Berkshire encourages subsidiaries to make further bolt-on acquisitions, and most subsidiaries do so, MiTek with alacrity. In 2008, for instance, MiTek acquired Hohmann & Barnard (H&B), a New York–based family business founded in 1933, whose products focus on anchoring systems that support marble and granite facades on buildings of all sizes. Beyond bolting on to MiTek’s existing construction materials businesses, H&B then made further bolt-ons. It acquired Blok-Lok, maker of wire reinforcement ties for masonry; Sandell, maker of a complementary line of products used in waterproofing a building as it is constructed; Dur-O-Wal, a direct competitor and pioneer in innovative masonry reinforcements; and RKL Building Specialties Co., another local rival.
Berkshire subsidiaries adopt their own acquisition philosophies, which may follow or vary from Berkshire’s. For example, when making tuck-in acquisitions, many Berkshire subsidiaries promise both continuity and autonomy to newly acquired firms and managers. When making bolt-on acquisitions of direct competitors, in contrast, there may be no way to make either promise. Transaction value often lies in eliminating redundancies. When H&B acquired archrival Dur-O-Wal, for example, the two each continued to sell their respective patented innovations but eliminated duplicative operations.23
What unites Berkshire subsidiaries in the acquisition arena is that they share an investor’s astuteness, including replicating Berkshire’s approach of compensating sellers not only with economic value but with intangible forms of exchange, too. They look for cultures that fit their own. Most of Berkshire’s more acquisitive subsidiaries had become acquisitive long before being acquired by Berkshire. Both before and after Berkshire’s ownership, their cultures were a valued part of the deal.
Preliminarily, this means screening potential targets to ensure cultural fit. Such compatibility is important when joining any two businesses because a similar culture promotes a more productive union . Equally as important, congenial cultures enable the buyer to offer intangible values in the exchange. Following this practice in many of Berkshire’s direct acquisitions, subsidiaries are able to acquire targets at prices lower than the seller would demand of a buyer lacking the cultural attraction.
In 2009, for example, MiTek acquired Heat Pipe Technology, a pioneer in providing sophisticated energy and humidity control piping for heating, ventilation, and air conditioning (HVAC) systems. The company was founded and owned by Khanh Dinh, who escaped from Vietnam before the war in the 1960s and established himself in Florida. Dinh is an inventor, engineer, and visionary who built his business from scratch. In evaluating a sale, it was vital to him that the buyer understood his business, appreciated his products, and collaborated on product development. MiTek met his requirements, lowering its bill in the acquisition.
MiTek’s acquisitions are an inherent part of its business model. In turn, granting subsidiaries operational autonomy is a key feature of its strategy—USP, Benson, H&B, and Heat Pipe are autonomously operated. At headquarters, MiTek boasts a central mergers-and-acquisitions (M&A) function, with one executive responsible for finding and vetting opportunities. MiTek also has a liaison at headquarters to coordinate subsidiary back office needs—the accounting, human resources, and legal departments. The organization is decentralized, with a coterie of group presidents who report to the CEO overseeing the autonomous subsidiaries operating within their group.
MiTek’s high comfort level with this kind of decentralization is reinforced by the autonomy Berkshire grants. MiTek’s senior managers are not necessarily required to clear acquisitions ahead of time. As a matter of practice, MiTek’s CEO keeps Berkshire’s CEO informed by sending written notes monthly and calling when pending opportunities are sizable or further afield than typical bolt-ons. In addition, Berkshire’s subsidiary chief executives are responsible for recommending their successors. When Toombs was about to retire, he called Manenti, who had retired a few years earlier, and asked him to return. Manenti had declined numerous business opportunities during his retirement, but this one he accepted because he knew that he would have the autonomy to run the business as he deemed appropriate. Manenti explained in an interview for this book: “Berkshire and Buffett give me total autonomy. Being treated that way makes it easy for me to treat our managers the same way.”24
The Lubrizol Corporation’s story narrates the reawakening of a noble but sleepy company, which turned into a huge profit center for Berkshire. Beginning with one large and transformative acquisition, followed by a series of bolt-ons, chief executive James L. Hambrick stimulated Lubrizol’s workforce to leverage their knowledge of surface technology across multiple platforms.