Brookfield and Flatt deal in big numbers. The 120-year-old company invests in more than 30 countries and has more than 100,000 employees. Last year it made $US35 billion in investments, including the $US14 billion purchase of the world’s biggest maker of car batteries. It sold $US12 billion of assets and has raised $US50 billion to invest.
These are the sorts of numbers that make mere mortals either swoon or shake. But Flatt doesn’t seem the least bit worried by their size.
Of course, the man responsible for his own big number at Brookfield – a total shareholder return of 1797 per cent since becoming chief executive in 2002, according to Bloomberg – has built a business on looking past what he describes as short-term noise.
Take populist politics. Flatt says Brookfield picks the countries it’s going to invest in based on size, the rule of law and a history of respecting capital. Political cycles tend to work themselves out, he argues.
“If you find great countries that have the institutions that can survive through short-term political changes, those are the places you should be. Because then the short-term noise is not as relevant,” he says.
Along with Brookfield’s focus on the very biggest deals in the industry – where competition is limited – and its global reach, this ability to keep focus on the long term, manifests in different ways.
In energy, for example, Brookfield has long been an investor in renewables. But it also owns a host of fossil-fuel-linked businesses, from gas generators and pipelines to the Dalrymple Bay Coal Terminal in Queensland.
“We got into renewables before renewables was renewables,” Flatt says of the Brookfield heritage.
“We did that because we felt that an important part of the electricity stack was going to become renewables eventually. And it’s now becoming reality.”
Flatt is certain that renewables will be an even more important part of the energy mix in the future.
But generally, the timeframe over which technological change occurs isn’t as short as people think, Flatt argues. And that creates opportunities for Brookfield.
“The thing that is often misstated is that people project things far faster than they’re ever going to occur.”
Take electric cars. When Brookfield was considering its $US14 billion purchase of that aforementioned car battery maker from Johnson Controls, Flatt says “people were questioning how long the cashflow of this business will be the way it is because batteries may be changing … and cars are going electric.
“Which we believe is going to happen, but it’s just going to take a lot longer.”
Flatt estimates there might be only five or 10 firms in the world that could do a deal this size. But on top of that, misperception about the electric car roll-out meant Brookfield was able to buy the business – which has about 55 per cent of the global market for new-car batteries and aftermarket ones – on an unleveraged cash-on-cash yield of 8 per cent. This it hopes to boost to 20 per cent after leverage and fixing up the operations of the business.
The strong market share in traditional lead acid batteries for the internal combustion business will give Brookfield time to increase sales of low-voltage batteries for existing electric cars, and work with car makers on the next generation of electric vehicle batteries.
“If we choose to, we will be at the forefront of the electrification of those batteries,” Flatt says.
It’s yet another reminder that timing is everything – and you can be too early to the party.
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