Just a year after Alex Behring and a trio of other financial industry professionals — Jorge Paulo Lemann, Carlos Alberto Sicupira, and Marcel Herrmann Telles — launched global investment firm 3G Capital, they decided to bring a young analyst, Daniel Schwartz, on board.
The new hire, who was just a few years out of college, having graduated from Cornell University in 2001, fit in well at the firm. Schwartz readily embraced 3G Capital’s investment ideology — which involves making long-term investments, maintaining a deep operational involvement with the companies it works with and streamlining processes and expenses when possible.
He also proved instrumental in helping the firm locate one of its highest-profile investments to date.
In the first few years after 3G Capital’s start, much of its focus was on the investments Lemann, Sicupira, and Telles had previously made in beer companies such as Brahma, Brazil’s largest brewer, according to a recent Forbes article.
During that time period, the 3G leadership merged AmBev, the successor of two of the oldest brewers in Brazil, with Belgium’s InterBrew; and then orchestrated a surprise takeover of Anheuser-Busch, the U.S.-based brewing company behind iconic beer brands such as Budweiser, in 2008 forming large-scale beverage provider Anheuser-Busch InBev, also known as AB InBev, according to the New York Times.
In fall 2009, 3G Capital was looking for a new business to revitalize. As Schwartz, who in 2008 had been named a partner in the firm, was examining companies worth less than $5 billion that had low EBITDA multiples, he came across Burger King — which was a well-known restaurant chain that had been in business since 1954 — and he presented it to Behring as a potential investment opportunity.
“Burger King is an iconic brand that at the time had been around over 50 years,” Daniel Schwartz told Forbes. “We couldn’t believe this business was only generating around $400 million in EBITDA with 12,000 restaurants in 100 countries.”
A New Direction
Burger King, at that time, faced some notable challenges. Its frequent management turnovers included 19 CEOs having helmed the company during the previous 25 years; and its strategies had shifted frequently, leading to an inconsistent focus.
Although Burger King was a global organization, its marketing, operations and product development aspects were determined locally, adding further confusion. The executive leadership and corporate ownership variations it had experienced had resulted in constantly shifting approaches to branding, marketing and communication, hindering the company’s overall performance.
Still, 3G Capital’s leadership team felt Burger King possessed valuable name recognition and quality attributes that could help spur additional growth — and in 2010 acquired the fast food chain for $4.1 billion, including debt, according to the Financial Times.
Revamping the company’s operations required in-depth examination and some major adjustments. Daniel Schwartz became its CFO; Alex Behring served as the executive chair of its board — an unusual move, the Financial Times says, for buyout partners.
That level of involvement, however, is in line with 3G Capital’s commitment to strengthening brands from the inside out.
Executives from the firm traveled extensively to Burger King locations; analyzed how talent management and other considerations were handled; implemented routines and processes to review results and launched measures to share management goals so they would be visible to everyone in the organization. To show progress toward the established objectives, executives hung dashboards behind their desks that were coded by color — red, yellow or green.
3G Capital proposed finance, compensation and management modifications, empowering leaders to build teams with the people they wanted to be on them, which resulted in significant efficiencies. The firm also implemented a Zero-Bases Budgeting initiative, where all expenses were scrutinized when annual budgets were created, instead of just focusing on incremental expenses that related to the past year.
In addition, a Four Pillars plan — involving aspects of Burger King’s menu, marketing, image, and operations — was put into use. The plan helped the fast food chain improve its products, launch a lower cost remodeling program and be the first in its market to utilize completely digital indoor menu boards.
To help Burger King grow on a global scale, 3G Capital established aggressive development targets — which it pursued with committed capital from franchisees and shared equity for the company.
Achieving Operational Success
Within a relatively short span of time, Burger King began to see considerable results.
When 3G Capital initially acquired the fast food chain, it had 12,000 locations in 70 countries. Sales from the restaurants that were associated with the brand totaled $15 billion, according to the Financial Times.
By early 2011, Burger King’s North American same store sales had increased. In June 2012, 3G Capital was able to take Burger King public again; and within the next 18 months, Burger King’s stock doubled, according to Forbes.
The investment firm’s emphasis on brand revitalization, franchisee relationships and international growth helped Burger King’s net restaurant growth quadruple within three years of the acquisition. As of 2013, the company had expanded into approximately 100 countries; nearly half of its restaurants were located outside of the U.S.
By 2023, Burger King’s value totaled approximately $9.2 billion; and 3G Capital, which retained a 27% ownership of the company, had realized $11.4 billion — equating to nearly $19 billion in gains, according to the Financial Times, which called the deal “one of the most profitable ever for a single buyout firm.”
To 3G Capital, immediate returns aren’t necessarily a key goal.
The firm’s funding structure, in which internal partners provide much of the investment resources, has given 3G Capital the freedom to remain involved with the companies it works with long enough to enact remarkable change.
The approach, Alex Behring told the Financial Times in a 2017 interview, is “very unlike the typical private equity model.”
“We are owner-operators first and foremost, as our owners are the individuals directly responsible for operating our companies,” Behring said. “Everyone at 3G has considerable skin in the game, which creates powerful incentives to do what is right for the long term.”
