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What’s your acquisition strategy? How do you get deals?

We’d like to keep buying businesses like the eight we bought last year. Our first preference has always been to buy outstanding operating businesses outright. We’ve made money in stocks, especially in the 1970s, but the climate is not so favorable now.

There are enough businesses that meet our criteria to do two acquisitions per year on average. What we’d really like to do is a $10-15 billion acquisition, but it’s hard to find one that’s not being auctioned, which we don’t do.

We haven’t had much luck buying businesses overseas, but that’s because our phone hasn’t rung. We’re not on the radar screen, but we’re hoping this will change.

Our best source of deals is word of mouth, generally in industries we’re invested in. Sort of like NetJets, where 70% of our new customers are referred by current customers.

We don’t like the term “deal flow” because we don’t view them [businesses we might buy] as deals. We look at deals a few times a year. In the US, we get a pretty reasonable percentage of the calls we should get. We didn’t get those calls 20-40 years ago because we weren’t as well known.

It feeds on itself. If we acquire companies and people say good things, we’ll hear from more. We acquired one furniture company, which led to four more.

It’s like a snowball. By being around 38 years, it’s been a high mountain [and Berkshire is now a] big snowball and attracts a lot of snow.

Outside the US, we don’t see many deals because we’re not as well known.

I don’t hear about one [deal] a week or even a month. But most we want to hear about, we get a good percentage of the calls. It would be a plus [if we were to see more deals] outside this country.

Charlie Munger: The general assumption is that it must be easy to sit behind a desk and people will bring in one good opportunity after another — this was the attitude in venture capital until a few years ago. This was not the case at all for us — we scrounged around for companies to buy. For 20 years, we didn’t buy more than one or two per year.

We didn’t have the money to do many deals. When we bought National Indemnity, it was a big deal for us. We hope there’s a lot of mountain left and a lot of wet snow.

Charlie Munger : It’s fair to say that we were rooting around. There were no commissioned salesmen. Anytime you sit there waiting for a deal to come by, you’re in a very dangerous seat.

Source: Berkshire Hathaway Annual Meeting
Time: April 2001, 2003

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