These guys built an acquisition empire in Chicago.
It started with the purchase of a struggling bicycle manufacturer for $95k.
And grew to $8 billion in sales and sold to Warren Buffett.
Here is their playbook...
Meet Jay and Robert Pritzker.
They built Marmon Group into one of the largest private conglomerates in the US.
100+ autonomously operated companies in boring low-tech industries.
They sold 60% to Buffett for $4.5 billion in 2007.
Their approach was unconventional.
The brothers were a dynamic duo.
Jay was the dealmaker / lawyer. He was known for quickly sizing up companies and making offers. He was a wizard at structuring deals and avoiding taxes.
Robert was the engineer / manager. He turned around the troubled companies Jay bought.
First Deal
In 1953, they bought Colson Company, a small manufacturer of bicycles, navy rockets, and wheelchairs for $95,000.
It had $3m in sales and was losing money.
The assets were worth more than they paid.
They dropped unprofitable lines and focused on wheelchairs.
Roll Up
Over the following decades, they continued to acquire more manufacturers of small metal products.
With all their acquisitions, they developed a repeatable playbook.
Price Discipline
Jay would buy troubled companies, usually for less than 80 percent of their book value.
A typical deal was highly levered with a small equity check.
In one deal they put up $20m in cash and got $94m in assets and $325m in tax benefits.
Riches in Niches
They were buying small manufacturers no one wanted: tank cars, seat belt systems, piping & tubing, etc.
"The only reason owners of Colson and other troubled companies sold to us at bargain prices in the early days was because they had no place else to go."
Speed Wins
The brothers worked together well and moved fast.
They closed a lot of important deals because they were able to move faster than the competition.
Jay's background as a lawyer let him assess risks without waiting for anyone else to advise him.
Organic Growth
After an acquisition, Robert would nurse the companies back to health.
He would cut unprofitable lines and focus on the profitable ones.
Much of their growth was actually organic.
They had a reputation for building up their acquisitions, not stripping them.
Keep Management
They usually tried to keep operating management intact.
''The Pritzkers are almost the perfect owners. You have to give them full reports, but they let you run your own business.''
Marmon was viewed as a great home and everyone trusted them.
No Synergies
One element that was never considered during due diligence was potential synergies with other companies in their holding company.
Each company has to stand on its own as successful.
Execs were almost completely autonomous in their ability to make decisions.
Long-Term Greedy
Their commitment to capital investment and to being a low-cost producer allowed them to make large investments that stand-alone companies couldn't.
During a period when 40% of US foundries went out of business, they invested heavily & grew 10x in 20 years.
Head Office Consulting
They were the opposite of micro-managers.
The head office was viewed as a consulting organization.
They helped with tax, personnel, real estate, and other advice as needed.
TLDR on Marmon Group acquisition playbook:
- Speed wins
- No synergies
- Price discipline
- Organic growth
- Riches in niches
- Long-term greedy
- Keep management
- Head office consulting