Cerberus Alumni Mold the Pentagon in Their Private Equity Image

**Carol Massar** (0:00)
Some pretty big earnings, we're talking about Meta, Microsoft and Qualcomm. We're going to be all over them. We'd also love to hear your questions, and it's easy to do so. You can submit them to us, and you'll get answers from our expert analysis and analysts and experts. They will answer them live on air. Just go to bloomberg.com/askradio, send in your questions. We should point out this is exclusive to bloomberg.com subscribers and terminal clients. You can really get some answers and analysis and thoughts from some of the smartest minds when it comes to Meta, Microsoft, and Qualcomm. We'll be breaking them down, going through them. Again, just go to bloomberg.com/askradio, and then of course, listen to us, watch us, Bloomberg Radio, and watch on Bloomberg Originals and YouTube. That's all coming your way at 4 p.m. Wall Street time.

**SPEAKER_2** (0:51)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Tim Stenovec** (0:57)
You're listening to Bloomberg Businessweek with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Tim Stenovec** (1:03)
It's today's big take. It's one of the most read stories on the Bloomberg terminal. It's a Businessweek deep dive into the department of Cerberus.

**Carol Massar** (1:11)
Yeah, you know this firm. It's a financial firm.

**Tim Stenovec** (1:14)
If you're paying attention during the financial crisis, then you know this firm.

**Carol Massar** (1:18)
You remember them from the auto bailout and takeover of some of the auto companies. Deputy Defense Secretary Stephen Feinberg wants America's war machine to get cozier with companies. The private equity firm he co-founded is building a constellation of next-generation businesses to answer the call. As we mentioned, it is among our most read. It is the Bloomberg big take. Here with more on his reporting, it is a very deep dive. Bloomberg News investigative reporter Caleb Melby. He joins Tim and me in our Bloomberg Interactive Brokers studio.
Quite a mission and missive, I should say. Tell us about, first of all, what, for those who might not know what Cerberus is, but I believe that the Bloomberg audience knows, but remind us kind of their history and what they're up to now.

**Caleb Melby** (2:00)
Yeah, private equity and alternative asset manager founded in 1992 by Steve Feinberg, who is the subject of this piece.
Cerberus has been in this business for a few decades now. And in recent years, basically since the early 2000s, Steve Feinberg, who has a personal interest in national security and defense and spycraft, has really started to push them into investments, that contract with the Department of Defense, and are otherwise involved in what we might otherwise call the national security space. So critical minerals, supply chains, stuff like that.

**Tim Stenovec** (2:37)
I don't typically think of private equity firms as defense contractors. Explain how Cerberus got there.

**Caleb Melby** (2:43)
So they actually appeared for many years on the government's list of top 100 contractors to the Defense Department through their ownership of Dyncor. Dyncor was the largest services firm in Afghanistan. They did things like train police forces, build barracks, and similar activities.
They continue to operate in acquiring companies that contract with the Department of Defense including some new big ones, including M1 Support Services, which services aircraft and is also among the largest contractors to the Defense Department.

**Tim Stenovec** (3:18)
Private equity firms typically, well, I don't want to say there's a typical way, but some would argue that there's a textbook, depending if you're doing a leverage buyout or not. But you make an investment, you buy a company, you create efficiencies at the company.

**Caleb Melby** (3:33)
Yeah.

**Tim Stenovec** (3:33)
Efficiencies can be a euphemism for laying people off.

**Caleb Melby** (3:36)
Correct.

**Tim Stenovec** (3:36)
Or just find the business better, to be fair.

**Tim Stenovec** (3:39)
Then they sell it.

**Caleb Melby** (3:40)
Yeah.

**Tim Stenovec** (3:40)
And there's a return. Is that the model that Cerberus and Feinberg are using for defense companies?

**Caleb Melby** (3:45)
It's a really interesting question. We're starting to get some clues about that for this new wave of companies that they started acquiring, and in some cases investing in because they created a venture arm as well, going back to about 2018 But one company we talk about and look into in our stories called Subcom, which lays subsea fiber optic cables. Very important right now with Strait of Hormuz and everything else. They recently put Subcom into a single asset continuation vehicle.
Its valuation sextupled over about eight years to $2.3 billion. That will allow them to circumvent that deal lifecycle that you're talking about here. They'll be able to hold onto that asset through their funds for longer. They really care about it and they're really interested in it.