Executive Summary / Key Takeaways

• Brookfield Business Partners (BBU) is a private equity powerhouse focused on acquiring and enhancing market-leading industrial and business services companies, consistently compounding value through operational improvements and strategic capital recycling.
• The company's recent financial performance demonstrates robust growth, with Q2 2025 adjusted EBITDA increasing to $591 million, supported by strong underlying operations, strategic acquisitions, and significant tax benefits, particularly from its advanced energy storage business, Clarios.
• BBU is actively leveraging technological differentiation, notably through AI integration across its portfolio, to drive substantial cost savings and efficiency gains, enhancing its competitive moat and long-term profitability.
• Strategic capital allocation, including a $250 million share buyback program and accretive asset monetizations like the $690 million secondary sale of interests in three businesses, underscores management's commitment to enhancing per-unit value amidst a material discount to intrinsic value.
• While facing global economic uncertainties and specific operational challenges in certain segments, BBU's disciplined investment approach, strong balance sheet, and focus on mission-critical businesses position it for continued growth and value creation, particularly as M&A markets become more robust and interest rates stabilize.

The Compounding Engine: BBU's Strategic Blueprint for Value Creation

Brookfield Business Partners L.P. (NYSE:BBU) operates as a distinctive publicly listed private equity firm, specializing in acquiring and transforming high-quality, market-leading businesses across the industrial, business services, and infrastructure sectors. Founded in 2016, BBU's core strategy is a "compounding engine" – identifying undervalued assets, implementing rigorous operational improvements to enhance cash flows, and then strategically recycling capital to fuel further growth. This disciplined approach has historically delivered impressive results, with over $6 billion generated from the sale of more than 20 businesses, achieving a 3x multiple on invested capital and a 30% Internal Rate of Return (IRR).

The company's portfolio has evolved, with half of its current businesses acquired within the three years leading up to Q3 2024, indicating a strategic shift towards larger-scale and higher-quality investments. This focus is particularly relevant in the current global economic climate, where themes of relocalization, digitalization, and the need for resilient supply chains are driving significant capital flows. BBU's investments are strategically aligned with these trends, positioning it to capitalize on opportunities arising from the transformation of industrial companies and the modernization of financial infrastructure.

Technological Edge: AI and Advanced Solutions Driving Operational Superiority

A cornerstone of BBU's value creation strategy is its aggressive integration of advanced technology, particularly artificial intelligence (AI), to unlock operational efficiencies and enhance competitive positioning. Management views AI as a "great tool" to improve margins "in a much more dramatic way and much faster." This isn't merely theoretical; BBU is deploying AI across hundreds of use cases within its diverse portfolio.

At Clarios, its advanced energy storage operation, AI is optimizing order intake and executable shipment plans. This has resulted in "millions of dollars of saved from customer service penalties," a "10% improvement in the quantity that we can fulfill," and a "14% improvement in overall service performance." Clarios is also exploring "larger scale automation in terms of robotics" for its manufacturing facilities, aiming for further productivity gains. These advancements are critical for Clarios, which already holds approximately 50% of the world's AGM (Absorbent Glass Mat) capacity and is a global leader in low-voltage battery solutions. Its new high-performance AGM battery, for instance, "increases CO2 savings in Start-Stop vehicles up to 80% versus a traditional AGM battery." Furthermore, its Connected Services business, combining AI, machine learning, and connectivity, has secured a contract with a European heavy-duty fleet operator, projected to "reduce unnecessary engine idling," creating "well more than €1,000 per year of fuel savings" and a "significant reduction in greenhouse gas emissions." This technological leadership in advanced battery solutions and smart services provides Clarios with a robust competitive moat against rivals, ensuring its products remain essential in the rapidly electrifying automotive industry where low-voltage battery demands are growing at an estimated 15% CAGR.

