Mar 25th, 2007 by Martin Lee
Warren Buffett holds a view that most acquisitions do damage to the shareholders of the acquiring company. Often, the finanical projections made by the sellers paint a more rosy picture than the actual scenario. The seller will always know more about the business than the buyer and they get to pick the best time of sale (from their perspective).
One of the few advantages that Berkshire has in buying companies is that they don’t have any strategic plans. They are free to consider any acquisition opportunities (including the purchase of shares in the stock market) on their own merits without the need to proceed in any particular direction.
Another advantage is that they can offer sellers shares of Berkshire, a company with a collection of outstanding businesses. An individual can defer personal tax indefinitely by exchanging their ownership in a single business for shares of Berkshire.
Also, sellers know that placing their companies with Berkshire will give their managers autonomy to operate as before, with pleasant and productive working conditions.
Warren Buffett likes to deal with sellers who care about what happens to their businesses after the sale, rather than those sellers who are simply auctioning off their businesses. The latter often comes with unpleasant surprises.