The AI Opportunity in 'Boring' Businesses w/ Brookfield’s Anuj Ranjan

0:04Anuj Ranjan: If we're in the fourth industrial revolution, which I truly believe we are, that key word is industrial. That's Anuj Ranjan, Chief Executive Officer of Global Private Equity at Brookfield. Brookfield owns and operates everything from office towers to retail complexes, fiber networks, data centers and power plants, and industrial businesses. Anuj has a clever way of summing up their sprawling$1.4 trillion portfolio. We like to call it the backbone of the economy. It's often these boring businesses or assets that people don't pay attention to, they don't notice, even though it touches every aspect of their everyday life.

0:39Anuj also believes these overlooked businesses may offer some of the most interesting use cases for AI. The opportunity isn't necessarily at the frontier of AI, it's figuring out how to deploy the technology inside businesses that remain surprisingly under-digitized.

0:52Anuj Ranjan: You would be shocked how many times we buy a business that is a billion dollars of revenue, 250 million dollars of EBITDA, and they're barely using Excel properly. They've not installed an ERP. They don't have a CRM. They don't have basic software that has been in use for decades. The real bottleneck to AI actually isn't the technology. It's the deployment of it in enterprise at scale. Today on Dry Powder, I'll talk with Anuj Ranjan about AI, the physical economy, and the next phase of industrial investing. I'm Hugh MacArthur, Chairman of Bain's Global Private Equity Practice, and this is Dry Powder.

1:31Anuj, it's a pleasure to welcome you to Dry Powder. Thanks very much for being on the show today.

1:36Anuj Ranjan: Thank you for having me here. You know, I've always wondered about Brookfield because it is the second largest alternative asset manager in the world with over a trillion dollars of AUM. But when you tell people you work for Brookfield, especially in private equity, how does that name register generally? Well, first and foremost, when I tell people I work for Brookfield, it depends where I am. If I'm in New York, they often ask if I work at the mall. The shopping mall. Yeah, it's a firm that we are well known for our predominance in real estate and very deservingly so. But the firm is so much more than that.

2:10Anuj Ranjan: it's$1.4 trillion of stuff that we own, businesses, assets, operations, all around the world. Everything that we have in and of itself, every subsidiary is in and of itself very large. And so at the same time, Brookfield can own one of the largest office complexes in the city of London, one of the largest retail complexes in the United States. We can own enough fiber to circle the earth three times. Telecom towers, data centers, AI factories, energy, hydro, wind, solar, or the world's largest low-voltage car battery manufacturer. Or the world's largest producer of freeze-resistant coating that protects pipes.

2:56Anuj Ranjan: And so the business has grown so much, it's become so varied, that it's actually much more than what people think. But often I'd say because what we own is typically the backbone, we like to call it the backbone of the economy, whether that's the industrial economy or the heavy asset economy, it's often these boring businesses or assets that people don't pay attention to. They don't notice, even though it touches every aspect of their everyday life. And so it's just not as household a name. That being said, once they understand all the different things we do, they're usually quite fascinated by all the things that we're investing in.

3:34It sounds fascinating. And I want to challenge that whole boring industries moniker that you had on it in a moment. But you just described a platform of incredible breadth globally and across different industry types. What does that allow you to do in private equity that would actually be difficult for a standalone PE firm to replicate?

3:55Anuj Ranjan: Look, it's incredible. Being part of the broader Brookfield ecosystem is very helpful to us, especially in the areas that we invest. We're really focused on industrials, heavy asset services, and financial infrastructure. And each of these things touches different aspects of the real economy on a regular basis. And so the knowledge and the learning we get that allow us to be probably smarter on an opportunity that we're looking at or price it better or understand the opportunities better than anyone else could is pretty powerful. One of our most recognizable deals is our investment in Westinghouse.

