Berkshire to buy insurer Alleghany for $11.6 billion in Warren Buffett's biggest deal in years

Warren Buffett just announced his biggest deal since 2016.

Berkshire Hathaway said Monday morning it agreed to buy insurance company Alleghany for $11.6 billion, or $848.02 per share, in cash. The Omaha, Nebraska-based conglomerate said the deal "represents a multiple of 1.26 times Alleghany's book value at December 31, 2021," as well as a 16% premium to Alleghany's average stock price in the past 30 days. The deal is expected to close in the fourth quarter of this year.

This transaction would mark Berkshire's biggest acquisition in six years when the conglomerate bought industrial company Precision Castparts for $37 billion, including debt.

Through its subsidiaries, New York-based Alleghany is involved in a number of different insurance businesses, including wholesale specialty, property and casualty, and reinsurance.

"Berkshire will be the perfect permanent home for Alleghany, a company that I have closely observed for 60 years," Buffett, Berkshire's chairman and CEO, said in a statement.

Insurance is one of Berkshire's bread-and-butter businesses as it already owns Geico auto insurance, General Re reinsurance and others that have been driving growth in recent years.

Alleghany CEO Joseph Brandon — who previously led General Re — hailed the deal as a "terrific transaction for Alleghany's owners, businesses, customers, and employees," noting that "the value of this transaction reflects the quality of our franchises and is the product of the hard work, persistence, and determination of the Alleghany team over decades."

Alleghany and its units will operate independently after the deal closes.

The deal may surprise some Berkshire shareholders, as Buffett and his right-hand man — Vice Chairman Charlie Munger — have expressed frustration in their search for a big acquisition. In his 2022 annual letter to shareholders, Buffett said he and Munger found little that "excites" them in terms of large deals.

"Throughout 85 years the Kirby family has created a business that has many similarities to Berkshire Hathaway," Buffett said. Jefferson W. Kirby is chair of the Alleghany board of directors.

Alleghany started out in 1929 as a holding company for railroads and eventually pivoted to insurance, which has parallels to Berkshire's roots as a textile manufacturing company more than a century ago before it became a multifaceted conglomerate.

To be sure, $11.6 billion is a small number when compared with Berkshire's massive cash hoard of $146.72 billion at the end of 2021.

"For Berkshire, the transaction increases its presence in the specialty insurance and reinsurance segments at a time when market conditions remain attractive for growth," said Cathy Seifert, a Berkshire analyst at CFRA Research.

Shares of Alleghany jumped 25% on Monday. Berkshire's Class A shares rose about 2% to hit an all-time high after closing above $500,000 for the first time last week.

Alleghany is being advised by Goldman Sachs and Willkie Farr & Gallagher through the transaction's completion.