The Marmon Group: The First Fifty Years by Jeffrey Rodengen

Summary

  1. The stories of Jay and Bob Pritzker and how they started their empire with an unlikely acquisition of Colson Corporation. Jay was a financial wizard and he perfected a way to finance acquisitions by using a loophole in the tax code (this became known as the Pritzker Method), he was also universally respected as a savvy negotiator. Bob was the first engineer in the Pritzker family (the rest were lawyers) and he had a passion for plant management. They made a perfect pair for buying and turning around companies. The Marmon Group is a unique, loose federation of companies comprised mostly of manufacturing companies that operate a broad spectrum of American industry. As of 2002, the more than 100 companies have revenue in excess of $6b and produce a mind-boggling array of products. The Marmon Group continues to thrive and grow because of the trust and integrity built into its most basic structure (Berkshire acquired a controlling interest in 2008 and later bought it outright)

Key Takeaways

  1. The Marmon Group member companies are managed independently, at the local level, and a dual reporting structure feeds financial results to the group’s Chicago HQ where each member company is tracked closely by a small group of executives and managers. Beyond that, most operating and capital decisions are entrusted to the individual company presidents. Even acquisitions are managed at the local level. There are centralized resources and expertise which give companies a strong incentive to join the Marmon Group. Although the enterprise was built through acquisition, much of its growth over the years has been organic. Rather than serve as active micro-managers, the cadre of executives in Chicago viewed themselves as a consulting organization that provided tax, personnel, real estate, and other advice to the member companies of The Marmon Group. Operating policies include nearly complete autonomy, trust, simplicity, and effective leadership at the local level. 
  2. A great opportunity for the Pritzkers was a manufacturing company which was ailing. No attention was given to what business the company operated in and whether it would fit well with existing member companies – it just mattered that it was a solid opportunity
  3. Today, The Marmon Group is the Pritzker family’s largest enterprise, no small feat as they own Hyatt, a large interest in Royal Caribbean Cruise Line, many real estate holdings, and various joint ventures and partnerships
  4. Nicholas Pritzker, Jay and Bob’s grandfather, wrote  a small book that has been passed down the generations; the theme of the book is “Your only immortality is the impact you have on your successors.”
  5. “The only reasons owners of Colson and other troubled companies sold to us at bargain prices in the early days was because they had no place else to go.” – Bob Pritzker
  6. The Marmon Group was built from the ground up with virtually no financial investment by the Pritzker family. The brothers built the company by shrewdly investing in, and then greatly improving, poorly performing businesses. These were then used as vehicles to purchase yet more businesses, and the process evolved into a role model for building a conglomerate.
  7. Colson had troubles and in order to not default, they had to merge with another company that had sufficient working capital to finance a new plant – Great American Industries. It was not a smooth merger and some of the holding companies had fraudulently accounted for their inventories (Colson’s biggest piece of business at the time was a navy contract to produce the Mighty Mouse rocket)
  8. The Pritzkers built up Marmon because of ambtiton but also diversification. They understood that a broad-based organization with manufacturing operations in a variety of industries would be protected during normal economic swings 
  9. Pritzker Method – basically we bought a dominant position in a public company, then proposed a merger for cash or securities, finally we brought it private, and then began revitalizing operations and selling off parts of the business that didn’t fit with its core competenciesd. That’s the history of many of Marmon’s deals
  10. Cerro, metal and mining operation, and Trans Union, a spin-off of Standard Oil where it leased rail cars but also got into consumer credit reporting and other services, were Marmon’s biggest deals. The CEO of Trans Union thought it would be worth more to private owners than to a public company because a private owner would value the firm on the basis of cash flow rather than share earnings. Their cash flow per share at that time was almost 3x its earnings per share. 4 years after the merger, the board lost a case which made them liable for $13.5m to shareholders because it was deemed that they sold too low. This was hailed as a crazy verdict but eventually the Pritzkers paid for the $13.5m fine as long as the board members agreed to pay $25k per year for 5 years to the Illinois Institute of Technology and Stanford Medical School. They footed the bill because they thought the decision was unfair
  11. “One of the advantages of working with Marmon is you sit down with the president and make a decision. You don’t write a big book like you have to do in a public company and then hopefully get on the docket and make a presentation to the board to get approval to do something. With Marmon, we could just sit down and have a discussion and move ahead.”
  12. Bob used to teach at the University of Chicago, and he’s more like a professor. When I came here, one VP gave me some excellent advice. He told me to think of the office as patient waiting rooms and Bob is the doctor. He’ll come around, and he doesn’t like to read a lot of information. Don’t send him long reports or any of those kinds of things. He’ll come around and take your temperature and find out what’s going on and how you feel and what he can do to help. It was good advice
  13. The only constants would be internal expansion and reinvestment augmented by a steady pace of acquisition, characterized more by opportunity than anything else. There was no planned growth. In Marmon, “we’re not planners, we’re opportunists. We really haven’t sat down and said, ‘we really should get in this’ and make a plan.”
  14. Marmon moved on potential acquisitions with speed and surety, sending in small teams from Chicago to rapidly evaluate a company’s potential and future. The team considered a lot of factors, including any potential liability, its financial health, morale, tax status, any potential environmental problems, and capacity for growth. One element that was never considered during due diligence was potential synergy with other Marmon Group companies; each company had to stand on its own as a successful enterprise. This, more than any other single factor, became the defining quality of the sprawling Marmon Group. The Marmon Group comprised member companies run by executives who were almost completely autonomous in their ability to make business decisions. The very speed of this process is one of the selling points – wer’re prepared to act rapidly. 
  15. People sold to Marmon for many reasons but namely they wanted to cash out but continue working. They were the perfect home and everybody trusted them
  16. The Marmon Group stubbornly resisted any kind of corporate organization as a matter of principle – the Pritzkers have an aversion to large bureaucracies. They preferred to keep things as simple and direct as possible. “Trust is crucial in running this company.”
  17. Member companies would often bring acquisition ideas to HQ
  18. Marmon businesses operate about 400 manufacturing, distribution, and service facilities, and employ about 19,000 people worldwide. Revenues exceeded $7.7 billion in 2017.
  19. Today, Marmon Holdings, Inc., part of Berkshire Hathaway Inc., is a global industrial organization comprising 13 diverse business sectors and more than 100 autonomous manufacturing and service businesses. These 13 sectors are:
    1. Beverage Technologies
    2. Foodservice Technologies
    3. Water Technologies
    4. Transportation Products
    5. Rail Products & SErvices
    6. Intermodal COntainers
    7. Crane Services
    8. Retail Solutions
    9. Metal Services
    10. Engineered Wire & Cable
    11. Electrical Products
    12. Plumbing & Refrigeration
    13. Industrial Products

What I got out of it

  1. Learned a lot about Marmon’s history and their values – their speed in execution, opportunistic mindset (nothing was “planned”), their focus on trust/autonomy, and the fact that they never considered synergies between their companies all stood out to me.