4:32Anuj Ranjan: And today, Westinghouse looks like a no-brainer. Nuclear power plants, nuclear services, the world's largest 50 % market share. It seems like something you'd want to own in a world where energy demand and energy security is off the charts. But at the time we bought it, out of a Chapter 11 bankruptcy, nuclear was a bad word. Right. And people didn't even know if there would ever be a new nuclear power plant built. But what we were able to do, because we have the world's largest private energy business, we really understood that energy demand was far beyond the production that was in place in all of these sub-markets where nuclear plants existed.

5:13Anuj Ranjan: And so we knew that the plants would never be turned off and that they would at least run the course of their whole life. And so all we really did was understand those contracts and ensure that we would make a reasonable return in a runoff model. That gave us the confidence to buy a business that frankly probably nobody else thought would be worth going after. We then transformed, I'd say, the cost structure of the business with our operational capability. And then, look, sometimes you get a little bit lucky, and the world, I'd say, woke up to the power potential of nuclear, and artificial intelligence increased demand dramatically for power.

5:51Anuj Ranjan: All of that has been a real tailwind, and I think for the first time in a long time, we're seeing new facilities being built. So it has turned into one of the greatest investments we've ever made. But all of that was only possible because we were part of Brookfield, which had the world's largest private energy business. That really is a fantastic example that demonstrates the power of the platform. And that's pun intended on that one. Anoush, you've spent most of your career or a big chunk of your career investing in these so-called boring, heavy asset type businesses. But I also understand from our previous chats that you think AI might actually be particularly interesting in that part of the economy.

6:32And that's not where your brain typically goes when you think about AI. You think more about software, you think more about service businesses. But why is it exciting to think about AI in heavy asset businesses?

6:44Anuj Ranjan: Yeah, look, if we're in the fourth industrial revolution, which I truly believe we are, that key word is industrial. All of this investment in technology, all the investment in infrastructure to support the technology really needs to mean that there has to be a productivity gain in real world industrial businesses to justify all of that. And I genuinely, we are seeing the power of it in our portfolio today. We are seeing real opportunities to deploy AI in these boring, more under-digitalized businesses. They're actually some of the most exciting opportunities for its application. And it's where, frankly, you can transform businesses the best.

7:28Anuj Ranjan: You know, it's interesting. When we buy a business like this, think of a manufacturing business or think of an infrastructure services company. You would be shocked how many times we buy a business that is$1 billion of revenue,$250 million of EBITDA, and they're barely using Excel properly. They've not installed an ERP. They don't have a CRM. They don't have basic software that has been in use for decades. Forget about AI. The real bottleneck to AI actually isn't the technology. It's the deployment of it in enterprise at scale. It's one thing for all of us to use chat, GPT, or Claude and think it's interesting.

8:05Anuj Ranjan: It's another thing for a company to know how to actually use this technology in its business and improve its productivity. If you think about that world of ERPs, I mean,$100 billion market cap businesses have been built just literally consulting to companies to help them install CRM software or other kinds of enterprise software or ERPs. So I think the opportunity for AI will be the same. The technology advances very quick, so we'll actually be even more involved. And it's all about having enterprises use it. When they use it, that's where the real unlock is. And that's the opportunity, I think, to invest in AI that often gets missed.

8:46Anuj Ranjan: The technology opportunity is very obvious. But I think one of the best ways to invest in AI is to buy a boring industrial company, buy it at eight, nine times EBITDA with a real cash yield. We used to go in and double those margins anyways. Maybe now we can triple those margins because AI will probably allow us to make our changes faster, but also to make them with more impact. Okay. So we get the Excel spreadsheets going. Then we get the CRM going. Can you share a specific example of how AI is actually driving that transformational growth in EBTA that you're talking about in a real asset company today?

9:22Anuj Ranjan: Absolutely. I'll pick a very simple one, which is one that's very, very real to heavy asset manufacturing businesses, but often overlooked. Preventative maintenance. You buy a business, it's got dozens of plants. Within the plants, there's many, many lines. and you have hundreds and hundreds of different components or machinery. And in the past, you would have people just monitor and try to maintain or make sure that the plant is up and running. And you budget in your model that there will be some downtime, some downtime for maintenance, some downtime for repairs when things break down, and some cost for repairs, some maintenance capex and some further capex when things do go wrong.

