Category: Berkshire Hathaway Automotive

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Berkshire Hathaway Automotive Insurance

The Hidden Float Within Van Tuyl Group

(BRK.A), (BRK.B)

There’s nothing Warren Buffet loves more than float! The huge float from Berkshire Hathaway’s insurance businesses has helped the company build an equity portfolio of over $100 billion.

Here Comes More Float!

With the completion of Berkshire Hathaway’s $4.1 billion acquisition of the Van Tuyl Group (the largest privately owned auto dealership group in the U.S.), Berkshire gets an added kicker, more float.

The float comes because Van Tuyl Group (rechristened Berkshire Hathaway Automotive) owns Old United Casualty Company, which provides extended warranty services and other automotive protection plans to 1.6 million customers. And Van Tuyl also has a life insurance company, Old United Life Insurance Company.

Both companies are now owned by Berkshire Hathaway and will be split off from Berkshire Hathaway Automotive to become part of Berkshire’s wholly-owned National Indemnity Company.

While Van Tuyl has been based in Texas, Old United Casualty Company and Old United Life Insurance Company are both based in Shawnee Mission, Kansas.

Financial Strength Anybody?

There’s nothing like being owned by Berkshire to add to your financial strength, and A.M. Best Company, which issues insurance ratings, has just affirmed the financial strength ratings of A (Excellent) and the issuer credit ratings of “a+” for Old United Casualty Company and Old United Life Insurance Company. It notes that “the outlook for all ratings is stable.”

A.M. Best also noted that it “believes OUL is well-positioned at its current rating level, positive rating action could occur if potential synergies or expansion of its business profile are realized through its affiliation with Berkshire.”

How Much Float?

With 1.6 million cars protected under the extended warranty plans, and additional customers having life insurance, it’s not unreasonable to assume that the Berkshire’s $4.1 billion acquisition actually came with around a billion in insurance float.

Not a bad kicker!

© 2015 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.

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Berkshire Hathaway Automotive

Berkshire Hathaway Automotive Starts Hunt for More Dealerships

(BRK.A), (BRK.B)

With the completion of Berkshire Hathaway’s $4.1 billion acquisition of the Van Tuyl Group, the largest privately owned auto dealership group in the U.S., the newly rechristened Berkshire Hathaway Automotive has already begun its acquisition of additional auto dealers.

Frank Kent Honda of Fort Worth, Texas, is the first to be purchased by BHA.

The business will be renamed Honda of Fort Worth.

The dealership, which was one of the oldest family-owned dealerships in Texas, features an $18 million new Honda showroom that was built in 2010.

Frank Kent Honda had been owned since 2005 by Will Churchill and Corrie Watson, who are great-grandchildren of dealership founder Frank Kent.

In making its first acquisition, BHA is competing in a red hot market that is quickly consolidating.

Investor George Soros, through his Soros Fund Management, has stated that the he is actively looking to purchase a large auto dealership group.

As for Warren Buffett, this is just a beginning that will surely see Berkshire moving up in market share from its current starting point in fifth place.

“This is the beginning of a journey that will have no end,” Buffett noted upon completion of the acquisition of the Van Tuyl Group. “Cecil and Larry have given us the ideal platform with which to build an auto dealership business that will be thriving and growing 50 and 100 years from now. The fun has just started.”

© 2015 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.

Categories
Berkshire Hathaway Automotive

Soros Follows Buffett’s Lead in Acquiring Auto Dealerships

(BRK.A), (BRK.B)

Automotive News is reporting that investor George Soros is following Warren Buffett’s lead in acquiring multiple auto dealership groups.

Soros Fund Management is reportedly ready to invest up to $1 billion to get into the slowly consolidating retail auto sales business.

The news of Soros’s interest in acquiring auto dealerships broke at the NADA’s 98th annual convention in San Francisco, which was held January 23-26, 2015.

In October 2014, Berkshire Hathaway announced the purchase of the Van Tuyl Group, a family-owned dealership network which has 78 stores throughout the Sunbelt states. The auto group will be rebranded as Berkshire Hathaway Automotive. The sale was for $4.1 billion, wh0ch is roughly 4 times annual sales.

Auto sales continue to heat up as middle and lower income consumers rebound from the recession. The combination of lower gas prices and pent-up consumer demand are predicted to push new car and light truck sales to roughly 16.94 million for 2015.

Ripe for Consolidation

Like the grocery retailing sector, auto retailing is a slim-profit business, with an average profit margin of 2.2 percent. The slim profit margin makes consolidation attractive for economies of scale. Counterbalancing the tight profit margins are the exclusive territory that dealers gain to represent automotive brands.

