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In 2010, Burger King was acquired for $3.26 Billion by 3G Capital. They took Burger King public two years later, returned 135% of their invested capital, and still owned 71% of the business.
The group behind this acquisition had been quietly building their web of reputation for the previous 40 years.
The story starts with Jorge Paulo Lemann, Carlos Alberto Sicupira, and Marcel Telles.
Jorge graduated from Harvard in 1961 and returned to Brazil where he co-founded Investment Rio, an investment bank. Carlos and Marcell soon joined Jorge to help him grow the business.
Together they transitioned the group from an investment bank to a private equity firm over the next 15 years which evolved to become 3G Capital today.
3G Capital is one of the most prestigious private equity firms in the world. They own brands you know like: Heinz Ketchup, AB InBev (maker of Budweiser), Tim Hortons, Oscar Meyer, and more.
Here are some of my learnings from their acquisition of Burger King
A long-term time horizon is an advantage - Below is just one anecdote (of many) of where having a long-term time horizon pays off.
3G bought Burger King from another private equity firm. Burger King in 2010 had no presence in France. Even while McDonald's was extremely profitable in France. When 3G took over, they invested in growing France. Today the France segment of the business generates $2 Billion in revenue for the firm, but it took a lot of investment and time to get there. A normal PE firm with an 8-year time horizon doesn't have the time to pursue a strategy like that.
Hire young operators and train them to be executives - 3G has a history of hiring people in their 20s to run their businesses. Here's an article from 2017 where Heinz hired a 29-year-old as the CFO.
They often hire from the best schools and give incredible autonomy to these young people. This leads to most of their senior executive hires coming from within. This is another advantage of a long-term time horizon. If you know you're going to hold great businesses for a long time, you will spend a lot of time and energy cultivating talent. If you don't have the luxury of time you can only hire people who are experienced from day 1.
Outsiders & Operators - 3G Capital partners are not experts in selling ketchup, beer, or burgers.
They are experts at operational efficiency.
Their first move when they buy a business is to derisk their investment. They do so by maximizing the business cash flows. They cut anything not necessary for the business. As outsiders, they're able to bring a fresh perspective and remove unnecessary processes that the previous owners were not able to see.
We see this in our acquisitions as well. As outsiders, we're able to try things that the previous management assumed was not possible.
The firm is famous for its zero-based budgeting. After an acquisition, they build the budget from the bottom up (from scratch). They analyze each expense and remove anything unnecessary.
Looks for dislocations - in 2010 the market cap of McDonald's was $80Bn, while the purchase price of Burger King was $3Bn.
The owners of 3G observed the value of the brand was much bigger than the value of the business, which meant there was room for growth.
If you want to learn more about the 3G story let me know. I think their growth is fascinating and they embody many of the long-term principles we have at my firm Enduring Ventures. If enough people like this post I'm going to write another newsletter about the early days of the 3G Capital journey. So reply to let me know!
Also, if you can't wait and you want to learn more about the 3G Capital story now, this is a great book about their story calledDream Big.
Have a great week,
Sieva
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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
