Billionaire Warren Buffett is well known for taking stakes in companies he thinks have a sustainable advantage in a particular market. In the latest case, Buffett, CEO of Berkshire Hathaway Inc., which owns companies as diverse as the Burlington Northern Santa Fe rail system and GEICO Insurance, is moving his investment company deeper into online retailing with the acquisition of Oriental Trading Co.
Berkshire Hathaway, headquartered in Omaha, NE, announced today a deal to acquire Oriental Trading, another Omaha company and No. 77 in the 2012 Internet Retailer Top 500, from the company's current ownership of New York investment banking firm Kohlberg Kravis Roberts & Co. and other financial institutions.
Neither company has yet to talk publicly about the strategic fit other than to say the deal is expected to close by the end of the month. But Berkshire Hathaway, which owns or has a substantial investment in home furnishing retailers such as NebraskaFurniture Mart, R.C. Willey Home Furnishings, Star Furniture and Jordan’s Furniture and jewelry store brands the likes of Borsheims, Helzberg Diamond Shops and Ben Bridge Jeweler, says it likes Oriental Trading’s management team and the company’s long history as a direct marketer of party supplies, arts and crafts, toys and novelties, school supplies, home décor and giftware.
“Oriental Trading is a leader in its industry, has a strong management team and delivers exceptional customer value and service,” Buffett says. “By increasing revenue, profits and the customer base over the last few years, Oriental Trading team has successfully improved the business and positioned it for long-term growth.”
It’s been a tough recent past for Oriental Trading, which Internet Retailer estimates generated online sales of about $320 million in 2011. In February 2011 Oriental Trading emerged from bankruptcy as a streamlined company after restructuring about $500 million in debt. The deal with Berkshire Hathaway gives Oriental Trading more resources to fund its growth plans, says CEO Sam Taylor. “Being part of Berkshire Hathaway will serve as an additional reminder for us to continually focus on our customers,” Taylor says.
The acquisition of Oriental Trading by Berkshire Hathaway will add to Berkshire Hathaway’s direct marketing business. Berkshire Hathaway also owns Pampered Chef, a direct seller of high-quality kitchen tools. One retail analyst says Berkshire Hathaway is acquiring Oriental Trading because it’s shown it can profitably sell party supplies, a particularly low-margin business, and because Buffet is always open to attractive opportunities in growing markets, such as online retailing.
“Buffet sees a good deal and he and his company don’t seem to worry about synergies between assets,” says Paula Rosenblum, managing partner of research and advisory firm Retail Systems Research. “He just looks for opportunistic buys. I mean, what do Jordan’s Furniture and Helzberg’s Diamonds have in common? In almost every way, absolutely nothing.”