Private Equity Deals with Capital Allocators

Classic Deal - Burger King by 3G Capital (S3.EP.09)

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May 6, 2024

3G Capital's incredible success with Burger King, turning $1 billion into $28 billion. The owner-operator investing model and operational improvements were key. Discussion with Alex Behring and Daniel Schwartz covers the sourcing, deal dynamics, and business growth strategies.

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ADVICE

Drive Ownership Through Equity

Align team incentives by granting sizable stock options and allowing equity reinvestment.
Encourage employees to buy shares with leverage to foster ownership culture.

ANECDOTE

Unexpected IPO via SPAC Approach

3G Capital unexpectedly took Burger King public in 2012 after a SPAC approached them.
The decision emerged from valuation appeal and mutual respect, not initial intent.

ANECDOTE

Navigating Tim Hortons Acquisition

3G Capital pursued Tim Hortons acquisition despite initial polite rejections and strong board resistance.
They navigated complex approvals, including government reviews and boardroom dynamics, to close the deal.

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3G Capital’s buyout of Burger King may be the most successful private equity deal you’ve never heard about. Over the last fourteen years, or the length of a typical private equity fund, 3G turned a $1 billion investment into $28 billion in value. The annual dividends from the investment accruing to 3G today are around 70% of its invested capital. The deal is one of the highest earning buyouts ever.

3G is an organization with a storied history. Founded by Jorge Paolo Lemann, Carlos Alberto Sicupira, and Marcel Herrmann Telles, the group created an owner-operator model of investing. They rose to prominence through building the largest beer company in the world, initially buying local brewer Brahma in 1989, expanding it and merging with a competitor to become AmBev in 1999, merging with Interbrew to become ImBev in 2004, and taking over Anheuser Busch in 2008 to become AB InBev.

Twenty years ago, Alex Behring, a young star on their team, moved to the US to form 3G Capital and take the approach abroad.

Burger King was the second largest hamburger fast food chain after McDonalds in 2010 when 3G took it private. What it accomplished since then has been extraordinary.

My guests to discuss 3G and the deal are Alex Behring and Daniel Schwartz. Co-Managing Partners of 3G Capital.

Our conversation covers the history of 3G, Alex's journey to form 3G Capital, and the 3G playbook. We then dive into the deal, covering the sourcing and deal dynamics, improving operations, growing the business, taking the company public unexpectedly, and reloading to buy Tim Horton’s, Popeye’s, and Firehouse Subs. Today’s Burger King is part of Restaurant Brands International (QSR), a public company with a $32 billion market cap and $50 billion enterprise value.

This classic deal will widen your aperture on what’s possible with a long-term, compounding holding period and operational excellence.

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