It's not for a lack of interest. US billionaire Warren Buffett's holding company Berkshire Hathaway has money to spend and is in the market for new investments in Germany, but is struggling to lock in on a target, investment manager Ted Weschler told Handelsblatt on the sidelines of the company's annual meeting with shareholders.
Mr. Weschler, who is considered Mr. Buffett’s protégé and one of his possible successors, said he has looked at “lots of companies” in Germany over the past months. “We want to get the word out that we’re interested, and that we want to do more things in Germany," he said.
Mr. Buffett is no stranger to acquiring German firms. His first foray into Europe's largest economy came two years ago when Berkshire bought motorcycle equipment retailer Louis. At the time, Mr. Buffett made clear in an interview with Handelsblatt that he's not done looking, but finding new targets has been a painstaking process.
So far, the investor does not have his eye on any specific firm in Germany. High prices in the market currently make acquisitions less attractive, Mr. Weschler said, noting that part of Mr. Buffett's success over the years has come from strict pricing discipline. “We’re more likely to be a buyer when nobody else is a buyer, and that’s worked well for us over the last 52 years,” he said.
We don’t want to get involved in short life-cycle electronics. Ted Weschler, investment manager, Berkshire Hathaway
In its hunt for deals, Berkshire is primarily tageting small and medium-sized family-owned businesses, known here collectively as the Mittelstand. To help things along, Berkshire recently started a cooperation with local German savings banks, called Sparkassen, which is supposed to help facilitate deals. “Sparkasse touches everybody” in Germany, Mr. Weschler said, and stressed that he made a lot of connections through the association.
But one of the challenges other than high pricing is the German tax system, which currently makes it comparatively cheap for heirs to inherit companies, reducing the number of family-owned firms for sale, according to Mr. Weschler.
The ideal target? Mr. Weschler said he’s looking for sustainability and capable management in potential acquisitions. “We want a franchise that is durable, one that you can look at and say there is a very high probability that this business is a good, viable business in 10 years from now, 20 years from now, 30 years from now,” he said. He added that managers who put the business ahead of themselves and care about the firm as if it were their own are essential to his decision too.
“If you have those two things, it’s a question of [whether] it’s for sale and if the price is attractive,” Mr. Weschler said.
Mr. Buffett’s holding company could easily fork out several billion euros for the right company, Mr. Weschler said, adding that there is virtually no upper limit if the target is attractive. Berkshire’s subsidiaries, such as Precision Castparts and the Marmom Group, are also looking for smaller firms to integrate into their operations. Earlier this year, Precision Castparts bought Wilhelm Schulz Gmbh, a manufacturer of piping components.
The holding company is looking for opportunity across a range of industries, according to Mr. Weschler. Berkshire has already invested in several firms in the manufacturing sector and retailing, but is open to other fields, too, the manager said, with one exception: “We don’t want to get involved in short life-cycle electronics.”
Berkshire's experience with its acquisitions to date hasn't scared the company off. Business is going well at Hamburg-based Louis that it bought two years ago, Mr. Weschler said. After Germany and Austria, Louis just opened its first store in Switzerland. Mr. Weschler praised the German management team and stressed that Berkshire was entirely hands-off with the company. He said he only visits to be briefed about once a year, which he claimed is less than other investment firms in similar situations would insist on.
Mr. Weschler said doing business in Germany, where a different language is spoken and different contract law prevails, has been challenging at times. But he said it is also a chance to build more trusting relationships with management. “It creates a much higher bar for trust, you simply have to make sure that the people you’re working with want to do the right, honorable thing. It’s a great way to do business,” the investment manager said.