There is still plenty of room for consolidation in the retail auto sales sector, which has 17,665 auto dealerships in the U.S., according to NADA. The largest dealership group is currently AutoNation, which has 228 outlets. Recently, AutoNation has been actively buying back its own stock, which is a further indicator that this sector is undervalued.

Penske Automotive Group, which is second in size behind AutoNation, has also been expanding with a doubling of its North American commercial truck dealerships among its top priorities.

(Portions of this article have been updated with new information.)

© 2015 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.

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Acquisitions Berkadia Berkshire Hathaway Automotive Berkshire Hathaway Energy Berkshire Hathaway Specialty Insurance BH Media Lubrizol Marmon Group

2014 Berkshire Hathaway Acquisitions You Didn’t Hear About

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2014 was a busy year for Berkshire Hathaway, with over $5 billion in acquisitions both directly by Berkshire Hathaway and through its companies. I’m sure you heard about the purchase of Procter & Gamble’s Duracell battery division, but did you know that other acquisitions made Berkshire the leader in beverage dispensing, and got Berkshire into automobile retailing for the first time? Here is a list of some of the other lesser-known acquisitions. Did you miss any of them?

Marmon Retail & End User Technologies Acquires Cornelius, Inc.
Date: January 2014
What it is: Cornelius, Inc. is the world’s leading supplier of beverage dispensing and cooling equipment. They manufacture and market a broad line of beverage dispense solutions for soft drink, beer, ice, juice, tea, and frozen as well as a complete line of accessories.

Berkshire Hathaway Specialty Insurance Acquires MyAssist, Inc. from Noel Group
Date: January 2014
What it is: MyAssist is a technology-driven, cloud-based personal assistance solution that leverages advanced technologies to give customers a customized, personal experience. MyAssist provides Mercedes-Benz and Ford with live-agent personal-assistance and telematics service using “location-aware technology” from Verizon Communications Inc.

MiTek Acquires Ellis & Watts Global Industries
Date: April 2014
What it is: Ellis & Watts is the recognized leader in the engineering, design, and fabrication of highly customized HVAC and other products sold into the nuclear, military, and other industrial end markets.

EXSIF Worldwide, Inc. Buy’s OCS
Date: April 2014
What it is: OCS Limited is a tank rental and chemical supply company based in Aberdeen, United Kingdom. OCS operates in the offshore oil and gas sector, serving clients in the North Sea.

Berkshire Hathaway Acquires Van Tuyl Group
Date: April 2014
What it is: Van Tuyl Group is the nation’s largest privately-owned auto dealership group, which ranks fifth among all U.S. auto dealership groups.

Berkshire Hathaway Energy Acquires AltaLink
Date: May 2014
What it is: AltaLink owns 12,000 kilometers of transmission lines and 280 substations that bring electricity to 3 million customers in Alberta, Canada.

Berkadia Acquires Keystone Commercial Capital
Date: May 2014
What it is: Keystone Capital is a full-service commercial mortgage banking company headquartered in Phoenix that services more than $2 billion in commercial real estate loans.

BH Media Acquires Catamaran Group
Date: September 2014
What it is: Catamaran Group publishes 12 weekly papers, with circulations ranging from 7,000 up to 15,000, serving the southern New Jersey shore area. While the individual circulations are small, the combined circulations exceed 111,000.

Lubrizol Acquires Warwick Chemicals
Date: November 2014
What it is: Warwick Chemicals is a leading global developer, producer and supplier of stain removal technology with hygiene benefits. Headquartered in Mostyn, North Wales, Warwick Chemicals has strong positions with global and regional detergent producers. Their products are an essential element in laundry detergent powders and automatic dishwashing products used across five continents and in more than 50 countries.

Lubrizol Acquires Engineered Chemistry and Integrity Industries
Date: December 2014
What it is: Engineered Chemistry supplies additives and fluids for a range of oilfield activities, including cementing, drilling, flow assurance and fracturing. It offers chemistry expertise to solve problems throughout the oil and gas drilling process. The business consists of a core manufacturing and research organization which supports a global field distribution network. Engineered Chemistry was built through a series of acquisitions over the past 12 years and is headquartered in Houston, TX. It operates 10 sites located predominantly in North America. Integrity Industries manufactures drilling fluid systems, including diesel, mineral oil and synthetic oil based fluids. The company supplies these drilling fluid systems to retail drilling fluid companies along with technical support.

Berkshire Hathaway Acquires Charter Brokerage
Date: December 2014
What it is: Charter Brokerage is a leading global trade services company providing complete customs, import, export, drawback and related services.

There you have it!

Bolt-On Acquisitions Continue to Power Berkshire’s Growth

© 2015 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.

