Allen Wagner September 23, 2013
Fairfax Financial Holdings, the Toronto-based financial services company that today struck a deal to buy smartphone-maker BlackBerry with a group of investors, could be making its first foray into technology and hardware with a $4.7 billion investment that is anticipated to close Nov. 4, following due diligence. In offering $9 per share for the beleaguered handset-maker, Fairfax may soon take private one of the most recognizable names in technology, even if that name has fallen hard in recent years. BlackBerry’s stock rose slightly on Monday after the deal was reported and was hovering around $8.83 during midday trading.
Fairfax and its founder Prem Watsa don’t have much experience with technology companies. Fairfax may already own 10% of BlackBerry, but its previous acquisitions have all been of financial services, insurance and transportation companies. And none of the acquisitions it has been involved in have been larger than $1 billion, according to the PitchBook Platform. Last December, CVC Capital Partners and Allied World Financial bought Cunningham Lindsey from Fairfax and Stone Point Capital for $934 million, but Fairfax reinvested $34 million to retain an equity stake in the company. And in August last year, Fairfax bought travel-services company Thomas Cook Group’s majority stake in its India operations for $147 million.
This makes BlackBerry an interesting investment for value-oriented Watsa (he’s often called “Canada’s Warren Buffett”) and the Fairfax Financial Holdings company. The Canadian handset-maker announced on Friday it would lay off 4,500 employees and reported a quarterly loss of close to $1 billion as part of a write-off of unsold phones and restructuring changes. So, why would someone known as the Warren Buffett of Canada take a major risk on a failing smartphone maker? Taking BlackBerry private can allow Fairfax and its fellow investors to reinvent in the company out of the public spotlight in the hopes of a turnaround, much like how Michael Dell and Silver Lake Partners hope to do with PC-maker Dell. It can also put more focus on the promising aspects of the company’s business—enterprise services and mobile security.
This appears to make the most sense for a company that has struggled with retail consumers and businesses alike, as companies that previously required employees to use BlackBerry devices for their corporate-approved mobile devices now allow employees to bring their own device (known more generally as the BYOD movement).
While Fairfax may not have direct experience in the space, it can provide a fresh, outsider’s take on how to reinvent this failing former tech icon, and would do well to look to BlackBerry’s enterprise services and mobile security offerings as a way to generate revenue.
Featured image courtesy of Flickr user lilivanili.