It has been about two days since my favorite investor, Mr. Warren Buffett struck another acquisition super deal. This time he has made about 10% dent into the US$47 billion pile of cash his company Berkshire Hathaway has had on its hands by spending about US$4.5 billion for 60% stake in privately owned conglomerate Marmon Holdings Inc. (web: www.marmon.com)

It has also been reported, that this Buffett’s biggest ever investment outside of the insurance industry provides for Berkshire to acquire the rest of Marmon Holdings Inc. in progressive stages by 2014. So let’s just have a look at it a little closer.

Businesses of Marmon Holdings
Once again this company seems to fall neatly into traditional Buffett’s investing pattern easily complying with his rules for selection such as:

a) long tradition:
Marmon Holdings dates back to 1953 when its current owners, the Pritzker family, purchased an ailing manufacturer Colson Corporation.

b) continuous steady growth:
From its humble beginnings, Marmon evolved to multi billion organization which now operates over 125 independent business units in sectors such as Transportation Equipment Services, Construction & Industrial Components, Electrical Components and Retail Services (ie “boring” business segments just to Warren Buffett’s liking).

In 2006 Marmon Holdings employed in excess of 21,000 people in all parts of the globe and generated revenue in the vicinity of US$7 billion.

c) quality management:
Over the years of continuous business success the company still managed to stay privately owned by its founding Pritzker family. As its often the case in family businesses, they seem to have run pretty “tight ship” never allowing the costs of operation or company debts mushroom to levels which would severely the growth in Marmon’s bottom line.

d) good purchase price:
Valuing a company is always a tricky exercise even more so if the business is in private hands without much of the for public disclosure. As reported on their website, Marmon’s 2006 revenue reached US$ 6.98 billion (23.8% increase on 2005) and before tax income figure for the same year stands at about US$ 1.01 billion (pretty much in line with 2005).

The complete 3 years figures reported by Marmon’s are as follows:

So back of the envelope calculations seem to suggest that if Marmon’s keeps running its course for years to come (and the “boring” businesses seems to be able to do so for decades), Warren Buffett’s initial investment of US$4.5 billion should yield him about 60% of US$1 billion ie. US$600 million before tax.

That figure would suggest initial Return on Investment in the vicinity of 13.3% with a big potential for increase as Marmon’s keeps on growing its revenue and Berkshire keeps on purchasing the remaining portion of the company over the years.

Art of the deal Buffett style
Once again, Mr. Buffett has not disappoint the wide investing public with an ease and quickness he seemingly came up with this investment decision to allocate US$4.5 billion.

As reported, Buffett was first contacted about the potential transaction in the second week of December at a San Francisco election rally, following morning provided with a “phone book” sized document describing the The Marmon Group, read it on the plane back to Omaha and upon landing made the “we have a deal” phone call back to the Marmon’s banker.

And so it seems that Warren Buffett takes for his US$4-something billion purchases similar amount of time the regular folks spend on purchasing a fridge or washing machine.

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This entry was posted on Friday, December 28th, 2007 at 2:01 pm and is filed under My View, US Stock, Warren Buffett. You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.