A bit about holdcos
How they work, where value is created, and what to watch out for...
This article is a bit is a lot different from what I usually post but given my realization that I am really fascinated by holding companies I thought I would do a little dive in…
The inspiration came after listening to the book - The Holdco Guide by Peter Kang - I liked that book so much that I have both physical and audio versions.
Intro
A holding company is a parent company that owns other businesses or assets. The parent may own operating subsidiaries, public stocks, private companies, real estate, insurance operations, or minority investments. In some cases, very little happens at headquarters beyond financing, oversight, and capital allocation. In others, the parent also provides strategy, operating tools, talent, or shared services.
A good parent moves money from places where it is no longer needed to places where it can earn a better return. A bad parent adds another layer of executives, debt, fees, and complexity. The structure in itself is not as important as the management that allocates the capital.
This is why holding companies cannot be judged only by consolidated revenue or earnings. Investor has to understand the parent and the layers, where the cash is generated, how easily that cash can be moved, where the debt is located, and whether management is able to improve value per share over time. The best and easier example is Berkshire Hathaway and Warren Buffett.
Berkshire Hathaway - $BRK.A/B
Berkshire is the best-known example of a decentralized holding company. It owns a broad group of operating businesses, insurance companies, and marketable securities. Operating decisions are largely left to subsidiary managers, while major capital-allocation decisions remain centralized. The lesson is not that every holdco should imitate Berkshire; it is that a small parent can oversee very different businesses when incentives, trust, liquidity, and capital discipline are strong.
Why use a hold co structure?
The structure separates ownership from day-to-day operations. A subsidiary can have its own employees, customers, contracts, lenders, and management team, while the parent focuses on ownership and capital. That separation can help contain legal liabilities, organize financing, preserve control, and make it easier to buy or sell individual businesses.
The real attraction, however, is the internal capital market. A mature subsidiary may produce more cash than it can reinvest at attractive returns. Instead of leaving that money inside the business, parent co can use it to fund another subsidiary, buy a new company, repay debt, repurchase shares, pay a dividend, or simply wait for better opportunities. When this process is handled well, the parent gives shareholders something they could not easily reproduce by owning each subsidiary separately.
The same liabilities can hide the weaknesses and bad management. Headquarters may protect weak businesses, chase acquisitions to keep reported growth alive, or move capital according to internal politics rather than returns. Holdcos often go wrong not because the assets are bad, but because too much discretion sits with people who are poor allocators.
Visualization before doing the math
Before valuing a holding company, think over or put on spreadsheet details about corporate structure such as major subsidiaries, public stakes, private investments, joint ventures, special-purpose entities, etc. Next to each one, write down the ownership percentage, voting control, debt, minority owners, and any restrictions on sending cash to the parent. This is where putting pen to paper really makes a difference.
This simple exercise often reveals more than the income statement. A parent can report 100% of a controlled subsidiary’s revenue even though it owns less than 100% of the economics. Another parent may show little revenue while owning valuable minority stakes. Accounting presentation and economic ownership are not always the same.
Cash is also not simply “cash”. Money held inside a bank, insurer, regulated utility, foreign subsidiary, or partly owned company may not be available to headquarters. Some of it is needed for claims, working capital, regulation, or debt covenants. Consolidated cash is not the same thing as parent cash.
Debt cuts both ways
Debt must be separated by entity. Parent debt depends on dividends, distributions, or asset sales from below. If those cash flows stop, the parent can run into trouble even when its subsidiaries remain valuable. Subsidiary debt may be less dangerous when it is truly non-recourse, but guarantees, cross-defaults, collateral pledges, and reputational obligations can pull the risk back up to the parent. This is were footnotes and fine print is very important.
A diversified collection of businesses does not automatically make a holdco conservative. Near-term parent maturities combined with trapped subsidiary cash can be a serious problem. The best holdcos generally protect parent liquidity because financial flexibility is most valuable when markets are volatile.
Capital allocation is the main job
At the parent level, there are only a handful of choices: reinvest in existing businesses, buy new ones, acquire minority stakes, repay debt, repurchase shares, pay dividends, hold cash, or sell and spin off assets. Every choice competes with every other choice.
Good capital allocators understand that doing nothing can be the right decision. They do not buy a business simply because cash is available. They sell when another owner is willing to pay more than the asset is worth inside the group. They repurchase shares when those are undervalued , and are willing to issue debt when numbers make sense.
Poor allocators tend to repeat the same mistakes: overpaying for acquisitions, issuing stock when it is cheap, using optimistic adjusted earnings to defend a deal, and rewarding management for company size instead of per-share value. The best evidence is not what management says its philosophy is. It is the record of what management actually did with the money.
The numbers that matter
The most important measure is growth in intrinsic value per share. Revenue, assets, EBITDA, and total enterprise value can all rise while shareholders become worse off. A company can grow by issuing undervalued stock, borrowing too much, or buying businesses at prices that leave little room for an acceptable return.