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Berkshire Hathaway Automotive

Van Tuyl Group Acquisition Brings More Insurance Float

(BRK.A), (BRK.B)

Is there anything Warren Buffett likes more than insurance float? Probably not, if you look at the more than $100 billion in insurance float generated by Berkshire Hathaway’s GEICO and its other insurance companies.

Now there’s more float on the way with Berkshire Hathaway’s recently announced $4.1 billion acquisition of auto dealership group Van Tuyl Group.

The float comes because Van Tuyl Group owns Old United Casualty Company, which provides extended warranty services and other automotive protection plans to 1.6 million customers.

In addition, Van Tuyl Group also owns Old United Life Insurance Company, which sells credit Life, credit Accident and Health policies through the Van Tuyl Group’s automobile dealerships and other outside dealerships.

New Units Will Join Berkshire’s Existing Insurance Companies

Both the Old United Casualty Company, and the Old United Life Insurance Company, will be split off from the Van Tuyl Group, and will become part of Berkshire’s wholly-owned National Indemnity Company.

The Van Tuyl Group will be rechristened Berkshire Hathaway Automotive.

The Van Tuyl Group is the number one privately-held auto dealership group and is fifth nationally among total dealership groups. The company also serves as a management consulting company that recruits on behalf of a large number of independently owned automotive dealerships.

2013 revenues were nearly $9 billion from 78 independently operated dealerships with over 100 franchises covering Arizona, California, Florida, Georgia, Illinois, Indiana, Missouri, Nebraska, New Mexico and Texas.

The Van Tuyl Group was founded in 1955 by Cecil Van Tuyl with a single Kansas Chevrolet dealership. Joined by his son Larry in 1971, the company is now headed by Larry Van Tuyl, as the current Chief Executive Officer, and Jeff Rachor.

Rachor, who previously headed Fortune 500 auto dealer group Sonic Automotive, and did a stint as the head of auto parts retailer Pep Boys, will take over as Chief Executive Officer for Berkshire Hathaway Automotive. Larry Van Tuyl will continue to manage the company as chairman.

The acquisition is expected to close in the first quarter of 2015, after clearing regulatory hurdles and gaining approvals from auto manufactures.

© 2014 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.

Categories
Acquisitions Berkshire Hathaway Automotive

Berkshire Adds $1 Billion in Earning Power With Van Tuyl Group Acquisition

(BRK.A), (BRK.B)

Berkshire Hathaway is getting in the thick of the auto retail business with the acquisition of the Van Tuyl Group. The soon to be rechristened Berkshire Hathaway Automotive will add over a billion dollars in gross profits annually to Berkshire’s bottom line.

Berkshire Hathaway agreed to acquire the auto dealership group for $4.1 billion after company CEO Larry Van Tuyl approached Berkshire and proposed the acquisition.

The Van Tuyl Group is the number one privately-held auto dealership group and is fifth nationally among total dealership groups. The company also serves as a management consulting company that recruits on behalf of a large number of independently owned automotive dealerships.

2013 revenues were nearly $9 billion from 78 independently operated dealerships with over 100 franchises covering Arizona, California, Florida, Georgia, Illinois, Indiana, Missouri, Nebraska, New Mexico and Texas.

The Van Tuyl Group was founded in 1955 by Cecil Van Tuyl with a single Kansas Chevrolet dealership. Joined by his son Larry in 1971, the company is now headed by Larry Van Tuyl, as the current Chief Executive Officer, and Jeff Rachor.

Rachor, who previously headed Fortune 500 auto dealer group Sonic Automotive, and did a stint as the head of auto parts retailer Pep Boys, will take over as Chief Executive Officer for Berkshire Hathaway Automotive. Larry Van Tuyl will continue to manage the company as chairman.

Billions in profit potential

Annual gross profits across the sector in 2013 averaged 15.5%. As a private company, the Van Tuyl Group does not release its annual profits, but they should be around $1.25 billion.

Adding a billion dollars annually to the Berkshire bottom line is only the beginning, as Warren Buffett has already announced that under Berkshire the company will continue to acquire dealerships as it participates in an industry-wide consolidation that has AutoNation and Penske Automotive Group as the sector leaders.

A successful management style

The Van Tuyl Group has incentivized their dealership general managers by making them minority owners of the dealerships. Berkshire is expected to continue this strategy.

One-stop shopping?

Berkshire Hathaway Automotive will likely open up new opportunities for Berkshire to have one-stop shopping for cars, financing and auto insurance.

The acquisition is expected to close in the first quarter of 2015, after clearing regulatory hurdles and gaining approvals from auto manufactures.

(Portions of this article have been updated with new information.)

© 2014 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.