Collection: Warren Buffett - #363 'DON'T be a Strategic Buyer'



[Transcript]

AUDIENCE MEMBER 00:00

Hi. My name is Andy Von Dorn (PH), and I’m here from Omaha.


I’m currently employed by Oriental Trading Company, and they just announced that they were putting themselves up for sale.


I was just wondering if Berkshire would have any interest in a company like Oriental Trading Company as an acquisition.


WARREN BUFFETT 00:16

That’s interesting, and I didn’t know they put themselves up for sale. But I looked at it — whenever it was — four or five years ago when Terry Watanabe sold it.


And I haven’t really followed it since then, but just from listening to what you say — and I have no knowledge of it at all — but it sounds to me as if some private group bought it and now they’re reselling it.


And we get approached on that sort of thing all the time, where a financial group has bought the business and then wants to resell it fairly quickly. And they almost — well, they invariably, I would say — auction the business.


They seek what they call a strategic buyer. A strategic buyer is some guy that pays too much. (Laughter) Because — you know, and he wants to justify it, so he says it’s strategic. I mean, I have never understood being a strategic buyer.


Every time somebody calls me up and says, you know, “We think, maybe, you’re the logical strategic buyer for that,” you know, I hang up faster than Charlie would. (Laughter)


The — and I’m not talking to the specifics of this one at all because I really don’t know on Oriental Trading.


But the idea that we’re going to find a business to buy from some guy who, from the moment he bought it a few years ago, has been thinking, “How do I get out of this thing?”


You know, “What do I do to make it earn — have those figures for a couple years look a certain way so that I can get the maximum amount in a couple years?” You know, that — we’re just not going to make any attractive buys there. We won’t trust the figures.


You know, we — it just — it’s — what we like is a business that — where the guy before was running with the idea of running it a hundred years, and taking care of the business in every way possible and was not contemplating sale, but, for one reason or another, finally needs to monetize the company.


We won’t — we will not get any sensible buys, really, from the resellers.


Some of the — it’s amazing to me what’s going on. Some of these things, literally, you know, Fund A is selling to Fund B to Fund C.


I mean, I’ve seen some that have changed hands three or four times. They’re just marking them up, and everybody’s getting two — they’re getting 20 percent of the profit so they mark it up.


And probably Fund C or Fund D may be owned by the same pension funds that own Fund A, except that everybody’s just taking a big 20 percent slice out of it every time they move it from one place to another.


We’re not buyers of anything the financial buyers have been in in recent — you know, and currently own.


Charlie?


CHARLIE MUNGER 03:04

In the 1930s there was a stretch when certain kinds of real estate — when with certain kinds of real estate — you could borrow more against the real estate than you could sell it for.


And I think that’s happened in some of these private equity deals, and it’s weird. It’s weird. This is not our field. (Laughter)


(Source: https://buffett.cnbc.com/2006-berkshire-hathaway-annual-meeting/)

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[YAPSS Takeaway]

Don't overpay an investment.