Supporting measures depend on the type of holdco. Investment holding companies are often judged on net asset value per share. Insurance holdcos require analysis of underwriting, reserves, combined ratios, and float. Bank holding companies require capital, credit, deposit, and liquidity analysis. Serial acquirers should be judged on returns on incremental capital, not simply the number of acquisitions completed.
Look-through earnings can be useful when the parent owns minority stakes. A company may receive only a small dividend while its share of the underlying business earns much more. But retained earnings deserve value only when the investee can reinvest them intelligently. Economic ownership matters more than where accounting rules place the earnings.
How to value a holding company
Most holdcos are best approached with a sum-of-the-parts valuation. Value each major asset using the method that fits: market value for listed securities, normalized earnings or discounted cash flow for private businesses, book-value and underwriting analysis for insurers, and sector-specific methods for banks, real estate, infrastructure, or asset managers.
Then subtract what belongs to others or sits ahead of common shareholders: parent debt, preferred stock, minority interests, pension deficits, taxes, and recurring corporate overhead. Taxes require judgment. A liability due next year is different from a deferred tax that may remain unpaid for decades. Headquarters expenses matter a lot (especially in early days) because a permanent annual cost is a permanent claim on value.
The resulting net asset value is only a starting point. A discount may be deserved when governance is weak, cash is trapped, assets are illiquid, disclosure is poor, or management has no credible plan for creating value. A discount is more useful when the company can compound through it by repurchasing shares, selling assets, paying distributions, or simplifying the structure.
Different holdcos have different engines
This is not a full list of possible holdcos but a few major ones.
Insurance based holdcos
Insurance-based holdcos combine underwriting, an investment portfolio, and sometimes a collection of non-insurance businesses. Their engine is insurance float: premiums are collected before claims are paid, leaving capital that can be invested in the meantime. Float can be extremely valuable when underwriting is disciplined and reserves are conservative, but it remains a liability rather than free money. The main questions are the cost, stability, and duration of the float, along with the risks taken in investing it.
Markel Group - MKL 0.00%↑
Berkshire is one example while Markel Group is another. Markel is a holding company built around three main areas: specialty insurance, investments, and a group of non-insurance businesses. Its insurance operations generate earnings and float, which Markel can use to invest or acquire other companies. The businesses outside insurance operate in different industries and are generally run independently. Markel is a good example of how an insurance company can grow into a broader holding company while keeping decision-making decentralized.
Investment and family-controlled holdcos
Investment holdcos primarily own public and private stakes and are usually analyzed through net asset value per share. Family control can support patience and long-term decision-making, but it also raises questions about voting power, governance, and the treatment of minority shareholders. A discount to NAV is meaningful only after considering parent debt, taxes, corporate costs, liquidity, and management’s record of increasing value per share.
Exor NV - $EXXRF
Exor is a family-controlled investment holding company that owns major stakes in companies such as Ferrari, Stellantis, Philips, and CNH Industrial, along with several private businesses. Its value depends on the performance of those holdings and how well management reinvests capital over time.
Asset managements
These holdcos sit at the center of an ecosystem that may include an asset manager, listed affiliates, private funds, carried interest, insurance-like capital, and direct investments. The advantage is the ability to scale through outside capital and earn recurring fees while retaining meaningful investment exposure. The drawback is complexity: investors must separate recurring fee earnings, performance fees, balance-sheet assets, minority interests, overhead, and leverage without double counting. This is also were you can find accounting shenanigans.
Brookfield Corporation - BN 0.00%↑
Brookfield is a global hold co with businesses in asset management, insurance and wealth solutions, infrastructure, renewable energy, real estate, and private equity. It owns a controlling interest in Brookfield Asset Management (BAM) and major stakes in several publicly traded Brookfield partnerships. Brookfield earns fees for managing outside capital while also investing its own money alongside clients.
Decentralized acquisition compounders
Decentralized compounders repeatedly buy smaller businesses, leave operating decisions close to local managers, and centralize capital allocation. The engine works when the parent has disciplined purchase prices, a repeatable sourcing process, good measurement, and a large runway of targets. The risk is that success leads to larger deals, more competition, weaker underwriting, and potentially declining returns on each new dollar invested.
Constellation Software - TSX:CSU
Constellation Software is a holding company that buys small, specialized software businesses. It allows each company to operate independently and uses the cash they generate to acquire more businesses. Its success depends on buying well, keeping costs under control, and continuing to find attractive acquisition opportunities.
Diversified & emerging holding companies
Some public holdcos are built gradually around several unrelated businesses and investments rather than one dominant operating company. These can offer multiple ways to create value, but they also require careful separation of each subsidiary’s economics, capital needs, and maturity. Smaller holdcos should be judged especially closely on parent overhead, access to capital, dilution, and whether management is building a coherent compounding system rather than simply collecting assets.
