An underrated advantage of Berkshire Hathaway is that Warren Buffett is able to buy family-owned companies at a discount to the maximum value that an open bidding for the company would yield. Buffett is able to secure 5% to 20% discounts on fair market value because he is able to guarantee that the legacy and special cultural factors of the business will remain intact after he takes over. Given that founders often infuse part of their identity into their businesses, this maintenance of tradition makes Berkshire more attractive than a cost-cutting private equity fund that will immediately try to wring out more profits to pay down the leverage that is often used to make the acquisition.
When Buffett was in Toronto back in 2008, he explained this advantage as follows: “You can sell your business to Berkshire, and we’ll put it in the Metropolitan Museum. It’ll have a wing all … Read the rest of this article!