The M&A strategy behind Berkshire Hathaway’s tie-up with Tokio Marine
Deal with non-life insurer is first investment in Japan beyond trading houses for Warren Buffett’s conglomerate
David Keohane and Harry Dempsey in Tokyo and Eric Platt in New York
Japan’s largest listed insurer knows what it must do to keep Berkshire Hathaway happy: find high-quality, billion-dollar deals.
Last month’s move by Warren Buffett’s conglomerate to buy a 2.5 per cent stake in Tokio Marine raised the question of what Berkshire — a value investor that has been successful in insurance — saw in the stagnant Japanese market.
As far as Tokio Marine is concerned, a large part of the answer is strategic.
The plan is to create value by doing sizeable acquisitions that marry Berkshire’s balance sheet with the Japanese company’s operational expertise.
“M&A is key,” said Kenichi Sakakibara, head of corporate planning at Tokio Marine and one of the executives involved in negotiating the deal.
“We already have a good track record in M&A over the past 10 years.
And our [post-merger integration] capability and also our ability to successfully run the acquired company, that is something they are looking for.”
Berkshire, he added in an interview with the FT in Tokyo, has plenty of capital but faces “some constraints” in terms of its capacity to integrate and operate a growing roster of global insurance companies.
Since 2008, Tokio Marine has done five large-scale international deals in property and casualty insurance worth roughly $19bn.
But such transactions are hard to find and pull off.
Berkshire, which declined to comment on the investment in Tokio Marine, built its empire on the back of a massive insurance business.
It bolstered those operations in 2022 with the $11.5bn takeover of Alleghany, adding a large reinsurer to its stable.
In 2015 it invested in Insurance Australia Group (IAG), agreeing to take a 20 per cent cut of the company’s business over 10 years as part of the transaction.
That deal, which the Tokio Marine investment resembles, has since been extended to 2029, with Berkshire disclosing that “a significant portion” of the reinsurance premiums at its National Indemnity unit come from the partnership.
The partnership with Tokio comes at a critical moment for Berkshire.
Buffett’s successor Greg Abel has warned that an influx of private capital into insurance markets has eroded returns, prompting several of its units to pull back from underwriting new policies.
Other investors share Berkshire’s enthusiasm for Tokio Marine.
Masakazu Takeda at Sparx Asset Management first invested in the three big Japanese non-life insurers in 2022 due to the fact that “they control 90 per cent market share . . . it’s an oligopoly and therefore they have very strong pricing power.”
The other two are Sompo and MS&AD Insurance.
The three groups were formed by a series of mergers in the 1990s and 2000s that consolidated the Japanese non-life insurance market.
Takeda said that on M&A, Tokio Marine has been “extremely disciplined, refraining from major deals until valuations became sensible . . . a lot of the facts, the track record and the culture all make sense from a Berkshire point of view”.
The plan, said Sakakibara, is for Tokio Marine and Berkshire to pursue a small number of large deals in areas that make sense for both.
That selectivity raises the stakes.
During a five-year exclusivity period, he said, “we cannot do three or four transactions”.
For Tokio Marine, the agreement also frees up its balance sheet to pursue acquisitions at home, particularly in higher-margin “solutions” business, such as risk consulting.
“Our growth over the past decade has come largely from international expansion, but the next phase is also to invest in the solutions business domestically,” Sakakibara said.
The joint deals are expected to be international.
The two sides have spent months working out how such transactions would be structured after Berkshire approached Tokio Marine last summer with a formal partnership offer.
Ajit Jain, Berkshire’s head of insurance, led negotiations with chief executive Masahiro Koike.
Berkshire has proven it can quickly raise mountains of cheap yen debt to fund investments.
It priced a ¥272bn ($1.7bn) sale of yen-denominated bonds on Friday, its third-largest yen deal.
Under the agreement, Berkshire will pay ¥287.4bn ($1.8bn) for its stake and reinsure an undisclosed portion of Tokio Marine’s total risk.
The US firm has agreed to cap its potential investment in Tokio Marine at 10 per cent for now, which the Japanese group believes would help to limit the potential damage if Berkshire were ever to walk away.
That is a fear that still stalks Berkshire’s other Japanese investment — the trading houses — despite Buffett’s commitment last year to hold the stocks “for many decades”.
Shares in Mitsubishi Corporation, Itochu, Mitsui & Co, Marubeni and Sumitomo Corporation have all doubled, tripled or more since Berkshire’s stake became public in 2020.
As well as the capital growth, Berkshire also earned dividends of $862mn in 2025, versus expected yen interest costs of $135mn to finance its investment.
Because of the ferocious share price rises, investors and analysts have questioned whether Berkshire now sees little remaining upside in the trading houses and is seeking fresh destinations for its money.
Tokio Marine is its first equity holding in Japan outside the trading houses.
“Now that they’ve re-rated, it’s a real struggle,” said Edward Bourlet, analyst at CLSA in Tokyo.
“Previously, when Berkshire was allocating more money to Japan, it was just to the trading houses.
I initially got the sense trading house stakes could go up significantly more but that prospect seems to have died down.”
Berkshire’s move into the trading houses was initially seen as a straightforward value play, with conglomerate discounts weighing on business empires that sprawl across oil trading, salmon farms and convenience stores.
But the relationship has since grown closer.
“We treasure our original five Japanese equity investments, and together we continue to look for opportunities of mutual benefit,” Abel told the FT.
Itochu has been one trading house to tout collaborations to expand Berkshire’s Fruit of the Loom apparel brand in Asia, Duracell batteries in Japan and Heinz products in its FamilyMart convenience stores, although others play down the importance of joint investments.
The Tokio Marine investment has led to speculation about what else Berkshire could buy in Japan.
Ikuo Mitsui, fund manager at Aizawa Securities, said it might look at infrastructure, banking or property, most likely “focusing on companies with long-term potential and building deep relationships to enhance business returns”.
Keeping Berkshire onside — be it through aggressive cost control, capital return policies or M&A — is not just mission critical for the trading houses and Tokio Marine but for the whole of the Japanese market.
Buffett’s earlier move into the trading houses was transformational.
It shone a spotlight on the hidden value in Japan’s equity markets, helping to lift the Nikkei 225 to record heights just as the country emerged from deflation.
“It’s not just the trading companies that this has an impact on; it’s the whole of the Nikkei,” said one senior trading house executive.
“It showcased confidence in Japan and its market.”
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