Next Berkshire acquisition speculation

[RunPacoRun]

Fact: In past shareholder letters, WEB wrote that it's easier to buy a reinsurance company than to start one from scratch.

 

Fact: Looking at the balance sheet, the vast majority of its investment assets are in fixed maturities, $106B out of $136B. There is only $14B invested in private equities.

 

Fact: CB's market cap is $106B.

 

Conjecture: Berkshire could be interested in CB's insurance operation. If Berkshire acquired CB at its market cap with cash, Berkshire could liquidate its fixed income portfolio and then invest it in more equities and/or buy other businesses in full.

[Xerxes]

These are all wishful thinking, right ? $140B of the cash pile is NOT get used up, no matter how amazing Chubb might be.  
 

That said nothing wrong with a large non-controlling stake. 

[charlieruane]

Yeah, if I had to guess, Berkshire will hold off on elephant hunting until there's blood in the streets, even if a Chubb buyout would work at current prices (or be no more expensive than Alleghany was). Buffett will probably wait for more of a margin safety to deploy that kind of cash. 

 

But, yeah, fun to think about. I wouldn't mind it, really. 

Edited June 13, 2024 by charlieruane

[AlwaysDay1]

Can someone explain these insurance acquisition synergies that Berkshire enjoys? Is Berkshire so overcapitalized that it can acquire similar insurance companies and liquidate their fixed-income portfolios, thereby receiving a huge portion of their acquisition price back? And is this simply because Berkshire knows it has the liquidity/reserves to pay any liabilities/claims over time? 

[John Hjorth]

7 hours ago, AlwaysDay1 said:

Can someone explain these insurance acquisition synergies that Berkshire enjoys? Is Berkshire so overcapitalized that it can acquire similar insurance companies and liquidate their fixed-income portfolios, thereby receiving a huge portion of their acquisition price back? And is this simply because Berkshire knows it has the liquidity/reserves to pay any liabilities/claims over time? 

 

Have you studied the Berkshire 10-Qs and 10-Ks with regard to information about regulatory dividend restrictions for the insurance companies inside Berkshire, and if you have, what does that tell you?

[AlwaysDay1]

@John Hjorth I have not and do not consider myself well versed in understanding the insurance business. Any help/color is much appreciated

[LC]

Regulators will essentially control the capitalization of the various insurance agencies. That said, Berkshire has in the past been successful taking over insurance books and re-aligning the investment portfolio to "something more Buffett-esque". Regulators generally have allowed it given Berkshire's sterling reputation.

 

The play here as I see it:

1- Buy well functioning insurance companies with significant long-term customer relationships, who have a conservative investment book, at reasonable valuation multiples.

2- Leverage the existing customer relationships and re-align the investment portfolios, perhaps repricing some coverage (thanks, Ajit!)

3- Sit back and sip Coca-Cola 

[Jaygo]

I dont have any specific speculation but with the large amount of USD in treasuries and the performance of the CAD I sure hope he is looking North for the next one. 

 

At this point he could basically take 10% of the entire Canadian stock universe and still have reserves left. 

 

Hey Greg and Warren, my bags are ready to be picked up!!

 

 

[73 Reds]

29 minutes ago, Jaygo said:

I dont have any specific speculation but with the large amount of USD in treasuries and the performance of the CAD I sure hope he is looking North for the next one. 

 

At this point he could basically take 10% of the entire Canadian stock universe and still have reserves left. 

 

Hey Greg and Warren, my bags are ready to be picked up!!

 

 

If Buffett was so inclined, Berkshire could make a friendly bid for all but the top 25 or so most valuable companies in the S&P 500.   Similarly, he could acquire any smaller company.  Have to think that this could be part of the playbook for successor management.

[Castanza]

Anyone been thinking about this recently with potential market turbulence ahead? 
 

I always thought something like Epic Systems would be and interesting acquisition for Berkshire. 

[KPO]

1 hour ago, Castanza said:

Anyone been thinking about this recently with potential market turbulence ahead? 
 

I always thought something like Epic Systems would be and interesting acquisition for Berkshire. 

That’s a very left field idea. Great company. I’m not sure if Berkshire would pay up for it, but it would be a great way for Judy to diversify. Whether it’s Epic, or anyone else, an equity driven acquisition would certainly be a bold statement for what Buffett thinks of the present valuation.  I know he’s very much against the concept, but if you subsequently repurchase the shares I don’t see much harm in it.

[Castanza]

29 minutes ago, KPO said:

That’s a very left field idea. Great company. I’m not sure if Berkshire would pay up for it, but it would be a great way for Judy to diversify. Whether it’s Epic, or anyone else, an equity driven acquisition would certainly be a bold statement for what Buffett thinks of the present valuation.  I know he’s very much against the concept, but if you subsequently repurchase the shares I don’t see much harm in it.

 

Probably should have specified something "like" Epic....Epic specifically has always said they will never go public or allow themselves to be acquired (Judy talking). I think she is setting up some type of trust for her shares so it's always employee/family owned. But Judy is old (81) and things can change 

 

Warren (or Charlie) might not like the business regardless since it's healthcare related. Not to mention the premium needed as you noted. 

