Some view 77 as an age too old to be trying something new, but Warren Buffett, who says he will retire five years after his death, last week launched the hunt for his first European acquisition.
In several European cities, Mr Buffett laid out the qualities he looks for in a business and told owners to get in touch if they thought he was describing theirs.
Mr Buffett’s Berkshire Hathaway has bought stakes outside the US before, but he has taken full control of only one foreign company – Iscar of Israel, paying $4bn for an 80 per cent stake in the cutting-tool manufacturer in 2006. In a webcast from IMD, the Swiss business school, Mr Buffett and Eitan Wertheimer, Iscar’s chairman, explained how it happened. (You can find the link to the webcast at www.ft.com/skapinker.)
Mr Buffett said he received a one-and-a-quarter page letter from Mr Weitheimer, describing Iscar, which does business in 61 countries. “He gave me enough information that clearly this was an extraordinary company. And more importantly, and I can’t tell you the exact words that did it, but the quality of the man came across,” Mr Buffett said.
Mr Weitheimer and some senior colleagues travelled to Omaha, Nebraska, and the deal was done, without Mr Buffett visiting any Iscar factories or doing due dilligence.
Buffett followers will recognise this as normal practice. When he bought Nebraska Furniture Mart from 89-year-old Rose Blumkin, her business had never had an audit. Mr Buffett did not request one, nor did he check the inventory or leases. “We gave Mrs B a cheque for $55m and she gave us her word,” he told shareholders. “That made for an even exchange.”
Mr Buffett regularly lays out his acquisition criteria – he is looking for Euro50m ($79m, Pounds40m) of pre-tax earnings in Europe, good returns on equity, little or no debt and no incomprehensible technology – but the most important consideration is his trust in the company’s leaders, whom he expects to remain in their jobs. “I have passed on deals where I have thought that the person in charge would cause my stomach to churn,” he said in the IMD webcast. “I mean, that should be one advantage of being rich – that you don’t have to put yourself in situations where you stomach is going to churn.”
Mr Buffett has made investment mistakes, and readers of his annual letters to shareholders will know how readily he admits them. In his 1989 letter, he headed one section: “Mistakes of the first 25 years.”
Other letters contain a “mistakes du jour”. They include staying in the textiles business long after it became clear it had no future and investing in USAir just before the airline industry was up-ended by deregulation.
Has he ever made an error through misplaced trust in the owner of a business he acquired? It is hard to know. “A characteristic courtesy of Buffett’s written and publicly-spoken word is never saying anything unkind about anyone,” Lawrence Cunningham, editor of The Essays of Warren Buffett, told me when I put the question to him.
There are hints. In his 25-years confession, Mr Buffett said: “After some mistakes, I learned to go into business with people whom I like, trust and admire.” Judging by his acquisition and investment record, those mistakes have been rare.
Evaluating someone’s integrity on the basis of a couple of hours of conversation – and then betting several billion dollar on your judgement – takes some skill, and it will be interesting to see whether Mr Buffett can manage it outside his own cultural milieu, where the cues are less familiar.
Body languages, gestures, the appropriate amount of eye contact all differ from country to country. It takes longer to get a fix on people outside your own surroundings.
Personalities subtly alter when people switch languages, their confidence and assertiveness increasing when they revert to their mother tongue. Even the sense of what honesty is differs from culture to culture. What the English regard as tact others, keener on full disclosure, may see as hypocrisy. (Greeks, I have found, are particularly honest in their assessment of how much hair you have lost since they last saw you.)
Mr Buffett clearly feels happy in his judgement of Mr Weitheimer. He has now visited some Iscar factories and has declared them the best manufacturing facilities he has seen.
How will he get on elsewhere? Professor Cunnigham says Mr Buffett’s international experience has grown over the years. Several of the companies in which he holds stake, such as Coca-Cola and Gillette, have extensive worldwide operations. He invested in PetroChina and helped sort out residual losses at Lloyd’s of London.
The European phase of Mr Buffett’s investing career promises to be interesting. If he makes mistakes, he will say they were his. If others let him down, we will have to read between the lines.
(Micheal Skapinker, Financial Times)
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