Warren Buffett is paying a relatively cheap price for his biggest takeover in six years, analyst says

Published Tue, Mar 22 20221:08 PM EDTUpdated Tue, Mar 22 20223:17 PM EDT

Berkshire Hathaway 's acquisition of insurer Alleghany , Warren Buffett's biggest deal in six years, is a good bargain compared to past deals in the industry, a Wall Street analyst said. The conglomerate announced Monday that it agreed to buy insurance company Alleghany for $11.6 billion, or $848.02 per share, in cash. The deal represents a multiple of 1.26 times Alleghany's book value at the end of last year as well as a 16% premium to Alleghany's average stock price in the past 30 days, Berkshire said. Looking at the past deals in the insurance industry, the price-to-book ratio of the Alleghany deal is among the lowest, according to Meyer Shields, Berkshire analyst at Keefe, Bruyette & Woods. Moreover, the price-to-earnings ratio, a widely used valuation metric, was the lowest among the past eight deals in the sector, the analyst found. "The deal price is below past deals', which could stimulate other bidders, but we think most competing (re)insurers are mostly focused on less-complicated organic growth in what remains a positive operating environment," Shields said in a note. "Alleghany's significant noninsurance businesses would be a difficult fit for most other (re)insurers, which also makes competing bids unlikely." The last sizable deal "the Oracle of Omaha" did was the $37.2 billion purchase of Precision Castparts in 2016. Buffett later admitted that the deal was too expensive and resulted in an "ugly $11 billion write-down." "I paid too much for the company," the billionaire investor said in his annual letter in 2021 . "No one misled me in any way — I was simply too optimistic about PCC's normalized profit potential. Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC's most important source of customers." The Alleghany deal could be Buffett's redemption for the past mistake as the numbers suggest the investor is paying an attractive price. Analysts covering Berkshire also unanimously agree that the acquisition makes a great deployment of the conglomerate's massive cash pile of more than $140 billion.

Warren Buffett at Berkshire Hathaway's annual meeting in Los Angeles California. May 1, 2021.

Gerard Miller | CNBC

Berkshire Hathaway's acquisition of insurer Alleghany, Warren Buffett's biggest deal in six years, is a good bargain compared to past deals in the industry, a Wall Street analyst said.