10:09Anuj Ranjan: Today, you can install IoT devices across all of that machinery. You can collect real-time data. A group like us, which owns 300 businesses around the world, has this kind of data now from so many different places that we've got quite a nice data lake that we can actually run these models and train them on. And that technology can tell you, it can point you to a problem much faster than you'd probably ever find it in the past. And so we can now get an alert that says, machine X on line Y at plant Z, something's wrong. We don't know why it's vibrating a bit more than it should. And our team can send someone over there and lo and behold, a bolt was loose.

10:51Anuj Ranjan: And tightening that bolt, it's hard to say tangibly what does that do. But I can tell you that at the end of the year, we may have saved ourselves a simple amount of maintenance capex had it gone too long and something broken down. Or we may have actually saved ourselves the entire line going down if something more traumatic happened and actually lost some of our throughput or lost some of our capacity. So these are small examples that are available today that have incredible impact. Just across Brookfield, we probably got about 1 ,200 different use cases under active deployment right now across the portfolio that are about$300 million of EBITDA, which is real value creation.

11:38Anuj Ranjan: And that's today when I think we're barely scratching the surface. So 1 ,200 different initiatives. We talked a lot about productivity and efficiency. Are most of these 1 ,200 driving more cost efficiencies like that or more top line growth, or is it both? It's both. And it's probably about 50-50. Okay. And so one example on the growth side is another opportunity we often see in industrial companies is pricing. They often have historically not priced properly to their customers. You know, sometimes the businesses we buy are carve-outs of a larger enterprise and they are selling products sometimes as an add-on to what the larger conglomerate is selling.

12:25Anuj Ranjan: And so pricing is a bit ad hoc. It's different for a different customer depending on the relationship that its prior owner had with that customer. We take that, we carve that company out and we put in proper pricing models. But dynamic pricing models that price properly for that customer and can even price sometimes based on the need that that customer has, which is also changing. And so that opportunity is a pure revenue opportunity where AI is, I think, made us far better than we used to be in the past. Now, these 1 ,200 initiatives you mentioned today represent roughly 300 million or so of EBITDA.

13:01Let's call that just for sake of argument, 3 billion or so of enterprise value. And you also mentioned that you might just be scratching the surface. What could that$3 billion become from here?

13:12Anuj Ranjan: It could be multiple, multiple folds. I don't want to get too excited. Today at$300 million, that is this year's results. Even with no more initiatives, that number grows every year because today we're barely scratching the surface of even these 1 ,200 initiatives and how impactful they could be. As we get better at deploying it, we're going to get more out of those. But then there's even more initiatives. And there's much more advanced things. And some of this sounds like science fiction sometimes, but it's not that far off. Humanoid robotics, it's very much under development. The models have actually made them much easier to get further along.

13:53Anuj Ranjan: We are today training humanoid robots in our manufacturing facilities. And the opportunity there ultimately to take work that may have been unsafe, safe, work that may have been undesirable, work that may have had a lot of turnover and required a lot of retraining of people. When we can replace work like that and automate it, I think it creates a tremendous uplift and a tremendous opportunity and, frankly, allows us to better utilize the people to do other work that is going to allow us to grow the business rather than just focusing on some of the work that we can replace. You know, Anuj, it's fascinating to hear the use cases of AI that you're talking about and just the breadth of AI thought and usefulness across the Brookfield portfolio.

14:40Is AI actually changing the kinds of businesses that you think you want to own or does it more reinforce the value of the kinds of physical businesses that you've been investing in all along?

14:50Anuj Ranjan: You know, it's funny. We reflect sometimes, and hindsight's always 20-20, you know, markets used to pay up for things that could scale fast, that were often asset light. Today, markets seem to want to pay up for things that can't be tipped over. And even the world's largest technology companies have become asset heavy. You know, the things that they care about the most today are land, steel, chips, and power. And so us as Brookfield, we've always been a heavy asset focused investor. I don't think it was because we had foresight that this was coming. We understood heavy assets. We liked real things.

