Brookfield has been a late bloomer in traditional opportunistic private equity. That said, it has been scaling fast with its current flagship in market targeting (off the top of my head) up to $15B.
It started around the fringes of its core investing businesses, which include real estate and infrastructure. Broadly speaking, the portfolio is heavily industrials focused and only recently established a technology team (with a focus on lower growth, high cash flow tech or tech services with infrastructure-like characteristics).
Brookfield floats a publicly traded sleeve of its private equity fund (as it has done for most other funds) on the NYSE. Here’s a view of NAV per Brookfield (note – the stock effectively did a 3:2 split after this presentation):
In the above, Brookfield believes the $75+ / unit is real based on the operational line of sight to margin improvements and organic growth. The CFO commented at investor day:
Similar to prior years, this represents our view on spot value or spot NAV and more of a liquidation value as opposed to a long-term franchise value.
Cyrus discussed the potential of doubling the size of BBU over the next 5 years. And this is very readily achievable given that we’re more than halfway there with our current portfolio. Just to be clear, the $75 upside per unit does not include any expansion multiples. The primary drivers are continued execution of our operational improvement and enhancement of EBITDA at Westinghouse and Clarios. It also doesn’t include any of the exciting technology investments or other new acquisitions we may make over the next few years or monetizations and recycling activity.
2021 BBU Investor Day Transcript
To that end, what new acquisitions have been in the pipeline since Sept-21? Actually, a lot.
What about monetizations? BBU is moving its biggest and most successful holding, Westinghouse to the auction block. Westinghouse has been an absolute home run before the Ukraine crisis, but the trajectory of the business has fundamentally changed after Eastern European nuclear facilities have been forced to absolve themselves from Russian uranium supply and nuclear services. BBU is also moving towards a major monetization event of Clarios (likely an IPO), its other massive equity position, within the next 12 months.
Brookfield’s publicly traded PE sleeve (BBU) trades around $23 / unit today (~$27 for the C-corp share, which has no K-1. Quite the premium for no tax complexity), which is equivalent to ~$35 on the Investor Day share count. So roughly a 35% discount to liquidation value today excluding the progress on the acquisitions side since investor day.
Holders of the stock (*units) may see some harvest of value as promises of monetizations mentioned above come to fruition and the bridge financing provided by its benevolent parent ($1.5B of 6% prefs) can be repaid. But make no mistake, a publicly traded partnership with a hedge fund-like fee burden won’t ever trade well in US markets – investors hate the complexity. Perhaps the more obvious long term catalyst to close the gap to NAV is Brookfield Asset Management buying out public holders at a discount to NAV, harvesting the arbitrage for itself, and closing the door on this option for retail as it did for its real estate version of this, Brookfield Property Partners.
Disclosure: We own units of BBU, this is not investment advice. Do your own work.