Modern Examples of The Power of Buybacks | The Acquirer's Multiple®

During their recent episode, Tobias Carlisle and Mike Meixler discussed Modern Examples of The Power of Buybacks. Here’s an excerpt from the episode:

Tobias: The last 10 years or 15 years have really been characterized by flows to large caps, I think, and it’s starved a lot of the small and micro and value. Is there some capital cycle theory going on there? What do you think is happening there?

Mike: Well, if you listen to the Mike Green stuff, it’s pretty horrifying, that indexers control so much of the money. Obviously, the amount of money in value is a lot lower than the index funds. So, it’s the stuff we’ve talked about is how do you not get stuck in a value trap for a long period? Yes, you find this value. I think the company’s worth $30 and it trades for $15, because it’s got these great sum of the parts. But a lot of times, unless the company is doing something like buying back shares or maybe spinning off a company that would get a higher multiple, you got to have a lot of patience.

Everybody knows about cannibals and companies. A lot of buybacks are done bad. I think one of my heroes is Henry Singleton, right?

Tobias: Yeah.

Mike: He had the balls to buy back 90%. Nobody does-

Tobias: Amazing.

Mike: -anything like that today. They’re so cautious. Everybody knows, like AutoZone or O’Reilly. they have been just– You could have almost just bought those 20 years ago and just gone to sleep and they just– I think what worked is it’s not a sexy or glamorous business. It’s a retail auto parts business. But when you have that combination of a low multiple, a reasonable multiple, and then they’re not doing a bunch of crazy buybacks at high prices to only make up for the options they’re giving to management. But there’s lots of interesting companies I see.

I had a couple here. That’s natural resource. Everybody knows about AIG, the big insurance company. They’re infamous because of their role in the derivatives and the financial crisis, but it’s interesting over the last decade–

Tobias: Well, Hanks not there anymore. You think that was Hanks–

Mike: What’s that?

Tobias: Hanks not there anymore.

Mike: Yeah. They’ve cut their share count from $1.4 billion to $689 million. I think from what they’ve said, they’re going to buy back another 15% to 17%, the next couple of years, undemanding multiple. It looks like they’re trying to make themselves more like a Chubb insurance, like shedding like they’re non-core and becoming more Chubb like which I think Berkshire has been buying Chubb.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

Apple Podcasts