2001: Will Berkshire run out of acquisition targets?

AUDIENCE MEMBER: Good afternoon. I’m Jim Hays (PH) from Alexandria, Virginia. I’d like to thank you and Mr. Justin for bringing his masterpiece into the Berkshire family.

But the question arises, will you soon run out of privately-held firms that meet the criteria for acquisitions of sufficient size to continue the returns to Berkshire?

WARREN BUFFETT: Well, that’s a good question because people who sell to us have the option of —private business — selling elsewhere or going public.

There seem to be enough people that have built businesses lovingly over 50 or 100 years, and their parents before them and grandparents, that really do care about the eventual disposition of them in some way beyond getting the last dollar that day, that we have a supply from time to time of those businesses. And I think we’ll continue to see them.

You do raise an interesting question. How many businesses like that are worth, you know, a billion dollars or more in the whole economy? There seem to be — you know, I wish there were more, but there are enough. So I think we will probably buy, on average, maybe two a year, something of that sort.

The really big ones — I mean, what we’d love to make is a 10- or $15 billion acquisition. And there would be very few private companies that would be in that category.

And then, from the ones that are in that category, you have to find somebody that is not going to conduct an auction.

We don’t — we just are not interested in auctions. If somebody wants to auction their business, we’re not that excited about getting in with them because we need people to run it after we buy it.

And, if that’s the way they look at their business, we may get more unpleasant surprises than we’ve tended to get in the past with the kind of criteria we’ve used.

Charlie?

CHARLIE MUNGER: Yeah. There’re two aspects of that situation. One is, are there going to be enough businesses? And two, how much competition are we going to get from other buyers?

One thing we do have going for us is that if you are the kind of a business owner that likes the culture that’s in this room today, there isn’t anybody else like us. Everybody else is off on a different path with a different culture. (Applause)

So — and look at all you. I mean, this culture is popular, at least with a certain group. And surely, there’ll be other people who like this culture in the future, as in the past, and will feel right about joining it with their companies.

WARREN BUFFETT: We haven’t had any luck internationally so far, but we would hope that that could change.

I was over in Europe about a month ago and I got asked the question a lot of times about whether we would be a prospect for businesses in Europe, for example.

The answer is yes. And then they say, “Well, you know, why haven’t you bought anything?” And I said, “The phone’s never rung.” I don’t know whether they thought that was a brilliant answer or not, but they — (Laughter)

But I left my phone number a lot of places, you know? Every time I got a chance, I gave that answer. And maybe the phone will ring.

I’ve got to believe that, if we were on the radar screen the same way in Europe over the last five years that we have been in the United States, we would’ve bought a couple of companies.

It’s just, they don’t think of us. And a lot of people don’t think of us in the United States, either, but more do now than did five or 10 years ago.

And we have, actually — a reasonable percentage of our acquisitions come, directly or indirectly, because we’ve made another acquisition in the past where the seller was happy. It’s very hard to find anybody that’s been unhappy dealing with us.

And they’re friends with other people in their industry, or whatever it may be. So, we hear about things now more often, because we actually have what you might call a recruiting force out there of people that have already done business.

It’s very much like NetJets that way. I mean, we spend a lot of money advertising at Executive Jet, the NetJet service. But still, 70 percent or so of our business comes from owners who are with us. They’re, by far, the best salespeople we have.

And incidentally, that’s the way I was introduced to the business. Frank Rooney, who’s in this room today, told me about his good experience with NetJets back in January or so of 1995. And that’s when I joined in. And if Frank hadn’t told me, I might — six years later, I might not have ever looked into it. I mean, you know, I might’ve just turned the pages past the ads and —

But when Frank said, “You ought to look into this,” I did. Well, that’s what we hope we have going for us on the acquisition front. And I think we do, to some degree. But we’d like it to be greater, and we would like it to be more widespread, geographically, than it is.

CHARLIE MUNGER: When I was a lawyer, I used to say, “The best business getter any lawyer has is the work that’s already on his desk.”

And similarly, probably the best business getter that Berkshire Hathaway has is the business practice that’s already on our desk. That’s what’s driving the new businesses in, right, Warren?

WARREN BUFFETT: Sure. Sure.

CHARLIE MUNGER: So it’s a very old-fashioned idea. You just do well with what you already have and more of the same comes in.