Berkshire Hathaway (BRK.A -0.64%) (BRK.B -0.81%) recently announced it would acquire insurance company Alleghany (Y). When legendary Berkshire CEO Warren Buffett makes a move, investors tend to pay attention.
In this clip from "The M&A Show" on Motley Fool Live, recorded on March 25, Motley Fool contributor Dan Caplinger shares three reasons the Alleghany acquisition makes sense for Berkshire Hathaway.
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They just revealed what they believe are the ten best stocks for investors to buy right now... and Berkshire Hathaway (B shares) wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 3, 2022
Dan Caplinger: Really you couldn't get a more perfect fit for Berkshire. When you take a look at Alleghany's business, you've got a core insurance business. It's composed of three different segments. One TransRe, it's the reinsurance side, it's the insurer to the insurance industry, basically helping primary insurance coverage carriers manage their risk, make sure that they are not overexposed in the event of major catastrophic events. You've also got a couple of specialty insurance units, RSUI Group which focuses more on the big business side and then CapSpecialty, which specializes in specialty risks for small and mid-sized businesses. Both of those units helping out as well. On top of the insurance businesses, you also have the non-financial subsidiary Alleghany Capital.
It makes a host of investments in companies, just a wide range of companies, all different kinds of businesses. I've put a few in here. Machine toolmaker Precision Cutting Technologies, RC Tway, which is a company in the trailer and truck hauling industry, steel fabrication from WWSC, a funeral home operator, Wilbert Funeral Services, and even Piedmont Manufacturing. You've got just a good range of underlying businesses, the same way that you have underlying businesses in Berkshire Hathaway. One point of this you've got Joe Brandon is the CEO of Alleghany. He used to head up Berkshire Hathaway's General Re unit back in the early, mid-2000s. This deal will get Mr. Brandon, whom Warren Buffett referred to as a good friend in the Berkshire Hathaway press release announcing the deal.
You can see here with the metrics that I've got quick metrics on Alleghany revenue, making a big jump in the past decade and the swings in net income that you would expect from an insurance company, but really just basically the deal that you would expect Berkshire to do to try to capitalize on market conditions right now. He sees good things in the insurance industry, a good value proposition, and it's exactly it's starting to come more into phase with the way that the investing community is going, Berkshire Hathaway stock hitting all time highs recently up again today, and people are starting to see the value that Buffett brings to the table once again.