Heads up, Markel (NYSE:MKL) investors, because your favorite mini-Berkshire Hathaway just added "waffle maker" to its resume.
Specifically, through its Markel Ventures subsidiary, the up-and-coming insurance and financial holding company announced the acquisition of Tromp-Pol Baking Equipment (known as "Vanderpol") and Den Boer Baking Systems. Financial terms weren't disclosed, but we do know that Vanderpol and Den Boer are based in the Netherlands and design and manufacture industrial waffle equipment, handling equipment, and ovens for bakers around the world.
This is also Markel Ventures' second acquisition in just over a month, following its $130 million purchase of a majority stake in automobile transport equipment specialist Cottrell in late July. For perspective, Markel President and CIO Tom Gayner later said the Cottrell stake was Markel Ventures' single largest transaction to date.
These "boring" buys are anything but
With that in mind, I'll admit these small acquisitions aren't exactly thrilling to investors in isolation. After all, with a market cap under $10 billion -- or less than 3% of the size of Berkshire Hathaway -- we can't reasonably expect Markel to dish out the same kind of multibillion-dollar deals with which Buffett tends to dominate headlines.
But when taken as a group, there are several reasons Markel's boring acquisitions should have shareholders giddy with anticipation.
1. They're great businesses
First, keep in mind that with Gayner -- a renowned value investor in his own right -- at the helm of its investment portfolio, Markel has no shortage of viable options for putting capital to work between publicly traded stocks, repurchasing its own shares, and buying privately held businesses. Markel Ventures can afford to be picky, then, in choosing its acquirees. Specifically, when privately held businesses are in play, Markel Ventures looks for them to meet the following criteria:
- Profitable with good returns on capital.
- Talented management teams with a culture of integrity.
- Reinvestment opportunities and capital discipline.
- Fair prices.
Next, these high-quality businesses help Markel diversify away from its core insurance operations. If natural disasters result in underwriting losses during any given quarter, for example, Markel ventures' growing portfolio of companies should be able to take away at least some of the sting.
According to Gayner, the addition of Cottrell brought the revenue run rate of Markel Ventures companies to roughly $1 billion per year -- up from $686 million last fiscal year, which itself was a 40% gain over 2012. What's more, he expects double-digit EBITDA profitability from the group going forward, which is finally "becoming a more meaningful contributor to the earnings and value of Markel."
3. Easy integration
In addition, Markel's acquisitions are often bolt-on purchases, so they can be easily integrated and tend to fit right in with their existing Marvel Ventures peers. Vanderpol and Den Boer, for instance, will be rolled into the Markel Bakery Group family, which already consisted of three complementary bakery equipment companies, including Tromp Bakery Equipment, AMF Bakery Systems, and Reading Bakery Systems. Now, Markel says, it "covers virtually the entire spectrum of baking equipment" from pan bread to buns, baked snacks, waffles, specialty breads, pizza, cake, pies, and cookies.
Meanwhile, Cottrell's auto-transport offerings will come alongside two closely related Markel Ventures businesses, including truck trailer flooring provider Havco, and industrial gas transportation specialist Weldship Corp. Other businesses upon which Markel can continue to build include a dredge manufacturer, a wall panel maker, a residential-home builder, two heathcare services companies, and a retail data intelligence provider.
4. Profitable, long-term growth
That's not to mention that Markel Ventures can continue expanding its horizons by entering new markets. With literally thousands of small and medium-sized businesses around the world from which to choose, Markel should be able to opportunistically use these acquisitions to drive sustainable, profitable growth for the foreseeable future.
In the end, and as a longtime Markel shareholder myself, that's why I'm convinced the best acquisitions are the ones that never make the front page.