I have wondered since Donald E. Graham orchestrated the sale of The Washington Post to Jeffrey P. Bezos for $250 million three years ago what would become of the rest of the publicly held company.
One of the biggest changes came late last year with the ascendancy of Timothy J. O’Shaughnessy as chief executive and the successor to Graham, his father-in-law, at what’s now known as Graham Holdings.
O’Shaughnessy was back from a business trip to New York and London when we chatted over coffee on a December morning.
I know O’Shaughnessy, and I respect him. I wrote about him during the rise of LivingSocial, the Washington-based e-commerce darling he co-founded and helped run for seven years. He stepped down in January 2014 as the young company struggled.
I cannot help wondering whether he is up to this new job, which is expanding the Graham family business and making money for shareholders.
He says it would be “disingenuous” to think he didn’t have his eye on running Graham Holdings, a conglomerate of independently run businesses with their own managers.
“I joined [Graham Holdings] when Don was 69 years old and CEO of the business,” says the 34-year-old, who is married to Graham’s daughter, Laura. “You’re obviously going to go and have a conversation around ‘Well, what are your plans?’ ”
O’Shaughnessy’s plans are to lead the company’s growth.
The new job requires an ability to spot good companies with good managers who will sell at a price that leaves room for future profits. It’s called allocating capital, in business-speak. Those qualities fit O’Shaughnessy’s strengths.
“I like finding good business opportunities,” he said. “That’s the world, the universe I like thinking about and playing in.”
Because each business is run by its own management team, O’Shaughnessy said, his job is “to take a step back and [think], ‘Where do we need to skate to?’ ”
One possible place: podcasts.
No one yet dominates the on-demand world for “non-music audio, traditional radio,” he said. “Every other form of media you can go and pull up right now. Netflix. Audible for books. Spotify for music. But you really haven’t had that happen with non-music audio, which is a huge space.”
Arlington, Va.-based Graham Holdings currently plays in four sectors. First, there is media, with its television stations, the online magazine Slate, Foreign Policy magazine and the online advertising service SocialCode. The second is education, with Kaplan University.
The third sector is health care. Graham Holdings owns two home-health businesses, called Celtic and Residential.
Lastly, the company is in what O’Shaughnessy refers to as the industrial sector. It includes three manufacturing businesses.
O’Shaughnessy has arrived at Graham Holdings on the cusp of a new era.
“The company is in a different cycle than it’s been over the last, probably five to 10 years. The Washington Post Company, and then Graham Holdings, for the longest time very rarely did a transaction.”
It didn’t have to. The newspaper was a profit machine for decades before the Internet came along. Then the company rode its fast-growing education business. Now, “it’s figuring out, ‘What are the things we can do now to what are the businesses? How can we build them for the next 10, 20, 30 years?’ ”
I cannot think of Graham Holdings, a publicly held company, without thinking of Berkshire Hathaway. Berkshire is one of the most valuable corporations on the planet and was cobbled together over five decades by legendary investor Warren Buffett.
For years, Berkshire owned the second-biggest chunk of stock in The Washington Post Co., after the Grahams. It was one of Buffett’s early home runs. The billionaire is a mentor to Donald Graham and an adviser to Don’s late mother, former Post chairman Katharine Graham.
I ask O’Shaughnessy if Buffett and Berkshire are models.
“He was on the board for decades, so clearly the company is going to have some influence from him.”
There are similarities, but size is not one of them. Berkshire’s market capitalization is $311 billion. Graham Holdings’ market cap is $2.5 billion. It resembles a family office more than it does a conglomerate.
“Calling it a conglomerate would be an overstatement at this point in time,” O’Shaughnessy said (italics mine).
Like Buffett, he wants to keep investment as simple as possible and stay within his sphere of knowledge. If O’Shaughnessy doesn’t understand it, he doesn’t want to own it.
“I don’t know the first thing about evaluating new biotech technologies,” he said. “That’s just not going to be something that we’ll do.”
But digital media like podcasts and SocialCode? Bring it on.
I began writing about O’Shaughnessy several years ago when LivingSocial was the hot local start-up and the daily-offers craze had taken hold. Flush with venture capital and Amazon.com money, LivingSocial went on an acquisition spree.
“There were lots of deals that were done as part of that business. We did some good ones. We did some bad ones. I certainly have learned a lot more from the bad ones than the good ones,” he said.
Like making sure a potential target ticks all the boxes.
“That’s something that I learned some painful, costly mistakes. It reinforced that you have your set of things that you know need to be true when you are evaluating companies. Making sure you have the discipline to maintain that is really important.”
He still roots for LivingSocial.
“I continue to be a shareholder and hope they do well.”
He said everything at Graham Holdings is profitable or has a path to profitability.
One trouble spot has been the once-highflying Kaplan.
Graham Holdings recorded a $230.6 million loss in the third quarter of 2015, largely due to a $248.6 million write-down in the value of its Kaplan Higher Education division.
According to the last quarterly report, Graham Holdings has around $1.2 billion in cash and securities and about $400 million in debt. That nets out to around $800 million.
So he has money to play with.
Graham is 70 now and is still the chairman of the board.
“Don isn’t gone from the company, nor will he be anytime soon,” O’Shaughnessy says. “It’s just a shift . . . that will continue to occur for years.”
I have always been interested in the dynamics of family-owned businesses and whether someone in the family is really the best person to run the business. One argument for family involvement is the powerful motivation that a family member brings.
“The [Graham] family as a collective group is the single largest shareholder of the company. When somebody is invested in that way, it’s not crazy to think that (a) they really, really don’t want to screw it up and (b) they’re probably going to row a little harder because they have that added dimension.”
So he rows a little harder.