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Warren Buffett believes businesses should not be passed on to the "lucky sperm club" of the next generation. He is helping to prevent such an eventuality by doing a tour of family-owned businesses in Europe. Which might be on his shopping list?
Families have retained interest in many of Europe's publicly listed companies - Bouygues in France, Spain's Ferrovial, Italy's Fiat. Outside investors' enthusiasm is justifiable: Credit Suisse has tracked a basket of 40 US and European publicly listed companies where families own at least a 10th of the shares and found that, during the past five years, it easily outperformed the broader market. Buffett, though, is more likely to seek the "hidden" value in Europe's privately held family-owned businesses. The largest of these would stretch even Berkshire Hathaway's bulging purse. The biggest private family-owned company in Europe, according to rankings prepared by the Financial Times and McKinsey last year, is Boehringer Ingelheim, a pharmaceuticals group with an estimated equity value in December 2005 of $41 billion.
More within range may be retail businesses across Europe. Since Berkshire Hathaway has made just one overseas acquisition - of Israeli cutting tool business Iscar in 2006 - Buffett may prefer to focus on a sector in which he has significant experience. France's Auchan, or Germany's Schwarz Group, which owns discount supermarket chain Lidl, could prove tempting.
Family-owned businesses might prefer Berkshire to the alternative of partial flotation. Since Berkshire tends to be a long-term investor, share registers would remain stable. And an investment might provide a welcome opportunity for family members to exit. El Corte Ingles, for example, Spain's largest retailer by sales, is mired in a court battle between members of its Areces Fuentes family owners, some of whom want to sell out and believe their shares are not accurately valued internally. If you want a trustworthy independent valuation, they do not come much better than from the Sage of Omaha.
Macquarie's growth
Is this the end of an era? Allan Moss bows out as chief executive of Macquarie Group, while his successor, Nicholas Moore, warns of a possible reversal in the Australian bank's 16-year run of profit growth. Beating profits for the fiscal year ended in March will be "challenging", said Moore. Analysts expect this year's net profit to fall fractionally below last year's A$1.8 billion.
This is chilling stuff for an investment banking group that had, so far, appeared relatively immune. Operating profit in the last fiscal year, much of which coincided with the credit crisis, rose 15 per cent year-on-year to A$8.2 billion. The basic Macquarie concept of buying infrastructure assets and packaging them into funds, skimming off investment banking fees along the way, seemed more or less intact. But cracks had begun to appear. As credit markets retreated, group funding rates rose by about 100 basis points for longer term funding. The bank was forced to make writedowns in its real estate investments and wind down its mortgage business. The damage was evident in the second-half results: operating profits tumbled 26 per cent.
Competition for infrastructure assets remains high: Macquarie this week lost out on a US toll road to a group that blew the Australian bank's $ 8.1 billion bid out of the water. Bundling these assets into funds is less lucrative than it was. Fund raising tapered off through the course of the year and fees, too, are coming off. Management fees were 22 per cent higher on a year-on-year basis, but flat in the past six months. More worryingly, only one of the 20 listed funds earned any performance fees at all in the latest six months.
All this would appear to corroborate what investors have long suspected: that Macquarie is ex-growth. The self-styled millionaires' factory has been steadily de-rated during the past three years and is a favourite among the shorting community. The downbeat prognosis offers little reason to disagree.
Family-owned businesses might prefer Berkshire to partial flotation. Since Berkshire tends to be a long-term investor, share registers would remain stable.
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