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Here's why 3G Capital is the exception to Warren Buffett's harsh critique of private equity

Myles Udland   

Here's why 3G Capital is the exception to Warren Buffett's harsh critique of private equity

warren buffett

Bill Pugliano/Getty Images

Warren Buffett just made a huge deal with his favorite private equity firm 3G Capital.

For anyone who read Buffett's latest annual letter to investors, this news was a bit surprising as he had some harsh words for the private equity industry.

But what sets 3G apart in Buffett's view is that the firm isn't looking to do one big thing: sell.

In an interview on CNBC following the announcement of the Kraft deal, Buffett said that you can't put 3G in the same category as other PE firms specifically because the firm isn't just buying things to sell them.

Buffett added that Berkshire plans to hold Kraft "forever."

This is the third time Buffett has worked with 3G in the last two years: Buffett previously worked with 3G on a deal to acquire Heinz and to finance Burger King's takeover of Canadian coffee chain Tim Horton's.

Buffett's major qualm with private equity, as outlined in his annual letter, is that "equity" is, in fact, a "dirty word" to many PE shops, with Buffett noting that what most private equity buyers really love is debt.

Buffett added that, "because debt is currently so inexpensive, these buyers can frequently pay top dollar. Later, the business will be resold, often to another leveraged buyer. In effect, the business becomes a piece of merchandise."

And so in Buffett's view, 3G's approach subverts this popular notion of private equity's intentions with regard to a business: they are not looking to treat a company as a piece of merchandise, but as an attractive business to own, grow, and profit from long-term.

In trading on Wednesday, shares of Kraft were up more than 30%.

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