3G Capital – Case Study: An Investment Firm With a Family Business Feel, Institutional Approach & Portfolio Commonality

3G Capital – Case Study: An Investment Firm With a Family Business Feel, Institutional Approach & Portfolio Commonality

25 Oct    Business, Finance News

When people imagine a successful investment firm they’re likely to think of big, financial institutions like global banks, hedge funds run by traders, or even the likes of corporate raiders who swoop in to buy failing companies and break them down to sell off as parts.

When people think of a successful investment company, rarely do they think of a family business focusing on long-term investment and growing companies over the course of decades. But that’s exactly what investment firm 3G Capital feels like — a balance of long term investment horizon with a deep rooted connection to family owned businesses.

While media shy, there is much to glean from co-founder and co-managing partner Alex Behring’s FT interview where he noted: “We are owner-operators first and foremost, as our owners are the individuals directly responsible for operating our companies. Everyone at 3G has considerable skin in the game, which creates powerful incentives to do what is right for the long term. We are fortunate to be differentiated in this sense, as we are not moved by some of the short-term pressures typically felt by other groups. We want to own these companies forever. This gives us the luxury of maintaining a very disciplined approach to each one of our businesses, as we are able to identify and own companies only once we are entirely satisfied that they are well-positioned for profitable, long-term growth and successful brand building .”

As reported by Brazilian Business Magazine, Performance Líder, Alex Behring first met fellow 3G Co-Founder Carlos Sicupira who had been invited to speak in his class while Behring was studying for MBA at the Harvard Business School where he would go on to be named as a Baker & Loeb Scholar earning his MBA degree in 1995. Fast-forwarding to today, Behring remains active as part of the Dean’s Advisory Group at Harvard Business School and was named 20 Most Notable Harvard Alumni in the Business World by Money INC. The speaker was impressed with the student’s profile, praised by the class teacher, and invited him to join GP Investimentos as an analyst in 1994. The two also shared a passion as avid spear-fisherman. From 1998 to 2004, Alex Behring was CEO of América Latina Logística (ALL), a portfolio company of the co-founders of 3G that owned the largest rail network in Brazil. Behring remained CEO through the company’s IPO in 2004, successfully growing the company greater than 40x its initial acquisition value.  Behring felt the group should bring their efforts to the US to look at investments globally with an owner-operator approach.

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Why 3G  Capital Looks More Like a Family Business Than a Private Equity Shop

With this backdrop, 3G Capital was founded in 2004 and built on an owner-operator approach to investing over a long-term horizon. The company evolved from the investment office of Jorge Paulo Lemann, Carlos Sicupira, and Marcel Herrmann Telles, and for years the firm has been led by Alex Behring, a fellow co-founder and co-managing partner, and Schwartz.

With its focus on long-term investment horizons, from an investment perspective 3G is somewhat of a unique outfit with some feeling like a family office more but very much an institutional investment firm as well. The majority of its co-founders have been investing in and operating companies together since the early 1980s.

Family offices are a particular type of investment organization that manage the wealth of multigenerational families over the course of decades, if not centuries. The idea first surfaced with clans that made their wealth as industrialists in the 18th and 19th centuries, such as the Carnegies, Rothschilds, and Vanderbilts.

Analyzing 3G’s Investments

Based on RSM’s 2023 Private Equity Report most investment firms hold companies as assets in their portfolio for around three to five years, 3G takes more of a long-term approach .

For example, 3G is entering year fourteen following its 2010 acquisition of Burger King for $4.1  billion , taking the company private, and still owns it to this day. Since its 2010 acquisition of Burger King Holdings, 3G Capital has been the company’s largest shareholder supporting the company’s global growth transformation including the creation of RBI and acquisitions of Tim Hortons, Popeyes Louisiana Kitchen, and Firehouse Subs, generating approximately 21x in total shareholder returns.

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In 2013, partnering with Warren Buffett, 3G acquired HJ Heinz which later merged with Kraft Foods. Most recently, 3G bought Hunter Douglas — a century-old business run by the Sonnenberg  family and the world’s leader in window blinds and coverings.

All of 3G’s deals have multiple things in common. The targets are well known and popular brands. They’re companies that have proven their value over long periods of time, from decades to almost a century. At the time of purchase, they all had incredible international growth potential. And long after acquisition they’re all still owned and operated by 3G Capital.

In an interview with The New York Times, renowned investor Warren Buffett  said of 3G and its management: “3G aren’t buying things to sell. The other private equity firms, they buy companies with the idea of [initial public offer]-ing them or selling them to a competitor. I don’t think it’s even proper to call [3G] a private equity firm. They’re buying to keep, just like we’re buying to keep. You can’t put them in the same category of the firms that are basically in the category of buying and reselling companies.”

In addition to investing with a long-term mindset, it also feels like a multigenerational family business in the way it treats the companies in its portfolio. The firm only holds a few companies in its portfolio, and its investment strategy is to become deeply involved in the operation of its businesses.

3G’s most recent deal was the purchase of a 75% stake in Hunter Douglas, the world’s leading manufacturer of window coverings. In February 2022, the Hunter Douglas family patriarch sold his shares in a deal that valued the company at around $7.1 billion. The transaction was sourced through an existing relationship with the founding family. Members of the founding family have stayed on the board and in operational positions to work with 3G over the long term. In every one of the businesses it owns, 3G executives work as operators of the business rather than just investors at arm’s length.

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3G Aims at the Best of Both Worlds

In an insightful academic paper, researchers from MIT’s Sloane School of Management analyzed how 3G’s founders were able to create a private equity firm that has outperformed its competitors by mastering operational engineering to generate higher returns than top quartile competitors. The key, the researchers found, was 3G’s ability to understand and integrate 3G people into the companies they acquire, so that everyone is working together with a common goal, and with a common understanding of the workings of the company.

Soon after Hunter Douglas deal was made, Alex Behring, co-founder and co-managing partner of 3G, put together a management team consisting of 3G partners and existing Hunter Douglas executives with the goal of producing a best-of-both management team to lead Hunter Douglas toward continued growth and operational improvement.

“As a private enterprise, Hunter Douglas will have the opportunity to advance and expand our business while preserving the family-led culture and strong relationships with stakeholders which have been core to our success,” said  David Sonnenberg in an interview at the time of the deal.

The 3G Capital partnership with Hunter Douglas was seen as a long-term relationship to benefit both 3G as investors and Hunter Douglas as an operating company — exactly the way two family businesses would come together.

“3G Capital and Hunter Douglas share a strong belief in durable value creation through operational excellence, entrepreneurship, and a culture of meritocracy,” said  João Castro Neves, a senior partner at 3G. “I look forward to working closely with David Sonnenberg and the Hunter Douglas management team as we accelerate Hunter Douglas’ growth in partnership with our remarkable founders, managers, and business partners.”

The Sonnenberg family still holds a 25% interest in Hunter Douglas, which brings continuity to the operation of the company, both long term and day-to-day.

Long-term investment horizons for historic companies and brands that exude longevity: 3G Capital’s investment strategy and operational model is a unique combination that should provide its self well for the years to come.

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