NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.
Today’s gem is this Twitter thread on the Detroit International Bridge Company, which owns and operates the Ambassador Bridge.
I love anomaly businesses like this, true gems. DIB is a toll bridge that connects Detroit and Windsor. It handles 25%(!!) of all trade between Canada and the US based on merchandise value. The US exports around $105bn worth of goods to Canada via this bridge. To put that in perspective, the US exports a TOTAL of around $195bn to China.
DIB used to be publicly traded and Buffett & Munger offered to buy 100% of the company in 1977 for $20 million. Why did they offer to buy DIB?
- Volume growth: steady growth in vehicle crossing
- Margins: 70% pre-tax margins
- Capex: 2% capex to sales
- Cash flow: ~100% cash conversion.
- Valuation: 8x net income
- Pricing power: it’s a literal toll bridge that connects a major trade route
They were outbid by local Detroit investor, Matty Moroun, who purchased the bridge for ~$31m, putting up $6m and borrowing $25m. From there, Moroun increased the toll by 5% per year for 30 years straight. In that time period, Moroun’s $30m ($6m equity) investment produced $500 million in cash flow.
Buffett on why he liked DIB:
“Because you have laid out the capital costs. You build the bridge in old dollars, and when there is inflation, you don’t have to keep replacing it—a bridge you build only once.“
Munger on DIB:
“I can’t imagine a more secure investment than that bridge.“
Give Turtle Bay a follow, he has no shortage of gems like this.
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This reminds me of when the Government of Ontario sold the 407 ETR to private buyers for $3bn in 1999. For those not from Toronto, the 407 ETR is a toll road that runs parallel to the busiest highway in North America – Highway 401 (seriously Google it). It generated ~$1.3bn revenue in 2022, what do you think it’s worth today?
