The Berkshire Hathaway of the Internet (2017)
awilkinson.medium.com
awilkinson.medium.com
Very early in the life of the company they have undertaken some pretty dishonest accounting of their revenues, net retention and other key metrics. The CFO resigned after the first reporting quarter.
I have a strong feeling there is more to this character than just the recycling of virtue filled business models.
Buyer (seller) beware.
I read up on reverse mergers a while ago and couldn't get a read one way or the other - felt kinda similar to a direct listing (which I understand even less). Anecdotally, the company that was considering doing it seemed suss af.
Just trying to think through, “if it is so obvious, why isn’t everybody doing it?”
Its not exactly the serengeti of diversity required to build a berkshire zoo. Software is just bits.
Hardware and the pipes are a different story. There you can build a zoo.
The initial Tiny deal that was discussed relied heavily on the investor’s personal knowledge of the firm’s operators. This is similar in that it is an information asymmetry story.
A counterexample to this is the relatively early National Indemnity deal cited by the author in the opening of the piece. If Tiny is, indeed, recognizing outsized returns then that would also count against the importance of this factor.
What seems to be most consistent is having a motivated buyer and a motivated seller, and then it seems like it's just the parties involved making some compromise so that both make a good deal.
If both stand to win, I don't think just because BH gets a discounted price that makes it any less attractive: owners might just want to cash out and see seize the opportunity. If the owner doesn't want to sell you could even pay above market values and probably they won't part with it.
The typical process requires due diligence because there is no trust - there are a huge amount of dodgy businesses, sketchy owners and smooth talkers trying to extract cash from investors.
This model might work for a few years but inevitably requires moving further out of the trust network where deeper and further due diligence is required. Or, its not done and every deal will get worse quality and expose them to more risk.
If it’s not, it differentiates them from competitors. Until you’ve received a 35 page word document from a big public company with bullet point questions (their “standard” catch all set) it’s hard to describe the sheer pain of certain diligence; it can take a team of 6-8 people up to 2-3 weeks to turn something (depending how much you prepared by predicting requests and prepopulating the answers into data room before).
Having worked in financial services, my intuition suggests they are correct. For example once on a buy side engagement helping a client find and acquire bolt-ons (outsourced Corp dev essentially), ran across a company where something didn’t feel right. Did exactly what the Tiny guys did: looked at the bank statements and credit card info and built my own set of financials from scratch in roughly a day. It’s doable.
Now… also had the opposite happen and found some really eyebrow raising stuff over the years. Probably more often than not at least something borderline material shows up if you dig deep and far back enough. The partner at large fund once told me: “No deal is perfect; if you waited for the perfect company you’d never invest.”
The due diligence process is designed to ensure the last one is ferreted out.
If you believe you can find other signals to identify and avoid those companies, then why still conduct it (aka the most painful part of the process)?
Honest companies are not an issue, and inept companies can be recognized through a less disruptive audit.
That's the stated purpose, yes, but the author implies the due diligence process is made to be intentionally painful and drawn-out to gain leverage over the acquisition target, and to dig up dirt in the company. At the end of the process, the new leverage and new dirt is used to try to aggressively re-negotiate the deal. Most companies don't cave to this, so most deals don't go through.
Presumably, this guy short circuits the process by just low-balling right off the bat then moving on if they don't accept, which saves both parties time and money.
Does Tiny have a similar record?
BH has a good record because they have structured their business to have a permanent edge: Their insurance&reinsurance business (half of the business) generates cash and float constantly. The side of the company seeks ways to invest all that cash. Often buying whole businesses.
In other words, BH cuts out several levels of middlemen. They are an insurance company, holding company, private equity & alternative investment management company and investment fund rolled into one. Cutting out banks, private equity, fund managers bring in huge savings.
The reason why BH has not been outperforming SP500 in the last 10 years is that cash is cheap for everyone (this is the longest boom in history) Once the water level drops again and we see who swims naked, BH will outperform again.
At the start of the tech companies’ boom, Buffett famously said he does not invest in tech companies because he does not invest in what he does not understand. Then he bought a ton of Apple a few years later, and that is basically the only thing keeping Berkshire stock in the game.
The last amazing deal I can recall that Berkshire made was Goldman Sachs during the 2008 financial crisis. Other than that, I think he might have been better off buying VOO. The company itself is 40% Apple right now, for which Berkshire paid full retail price when it was bought.
I think the parameters of the game that used to allow Buffett to achieve exceptional results have long changed, as evidenced by the numbers.
Did he buy it or was it one of the two fund managers who work for BH?
Unless you think that there will be no financial crisis or severe recession again, Berkshire will probably shine again.
Yup...famously Buffett's worst acquistion was of Berkshire Hathaway itself!
It probably cost him ~$200B.
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But, there sure are a lot of fools parting with their money.
Fruit of the Loom: 1999 Bankruptcy, 2002 acquisition by BH
He even bought into Berkshire Hathaway itself, on the cheap
I worked for a Berkshire subsidiary before jumping into tech. First hand, it is zero bullshit that they invest in good management teams and let them run the business. The best run company I’ve ever worked at is one of these - Berkshire got ‘em when they were out of cash and almost about to fold, and they are overwhelmingly successful today with a stable management team with mostly internal succession. Having also worked at some startups that HN absolutely loves, it’s not that different than soaking up VC cash - it’s still outside money, and you still need a great leadership team to get to profitability.
TBD per John Oliver: https://www.youtube.com/watch?v=jCC8fPQOaxU
It's like Payday loans.
I imagine this company will just get bigger, and bigger.
I wish our government would revisit every law concerning high interest loans.
This is incorrect. He bought it and wanted to sell it back because of how bad the company was...but they tried to "steal" a small portion of the agreed upon price.
Buffet than went ahead and bought up shares and fired the guy who tried to short change him.
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