After emerging from such tumult, in 2012, Oriental Trading turned to Berkshire to see if it would be interested in buying the company. The goal was to give the old family business a permanent home—not necessarily to maximize the price of the sale.
Buffett liked what he saw, stressing that the succession of ownership changes, which had been a cost, could now come to an end.25 The company survived this difficult period because it had long ago established itself as an industry leader that offered outstanding customer service. The recent track record was strong, as Oriental Trading increased revenue in 2010, 2011, and 2012 and resumed earning profits. With a permanent home, good times were back, aptly, for a company whose business—novelties, toys, and party supplies—is about helping people have fun.
By design, LBOs and private equity stakes are short-term arrangements. Even “successful” ones can leave a business manager hungry for a permanent home. Take CTB International Corp., a business originally called Chore-Time founded in 1952 by Howard Brembeck. Brembeck was a Midwestern entrepreneur who operated from the basement of his home. The company designed and built equipment for poultry and livestock farmers, eventually expanding into bins for feed and grain storage.26 Brembeck and his partners revolutionized the industry with such innovations as mechanized feeding and watering equipment for poultry.27
In 1996, the Brembeck family believed that the Indiana-based CTB was positioned for growth to transition from a family business while preserving Brembeck’s legacy. But they lacked capital and so sought outside partners. Led by Brembeck’s grandson, Joseph Christopher (“Chris”) Chocola, one-time Republican U.S. Congressman from Indiana, the family engaged American Securities Capital Partners, a New York private equity firm. The firm advised CTB on ten acquisitions and an initial public offering in 1997.
Five years later, however, American Securities wanted out. Growth opportunities remained, but the company was a small-cap stock, not widely followed and little known outside its industry. The Brembeck family embraced Berkshire to provide the needed capital as well as a “permanent home.”
Buffett called CTB “a strong company with great American values. It has an excellent franchise, strong market share in a basic industry and top-flight management.”28 CTB had shown that it was the kind of company that would be at home in Berkshire: budget conscious, earnest, reputable, family owned, entrepreneurial, and basic—farm equipment, as non-glamorous as they come. Since then, CTB has prospered, generating excess capital, which it has reinvested in a series of acquisitions.
A final example is CORT Business Services Corporation, a furniture leasing company long run by Paul Arnold, employed by the company since its 1972 formation. In 1988, it was a subsidiary of Mohasco Corporation, a carpet maker that had diversified into furniture making and leasing.29 Mohasco defended against an unwanted takeover bid (by Nortek, Inc.) with a management-led leveraged buyout, arranged by Citicorp Venture Capital (CVC).
Heavy debt led the firm, within a year, to divest CORT, again to management groups that CVC also financed. Oddly, this put CVC on both sides of the transaction, backing both the seller and the buyer of the companies, not a promising negotiating structure. For CORT, the oddity proved ominous, as the company struggled under high leverage to maintain liquidity.
Arnold persevered through the struggle, however, meeting the debt burden as well as his payroll. In 1993, he persuaded CVC to restructure the debt on favorable terms and attract additional equity investment. He focused on his business, generating stable growth through many careful acquisitions and steady expansion into new markets.
In 1999, as CORT’s financiers worked on yet another LBO, Arnold and his company reached a turning point. On November 23, Buffett got a fax from an acquaintance attaching a Washington Post article about the latest deal in the works for CORT. The company’s financials impressed Buffett, as did Arnold when they met a week later. They soon made a deal for Berkshire to acquire CORT.30 Buffett was attracted to CORT as a “fine though unglamorous business,” which Arnold ran well.31
Arnold relished the permanent home Berkshire offered, which he enjoyed personally until his retirement in 2012 after four decades at the helm. His legacy at CORT was its transformation from a small business to the market leader, in part through closing more than fifty acquisitions.32 Arnold handed the baton to Jeff Pederson, a CORT executive since 2004, who continues to guide the company, which generated earnings in 2013 of $40 million.33
It is said that smart people learn from their mistakes and wise people learn from the mistakes of others. If true, wisdom is a trait of Paul E. Andrews Jr., founder and chief executive of TTI, Inc., a Texas-based electronics distributor originally called Tex-Tronics, Inc. Andrews arranged to sell his company to Berkshire after seeing others deal with struggles akin to those chronicled in this chapter.