Mar 30th, 2007 by Martin Lee
Helzberg’s Diamond Shops
There is a popular technique called “management by walking around” (MBWA). Warren Buffet has his own technique which is called “acquisitions by walking around”(ABWA).
In May 1994, Warren Buffett was crossing the street when a man called Barnett Helzberg, Jr. told him that he owned a business that Berkshire might be interested in. When someone tells Warren that, the usual case is that they have a lemonade stand – with potential to grow quickly in the next Microsoft.
Anyway, the financial statements of Helzberg’s Diamond Shops were subsequently sent over to Warren Buffett and it turned out they were far from a lemonade stand.
Helzberg’s Diamond Shops was started in 1915 as a single store by Bernett’s grandfather and had grew into 134 stores with $282 million in sales. It was currently very well run by Jeff Comment, former President of Wanamaker’s.
The key to Helzberg’s excellent profits was that it had an average annual store sales of about $2 million, far more than their competitors.
The deal was appealing to Warren for two reasons. Firstly, the company was the kind of business that they wanted to own. Secondly, Jeff was the kind of manager they wanted. Without an outstanding manager running the show, they would not have bought the business.
The acquisition was completed using a tax-free exchange of stock, and Barnett shared quite a bit of his proceeds with a large number of his associates. When someone does that, a buyer will know that he will also be treated right.