Did Buffett Overpay for H.J. Heinz Company (HNZ)?

Published on February 14, 2013 at 4:18 pm by The Motley Fool in Hedge Funds

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By the numbers
I looked at completed acquisitions in the food and beverages sectors with an equity value in excess of $10 billion. Acquirers paid an average enterprise value-to-EBITDA multiple 14.7 (Note: Enterprise value is total value of the firm, which sums market capitalization and net debt. EBITDA stands for Earnings Before Interest, Taxes and Depreciation and is a proxy for cash flow.) At $72.50 per share, the acquisition price for Heinz equates to an enterprise value-to-EBITDA multiple of 16.4, so we are not far off our benchmark.

While the deal doesn’t look wildly cheap, it doesn’t have to be: Even struck at or slightly above current fair value, the quality of the business and the structure of the deal should ensure satisfactory returns. Give him the benefit of the doubt: Uncle Warren still knows a thing or two about value.

The article Did Buffett Overpay for Heinz? originally appeared on Fool.com and is written by Alex Dumortier, CFA.

Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him @longrunreturns. The Motley Fool recommends Berkshire Hathaway and H.J. Heinz Company. The Motley Fool owns shares of Berkshire Hathaway.