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Serendipity on the Streets of New York: How One Man Seized the Day & Sold His Company to Berkshire Hathaway
"It might have been simpler to sell [Helzberg Diamonds] to the highest bidder, but that seemed as sensible as choosing a brain surgeon based on the lowest price rather than on talent and reputation."
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One morning back in May of 1994, Warren Buffett was walking along Fifth Avenue in New York City when a woman in a bright red dress noticed him. She yelled out his name and hurried over to introduce herself.
As it turns out, she was a Berkshire Hathaway shareholder who wanted to personally thank Buffett for his able stewardship of her investment.
This small commotion, though, drew the attention of another bystander: Barnett C. Helzberg Jr., the CEO of Helzberg Diamonds.
Helzberg just so happened to be in New York on a very important mission: finding a new forever home for his flourishing jewelry company.
Taking the family-founded business public was not an appealing option — especially with the short-term, quarter-to-quarter earnings pressure that such a move would bring.
And, likewise, he feared what might happen if he sold it to the wrong person. “We certainly didn’t want some financial butcher carving up this jewel and selling it piecemeal,” he later wrote1. “I also didn’t want my associates spitting on my grave.”
In Barnett’s mind, Berkshire Hathaway towered above all other options as the ideal (permanent) owner of Helzberg Diamonds.
Warren Buffett, of course, was no butcher — and, if Helzberg landed at Berkshire, he could ensure that the company remained in Kansas City and that its prized culture would be preserved long after Barnett rode off into the sunset of retirement.
And, now, here he was just a few feet away from Buffett — and from turning his wildest dream into a concrete reality. Barnett Helzberg could not believe his luck.
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As the woman in the red dress said her goodbyes, Helzberg hustled over to Buffett and launched into an elevator pitch for the ages.
“Right there on the sidewalk, as busy New Yorkers rushed past us and street traffic buzzed around us, I told one of the most astute businessmen in America why he ought to consider buying our family’s 79-year-old jewelry business.”
Buffett graciously listened to Helzberg’s thirty-second spiel, but didn’t expect much to come out of this chance encounter.
“When people say that [they have a business I might be interested in], it usually turns out they have a lemonade stand — with potential, of course, to quickly grow into the next Microsoft,” Buffett wrote in his 1995 annual letter to shareholders.
“So I simply asked Barnett to send me the particulars. That, I thought to myself, will be the end of that.”
And he was almost right about that.
When Helzberg returned to Kansas City, he became plagued by worries that he had been too presumptuous in ambushing Buffett on the streets of NYC and questions about the safety of sending his company’s private financial data to a complete stranger.
But, one morning while shaving, Helzberg looked in the mirror and confronted himself. “He told you — in person — it would be confidential. He told you in writing [in Berkshire’s annual report]. Do you want it set to music? Send him the information!”
And so he did.
Shortly thereafter, Buffett invited him to Omaha to talk turkey. Helzberg Diamonds, as it turned out, was no mere lemonade stand after all.
What was it about the Helzberg jewelry operation that caught Buffett’s attention?
Helzberg Diamonds started out in a single location in 1915 and, over the ensuing eight decades, had grown into 134 stores scattered all across the country. Sales soared from $10 million in 1974 to $53 million in 1984 to $282 million in 1994.
The company had carved out a highly-profitable niche in the middle- and upper-middle-class market, boasting average per-store sales ($1.7-2.0 million) that nearly doubled the industry average.
Plus, to Barnett Helzberg, this deal was more about securing his company’s future and legacy than in wringing out every last dollar from any would-be buyer. (But that doesn’t mean he didn’t drive a heck of a hard bargain. More on that in a minute.)
“It might have been simpler to sell to the highest bidder, but that notion seemed as sensible as choosing a brain surgeon based on the lowest price rather than on talent and reputation,” Helzberg later wrote.
And Warren Buffett, of course, has both talent and reputation to spare.
But this deal was also built upon a bedrock of trust — in both directions. Helzberg trusted that his beloved business would be treated right as a member of the Berkshire Hathaway family. And Buffett trusted that Barnett Helzberg was a man of his word.
Case in point: Helzberg marveled at the lack of due diligence and legal rigamarole as the acquisition talks drew closer and closer to a successful conclusion. Why wasn’t Buffett (or his staff) poring over the jeweler’s books to double-check each and every fact and figure?
“I can smell these things,” Buffett reassured him, “[and] this one smells good.”
Helzberg also asked Buffett if he wanted him to sign a non-compete clause as part of the final contract. He shook his head no and said, “You wouldn’t do anything to hurt this company.”2
“When a guy says that to you,” Helzberg later wrote, “he has you on your honor for the rest of your life.”
While the sale process was an easy one, Helzberg did have one non-negotiable demand: he wanted Berkshire stock — not cash — in exchange for his company.
Luckily (for Helzberg), those were the days when Buffett was a bit more willing to part with Berkshire shares for new purchases. “[Helzberg Diamonds] is an acquisition that was made largely for common stock3,” he told shareholders in 1995. “If we had not been able to use common stock, we would not have made this transaction because Barnett has been in no hurry to write a large check to the government.”
Uncle Sam may not have profited from Berkshire’s acquisition of Helzberg Diamonds, but the same cannot be said for others at the jewelry company.
“Though he was certainly under no obligation to do so, Barnett [shared] a meaningful portion of his proceeds from the sale with a large number of his associates,” Buffett noted. “When someone behaves that generously, you know you are going to be treated right as a buyer.”
This story ends much like it began — on a street corner — though this time in Omaha. After shaking hands on the deal, Buffett personally walked Barnett Helzberg down to the street outside of Kiewit Plaza and waited with him until his cab arrived.
(If this nicety doesn’t sound overly impressive, remember that Buffett was — at the time — either the richest or the second-richest person in the United States. “Midwest nice” is a real thing, billionaire or not.)
And, while some might be tempted to write this whole story off as a case of extreme luck — Barnett Helzberg being in exactly the right place at the right time that day in New York City — I think that sells the man short.
Helzberg answered the door (and then some) when opportunity knocked — and kept on pushing, through his own subsequent doubts and fears, until he got the outcome that he wanted. There’s a lesson in there for all of us.
It didn’t hurt, too, that he had spent the better part of his life carefully building and shaping Helzberg Diamonds into a company that Warren Buffett and Berkshire Hathaway would be proud to own.
“If you’re looking for a gauge to measure how well your company has grown and developed — and how well your management has led and cared for your company’s associates — you can’t do any better than to find yourself in a situation where Warren Buffett wants to buy it.”
What I Learned Before I Sold to Warren Buffett: An Entrepreneur’s Guide to Developing a Highly Successful Company — written by Helzberg himself.
Of course, this approach (temporarily) backfired with Nebraska Furniture Mart and Mrs. B — but that’s a story for another time.
In 1995, the year that this deal officially closed, Berkshire Hathaway reissued a combined total of 15,762 shares of common stock for the acquisitions of Helzberg Diamonds and R.C. Willey.