Berkshire

Q1. How does Berkshire Partners create value?

According to the management of Berkshire Partners, the company is based on successful relationships, hard work, analysis, and the open decision making of all individuals. When selecting target companies, Berkshire Partners tend to focus on cases they think they have pretty good odds of winning. In analyzing a potential deal, Berkshire relies largely on its internal staff to carry out the analysis and would use external resources from, e.g. Bain and McKinsey to get the results.

With respect to the value creation after taking the equity position in the private business, there are mainly four steps of Berkshire to improve the target company.

1) To help to prioritize key objectives;

2) To review organizational design;

3) To help to build the bench of key managers;

4) To lead the integration process in the event of a subsequent acquisition.

What’s more, Berkshire sees the due diligence step not only as a critical way to make investment decision, but also the foundation to operate from during the life of the investment.

Differentiating from other PE firms, Berkshire’s main exit strategy is sale of the company rather than IPOs. The ratio of sales in total exit cases is 4/5. When Berkshire thinks about exiting using IPO method, the target company must have a strong brand, strong growth potential and a dramatic need for capital.

Q2. Does Carter’s fit with the Berkshire investment philosophy? Why is Investcorp selling?

According to the investment team from Berkshire Partners, there was a potential match between Carter’s and Berkshire. The firm had developed a focus on “building strong, growth-oriented companies in conjunction with strong, equity-incented management teams”. Berkshire viewed Carter’s not simply as an apparel company in the retail spaces, but more as a consumer products company. On the other side, although Berkshire Partners was not the highest bidder during the preliminary round, Carter’s...