Forbes - A rare mega-deal for Warren Buffett

Kevin Dowd and Becca Szkutak

Staff Writers

On February 26, in his annual letter to shareholders, Warren Buffett wrote that when he and his Berkshire Hathaway colleagues surveyed the current stock market for attractive investment options, they found “little that excites us."

Either Buffett was playing possum, or something has changed in the past three weeks. Because on Monday, Berkshire unveiled its largest acquisition in a half-dozen years, agreeing to buy publicly traded insurance conglomerate Alleghany for $11.6 billion in cash in a move that will only further burnish Berkshire’s status as an insurance industry giant.

Warren Buffett and Berkshire Hathaway are doubling down on insurance. WireImage

Alleghany specializes in property and casualty insurance, but it also owns a portfolio of smaller and unrelated businesses, such as Precision Cutting Technologies, which makes machine tools, and Jazwares, a toy company. The group is led by CEO Joseph Brandon, who is no stranger to Buffett, having served as the leader of Berkshire’s General Re reinsurance unit from 2001 to 2008. Citing that familiarity and the similarities in the companies’ diversified structures, Buffett described Berkshire as “the perfect permanent home for Alleghany."

The $11.6 billion cash payment would be a large liquid outlay for most buyers. But for Berkshire, which ended last year with $146.7 billion in cash and cash equivalents on its balance sheet, it’s barely a drop in the bucket.

This will be Berkshire’s largest acquisition since 2016, when the company spent $32 billion on Precision Castparts, a maker of aircraft and industrial parts. That deal has gone south: In 2020, Berkshire took a nearly $10 billion writedown on its investment, and Buffett confirmed in a letter to shareholders last year that he had “paid too much.” That buyer’s remorse may have contributed to Berkshire’s recent pause on major takeovers.

Other massive deals, though, have worked out better. In 2010, Buffett and Berkshire paid $26 billion for Burlington Northern Santa Fe, the largest railroad in the U.S. In the years since, they’ve turned it into a profit-generating machine. BNSF logged nearly $6 billion in net income last year on $23.3 billion in revenue.

It’s difficult to pin down a valuation estimate for BNSF these days, but it’s safe to say it’s a lot more than $26 billion. For the sake of comparison, fellow U.S. rail operator Kansas City Southern fetched some $31 billion when it sold last year to Canadian Pacific Railway; for its full 2021, KCS logged $527 million in net income on $2.94 billion in revenue.

For now, at least, Buffett’s many acolytes are optimistic that the Oracle of Omaha’s bet on Alleghany will pay off. Berkshire shares were up about 2% on Monday, and they’re up some 15% so far this year (compared with a 7% decline for the S&P 500), taking the company’s market cap to $772 billion. —K.D.

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A new plan at Anaplan

The mega-deals keep coming for Thoma Bravo—and for the private equity industry at large. For its latest major takeover, the tech-focused firm agreed on Sunday to buy Anaplan in a take-private buyout worth $10.7 billion. Thoma Bravo has conducted three deals worth more than $10 billion in its 14-year history, and all three have occurred in the past calendar year.

The firm will pay $66 per share for the San Francisco-based company, a 30% premium to last Friday’s close. Anaplan makes modeling and planning software used by major corporations like Coca-Cola and Shell to manage supply chains, sales and a range of other functions. Thoma Bravo could be bargain-hunting: Anaplan stock spent most of last September and October trading above $60 per share, but it plunged in the closing weeks of 2021 due to a disappointing third quarter.

Last year, there were 107 private equity deals in the U.S. worth $1 billion or more, per PitchBook, 22% more than the previous all-time high. Those 2021 deals included several buyouts above $10 billion, led by the $30 billion takeover of Medline Industries. So far this year, the market has been even more frenetic: There were $228.3 billion worth of private equity M&A deals announced this year as of last Thursday, according to Refinitiv, up 12% from last year’s record-breaking pace. The average deal is also significantly larger compared to 2021.

The biggest PE deal to pop up so far in 2022 was the $16.5 billion purchase of Citrix Systems by Elliott Management and Vista Equity Partners, part of Elliott’s ongoing push into the buyout business. Deals of that size had been dormant for years, but amid the pandemic, interest rates were low, investors were flush with cash, companies were motivated to rethink their operations, and an extended bull run drove valuations to previously unseen highs. Those trends combined to create a mega-deal cocktail.

Shaky markets and the prospect of rising interest rates could cause the dealmaking party to wind down. But for now, at least, private equity’s spending spree continues. —K.D.

Capital for cricket highlights

Two events last year really underscored how quickly excitement about NFTs was building: the sale of an NFT by artist Beeple for $69 million, and the rise of NBA Top Shot, a collection of NFTs of NBA highlights in a subset of $7.6 billion Dapper Labs.

It seems the latter has started a trend.

Last week, FanCraze, formerly known as Faze, raised a $100 million Series A round for its NFT platform of cricket highlights. The round was led by B Capital Corp with participation from Insight Partners, Mirae Asset Global Investments and soccer superstar Cristiano Ronaldo. The startup was founded in 2021 and has raised $117.4 million in total.

FanCraze isn’t alone. Formula One racing fans can shop for NFTs on F1 Delta Time. Football fanatics can turn to NFL Dapper Labs. Heck, Korean baseball fans can turn to Dugout. Will the NHL be next? Asking for a friend. —B.S.

They Said It

“There is no stopping or derailing the new rules. Big Tech lost the legislative battle."

