{"id":18209,"date":"2023-06-10T23:56:00","date_gmt":"2023-06-10T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=18209"},"modified":"2025-07-10T10:36:00","modified_gmt":"2025-07-10T02:36:00","slug":"berkshires-acquisition","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/","title":{"rendered":"Berkshire&#8217;s acquisition model"},"content":{"rendered":"\n<p>In Berkshire&#8217;s (ticker: BRK.A and BRK.B) <a href=\"https:\/\/berkshirehathaway.com\/letters\/1995.html\" target=\"_blank\" rel=\"noreferrer noopener\">shareholder letter in 1995<\/a>, Buffett fully explained Berkshire&#8217;s acquisition model in detail:<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/#Minority_or_full_ownership\" >Minority or full ownership<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/#Two_characteristics_of_Berkshire\" >Two characteristics of Berkshire<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/#Seller_is_in_a_good_position\" >Seller is in a good position<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/#Berkshire_has_several_advantages\" >Berkshire has several advantages<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Minority_or_full_ownership\"><\/span>Minority or full ownership<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Charlie Munger, Berkshire&#8217;s Vice Chairman and my partner, and I want to build a collection of companies &#8211; both wholly- and partly-owned &#8211; that have excellent economic characteristics and that are run by outstanding managers. Our favorite acquisition is the negotiated transaction that allows us to purchase 100% of such a business at a fair price. But we are almost as happy when the stock market offers us the chance to buy a modest percentage of an outstanding business at a pro-rata price well below what it would take to buy 100%. This double-barrelled approach &#8211; purchases of entire businesses through negotiation or purchases of part-interests through the stock market &#8211; gives us an important advantage over capital-allocators who stick to a single course.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Two_characteristics_of_Berkshire\"><\/span>Two characteristics of Berkshire<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>We proceed with two advantages: First, our operating managers are outstanding and, in most cases, have an unusually strong attachment to Berkshire. Second, Charlie and I have had considerable experience in allocating capital and try to go at that job rationally and objectively. The giant disadvantage we face is size: In the early years, we needed only good ideas, but now we need good big ideas. Unfortunately, the difficulty of finding these grows in direct proportion to our financial success, a problem that increasingly erodes our strengths.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Seller_is_in_a_good_position\"><\/span>Seller is in a good position<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>In any case, why potential buyers even look at projections prepared by sellers baffles me. Charlie and I never give them a glance, but instead keep in mind the story of the man with an ailing horse. Visiting the vet, he said: &#8220;Can you help me? Sometimes my horse walks just fine and sometimes he limps.&#8221; The vet&#8217;s reply was pointed: &#8220;No problem &#8211; when he&#8217;s walking fine, sell him.&#8221; In the world of mergers and acquisitions, that horse would be peddled as Secretariat.<\/em><\/p>\n\n\n\n<p><em>we face the inherent problem that the seller of a business practically always knows far more about it than the buyer and also picks the time of sale &#8211; a time when the business is likely to be walking &#8220;just fine.&#8221;<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Berkshire_has_several_advantages\"><\/span>Berkshire has several advantages<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Even so, we do have a few advantages, perhaps the greatest being that we don&#8217;t have a strategic plan. Thus we feel no need to proceed in an ordained direction (a course leading almost invariably to silly purchase prices) but can instead simply decide what makes sense for our owners.<\/em><\/p>\n\n\n\n<p><em>In making acquisitions, we have a further advantage: As payment, we can offer sellers a stock backed by an extraordinary collection of outstanding businesses. An individual or a family wishing to dispose of a single fine business, but also wishing to defer personal taxes indefinitely, is apt to find Berkshire stock a particularly comfortable holding.<\/em><\/p>\n\n\n\n<p><strong>Note<\/strong>: Please note&#8211;This so-called advantage, Buffett has a lot of regrets, because he regrets using Berkshire\u2019s stock to pay for mergers and acquisitions in the early years, because after long-term compound interest, the Berkshire\u2019s stock paid at that time is getting more and more valuable.<\/p>\n\n\n\n<p><strong>Note<\/strong>: In the <a href=\"https:\/\/berkshirehathaway.com\/letters\/2016ltr.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">2016 shareholder letter<\/a>, Buffett complained: &#8220;Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock \u2013 a boatload of<br>stock \u2013 to buy General Reinsurance in late 1998. After some early problems, General Re has become a fine insurance operation that we prize. It was, nevertheless, a terrible mistake on my part to issue 272,200 shares of<br>Berkshire in buying General Re, an act that increased our outstanding shares by a whopping 21.8%. My error caused Berkshire shareholders to give far more than they received (a practice that \u2013 despite the Biblical endorsement \u2013 is far from blessed when you are buying businesses).&#8221;<\/p>\n\n\n\n<p><em>Beyond that, sellers sometimes care about placing their companies in a corporate home that will both endure and provide pleasant, productive working conditions for their managers. Here again, Berkshire offers something special. Our managers operate with extraordinary autonomy. Additionally, our ownership structure enables sellers to know that when I say we are buying to keep, the promise means something. For our part, we like dealing with owners who care what happens to their companies and people. A buyer is likely to find fewer unpleasant surprises dealing with that type of seller than with one simply auctioning off his business.<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"145\" height=\"101\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/02\/ma-1600x1200-2.jpg\" alt=\"Berkshire's acquisition\" class=\"wp-image-18210\"\/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"block-9d402b81-75c9-41fa-9a2d-6be1252e074e\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/02\/mergers-and-acquisitions-2\/\">How Buffett Views Mergers and Acquisitions<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/04\/09\/buffetts-acquisition-criteria\/\">Buffett&#8217;s Acquisition Criteria<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/10\/berkshires-acquisition\/\">Berkshire&#8217;s acquisition model<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/04\/minority-stake\/\">Why Buffett prefers minority stake to entire company?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/01\/18\/institutional-imperative\/\">Institutional imperative &#8211; the good, bad, and ugly<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/12\/30\/mergers-and-acquisitions\/\">Why most mergers and acquisitions end in failure?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/10\/30\/controlled-business\/\" target=\"_blank\" rel=\"noreferrer noopener\">Advantages of controlled business<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In his 1995 shareholder letter, Buffett fully and in detail explained Berkshire&#8217;s acquisition model<\/p>\n","protected":false},"author":1,"featured_media":18210,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[88,11],"tags":[48,49],"class_list":["post-18209","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-acquisition","category-buffett","tag-brk-a","tag-brk-b"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18209","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=18209"}],"version-history":[{"count":19,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18209\/revisions"}],"predecessor-version":[{"id":37318,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18209\/revisions\/37318"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/18210"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=18209"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=18209"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=18209"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}