15:33Anuj Ranjan: And we liked businesses that provided essential products or services that customers couldn't live without. And it didn't matter if there was a good cycle or a bad cycle or high inflation or low inflation or rates were high. There was geopolitical events. at the end of the day, the kinds of things that we like to own, heavy asset, essential services and products, they were always in demand. And so that was our thesis. That's the reason we built this skill set. It just so happens today now that is sitting in the center of technology. I find that really interesting because this thesis that you like to invest in things that don't tip over really resonates with me.

16:10That also kind of connotes a things don't change too much too quickly in assets like that, at least historically. And now we've been talking about going from, hey, here's an Excel spreadsheet to here's a humanoid robot. How do you manage organizational change when the underlying technology in these can't tip it over businesses is changing so quickly?

16:29Anuj Ranjan: That's a great question. And I think it starts with leadership. You have to have the right leadership in the organization. AI can't be driven from an IT department. AI needs to be driven by the CEO and needs to be empowered by the CEO. And that's the only way that this technology gets real adoption. We've seen the difference in our own portfolio companies between leaders that we've put in place that are able to embrace AI and all of its potential versus those that are probably just not as familiar. So that's part of it. This is where, though, a group like Brookfield can help because I think this is where scale really makes a difference.

17:04Anuj Ranjan: We don't need our portfolio companies to become AI experts. We, Brookfield, can, on the balance sheet, make all of these investments and get us access to all of this technology and work closely with our portfolio companies, with our own AI value creation office to ensure that we are taking the best practices across and the learnings across hundreds of companies all over the world using various different kinds of technology to various levels of success and bring those best practices to those businesses and deploy it. And so us having our scale, you're absolutely right. A typical boring industrials business is not going to naturally have the team in place to deploy this technology at scale in their business.

17:51Anuj Ranjan: But we do. We have that capability. We have that access. We very purposefully made many investments in different aspects of this field to ensure that we have access to the brightest minds and the best technology. And so our being a lead co-founding partner with OpenAI and investing in Anthropic, investing in figure AI, forming partnerships around the world of various technology companies, this is all helpful to our broader portfolio. And so I find that fascinating. And I love the argument that you just made about the advantages of scale. and having the AI capabilities on Brookfield's balance sheet, if you will.

18:29You mentioned this earlier, Anuj, and I want to come back to it. What do you think has changed in the market's view of businesses that are actually tied to the physical economy? Where does the renewed interest really lie in there?

18:42Anuj Ranjan: You know, I think it's a combination of a comfort that everyone takes that the business will still exist 20 years from now. You know, no one can predict what our future will look like. Everyone, I think, has agreed that AI is a transformative technology. There are debates on whether that's good or bad or how transformative it will be. But the one thing that everybody is thinking about is, well, what's still going to exist? As an example, plumbing fittings and plumbing parts. You know, we're all probably going to still need sinks. Yes. You know, we're probably all still going to need plumbing equipment.

19:20Anuj Ranjan: And so I think people are finding themselves drawn to these heavy asset industrial businesses that create things that are just needed. And so there's a comfort that change might happen. I can't predict which way the change will go, but this business, it will still be required. And then I think the second part of it is it has sort of opened up people's eyes again to the fact that these businesses, of course, any business can have some volatility. But in the grand scheme of things, the multiples for these businesses have never gone up to 30x and then down to 3x. And the volatility of these businesses has never been up 300 % one year, down 300 % the next year.

20:06Anuj Ranjan: You know, it's a much more stable place to be. And so I think that's also become appealing. That's always been a characteristic of the kinds of companies we invest in. But I think it maybe wasn't as well known until or well discovered or people didn't pay attention to it until more recently. On the next episode of Dry Powder, Anuj and I will widen our conversation to supply chains, the fundraising environment, and where Brookfield sees the next set of opportunities. If you think about it, cash money, physical money, it's shocking that it's still around. And the technology's there. So it's not because of the lack of the technology.

20:46Anuj Ranjan: It's customers being comfortable with it in a digital form. I'm Hugh MacArthur. Thank you for listening.