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GrafTech: Great Business And Excellent Acquisition Candidate

Scott Smith profile picture
Scott Smith


  • An extraordinary business buried in an out-of-favor steel industry segment. Undervalued by any conventional measure.
  • Provides highly-engineered, mission-critical consumables for electric arc furnaces, the fastest-growing segment of steel industry.
  • 2018 IPO, but still 74% owned by private equity group.
  • PE ownership stake and timeline make it a ripe candidate for acquisition.
  • Fits ideally with Berkshire’s manufacturing businesses.

GrafTech International Ltd. (NYSE:EAF) is a business that Warren Buffett and Charlie Munger could love. It meets the acquisition criteria that Berkshire Hathaway (BRK.A) (BRK.B) desires and has similarities to many of Berkshire’s existing family of manufacturing businesses, such as Lubrizol, International Metalworking, Marmon, and Precision Castparts. It could also be an ideal acquisition candidate for strategic manufacturing companies already in the raw material space.

As Warren Buffett has said thousands of times and again last week in the 2019 Shareholder Letter: “In addition, we constantly seek to buy new businesses that meet three criteria. First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price.” Further, he has said: “The most important thing [is] trying to find a business with a wide and long-lasting moat around it … protecting a terrific economic castle with an honest lord in charge of the castle.”

GrafTech isn’t a company most retail investors have heard of. So, let’s take a quick look at what it does. It’s an exceptional niche company in an often out-of-favor industry. It is narrowly-held with a timeline that makes it a ripe candidate for acquisition.


GrafTech is a vertically-integrated manufacturer of graphite electrodes that are essential in the production of electric arc furnace (EAF) steel.

Graphite ElectrodesPicture of Graphite Electrodes. Source: ATN Metal

A brief paragraph is added here to provide context for investors not familiar with the steel industry. Primary steel producers use either electric arc furnaces or blast furnaces (also called BOF, or basic oxygen furnace) processes to produce steel. Electric arc furnaces use scrap metal as its base material, whereas blast furnaces use iron ore. Graphite electrodes conduct electricity from a power source to melt the scrap metal in

This article was written by

Scott Smith profile picture
Scott is a retired CEO of a privately-held company that was acquired by a strategic investor. He now consults with private equity firms regarding potential acquisitions and manages family office investments. He has over 25 years of investing experience in equities and real estate.

Analyst’s Disclosure: I am/we are long EAF, BRK.A, BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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