Similarly, at Everise, BBU has implemented automated AI-driven agent recruiting, screening, hiring, and training. This has significantly streamlined HR processes for a business employing over 14,000 people, reducing training time by "about 20%," cutting the cost of hiring an FTE by "about 40%," and increasing the speed to offer/hire across five countries by "about 5x." For CDK Global, the dealer software and technology services operation, the launch of AVA (Artificial Intelligence Virtual Assistant) in its core software offerings has transformed customer interactions. AVA provides quick conversational responses, schedules appointments, supports 50 languages, and has led to a "4x increase in touch points per lead" and a "47% increase in sales calls per lead." Even at Nielsen, BBU's initiatives have reduced manual effort in video segmentation for ad intelligence operations, projecting "about $10 million in annual run rate cost savings" and achieving "about an 80% accuracy across the segments," accelerating market launches from "2-plus months to days." These examples underscore BBU's commitment to leveraging technology for tangible, quantifiable operational and financial benefits, strengthening its portfolio companies' market positions and profitability.

Competitive Landscape and Strategic Positioning

BBU operates in a competitive landscape dominated by other large private equity firms such as Blackstone Inc. (BX), KKR & Co. Inc. (KKR), and The Carlyle Group Inc. (CG), as well as specialized contractors like MYR Group Inc. (MYRG) in overlapping sectors. BBU's core competitive advantage stems from its affiliation with Brookfield Asset Management, providing a strong network for deal sourcing and a deep bench of operational expertise. This allows BBU to pursue majority-stake acquisitions, enabling hands-on operational improvements that differentiate it from some rivals.

Compared to a diversified giant like Blackstone, BBU's more focused approach in sectors like industrials and business services allows for deeper operational integration and specialized execution. While Blackstone's scale and capital access may lead to higher deal volume, BBU aims for qualitatively stronger customer loyalty and sustained value creation through its long-term involvement. Against KKR, which often employs a more agile, technology-integrated strategy, BBU's value proposition lies in its ability to drive fundamental, long-term operational changes, potentially offering greater stability in execution. However, BBU may lag in innovation speed and broader diversification compared to KKR's more resilient profitability and cash flow. Similarly, BBU's majority-stake model offers deeper control and efficiency potential compared to Carlyle's partnership-oriented approach, potentially leading to superior execution in energy and construction.

In specific segments, BBU's portfolio companies demonstrate strong competitive positioning. Clarios, for instance, is approximately four times larger than its nearest competitor and holds leading market positions globally, a significant moat in the advanced energy storage market. DexKo, BBU's engineered components manufacturer, is "well placed to manage" tariff impacts better than most competitors due to its sourcing and manufacturing footprint, enabling it to take pricing actions more effectively. The combination of Network International and Magnati creates a "champion in the high-growth payment solution space" in the Middle East with "unmatched scale and limited customer overlap." Scientific Games is recognized as the "largest digital lottery service provider globally." These strong market positions, often underpinned by mission-critical products and services, provide BBU's businesses with pricing power and resilient cash flows, even amid economic fluctuations.

Financial Performance and Liquidity

BBU's financial performance in recent quarters reflects its strategic execution and the resilience of its diversified portfolio. In Q2 2025, adjusted EBITDA increased to $591 million, up from $524 million in the prior period, driven by improved underlying operating performance, tax benefits, and contributions from recent acquisitions.

The Industrial segment was a key driver, generating $307 million in adjusted EBITDA in Q2 2025, an increase from $213 million in 2024, benefiting from $71 million of tax benefits at Clarios and contributions from the newly acquired Chemelex. Clarios' margins exceeded 20% through the first half of 2025, supported by improved service levels and a higher mix of advanced batteries. The Business Services segment also saw growth, with adjusted EBITDA rising to $205 million in Q2 2025 from $182 million in the prior year, despite one-time costs at CDK Global. The residential mortgage insurer (Sagen) benefited from increased new insurance premiums and low claims losses. Conversely, the Infrastructure Services segment's adjusted EBITDA declined to $109 million in Q2 2025 from $157 million in 2024, primarily due to the sale of Altera's shuttle tanker operation.

BBU maintains a robust liquidity position, ending Q2 2025 with approximately $2.9 billion of corporate liquidity, pro forma for announced acquisitions and realizations. This is further bolstered by an additional $7 billion of liquidity within underlying operations. The company's capital allocation priorities remain consistent: reducing corporate borrowings, opportunistically repurchasing units, and investing in strategic acquisitions.

