Berkshire Beyond Buffett(70)

There are further similarities between Berkshire and the Marmon Group at the parent level—capital strength, growth by acquisition, multiple rivers of cash flows. These common features offer grounds to predict that the fate of Berkshire, as with Marmon, can be secure despite a founding genius passing from the scene. If the Marmon Group survived the Pritzkers, a testimony to them, then Berkshire can survive Buffett, a testimony to him.




In the late 1800s, Nicholas Pritzker and his family immigrated to the United States from Ukraine.2 They settled in Chicago, where in 1902, Pritzker founded the law firm Pritzker & Pritzker. The firm prospered through the late 1920s, earning a strong local reputation specializing in real property law. It gradually shifted to investing in real estate under the leadership of the founder’s son, Abram Nicholas (“A. N.”), whose investments provided the foundation of the Pritzker family empire. By 1940, the interests were so substantial that Pritzker & Pritzker ceased being a law firm and became solely a family investment firm.

The family business would succeed explosively under the stewardship of A. N.’s sons, Jay and Robert (“Bob”) Pritzker, who put their complementary talents together to amplify results. Jay was trained as a lawyer, earning a law degree from Northwestern University, and gained business and deal-making experience serving after World War II in the U.S. agency that administered German-owned companies. Among his gifts is one Buffett shares: the ability to envision the details of a business operation from reading its financial statements. He was also a master of negotiations and deal making.

Jay’s brother Bob had the eye for business operations and organization. Bob Pritzker studied advanced industrial engineering at the Illinois Institute of Technology. He developed expertise in industrial processes and manufacturing. These skills enabled him to diagnose operating deficiencies at troubled companies and prescribe remedies.

The combination of Bob’s operational insight and Jay’s deal-making acumen proved of incalculable value as the brothers built one of the largest private businesses in the world. A favorite arrangement: Jay negotiated to buy a troubled company at a discount from book value, and then Bob worked with management to reengineer the company to render it worth multiples of that.3

The first example, a prototype, was the Colson Company, a small, unprofitable, Ohio-based maker of bicycles, casters, rockets, and wheelchairs. Jay’s analysis suggested that the company was worth more liquidated than as a going concern. He acquired it for a price far less than liquidation value. Joining the existing management team, Bob immediately sold the bicycle-related assets, aggressively cut costs in the rocket-making operation before terminating it as well, and then left the company’s managers to focus all their capital and energy on the profitable production of casters and wheelchairs.

If Jay were lather and Bob rinse, the Pritzker formula became lather, rinse, repeat. Bob’s techniques included finding economies of scale between existing and acquired businesses. Jay added further value through advantageous corporate structures that reduced tax expenses and achieved financing benefits. That said, Bob Pritzker did not refer to such strategies as “synergy.” The Pritzkers were skeptical of the concept of “synergy” in business acquisitions, which can create rosy projections about payoffs and lead to unnecessary dismantling of acquired firms.

The Marmon Group made commitments to keep the companies it acquired and invested generous financial and human capital in their success. The Pritzker brothers invariably retained existing management and followed a hands-off policy that gave managers autonomy in making operating decisions. Although the Pritzkers preferred to buy and hold companies they acquired, given their model of acquiring ailing companies, they were prepared to discontinue losing operations and reinvest in those with potential. For instance, in 1963 Colson acquired Marmon-Herrington Company, successor to the Marmon Motor Car Company. Management strengthened the company by divesting makers of heavy-duty tractors, transit vehicles, and bus chassis and reinvesting proceeds in the core business.

However, willingness to divest should not be confused with a desire to do so. Some get the wrong impression of the Pritzker strategy. Their turnaround approach is very different from the buy-and-flip takeover artist prepared to sell companies as if they were merchandise. On the contrary, Bob and Jay were long-term investors who embraced an eternal view of ownership. Given that the Marmon Group made more than one hundred acquisitions, the number of divestitures was surprisingly small.4

By 1971, the Marmon Group, wholly owned by the Pritzker family after a short time as a public company, had steadily acquired a number of small and medium-sized companies in a variety of rudimentary manufacturing businesses. All were basic and modest, as their names might suggest: Amarillo Gear, Keystone Pipe, Penn Aluminum, Sterling Crane, and Triangle Suspension Systems.