Paint by numbers
Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
In plain words
This report explains why several companies in our portfolio have been targeted for cheap buyouts by industry rivals. It's not because the market is overheated, but because investors are distracted by flashier trends, leaving solid but boring businesses undervalued. For example, Tate & Lyle got a 63% premium offer from Ingredion—but the author says that's not a win; it shows investors missed the company's real worth. The key takeaway: don't automatically sell when a buyout comes. Instead, ask if you're undervaluing what you own. The report also highlights paint companies like AkzoNobel, which rejected a lowball bid and is now more motivated. The strategy: hold onto cheap, industry-consolidating stocks and wait for sales to recover—you'll likely profit more than taking an early exit.
This report discusses the phenomenon of industrial bidders exploiting market neglect and undervalued timing to launch opportunistic acquisitions of companies in consolidating industries. The core argument is that while long-term shareholders may feel frustrated by premium acquisitions (where the pre
Theme and Background
This chapter examines the recent phenomenon where multiple portfolio holdings have become opportunistic acquisition targets for industrial bidders. Market attention has been drawn to other "shinier" investment themes, causing a group of undervalued companies in consolidating industries to be overlooked — but not by their peers, who know them best.
Core Argument
The author's central conclusion is that this wave of acquisitions is not a bubble-driven "late-cycle" M&A wave fueled by banks or private equity, but rather "opportunistic consolidation" launched by industrial competitors capitalizing on market neglect and low valuations. The author argues that although long-term shareholders may be frustrated by premium takeovers, investors who themselves are unwilling to price assets should not complain about others "picking up bargains." Counterintuitively: investors should not simply view a premium offer as an exit signal, but should instead reflect on whether they, too, have undervalued the asset.
Key Arguments and Data
- Tate & Lyle case: Received a £2.7 billion bid from Ingredion at a 63% premium. The report argues the offer looks "pretty" on paper, but the timing is opportunistic, capitalizing on investor apathy.
- Industry backdrop: Food and beverage customer volume declines have persisted for nearly five years, forcing companies to cut prices to maintain revenue, leading to significant industry consolidation. The author believes this state is unsustainable, and innovation and volume growth will eventually return.
- AkzoNobel case: Paint volumes have similarly been sluggish for nearly five years, exceeding the repaint cycle point at which assets begin to age. Industry consolidation has left participants reliant on price increases to sustain revenue growth, depressing stock prices.
- Paint industry appeal: The author describes it as an industry with persistent consolidation, high brand and distribution barriers, significant scale economies, and long-term volume and price growth.
- Portfolio valuation comparison: Valuation data for three paint companies is as follows:
| Company | EV/EBIT |
|---|---|
| TOA Paint (Thailand) | 4.5x |
| SK Kaken (Japan) | 3.7x |
| Masco (US) | 12.0x |
Companies/Assets Involved
- Tate & Lyle: Specialty food ingredient manufacturer. Received a 63% premium bid from Ingredion. The author is bullish on its long-term transformation value and believes Ingredion's logic aligns with that, but remains undecided in the short term on whether to support the acquisition.
- AkzoNobel: Paint company. Successfully fended off a joint bid from Nippon Paint and Sherwin-Williams. The author is bullish on management's decisions (rejecting the lowball offer, advancing the merger with Axalta) and believes management is now more motivated.
- TOA Paint (Thailand), SK Kaken (Japan), Masco (US): All paint companies in the portfolio. The author views their valuations as attractive and believes they benefit from the industry's consolidation structure.
- Nippon Paint (Japan), Sherwin-Williams (US): Appear as industrial bidders attempting a joint takeover of AkzoNobel. The author's tone is negative, describing their "Molotov-Ribbentrop Pact"-style joint bid as an attempt to circumvent competition regulations and acquire a quality asset cheaply.
Investment Implications
- Directional judgment: Investors should not simply view an M&A premium as an opportunity to exit. Instead, attention should be on sectors that are overlooked by the market but where industry structures are improving (e.g., ongoing consolidation).
- Specific areas: The report specifically notes that the characteristics of the food ingredients and paint sectors (industry consolidation, sluggish volumes, cheap valuations) also exist in portfolio holdings in specialty chemicals and consumer goods. These areas could become targets for the next wave of industrial consolidation.
- Core strategy: The author argues that once volumes recover, fewer competitors (due to consolidation) will give surviving companies greater pricing power and growth. Therefore, buying and holding these assets now, waiting for structural improvements in fundamentals, is more advantageous than accepting a takeover at a low point.