The company with the world’s most expensive stock, Berkshire Hathaway, announced Friday that it was purchasing TTI, a company that sells nothing for more than 4 cents. While the price per item may be low, they make up for it in volume, hitting $990 million in sales in 2005 and projecting $1.2 billion in 2006. Profit numbers were not available, nor was the purchase price.
The story of Berkshire’s (NYSE:BRK.A) purchase of TTI reads like many of the company’s recent acquistions. Paul Andrews, who founded the company in 1971 after being laid off by General Dynamics, decided to sell this summer and his instant first choice was Berkshire Hathaway. Though he viewed it as a long shot, he sent word and information to Buffett through John Roach, who had previously sold Justin Industries to Berkshire Hathaway.
According to the Dallas-Fort Worth Star Telegram,
Buffett said it took him about an hour to read through the materials before he decided he wanted to buy the company. But first he wanted to meet Andrews.
Buffett and Andrews later met for five hours and cemented a deal.
Though Buffett himself has conceded that the huge amount of money chasing deals has made them hard to find, this deal illustrates some of the competitive advantages Berkshire continues to enjoy.
First, Berkshire offers the promise that the business will continue and that they will continue to have a role. In fact, Buffett expects it. For owners who have built their businesses up from nothing and don’t want to see them absorbed into a division of a faceless corporation or worse, leveraged up and sold to the public, this can be very attractive. As Buffett puts it,
We don’t marry people to change them. It doesn’t work very well in business, and it doesn’t work very well in life.
Second, Buffett uses no investment bankers. He quickly runs his numbers, makes a decision and makes an offer. There is no army of analysts descending, no months of paralysis as decisions are made.
Third, the aura around Berkshire and Buffett is a draw. The idea of being associated with them forms part of the attraction for potential sellers.
Without numbers, it’s hard to determine what impact the deal might have on Berkshire. No matter how profitable the company is, $1 billion in sales isn’t going to have a material effect. But if the rate of return can exceed that on the company’s huge cash balance and the company can continue to make deals like this, then, as Senator Dirksen was alleged to have said, “A billion here, a billion there, and pretty soon you’re talking real money.”
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Disclosure: Neal Shanske owns shares of Berkshire Hathaway