Category Archives: Acquisitions

Commentary: Bolt-On Acquisitions Continue to Power Berkshire’s Growth

(BRK.A), (BRK.B)

With the price of acquiring large businesses high, Berkshire Hathaway has been hard-pressed to spend down its $116 billion cash hoard on a major acquisition or two. Its proposed $143 billion Unilever bid, made in conjunction with 3G Capital Partners, fell on deaf ears, and other than an agreement to acquire Pilot and Flying J travel centers, the big fish have remained elusive.

However, Berkshire’s bolt-on acquisitions, which add capability and value to its existing businesses, have continued unabated, and were highlighted by Warren Buffett in his annual letter to shareholders.

In the letter, Buffett noted some of the larger acquisitions.

“Clayton Homes acquired two builders of conventional homes during 2017, a move that more than doubled our presence in a field we entered only three years ago. With these additions – Oakwood Homes in Colorado and Harris Doyle in Birmingham – I expect our 2018 site built volume will exceed $1 billion.

Clayton’s emphasis, nonetheless, remains manufactured homes, both their construction and their financing. In 2017 Clayton sold 19,168 units through its own retail operation and wholesaled another 26,706 units to independent retailers.

All told, Clayton accounted for 49% of the manufactured-home market last year. That industry-leading share – about three times what our nearest competitor did – is a far cry from the 13% Clayton achieved in 2003, the year it joined Berkshire.

Both Clayton Homes and PFJ are based in Knoxville, where the Clayton and Haslam families have long been friends. Kevin Clayton’s comments to the Haslams about the advantages of a Berkshire affiliation, and his admiring comments about the Haslam family to me, helped cement the PFJ deal.

Near the end of 2016, Shaw Industries, our floor coverings business, acquired U.S. Floors (“USF”), a rapidly growing distributor of luxury vinyl tile. USF’s managers, Piet Dossche and Philippe Erramuzpe, came out of the gate fast, delivering a 40% increase in sales in 2017, during which their operation was integrated with Shaw’s. It’s clear that we acquired both great human assets and business assets in making the USF purchase.

Vance Bell, Shaw’s CEO, originated, negotiated and completed this acquisition, which increased Shaw’s sales to $5.7 billion in 2017 and its employment to 22,000. With the purchase of USF, Shaw has substantially strengthened its position as an important and durable source of earnings for Berkshire.

I have told you several times about HomeServices, our growing real estate brokerage operation. Berkshire backed into this business in 2000 when we acquired a majority interest in MidAmerican Energy (now named Berkshire Hathaway Energy). MidAmerican’s activities were then largely in the electric utility field, and I originally paid little attention to HomeServices.

But, year-by-year, the company added brokers and, by the end of 2016, HomeServices was the second-largest brokerage operation in the country – still ranking, though, far behind the leader, Realogy. In 2017, however, HomeServices’ growth exploded. We acquired the industry’s third-largest operator, Long and Foster; number 12, Houlihan Lawrence; and Gloria Nilson.

With those purchases we added 12,300 agents, raising our total to 40,950. HomeServices is now close to leading the country in home sales, having participated (including our three acquisitions pro-forma) in $127 billion of “sides” during 2017. To explain that term, there are two “sides” to every transaction; if we represent both buyer and seller, the dollar value of the transaction is counted twice.

Despite its recent acquisitions, HomeServices is on track to do only about 3% of the country’s home-brokerage business in 2018. That leaves 97% to go. Given sensible prices, we will keep adding brokers in this most fundamental of businesses.

Finally, Precision Castparts, a company built through acquisitions, bought Wilhelm Schulz GmbH, a German maker of corrosion resistant fittings, piping systems and components.”

But Wait, There’s More!

Sometimes Berkshire’s bolt-on acquisitions get little attention. Such was the case in the summer of 2017, when Berkshire acquired Warren, Michigan-based MRO distributor Production Tool Supply, and created a new wholesale division, Berkshire eSupply.

At the time, the company was ranked 34th on Industrial Distribution’s 2017 Big 50 List.

