Fairfax to Acquire Recipe

Recipe announced that it has received a bid from Fairfax to acquire the company in a CAD 1.2 billion deal. Recipe is a restaurant operator with over 1,200 locations. Presumably, Fairfax believes it has an opportunity to take advantage of pandemic headwinds to potentially acquire Recipe at an attractive price. However, from a strategic point of view, we have a skeptical view of this type of non-insurance acquisition. We think Fairfax's performance will continue to hinge on whether or not CEO Prem Watsa's investment theses play out and would note that his track record has been increasingly hit or miss over time. That said, the deal doesn’t look to be quite large enough to have a material impact on our valuation, and we will maintain our CAD 636 fair value estimate and no-moat rating for Fairfax.