In a recent Financial Times column, renowned financial writer and former investment banker William Cohan highlighted 3G Capital and its dealmaking prowess as a guiding light and standout success against a recent year when private equity broadly has had a rough 12 months.
3G Capital’s 2010 buyout and transformation of Burger King into Restaurant Brands International, which has yielded 3G nearly $19 billion on its initial $1.6 billion equity investment show how lucrative private equity can be, wrote Cohan, author of multiple New York Times bestselling books such as The Last Tycoons: The Secret History of Lazard Frères & Co., House of Cards, The Price of Silence, Money and Power, and most recently Power Failure: The Rise and Fall of an American Icon.
Cohan pointed out 3G’s buyout of fast-food giant Burger King as among the most profitable industry transactions of all time.
3G’s ownership of Burger King is entering its 14th year following its acquisition in 2010 for $4.1 billion when 3G took the company private. Since then, 3G Capital has been the company’s largest shareholder, supporting its global growth transformation that includes the creation of Restaurant Brands International and acquisitions of Tim Hortons, Popeyes Louisiana Kitchen, and Firehouse Subs.
‘A Rough Year for Private-Equity Firms’
Cohan wrote, “It’s been a rough year for private-equity firms. The highest interest rates in more than a decade have combined with relatively high inflation and led to a disconnect between buyers and sellers. Without a meeting of those two minds, it’s tough to get deals done. The numbers bear that out.”
According to S&P Global, Cohan noted, in the first nine months of 2023, global private-equity investments had an aggregate value of $365.3 billion, which was a decline of 44% year over year. In fact, the number of private-equity deals fell 36% to about 13,000.
The biggest private-equity deal of the year — a $15 billion buyout of Toshiba Corporation — is happening in Tokyo, not New York, Cohan shared, adding that the deal involves Japan Industrial Partners and not any of the typical American buyout stalwarts, such as Blackstone, KKR, and Apollo.
However, “The paucity of new deals in 2023 will no doubt be temporary,” opined Cohan, citing what he sees as one of the “most successful private-equity deals” of all time.
In his Financial Times article dated Dec. 16, 2023, Cohan admitted he’s been tracking 3G’s “remarkable deal” since Brazilian American 3G’s 2010 buyout of Burger King and subsequent transformation into RBI — which Cohan calculates has yielded 3G “nearly $19 billion on its initial $1.6 billion equity investment.”
The deal, according to Cohan, needed “a decade or more” to gestate and required a “fair amount of risk and vision.”
In 2009, like countless other private-equity hopefuls scouting for deals, Cohan says 3G partner Daniel Schwartz screened a bunch of “undervalued companies” when he came across Burger King.
Behind the Curtain: 3G Capital
While little is publicly available regarding 3G Capital, the firm’s sparse website notes it “is a global investment firm and private partnership built on an owner-operator approach to investing over a long-term horizon.” Founded in 2004, 3G Capital is led by Alex Behring, co-founder and co-managing partner, and Daniel Schwartz, co-managing partner.
According to public reports, Behring is a thought leader, investor, and philanthropist who has been the driving force behind 3G Capital since co-founding the company, which evolved from the investment office of Jorge Paulo Lemann, Carlos Alberto Sicupira, and Marcel Herrmann Telles.
After earning his Bachelor of Science in electrical engineering from the Pontifical Catholic University of Rio de Janeiro, Behring attended Harvard Business School, where he received an MBA. At Harvard, he was already showing signs of a successful career to come, distinguishing himself as a Baker Scholar and Loeb Scholar. Behring remains actively engaged with the institution, currently serving on the board of dean’s advisers of Harvard Business School.
In 1989, he co-founded the technology company Modus OSI Technologies and was a partner there until 1993. From 1994 to 2004, Behring was a partner and board member at GP Investimentos — Latin America’s largest private equity firm — under the mentorship of billionaire Brazilian financier Jorge Paulo Lemann. During this time, Behring also co-founded América Latina Logística as a private-sector railroad company. There, he served as CEO and oversaw its Argentinian and Brazilian operations.
By 2004, Behring had impressed Lemann so much that the billionaire asked him to co-found 3G Capital. Just a year or so later, Behring would hire Schwartz as his investment analyst and later promote him to partner at just 27 as he rose the ranks at 3G Capital.
As cited in a 2019 Forbes profile, Schwartz noted 3G’s culture. “The group believes in investing in young people and giving them opportunities,” he said. “I worked hard and proved that I really cared. More so than anything else, I put the business and the firm ahead of myself.”
Following 3G’s acquisition of Burger King, Behring became executive chairman and Schwartz joined the company as CFO.
Schwartz’s work in the chief financial officer’s office led him to be appointed CEO in 2013 while Behring continued as executive chairman. The following years would include the purchase of Tim Hortons, and in 2014 the creation of RBI, and the company’s extended period of strong global growth and prudent and significant cost savings. In 2017, Schwartz was named in Fortune’s exclusive 40 Under 40 list for the work he did on Burger King and RBI.
“It’s rare for buyout partners to become executives of the companies they own. Cutting costs, 3G sold off the 1,300 company-owned restaurants to franchisees. It expanded overseas, into China, Brazil, and France, among other countries,” wrote Cohan.
Yet back in 2009, Cohan noted, the company was publicly traded after having been taken private by buyout firms TPG, Bain Capital, and a division of Goldman Sachs, which together still owned 32% of the stock.
“In 2010, led by 3G partners Schwartz and Alex Behring, 3G bought Burger King for $4.1 billion, including debt,” Cohan explained. “At the time, there was one brand — Burger King — with a network of 12,000 outlets across 70 countries. So-called system sales from all the outlets that used the brand were $15 billion. Since then, 3G has worked some kind of magic.”
3G Capital Grows Burger King Into RBI
“Then 3G went on an acquisition spree,” Cohan recounted in his FT article, noting the 2014 purchase of Canada’s beloved Tim Hortons for nearly $12 billion (including $3 billion of financing from Warren Buffett’s Berkshire Hathaway), the 2017 purchase of Popeyes Louisiana Kitchen for $1.8 billion in cash that put RBI in “the chicken sandwich game,” and the $1 billion purchase in 2021 of Firehouse Subs.
February 2023 saw RBI’s board select Josh Kobza as its new chief executive to take charge of a company that now has more than 30,000 outlets in more than 100 countries that take in some $40 billion in system sales.
To date, 3G has realized $11.4 billion while still owning 27% of a company worth $9.2 billion, said Cohan.
“That represents nearly $19 billion in gains, making the deal one of the most profitable ever for a single buyout firm,” wrote Cohan.