And the Bolt-On Acquisitions Continue in 2018

QS Partners, the aircraft brokerage subsidiary of Berkshire Hathaway’s NetJets, acquired aircraft brokers Cerretani Aviation Group of Boulder, Colorado.

Berkshire’s Vanderbilt Mortgage and Finance, a financier of manufactured and modular homes, acquired Silverton Mortgage. Silverton Mortgage has 22 locations and is licensed in Alabama, Colorado, District of Columbia, Florida, Georgia, Louisiana, Maryland, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia.

And, Berkshire’s Marmon Holdings acquired Sonnax Industries, Inc. and formed a newly-created subsidiary called Sonnax Transmission Company. Sonnax is an industry leader in the cutting edge design, manufacture and distribution of the highest quality products to the automotive aftermarket, commercial vehicle industries, and industrial sectors utilizing drivetrain technology.

So, if you think that Berkshire Hathaway is sitting still, think again.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Vanderbilt Mortgage Acquires Silverton Mortgage

(BRK.A), (BRK.B)

While Warren Buffett may be unable to find a reasonably priced, multi-billion-dollar acquisition. Berkshire’s subsidiaries continue to make what Buffett refers to as “bolt-on” acquisitions.

These acquisitions add on to Berkshire’s existing businesses, expanding their reach and scope of operations.

The latest acquisition came recently when Berkshire’s Vanderbilt Mortgage and Finance, a financier of manufactured and modular homes, acquired Silverton Mortgage.

Silverton Mortgage has 22 locations and is licensed in Alabama, Colorado, District of Columbia, Florida, Georgia, Louisiana, Maryland, North Carolina, Pennsylvania, South Carolina, Tennessee and Virginia.

Founded in 1998, Silverton Mortgage grew from a one-person shop to a top residential mortgage lender with 170 employees, and is one of the nation’s fastest growing financial companies.

Despite the acquisition by Vanderbilt, Silverton Mortgage will be retaining its name, leadership, employees and corporate identity following the transaction.

Expansion is also in the works. It is also anticipated that, because of this transaction, Silverton Mortgage will expand its footprint and increase its access to capital to develop an expanded line of products and services for its clients. There will be no lapses in service for borrowers currently working with the company.

“While we were not actively looking to be acquired, we are grateful for this opportunity to expand our services, both in terms of geographic footprint and loan product offerings, while keeping our identity and the great people that have built our culture of unparalleled service to our customers and communities,” said Josh Moffitt, who will stay on as the president and CEO of Silverton Mortgage. “This is a unique opportunity to keep what makes Silverton special, while also improving the service and lives of our customers and employees.”

Vanderbilt Mortgage services over 200,000 loans and also offers financing for eScore energy efficient home improvements.

Bolt-On Acquisitions Continue to Power Berkshire’s Growth

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

NetJets Subsidiary Acquires Cerretani Aviation Group

(BRK.A), (BRK.B)

QS Partners, the aircraft brokerage subsidiary of Berkshire Hathaway’s NetJets, has acquired aircraft brokers Cerretani Aviation Group of Boulder, Colorado.

QS Partners was launched in 2016 to meet what NetJets called “a growing need from our clients regarding whole-aircraft sales and trades and leveraging NetJets’ global network of resources…”

With the acquisition of Cerretani Aviation Group, the company will more than double its size.

In a release, Nick Cerretani and Paul Kirby said, “We are pleased to announce that Cerretani Aviation Group has merged with QS Partners, a leading aircraft sales company composed of individuals with whom we share a commitment to integrity, knowledge, and insightful service to our clients. While we will operate under the QS Partners brand, we will remain based in Boulder, Colorado, and will retain all of our current staff.

Our merger with QS Partners will enable us to significantly expand our industry reach and enhance transactional opportunities for our clients, whether buying or selling. At the same time, we are aware of the foundations of our success and will focus on providing our clients the personal attention and independent thinking they have come to expect from Cerretani Aviation Group.”