 

Either way just spit-balling out of boredom. Interesting business none the less.

[Mephistopheles]

Epic is a monster. Looks like the founder’s 47% stake is going to philanthropy. So Buffett or anyone else would only be able to buy roughly half of it. 
 

But, it’s a total beast. Would love to own some myself.

[KPO]

1 hour ago, Castanza said:

 

Probably should have specified something "like" Epic....Epic specifically has always said they will never go public or allow themselves to be acquired (Judy talking). I think she is setting up some type of trust for her shares so it's always employee/family owned. But Judy is old (81) and things can change 

 

Warren (or Charlie) might not like the business regardless since it's healthcare related. Not to mention the premium needed as you noted. 

 

Either way just spit-balling out of boredom. Interesting business none the less.

I actually love the exact idea if they could pull it off at a somewhat reasonable valuation. Berkshire should pursue dominant private companies with sticky products like Epic with a willingness to use equity for the right targets (I.e. let the owners/founders diversify in a tax advantaged way). Back when they did the Wrigley deal I was hoping Mars would find a home with Berkshire. Mars has grown too large since then with all the animal health/pet-related acquisitions. 

[Castanza]

3 hours ago, KPO said:

I actually love the exact idea if they could pull it off at a somewhat reasonable valuation. Berkshire should pursue dominant private companies with sticky products like Epic with a willingness to use equity for the right targets (I.e. let the owners/founders diversify in a tax advantaged way). Back when they did the Wrigley deal I was hoping Mars would find a home with Berkshire. Mars has grown too large since then with all the animal health/pet-related acquisitions. 

Yeah could be worth a shot, who knows maybe they have. With Berkshires Hands off approach, they could have a better chance than most. CSU also come to mind

[Spooky]

12 hours ago, Castanza said:

Yeah could be worth a shot, who knows maybe they have. With Berkshires Hands off approach, they could have a better chance than most. CSU also come to mind

 

I wish BRK or CSU could own part or all of Epic, great business. Some of CSU's businesses compete with Epic. Don't see why the Epic shareholders would want to sell though!

[yesman182]

Warren and Charlie wouldn't be able to handle the opulence of the EPIC campus and art collection! The place is ridiculous.  

[rogermunibond]

I'm not so hot on EPIC Systems overall.  Having watched its adoption and implementation at a large hospital system, it's terrible software that requires huge amounts of in-house effort to keep maintained.  The only thing is that between EPIC and Cerner neither is very good.

 

I fully expect AI and software innovation to come for EHR, ERP, and business process software developers.

 

What appear to be moats now because of complexity will be worn away by AI/software development streamlining the innovation of these complex systems.

[Hektor]

17 minutes ago, rogermunibond said:

Having watched its adoption and implementation at a large hospital system, it's terrible software that requires huge amounts of in-house effort to keep maintained

I suppose the hassle of implementation and adoption makes it sticky - any hospital would think twice before replacing their software.

[villainx]

The future AI hospital administrators might be less reluctant. 
 

[Castanza]

3 hours ago, rogermunibond said:

I'm not so hot on EPIC Systems overall.  Having watched its adoption and implementation at a large hospital system, it's terrible software that requires huge amounts of in-house effort to keep maintained.  The only thing is that between EPIC and Cerner neither is very good.

 

I fully expect AI and software innovation to come for EHR, ERP, and business process software developers.

 

What appear to be moats now because of complexity will be worn away by AI/software development streamlining the innovation of these complex systems.

 

Are you speaking from an engineers perspective or a hospital administrators perspective? Because I've never met an engineer (myself included) that can't come up with reasons as to why XYZ product it shit and why nobody should be using it, and how the product "we" like is the clear choice. 

[Mephistopheles]

I work in healthcare and use epic regularly. I’ve worked at multiple hospitals. Job description always includes what the EMR is because that may make or break whether someone takes the job.

 

 Healthcare workers don’t want to take a chance getting used to inferior EMRs. Hospitals are incentivized to use epic for this reason. It may be very expensive but they can likely hire more people for longer periods at lower pay and less burnout. 

Edited Thursday at 07:50 PM by Mephistopheles

[Malmqky]

Epic is a great company. Judy is...well Judy. It's her way or the highway, for better or worse.

 

Epic pays Software Devs fresh out of college a six figure starting salary. PMs, etc. are paid a competitive salary as well. For Madison/Dane County, that's top tier. There's no competition locally salary wise. Sure there's a Google satelite office and such in Madison, but they don't hire new grads as far as I know. This allows Epic to get the cream of the crop from UW-Madison, etc.

 

I know a few folks who moved from out of state to work at Epic too.

 

In terms of the campus, yeah it's awesome. But Epic isn't some place where you can slack off. You're required to log what you do in 15 minute intervals (even if you aren't a new grad), and while SWEs may work close to 40 hours, TS and PMs are working closer to 60. There's also the whole anti-competition stuff.

 

I think the culture, while employees may not love it, as a business owner/investor, it's great.

 

I'd be very happy if Berkshire somehow acquired a stake

Edited Thursday at 07:51 PM by Malmqky