BBU has actively reduced its corporate line by about $1 billion in the first half of 2025. The company has also returned nearly $160 million to owners through its $250 million share buyback program as of Q2 2025, with plans to renew its normal course issuer bid to repurchase an additional 8 million units and shares.

A significant capital recycling event was the July 2025 sale of a partial interest in DexKo, CDK Global, and BrandSafway to a new Brookfield evergreen fund. This transaction, valued at $690 million at an 8.6% discount to NAV, was deemed "highly accretive to the market value of BBU" given that BBU units trade at "closer to a 50% discount relative to our view of NAV." The proceeds provide flexibility for further buybacks, growth reinvestment, and debt reduction. BBU also successfully refinanced debt at Modulaire and Clarios, extending maturities and repricing spreads, contributing to an average weighted maturity of nearly six years across its portfolio.

Outlook and Key Strategic Initiatives

BBU's outlook is characterized by cautious optimism and a clear strategic roadmap. Management is "prepared for some uncertain days ahead, but are equally optimistic and confident in the quality of the businesses we own, the strength of our operational capabilities, and the increased flexibility of our balance sheet to support our growth." The company expects the "big beautiful bill" (Inflation Reduction Act) to be a "net positive" for its U.S. industrial businesses, benefiting from accelerated depreciation, restored R&D deductions, and enhanced interest deductibility. Specifically, Clarios is expected to receive similar annual production credits under the IRA as the $296 million recorded in Q3 2024, with payment for the 2024 filing anticipated in the near term.

Strategic acquisitions continue to be a focus, as evidenced by the agreement to privatize First National Financial Corporation, a Canadian mortgage lender, with BBU's $145 million equity investment aimed at upgrading systems and streamlining operations. BBU will also participate in the Barclays Payments business investment, aligning with its successful Magnati and Network International operations to capitalize on opportunities in financial infrastructure. For Scientific Games, new contracts are expected to "flow through to earnings and cash flow" over the next 12 months, bringing performance in line with underwriting assumptions despite slower industry growth. CDK Global's technology modernization costs are expected to continue for 12 to 18 months, but customer churn is stabilizing, mitigated by commercial actions.

Risks and Challenges

Despite a strong strategic foundation, BBU faces several risks. The global operating environment remains uncertain, with "tariffs, rising global trade tensions and geopolitical conflicts" introducing volatility. While BBU's regional sourcing largely mitigates direct tariff impacts, a broader economic slowdown could affect demand. The healthcare services operation in Australia (Healthscope) faces a "much more challenging" situation due to an "unsustainable cost structure primarily due to wage inflation in the industry," with activity levels below pre-COVID levels. Management is actively negotiating with insurers and governments to address this imbalance. Scientific Games continues to see progress offset by factors like lower hardware deliveries and jackpot sizes, impacting earnings trajectory. BrandSafway is experiencing lower volumes and challenging pricing in its rental business, expected to persist through the second half of 2025. These segment-specific challenges highlight the importance of BBU's operational expertise in driving value creation plans across its diverse portfolio.

Conclusion

Brookfield Business Partners stands as a compelling investment opportunity, leveraging its proven private equity playbook to acquire, optimize, and monetize high-quality businesses. The company's strategic focus on operational excellence, underpinned by aggressive AI integration and technological differentiation, is a powerful engine for driving margin expansion and strengthening competitive moats across its portfolio. Despite trading at a material discount to its private market value, BBU's robust financial performance, significant liquidity, and disciplined capital allocation—including substantial share buybacks and accretive asset sales—demonstrate a clear path to unlocking shareholder value. While global uncertainties and specific operational headwinds persist, BBU's ability to identify and transform mission-critical businesses, coupled with its technological leadership and strategic responses to market dynamics, positions it for continued long-term growth and outperformance. The ongoing corporate simplification plan further aims to broaden its investor base and enhance trading liquidity, reinforcing the investment thesis for a company poised to compound value through strategic execution.