The Private Equity Boss Who has to Handle Elon Musk

Aug 10, 2018 '

The Private Equity Boss Who has to Handle Elon Musk

Antonio Gracias, the Tesla lead independent director dealing with the madcap buyout proposal launched by Elon Musk this week, is a private equity investor who has profited from a decades-long association with the volatile billionaire.

The two are “close” friends, according to a Delaware court that is deciding whether the carmaker improperly bailed out another of Mr Musk’s companies two years ago, to both men’s alleged gain.

They are so close, in fact, that when the second Roadster rolled out of a Tesla factory in early 2008, Mr Musk made his fellow director a gift of the keys. Another man said he had paid $100,000 for the vehicle; the aggrieved customer, who happened to be Tesla’s ousted co-founder, claimed in a lawsuit that when he eventually took delivery of a substitute model, he found it had already been crashed, on purpose, into a truck.

Mr Gracias’ early business experience was a galaxy away from the ventures in rockets and self-driving cars that have catapulted an immigrants’ son from the provincial Michigan city of Grand Rapids into the orbit of a would-be superhero.

His first stab at private equity was a firm called M&G Capital. It lasted just five years.

We bought very difficult companies that needed a huge amount of turnaround effort
Alain Kodsi, who founded M&G capital with Antonio Gracias in 1995

“His mother’s name was Maria, my mother’s name is Georgette,” explained Alain Kodsi, who quit Goldman Sachs with Mr Gracias in 1995 to set up the shortlived venture. “It couldn’t be [called] GM because that would confuse people.”

There was nothing glamorous about the businesses they bought: a die company, a plater, a stamper, an injection moulder. “We bought very difficult companies that needed a huge amount of turnaround effort,” Mr Kodsi said. “Everything that we did was based on cash flow.”

Mr Gracias hankered for something more exciting. Yet even at Valor Equity Partners, which he set up in 2001 with the help of a small business loan from the federal government, the earliest deals involved a printer of plastic payment cards, a marketer of anti-wrinkle cream, and a rope factory.

The industrial brain of the operation was Tim Watkins, a British engineer who wore a ponytail and a bum bag (or “fanny pack” in his adopted home), and awed colleagues with his habit of glancing at some kind of goal-directed activity and summoning a mental diagram of a machine that could do it much faster.

But the tyres only started screeching when Mr Gracias revived a business relationship with Mr Musk, to whom he had been introduced in the 1990s by a law school classmate.

An investment in Tesla followed in 2005 and Mr Watkins set about re-engineering everything from a supplier’s metal-stamping factory in Switzerland to the US direct sales model. Valor sold its shares after the carmaker went public, but Tesla has disclosed that, as late as last year, Valor staff were helping out at a factory in Nevada.

Mr Gracias also committed money to Mr Musk’s rocket business, SpaceX. He is said to have had a financial interest in SolarCity when it merged with Tesla in 2016 in a transaction that drew a lawsuit from shareholders.

“Valor has shifted over the years,” said a person who has had long conversations with several senior executives. “[It used to] buy the most boring electric plating companies, apply lean manufacturing principles, and make them hum. Over the years, Antonio’s got more and more ingrained in the world of Elon and the Silicon Valley crowd. That’s become where I think he fancies the firm.”

Mr Gracias’s more expansive ambitions appear to have kindled an interest in politics; he has become a significant donor to Chicago mayor Rahm Emanuel.

Meanwhile, Valor last year raised $1bn for new investments, according to Preqin data, double the size of Mr Gracias’s previous fund, trading at least in part on connections with his billionaire friend. “If [clients] have excitement about the Elon Musk factor, it is a positive,” said Alan Pardee, managing partner at Mercury Capital Advisors, which marketed the new vehicle to investors. “If they feel uncomfortable for any reason, there are plenty of other things to talk about.”

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