The Cerretani Aviation Group was founded in 2001 by Nick Cerretani, a former Executive VP at Flight Options, and Paul Kirby, co-founder of Kirby Ramsey Aviation.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkadia Acquires 50% Interest in Riverside Capital

(BRK.A), (BRK.B)

Berkadia, Berkshire Hathaway’s joint venture with Leucadia National Corporation, has acquired a 50 percent ownership interest in Riverside Capital, a full-service tax credit investment company offering capital solutions to developers of high-quality affordable housing across the country.

Riverside has guided the financing and syndication for more than 7,500 affordable units across the country, representing $900 million of equity capital.

“This acquisition gives Berkadia the opportunity to expand our presence in the affordable housing space by enabling access to a deep network of developers and investor relationships,” said Berkadia CEO Justin Wheeler. “Riverside’s reputation as an established tax credit syndication platform, with its proven track record of providing capital solutions to the affordable housing industry’s leading development companies, appealed to our desire to grow within this increasingly important asset class.”

The acquisition creates a joint venture between Berkadia and The Michaels Organization, the nation’s largest privately-held owner and developer of affordable housing. Riverside, which is national in scope, has provided tax credit syndication services for top-tier affordable housing developments across the country, including for Michaels.

“We are proud to partner with Berkadia, one of the multifamily housing industry’s most respected and successful full-service mortgage banking, loan servicing and investment sales firms,” said John J. O’Donnell, president of The Michaels Organization. “This partnership propels Riverside into a position ripe for growth as an industry-leading capital provider and tax credit syndicator for much-needed affordable housing.”

“The partnership allows us to expand Riverside Capital’s capacity while continuing to offer our clients best-in-class opportunities and services,” said Sebastian Corradino, president of Riverside Capital. During Corradino’s tenure with Riverside, the firm more than doubled its volume and expanded its originating, underwriting and asset management teams.

Consistent with this strategy of growth in the affordable housing market, Berkadia has named Steve Ervin as the head of its prominent affordable housing group, charged with growing this platform. Mr. Ervin will lead the coordination of Berkadia’s affordable debt products including Fannie Mae, Freddie Mac and HUD. In his time at Berkadia, Mr. Ervin launched the Seniors Housing and Healthcare group and is currently the head of Berkadia’s HUD production team, who was ranked #1 for volume in fiscal 2017. He will draw upon that experience to manage Berkadia’s expansion in the affordable housing industry.

In 2017, Berkadia’s loan origination volume surpassed $24 billion while its investment sales platform totaled nearly $8 billion.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA.

The company is among the top Freddie Mac and Fannie Mae multifamily lenders.

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Major Changes Coming With Abel’s and Jain’s New Roles as Vice Chairmen

(BRK.A), (BRK.B)

With Gregory Abel elevated to Berkshire Hathaway’s Vice Chairman – Non-Insurance Business Operations, and Ajit Jain appointed Vice Chairman – Insurance Operations, Warren Buffett has made clear that major changes are in store in the command structure of Berkshire’s operations.

While Buffett has no interest in stepping down as chairman, he is shifting the responsibility for both the bolt-on acquisitions and the setting of salaries and compensation for Berkshire’s managers to his new vice chairmen.

“They’ll decide the compensation of the people underneath,” Buffett explained in a January 10 interview on CNBC. “I mean, certain people we have compensation arrangements with that we will have in force for their lifetime because we made up at the time of acquisition, but aside from the ones that are fixed, those decisions will be theirs. And smaller bolt on acquisitions will probably be theirs if there’s a large bolt on acquisition, then Charlie and I will get involved.”

Berkshire shareholders apparently should have no fear that Buffett’s famed “elephant gun,” the term he uses for hunting for giant-sized acquisitions, will be silenced any time soon.

2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Hathaway HomeServices Carolinas Realty Acquires Attorneys Title

(BRK.A), (BRK.B)

Berkshire Hathaway HomeServices Carolinas Realty has acquired North Carolina-based Attorneys Title, the company recently announced.

The acquisitions adds expertise, resources and a seamless customer experience to Berkshire Hathaway HomeServices Carolinas Realty.

