A family-owned firm finds the best suitor

As International Institute for Management Development (IMD) professors, we examined the 2006 acquisition of Iscar Metalworking by Berkshire Hathaway, a company owned by Warren Buffett. The deal represents Buffett's first purchase of a company with its headquarters outside the United States.

Here is the concluding part of our article. The full version can be found at the IMD website - www.imd.ch

Iscar's managers had recognised that a familiar but different future was needed. Several issues drove Iscar to consider its options. Retirement loomed in the medium-term for the family-owned company's chairman Eitan Wertheimer, while the next generation's interest in hands-on management of the company seemed uncertain. Besides, Wertheimer wanted to give his family a valuable gift - the freedom to pursue their passions. They could choose to become involved in the family company or they could indulge their interests in law, medicine or art. It was important that the company find the best long-term partner. Thus, it could:

n Remain independent and risk the future.

n Merge with another company, but Iscar's size was already large and its corporate culture strong.

n Launch an initial public offering, but public ownership and reporting would only slow Iscar down.

n Solicit private-equity offers. However, two generations of Wertheimers had invested too much of themselves in the company to see it treated as a commodity.

Next they evaluated exit opportunities, which are as follows:

The Iscar search team included both family and key management representatives. Wertheimer wanted both transparency and direct involvement of the key stakeholders in this important decision.

And he was prepared to give priority to the continuity of the business over maximising shareholder returns.

The search team finally agreed on the answer - Berkshire Hathaway was the perfect home for a company that was passionate about its business.

A short letter written by Wertheimer made the company and its people come alive for Buffett. A follow-up visit to Berkshire's headquarters gave Buffett a fuller measure of Iscar and its leaders.

A deal was transacted five months later. And the rest, as they say, is history.