3G Capital

The secretive Brazilian billionaire who owns Burger King, Budweiser and Heinz

Andrew Wilkinson's Billy of the Week is Jorge Paulo Lemann, the press-shy Brazilian behind 3G Capital, who buys old, simple, multi-generational brands using piles of debt and runs them better.

“if you think about the businesses that he owns, uh, you would know them. So for Burger King, Budweiser, Tim Hortons, Kraft Foods, Popeyes, Heinz Ketchup, right? So he basically goes out, he finds these amazing, you know, multi-generational businesses that have been around for 50+ years that do something very, very simple. It's just going to grow over time. He goes out, he usually raises a ton of debt, and then he goes and buys them and takes them over.”

The third-generation buyout: catch a great brand once it gets sloppy

3G's playbook: target proven, simple businesses run by a complacent third generation that has gotten rich and lost discipline, then buy with debt and tighten the operation.

“When they bought Budweiser, it was on the third generation. They'd gotten super rich, right? So it was like the first generation built it. The second generation, like, were amazing. They went to Harvard, they grew it. The third generation took over. They got sloppy, didn't really care about growth. They had fancy offices and private jets and stuff. And so when they bought it, they just look at it and go, oh, it's been run in a kind of a sloppy way and they've lost their discipline. We can buy it with a lot of debt and then we can just make it way better, pay off our debt, and then we own Budweiser.”

Steal thisHunt for proven brands run by a complacent third generation, buy with debt, and win by simply restoring operational discipline.

Costs are like fingernails — you have to cut them constantly

Lemann's frugality is legendary: 'costs are like fingernails, you have to cut them constantly.' At Burger King 3G banned color photocopies, allowing only black-and-white printing.

“he's like, costs are like fingernails. You have to cut them constantly. And he would do famous things like when they bought Burger King, they banned color copies, meaning when you're using the photocopy machine, uh, he was like, just black and white only.”

Sell the private jets first: setting the tone from the top

Whenever 3G buys a company, the first move is selling all the corporate private jets and forcing executives — even hundred-millionaire CEOs — to fly economy and stay in motels, signaling a frugal culture from the top down.

“the first thing they would always do whenever they buy a business is they sell all the private jets immediately. Right. And let's, let's be real. Most Fortune 500 companies have like between 1 and 10 private jets.. And they just say, F that, we don't need those. They sell them and it's kind of a statement. And then from that point on, the new CEO and all the executives, they have to fly economy and they have to stay in motels.”

The one-thesis acquisition: buy on a single insight

Wilkinson's acquisition rule is to enter each deal with one clear thesis (e.g. margins should be 15% not 5%). With Burger King, 3G's single insight was to spin out and franchise corporate-owned locations to pay off the debt.

“we've seen this in our own investing, like often having one thesis, right? So the thesis could be, hey, margins are really shitty. You know, they're, they're 5%, they should be 15%, and we can do that via, via very simple improvements or something simple like this Burger King deal where they went into big debt and they actually paid up a really high price to do it. But the insight they had was, well, as soon as we take over, we're just going to spin out all of our corporately owned locations and franchise them. And by doing that, we're going to raise all the money to pay off our debt.”

Steal thisEnter every acquisition with one clear value-creation thesis you can execute, not a vague hope of improvement.