Berkshire Hathaway buying Heinz is unlike any deal Buffett has ever done. In his past deals he was always a passive owner – he let existing management continue to run the company. In this case 3G, a private equity firm that has done terrific turnarounds in the past, will be the new management. They are putting in $1 billion of capital for half of ownership, but also a lot of sweat capital. On the surface Buffett is paying 20 times earnings, a fairly high multiple even for this high-quality business, but 3G involvement will likely elevate the earnings power of Heinz significantly over time. So this is a classic Buffett deal in one respect: Buffett is saying, I’m willing to pay a premium for a quality business that has long-term pricing power. (Heinz scores great on both counts). Buffett is willing to pay a premium for it, but this time the premium is less than it appears on the surface.
I am the CEO at IMA, which is anything but your average investment firm. In a brief moment of senility, Forbes magazine called me "the new Benjamin Graham”.
I’ve written two books on investing, which were published by John Wiley & Sons and have been translated into eight languages. (I’m working on a third - you can read a chapter from it, titled “The 6 Commandments of Value Investing” here).
And if you prefer listening, audio versions of my articles are published weekly at investor.fm.
How Much Would You Pay for the Apple Ecosystem?