Attorneys Title President Kimberly Rosenberg and Vice President of Operations Bryan Rosenberg will continue on in their respective roles.

“The Berkshire Hathaway HomeServices Carolinas Realty family of companies is committed to redefining home-buying, home-selling, and homeownership by integrating all the elements of the real estate transaction into a seamless experience,” says Tommy Camp, president and CEO of the Berkshire Hathaway HomeServices Carolinas Realty family of companies. “The merger of Attorneys Title into our organization reinforces and strengthens this commitment and our ability to provide the highest level of service to our clients and sales associates.”

“The longstanding commitment by Attorneys Title to our customers and our employees will not change,” says Kimberly Rosenberg. “Berkshire Hathaway HomeServices Carolinas Realty and Attorneys Title have a shared vision of providing superior customer service. In Berkshire Hathaway HomeServices Carolinas Realty we have found a business partner with an impeccable reputation and one that provides us with exciting opportunities for growth as we continue to serve the needs of our new and existing clients.”

Bolt-On Acquisitions Continue to Power Berkshire’s Growth

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

MidAmerican Energy Buys Wind Farm from Tradewind Energy

(BRK.A), (BRK.B)

Berkshire Hathaway continues to add to its renewable energy portfolio. Berkshire’s MidAmerican Energy Co., a subsidiary of Berkshire Hathaway Energy, has purchased the North English Wind Project, which is currently under construction in Iowa.

When completed, North English will generate 340 megawatts of wind energy.

The North English Wind Project is located approximately 60 miles east of Des Moines, Iowa in the high-yielding corn and soybean farmlands of Poweshiek County, Iowa. The wind farm is expected to interconnect to a 345 kV (MIDAM) line located in Poweshiek County.

“We are thrilled to support Iowa’s continued leadership in wind energy through the development of the North English Wind Project,” Jeff Hammond, senior development manager for Tradewind, said in a statement. “MidAmerican Energy Co. has a vision to provide 100 percent renewable energy for its customers, and it’s exciting to partner with them toward achieving that goal.”

According to Tradewind, more than 200 landowners and over 30,000 acres will be involved in the project.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Commentary: Akzo Nobel and Axalta Coatings Merger Would Benefit Berkshire Hathaway

(BRK.A), (BRK.B)

A possible merger between Akzo Nobel NV and Axalta Coating Systems would give Berkshire Hathaway a major stake in a world-leader in the coatings market.

The Dutch coatings company Akzo Nobel is reportedly in the discussion stage with Philadelphia-based Axalta on a deal that could create a $30 billion coatings behemoth. The discussions have been described as a “merger of equals’ even though Axalta is the smaller of the two companies.

One of the benefits for Akzo Nobel would be to make it too large for takeover by other coasting companies, including PPG Industries.

The potential merger has already benefited Berkshire, as shares in Axalta soared 17% to Friday’s closing price of $33.15 on news of the discussions.

Berkshire currently owns 23,324,000 shares of Axalta, which is approximately 9.59% of the company, and has a value of roughly $745,668,263. 20 million of its stake was purchased in April of 2015 from The Carlyle Group for an aggregate purchase price of $560 million, or $28.00 per share.

Axalta was founded in 1866 as Herberts, the original producer of Standox paint products. Spun off of DuPont Performance Coatings in 2013, it was sold to The Carlyle Group and renamed Axalta Coating Systems. Today the company is a leader in coatings for commercial vehicles.

When Berkshire took its stake in Axalta back in 2015, the company looked like a possible merger candidate with Berkshire’s Lubrizol. However, Berkshire’s never been shy about owning significant minority stakes in companies if they are purchased at favorable prices.

Such is the case with Axalta.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results

Commentary: Could the Door Open Again for a Berkshire Acquisition of Oncor?

(BRK.A), (BRK.B)

Berkshire Hathaway’s ongoing interest in acquiring Oncor Electric Delivery might still have a chance, if only a faint one.

Sempra Energy, which this August outbid Berkshire for Oncor, is running into some of the same resistance that torpedoed the last two attempts to acquire what is the largest distribution and transmission system in Texas.

