Via Forbes, a look at how Markel’s Chief executive Thomas Gayner has quietly turned insurer Markel into a mini-conglomerate. Meet Richmond’s answer to the Oracle of Omaha:
Thomas Gayner gets a kick out of telling the story. It was 1983. He had just graduated from the University of Virginia with a plan to return home to Salem, New Jersey, to run an accounting business with his father, Jack. But Jack died suddenly, and instead of heading north, Tom wound up at Davenport & Co., a Richmond stock brokerage. He hadn’t been there long when he read an article about an investor from Omaha who was such an inspiration that Gayner wanted to share his excitement with his boss. “Hey, Joe,” Gayner said, “have you heard of this guy, Warren Buf-fay?” “It’s Buffett, you idiot,” Joe replied, and tossed Gayner out of his office.
Forty years later, Gayner, 62, has built an impressive career by worshiping at the altar of Buffett. Though he still refers to himself as an idiot for not buying Berkshire Hathaway stock in 1984 when it was selling at $1,275 (it currently trades for $612,500), his study of Buffett led him, in 1986, to invest in a little-known family-owned property and casualty insurer called Markel. Gayner thought Markel could do for Richmond what Berkshire did for Omaha. Davenport helped underwrite Markel Group’s $30 million 1986 IPO, and Gayner became pals with Steve Markel, the grandson of the company’s founder. Steve, now chairman, embraced the unorthodox idea of using underwriting profits to invest in equity, via both publicly traded stocks and ownership stakes in private companies. Even today, most insurers are risk-averse and stick to the predictability of bonds.
In 1990, Gayner left Davenport to lead equity investing at Markel. His first purchase was Berkshire Hathaway stock, then $5,750 a share. Over the next 34 years, Gayner bought a lot more. Shares of Buffett’s company now account for more than $1 billion of the total $7 billion unrealized gain in Markel Group’s stock portfolio. Markel, which has $57 billion in assets and had revenue of $15.8 billion in 2023, has a market cap of $21 billion today, up from $60 million when Gayner joined full-time.
Not until 2005, though, when a deal to buy a Richmond-based bakery equipment supply company, AMF Systems, all but fell into Gayner’s lap, did Markel take off. By then, Gayner had been at Markel for 15 years, “with the Berkshire model always in the back of my mind,” when church friend and AMF CEO Ken Newsome approached him because its private equity owners wanted to sell.
“Private equity has no regard for the soul of a business,” Newsome says. Gayner studied AMF’s books and determined it was “a good company with a bad balance sheet.” Markel, in its first acquisition, bought 80% of AMF for roughly $14 million, paid down its debt and promised to keep the company “forever.” Newsome says AMF’s revenue has since increased eightfold.
Today, Markel Group has “three engines,” Gayner says: insurance underwriting, stock investing and purchasing controlling interests in private companies, which it does through what it calls Markel Ventures. À la Warren, Markel even publishes and posts a folksy shareholder’s letter annually. After the company logged strong results in 2021, the letter featured the lyrics to Paul Simon’s “Something So Right.” Berkshire Hathaway’s compounded annual growth rate over 58 years is 19.8%. After 38 years as a public company, Markel’s annual return is 15%.
“The problem with you guys is you’re trying too hard to be Berkshire,” Gayner says a stock analyst once told him. “Who would you rather us be like?” he replied.
Cash flow, including $30 billion in so-called float, from Markel’s engines enables Gayner to work with what he calls permanent capital. “I’m playing a different game than most people in investments,” he says. “The ability to invest with a long-term time horizon and not worry about daily liquidity concerns is an advantage.”
AMF fulfilled Markel’s four criteria for acquisition: a management team with both talent and integrity; reinvestment options; return on capital that doesn’t rely on debt; and a fair price. “Don’t take advantage of anyone, even if you can,” Gayner says. “It’s good karma—and a good way to get future referrals.”
Since 2005 Markel Ventures has spent $3.7 billion on acquisitions. Last year its revenue climbed 5% to $5 billion and cash flow (Ebidta) was $628 million, up 24%. It owns stakes in 19 businesses including Brahmin, a Boston–based designer of upscale handbags, North Carolina’s Buckner Heavy Lift Cranes and Costa Farms, a producer of ornamental plants. Gayner’s most recent acquisition, in December 2021, was $274 million for 51% of Metromont, a manufacturer of precast concrete used to make parking garages and other buildings. Boring, solid businesses all. Warren would approve. (Berkshire, in fact, was recently an owner of Markel’s stock.)
Gayner complains that investors undervalue Markel because it’s unconventional. These days its weakest engine is insurance underwriting. Morningstar analyst Brett Horn says Markel hasn’t been charging enough but applauds Gayner’s stock picking, which has outperformed the S&P 500 over the past ten years. Besides its Berkshire stock, Markel’s big holdings include Alphabet, Amazon and Deere & Co. Markel has grown its book value per share by an average of 11% annually for 20 years.
Like Omaha’s Oracle, Gayner favors buybacks. In the past two years, Markel has spent $700 million repurchasing shares and authorized up to $750 million for 2024.
“At the current rate of repurchasing, in 15 years we will have bought back half the shares outstanding, and in 30 years, all of them,” quips Gayner, whose personal stake in Markel amounts to $89 million. “And in 30 years, I’ll still be younger than Buffett is right now.”