—Thomas Vinje, a partner at Clifford Chance, speaking to the Financial Times about a major shift in antitrust policy underway in Europe

Just The Facts

— Fintech startup Ramp raised $750 million in new debt and equity funding at an $8.1 billion post-money valuation, more than double the $3.9 billion valuation it attained in August. Ramp competes with Brex in the business of providing corporate cards and other spend-management tools for startups.

— Gaming platform Dorian raised a $12 million Series A led by the Raine Group. The startup lets women fiction writers turn their stories into games without coding. Graham & Walker, March Capital, Gaingels and other investors participated in the round.

— TV ratings giant Nielsen rejected an unsolicited takeover approach, arguing that the $9.1 billion proposal “significantly undervalues” it. Nielsen said it now plans instead to commence $1 billion in share buybacks. Reports had surfaced last week that Elliott Management was working with Brookfield Asset Management on a joint bid for the business.

— Breedr looks to tackle an oft-overlooked part of the food supply chain—livestock. The U.K.-based startup is creating an online data platform for cattle farmers to track their productivity levels. The company raised £12 million ($15.8 million) round led by Investbridge Capital.

— You can add Centricus Asset Management to the list of suitors circling Chelsea F.C., with Bloomberg reporting the London-based investor entered a bid for the club worth more than £3 billion ($4 billion). Apollo Global Management cofounder Josh Harris and Oaktree Capital are among the other potential bidders with private equity ties said to be circling Chelsea after the club was put up for sale by Russian billionaire Roman Abramovich.

— Tiger Global raised $12.7 billion for its latest growth fund, after closing on $8.8 billion just five months ago. This latest raise includes $1.5 billion of capital from the partners themselves. It’s unclear if that is the $1 billion The Information reported would be used to invest in early-stage funds.

— Clearlake Capital and Motive Partners agreed to pay $1.1 billion to buy the BETA+ group of businesses from London Stock Exchange Group. Comprising the BETA, Maxit and Digital Investor brands, BETA+ provides back-office processing services to wealth managers. It logged about $300 million in revenue last year.

— Peloton’s recent volatility didn’t sour investor interest in at-home fitness. Hydrow, which makes an indoor rowing machine, just announced $55 million in a Series D round led by private equity firm Constitution Capital Partners.

— Advent International is on track to close its 10th flagship fund next month with some $23 billion in commitments, according to Private Equity International. Advent closed its ninth fund on $17.5 billion in 2019. In other mega-fund news, Bloomberg reported late last week that Hellman & Friedman will aim to raise as much as $30 billion for its next flagship fund.

— A credit-investing giant is branching into VC. Cerberus Capital Management hired Amir Salek as a senior managing director at Cerberus and a partner at Tracker Ventures, a new venture capital strategy it recently formed to focus on deep tech and other emerging technologies. Salek previously worked as an executive at Google and Nvidia.

— KKR signed a pact last week to pay about $2 billion for a Japanese real estate asset manager currently owned by Mitsubishi and UBS, becoming the latest example of a private equity heavyweight increasing its exposure to the Asian market. Called Mitsubishi Corp.-UBS Realty, the unit was launched as a joint venture in 2000, and it currently claims about $15 billion in assets under management.

What We're Reading

After previously focusing its retail efforts on credit and real estate, Blackstone is eyeing a new strategy that will open up the buyout business to your average millionaire investor. (Bloomberg)

Adam Neumann talked about startups, his relationship with SoftBank’s Masayoshi Son and what he’s learned since WeWork’s 2019 collapse in a rare interview. (Financial Times)

In order to meet the growing demand among LPs for exposure to startups, more and more venture firms are significantly raising the hard caps on their new funds—or eliminating caps altogether. (The Wall Street Journal)

The two 25-year-old women behind fintech app Alinea think they’ve cracked the code to get women more interested in crypto investing. (Fortune)

Musicians new and old have been picking up guitars during the pandemic. That’s been very good for Fender. (Forbes)

A visit to the clean, friendly and slightly surreal streets of Latitude Margaritaville, where the retired residents do a whole lot more partying than they do wasting away. (The New Yorker)

What To Watch For

CVC Capital Partners might be the next private equity heavyweight to conduct an IPO. And if and when the firm does go public, it plans to list in Amsterdam rather than London, per the Financial Times, the latest sign of a cooldown in London’s IPO market following Brexit. The status of the debut—which could value CVC at €25 billion ($27.6 billion)—will depend in large part on how the war in Ukraine affects European markets in the weeks to come, the report said. Bridgepoint conducted a rare IPO for a private equity firm in London last year, while CVC rival EQT is publicly traded in Stockholm.

Kevin Dowd

Staff Writer

I am a staff writer at Forbes. I previously wrote for PitchBook, where I created The Weekend Pitch, a weekly newsletter about the private markets. Before that, I covered high school sports in the Pacific Northwest, and I graduated from the University of Washington with a degree in journalism and creative writing. I live in Seattle, where I read a lot of books and play a lot of golf.

Follow me on Twitter.

Becca Szkutak

Staff Writer

I'm a New York-based reporter covering venture capital, startups and investors. I was previously a reporter at the Venture Capital Journal and Private Debt Investor. I graduated from Emerson College in 2017 with a degree in journalism.

Follow me on Twitter at @rebecca_szkutak or send me an email at rszkutak@forbes.com.

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Forbes - A rare mega-deal for Warren Buffett

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