Marmon, Warren Buffett, and the "d" word

March 25, 2008
By: Tim Heston

Warren Buffett must be among the world"s richest individuals for a reason. When Forbes measured asset values for its annual list on Feb. 11, Buffett sat on top, edging out software pioneer Bill Gates, Mexican telecom tycoon Carlos Slim Helu, and Indian steel magnate Lakshmi Mittal.

Evidently, there"s money to be made in the software, communications, and steel businesses, but Buffett beat out them all with his business of & of & well, a little bit of everything. He has become an icon of the investment community for his ability to identify sound businesses and, over the long haul, make a significant buck, be it with car insurance (GEICO) or cutting tools (ISCAR). Last week Buffett"s Berkshire Hathaway did it again by buying another diversified entity, The Marmon Group. Buffett"s holding company bought 60 percent of Marmon for $4.5 billion, with plans to acquire the rest of the company over the next few years.

I"m willing to bet he did not buy Marmon only because one of its subsidiary, Houston-based Uni-Form Components, Co., rolls cylinders 10 feet long and up to 1 inch thick, tacked or fully welded with the proper certification, as well as hot-forms a variety of pressure vessel heads; and I"m sure he didn"t plunk down billions only because Marmon"s Springfield, Tenn.-based Fleetline produces ribbed, 16-gauge 430 stainless steel full tandem truck fenders.

I believe Marmon caught Buffett"s eye because it also makes municipal water treatment systems at Graver Water Systems, Cranford, N.J.; it also services cranes at Sterling Crane in Edmonton, Alberta, Canada; it also makes metal and wooden retail displays at L.A. Darling Co., Paragould, Ark.; it also offers cut-to-length services through metal tubing and bar distributor Future Metals Inc., Tamarac, Fla. In fact, Marmon also provides myriad products and services through more than 100 different companies.

All those small parts, it seems, make a financially sound whole.

No one is ever likely to write a folk song about Marmon, a company that has largely stayed under the media radar. It"s an organization not unlike Berkshire Hathaway. Both by and large keep their hands out of the affairs of their individual businessesfor good reason. If either had to micromanage their numerous components, I"m sure neither would be where they are today.

Marmon got its start when two brothers, Chicagoans Jay and Robert Pritzker, bought an ailing manufacturer in 1953, turned it around, and during the following years acquired a stream of small businesses. According to the Marmon Web site, the company name comes from the Marmon-Herrington Co., a successor to the old Marmon Motor Co. An engineer at that company, Ray Harroun, happened to be the first winner of the Indy 500. In 1911, driving a car manufactured at Marmon, Harroun took 6 hours, 42 minutes, and 8 seconds to complete the race. When the Pritzkers bought the company in 1964, the company adopted the Marmon name.

Marmon's success, though, didn't rely on a name. It was the fact the Pritzkers were putting their money in a diversified collection of American (and later, global) enterprises. I"m willing to bet diversitythat "d" word continually espoused by savvy investors with long-term gains in mindis why Marmon ultimately emerged on Berkshire Hathaway"s radar.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314