Sempra’s $9.45 billion bid won out after Berkshire refused to get into a bidding war and stood firm on its $9 billion all-cash consideration that implied an equity value of approximately $11.25 billion for 100% of Oncor.

Now, San Diego-based Sempra has to gain the approval of the Public Utility Commission of Texas, and Commissioner Ken Anderson is raising concerns on the amount of money Sempra will have to raise in order to finance the deal and the credit rating of the company.

The PUC has to rule on whether the Sepra deal is in the public’s interest, and on October 5, Moody’s Investors Service issued a comment titled “Sempra Energy: Revised structure for EFH/Oncor acquisition reduces complexity but transaction remains credit negative.”

Credit negative is not the case with Berkshire. Certainly, financing a deal is not a problem for Berkshire, as it is sitting on over $100 billion in cash that it has been hard-pressed to invest as of late.

Commissioner Anderson’s concern is a valid one, as Oncor has been mired in the decade long financial morass that found its parent company Energy Future Holdings Corp. in bankruptcy after being loaded with $40 billion in debt from a leveraged buy-out engineered by private equity firms KKR & Co. and TPG.

While it’s a longshot that Berkshire can get another shot at Oncor, perhaps a very long shot, the one thing Texas ratepayers need at this point is financial stability.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Kraft Heinz Buys Cerebos Brands from Suntory

(BRK.A), (BRK.B)

Kraft Heinz is expanding its brands marketed in Australia and New Zealand with its purchase of the Cerebos food and instant coffee business from Japan’s Suntory Group.

The purchase price will be A$290 million and includes popular brands such as the Gravox gravies, which is one of the all-time great Australian brands, and traces its roots back to 1917.

Cerebos’ Food & Instant Coffee business includes iconic food brands in Australia and New Zealand such as Fountain, Gravox, Saxa, Foster Clark’s, Gregg’s, Bisto, Raro and Asian Home Gourmet. The business has market-leading brands across a number of categories including sauces, gravies, herbs & spices, salt, condiments, Asian sauces, desserts and cooking ingredients.

The sale agreement does not include the Cerebos Fresh Coffee business in Australia/New Zealand, which SBF will retain.

Cerebos Australia and New Zealand is a trans-Tasman integration of two companies, Cerebos (Australia) Limited and Cerebos Gregg’s Limited in New Zealand. Our parent company, Cerebos Pacific Limited, is based in Singapore and has been wholly owned by Suntory Limited, a Japanese global food and beverage group. Within this structure, the companies have operated with a great deal of autonomy.

Kraft Heinz is the fifth-largest food and beverage company in the world and has a strong platform in Australia and New Zealand, with a staple of well-known brands such as Heinz, Kraft, Wattie’s, Eta and Golden Circle in categories including beans & spaghetti, sauces, soups, sauces & dressings and many others.

Bruno Lino, CEO of Kraft Heinz Australia and New Zealand, who will lead the combined business, said: “The transaction provides an exciting opportunity for Kraft Heinz to expand its portfolio into complementary categories, stretching the footprint of Cerebos’ brands into new categories and markets.”

“In addition to the iconic local brands, Cerebos has a strong team that will play an important role in our future growth. This transaction reinforces our commitment and long-term plan to the Australia and New Zealand markets in addition to our significant investment in the Kraft brand for 2018. We will continue investing in our brands, factories and our employees to meet consumer needs and expectations,” he said.

Terry Svenson, CEO of Cerebos Australia/New Zealand, said the company was pleased with the outcome of the transaction.

“As we announced in April 2017, the Food & Instant Coffee business has a number of market-leading brands across Australia and New Zealand and has made significant progress in recent years, particularly in relation to improvements in manufacturing efficiency. However, Food & Instant Coffee is not a core focus category for SBF and we believe this business can be maximised under different ownership. The Food & Instant Coffee business will now have opportunities to leverage Kraft Heinz’s operations to grow the business further.”

The transaction is scheduled to close in the first quarter of 2018, subject to regulatory approvals.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.