cash that we can use to generate even more machines for shareholders that deliver cash.

And when I look at different models out there, you mention Berkshire Hathaway but I also point to Leucadia and Teledyne as other examples.  Leucadia comes to mind where they, in my interpretation, go anywhere to get a cash return for the shareholder.  That is what we’re really trying to do.  We’re more concerned with the cash return than we are whether it is a pretty business, is it a popular business or what the public opinion poll says about this business or that business.  Our concern is getting that cash return.  I also mention Teledyne because in addition to being prudent capital allocators we also strive to be good operators, where we can introduce internal controls and planning to help a business achieve its potential.

Forward Looking Statement
Investors are cautioned that forward-looking statements involve risks and uncertainties that may affect the business and prospects of The Marketing Alliance, Inc.  Any forward-looking statements contained in this transcript represent the estimates or expectations of The Marketing Alliance, Inc. only as of the date hereof, or as of such earlier dates as are indicated, and should not be relied upon as representing our estimates as of any subsequent date.  These statements involve a number of risks and uncertainties, including, but not limited to, general changes in economic conditions.  While The Marketing Alliance, Inc. may elect to update forward-looking statements at some point in the future, it specifically disclaims any obligation to do so.

Disclosure: Matthew Miller is a portfolio manager at Chanticleer Advisors and the fund Chanticleer manages owns shares in The Marketing Alliance, Inc. It may in the future buy or sell shares and it is under no obligation to update its activities. This is not a recommendation to buy or sell a security. Please do your own research before making an investment decision.