In the prior blog, I shared why I believe focusing on exit strategies can be very harmful to a company and its investors. Charlie Munger and Warren Buffett take this many steps further. They simply say that they are unlikely to sell any business.
Point 11 of Warren Buffett’s Owner Manual is: You should be fully aware of one attitude Charlie and I share that hurts our financial performance: Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations.
Munger and Buffett have earned the right to take this position. They earned it because they have demonstrated year over year that Berkshire Hathaway is an environment in which businesses are run well. They create value for their shareholders. In most cases, a company is likely to perform worse if extracted from Berkshire.
What about a strategic buyer? Generally speaking, Buffett’s companies are either so big (making strategic synergies less relevant) or so unique (resulting in the likelihood a strategic buyer would screw up the franchise).
Also, Berkshire has created its own franchise about being a great long-term home for a business. A person who sells their business to Berkshire need not fret about a subsequent and disruptive sale. They need not worry about a strategic buyer messing up what is special about the company.
Berkshire is very unique in this regard. Let me repeat. They have earned the right to take this approach based on nearly 50 years of outstanding execution to be adamant about the philosophy.
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