Boston Omaha Corporation - BOC 0.00%↑
Boston Omaha is a smaller public holding company built around several distinct businesses and investments, including billboards, broadband infrastructure, and minority investments. It is a useful example because the consolidated income statement does not fully explain the value of the parts. An investor has to examine each business separately, understand where capital is being deployed, and decide whether the parent is increasing value per share as the portfolio develops.
Spinoffs and builder models
Another a bit different example are holdcos that emerge after selling or shrinking the business that originally defined them. The old corporate identity may matter less than the current assets and the parent’s record of recycling capital. Investors should focus on what was retained, what was bought or sold, and whether those decisions increased value per share.
Graham Holdings - GHC 0.00%↑
Graham Holdings is a useful example of a company that evolved after the sale of its defining newspaper business into a varied collection of education, healthcare, automotive, manufacturing, and other assets. The key question is whether the current portfolio has a reason to remain under the same parent and whether management’s acquisitions, disposals, and reinvestment decisions have improved value per share. Another less relevant (now) example would be IAC or its transition to now being PPLI 0.00%↑
Pros and Cons
The advantages are real, and they explain why the structure persists. Capital can move between businesses without the taxes and friction an outside investor would face moving money between two unrelated public companies. A permanent parent can hold a weak market patiently instead of being forced to sell on a fund’s timeline. Decision-making can be concentrated with a manager who has a long record of good judgment, and that manager can then operate across very different businesses instead of just one, and shareholders gets exposure to several separate cash flows through a single set of shares, which is convenient for someone who trusts management but does not want to research and monitor multiple different companies alone.
The risks are also too. Complexity makes company harder to value, and market often applies a large discount for that alone, whether or not it is deserved. Capital meant for the best opportunity can instead prop up the weakest subsidiary, especially when a management is reluctant to admit mistakes. Headquarters add permanent cost that a single-business competitor does not carry. And when people allocating capital also control the votes, outside shareholders have limited power to force a change if results disappoint for years at a time.
Governance matters > the org chart
Public shareholders in a holdco may sit several layers away from the assets. Control may rest with a founder, family, trust, dual-class structure, or management group. Long-term control can protect a company from short-term pressure, but it can also protect insiders from accountability.
The useful distinction is stewardship versus entrenchment. Positive signs include meaningful insider ownership, candid communication, modest headquarters costs, disciplined share issuance, and a record of treating minority owners fairly. Warning signs include related-party deals, excessive compensation, opaque reporting, repeated dilution, and transactions designed mainly to preserve control.
Culture matters because decentralized organizations cannot be managed by rulebook alone. Headquarters depends on subsidiary managers to act honestly and rationally. A company’s culture is revealed less by its annual-letter language than by what it does after a bad acquisition, during a downturn, or when the share price falls well below intrinsic value.
Succession risk is real … maybe
Many holding companies are shaped by a founder. That can be an advantage when that person has strong judgment and a proven record, but it also creates risk if too much depends on that just one person. A well built holdco should be able to function after that person leaves. It needs capable managers, clear responsibilities, strong incentives, and a board that protects the company’s long-term approach. Investors should look for signs that the culture and capital-allocation process are part of the organization (from day one) not just the personality of its leader.
Checklist
Okay, now that we spoke a bit about holdcos in general, here is a quick list to analyze a holdco:
Start by listing the assets and ownership percentages. Do not begin with the consolidated P/E ratio.
Identify where cash is generated and how much can actually reach the parent.
Separate debt and other claims by entity, maturity, recourse, and guarantee.
Normalize the earning power of each important business and distinguish maintenance spending from growth investment.
Build a conservative sum-of-the-parts valuation and subtract debt, taxes, minority interests, and capitalized overhead.
Study management’s record across acquisitions, sales, buybacks, dividends, debt decisions, and share issuance.
Assess governance, incentives, control, culture, and succession.
Stress-test the structure under lower earnings, restricted dividends, higher interest costs, or a failed acquisition.
In Conclusion
Owning a collection of businesses does not automatically make a holding company valuable. What matters is the quality of the assets, how effectively the parent uses the cash they produce, and whether management makes decisions that benefit shareholders over time.
A strong holdco can create value by moving capital to the best opportunities, keeping debt under control, and allowing good businesses to operate independently. A weak one can become a place where poor investments, unnecessary complexity, and insider interests are hidden. In the end, the success of a holding company depends less on its structure and more on how well it is managed.
Holdings Disclosure
At the time of this publication, I do own shares of BOC 0.00%↑ in my main portfolio, while I also own tiny positions of $BRK.B and MKL 0.00%↑ in my IRA account.
P.S. Don’t forget to ❤️ if you enjoyed it.
Disclaimer
The information in this article is provided for informational and educational purposes only.
The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and is not specific to you. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.
None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. The author is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions.
Great article, Yegor!!! Thanks for sharing.
Great article - I really enjoyed this overview.