At the Marmon Group, the Pritzkers often divided companies into smaller units when finding that efficient. Using the 80/20 principle, Ptak continues to focus everyone in the organization on determining what inputs drive the most desired outputs and allocating time and resources accordingly. This promotes a hands-off approach, as the Marmon Group becomes ever more decentralized.
Investor savvy. The Pritzkers set the standard for investment savvy and incubated a corporate culture that follows suit. From 1980 to 1989, revenue doubled from $2 billion to $4 billion; earnings more than doubled from $84 million to a record $205 million; return on equity grew from 19.1 percent (five points above the Fortune 500 median) to 26.3 percent (ten above that). There were some rough years, however, with earnings in 1990 down 40 percent to $125 million despite nearly $4 billion in revenue.26
By 2005, revenue was $5.6 billion and income $556 million, for a profit margin of 9.9 percent; in 2008, the year Berkshire acquired a majority stake, revenue was $6.9 billion with a 14.1% profit margin. In the 2009 recession, revenues slid to $5 billion and the margin rose to 14.8%. Since then, progress has been steadily upward, with rising net worth. (See Table 12.1.)
The Marmon Group reinvests for internal growth and to sustain the tradition of acquisitiveness that the Pritzker brothers established. In 2013, for example, Ptak led the $1.1 billion acquisition of IMI, manufacturer of beverage dispenser machines for the retail industry.
Rudimentary. The Marmon Group, a conglomerate, concentrates on rudimentary manufacturing companies in the least glamorous, most basic, yet vital businesses. The companies have no flash or even very much popular brand name recognition. Moreover, Marmon, despite its scale and capital strength, has always been modest. As a private company owned by a publicity-shy family, the company has kept a low profile.
Eternal. The Marmon Group distinguished itself from competitors in the acquisition field by its “buy-fix-hold” philosophy. Rivals were the takeover artists, leveraged buyout operators, and private equity firms who often preferred to acquire and flip for a profit. Marmon’s bias toward the permanent was reflected in its preference to retain incumbent management, give it autonomy, and stake substantial capital at its disposal.27
Table 12.1
The Marmon Group: Selected Financial Information
Sources: The Marmon Group 2012 Annual Brochure; Berkshire Hathaway Annual Report 2013.
The overlapping traits of Marmon and Berkshire are reasons the Marmon Group is a perfect fit as a Berkshire subsidiary. Combined with additional similarities at the holding company level, they speak to corporate durability—what the Marmon Group’s surviving the Pritzkers says about the prospects for Berkshire surviving Buffett.
Marmon and Berkshire have both been built by acquisitions. Acquisitions are made in accordance with stated criteria applied with discipline. The acquisition criteria of the two companies are similar, particularly in terms of insisting on good companies at fair prices and avoiding those posing a bad fit. At the same time, neither company believes in strategic plans. As a senior executive of the Marmon Group put it in a description that applies equally to his company as to Berkshire: “We’re not planners, we’re opportunists.”28
Both have grown to generate multiple earnings streams adding up to oceans of cash flow. Both regularly, if not always, outperform the S&P 500. Both companies command enormous capital resources. As a result, their respective subsidiaries benefit from the affiliation. Their corporate backers enable investments that peer stand-alone companies can not make. Accompanying the essentially unlimited capital comes a mandate of stewardship.
Historically, both the Marmon Group and Berkshire cultivated a reputation as buyers of choice. Both were able to do this in part because of their ownership structures. When the Marmon Group made a promise, it was the promise of Bob and Jay Pritzker, whose family owned the company; when Berkshire made a promise, it was the promise of Warren Buffett, the controlling shareholder. With the passage of time and the addition of large numbers of subsidiaries exuding the same values, however, the Marmon Group and Berkshire—and their respective subsidiaries—acquired reputations independent of these individuals.
Finally both the Marmon Group and Berkshire were founded and developed by powerful leaders who left indelible marks on their companies. Notably, all of them—Bob and Jay Pritzker and Warren Buffett, along with Charlie Munger—possessed similar personal qualities relevant to such leadership:
• Know what you don’t know and admit it: Bob knew manufacturing and did not venture far from it; Jay excelled at deal making, finance, law, and tax—and left operations to Bob; Buffett and Munger say operations and technology are not within their circle of competence and shy away from them.