Doing the deal
Evaluation of opportunities
When considering investment opportunities, a deal team from Berkshire's investment staff is assigned to undertake a thorough investigation of a company including its operations, markets, management, history, and prospects. Considerable time and effort is devoted to becoming closely acquainted with management and to gaining a thorough understanding of their individual goals and objectives as well as capabilities.
As appropriate, we augment our efforts with outside resources in such areas as specific strategic consulting projects, quality of earnings determinations and organizational assessments. Berkshire's close relationships with these carefully selected advisory firms enables us to draw on their highest quality professionals and to work together in an effective and efficient manner throughout the due diligence process.
Generally, while evaluating a business, Berkshire's deal team is also engaged in structuring the transaction including valuing the enterprise, negotiating with the seller, financing the transaction and arranging management's equity participation.
Valuation is driven by an assessment of the business that leads the team to believe that the company is capable of producing superior rates of return on equity. Target rates of return for various investments are adjusted to take into account both operating characteristics and financial risks.
Berkshire usually arranges financing for its transactions by accessing its network of senior and subordinated lenders, including, where appropriate, its Funds' limited partners. Generally, these lenders have been involved with previous Berkshire transactions and are familiar with our personnel, track record, and ways we work with our companies.
Consistent with Berkshire's belief in the importance of properly aligning our goals and management's, the structuring of management's participation receives a significant amount of pre-closing attention. Generally, the management team invests their own funds on the same terms as Berkshire, with various option plans, typically including a performance element, augmenting this ownership. In all cases, we work to address management issues in an equitable manner, with the goal of fostering a true sense of partnership between management owners and Berkshire.