Kathryn Mulligan | August 6th, 2015 | Middlemarketgrowth.org
Relationships prove invaluable for one middle-market banker
This article will be featured in the forthcoming September issue of Middle Market Growth magazine, available Sept. 1. Access past issues of the magazine by visiting the MMG archive.
It’s no secret personal connections matter in middle-market dealmaking, yet few deals illustrate the importance of long-standing relationships better than Berkshire Hathaway’s purchase of a German motorcycle accessories firm earlier this year.
At the intersection of the professional and familial relationships behind the deal is investment banker Jim Zipursky, who learned from a long-time European colleague that the business was seeking a buyer. Zipursky’s father, a decades-long acquaintance of Berkshire’s Warren Buffett, facilitated an introduction to the famed investor.
Berkshire Hathaway ultimately agreed to buy the company for $452 million, a transaction announced in February.
The business at the heart of the deal, Detlev Louis Motorradvertriebs—Louis, for short—sells an extensive line of motorcycle accessories, from clothing and helmets to repair parts, including replacement break pads, motor oil and mirrors.
Founded in Hamburg, Germany, more than 75 years ago by Detlev Louis, a champion motorcycle racer in the 1940s, the company was inherited by Detlev’s wife, Ute, after he passed away in 2012. Ute had worked at the company for more than three decades, collaborating with her husband to build the business, including playing an instrumental role designing the clothing and accessories it sells.
A closely held company, Louis grew to employ more than 1,500 people and generates roughly 270 million euros in annual sales, according to Bloomberg. With more than 70 stores in Germany and Austria, and a robust online business, Louis is an established player in its space.
Following Detlev Louis’ death, however, Ute decided to sell the company, retaining Hamburg-based financial adviser Zypora Kupferberg to find a buyer. Kupferberg reached out to Zipursky, managing director of investment bank Corporate Finance Associates in the firm’s Omaha office. The two had known each other for more than a decade, having worked together on deals over the years.
Based on the characteristics of Louis, Zipursky and Kupferberg had a buyer in mind—Warren Buffett’s holding company, Berkshire Hathaway Inc.
“Zypora and I both knew immediately this should be something that Warren would be interested in for Berkshire, and he absolutely was,” Zipursky recalls.
“For most investment bankers it’s hard because we like to market without price. But not when you’re talking to Warren Buffett.”
WHAT WARREN WANTS
Zipursky knew from experience what Berkshire Hathaway looks for in a deal—two family friends had sold their businesses to the conglomerate—and he recognized those features in Louis.
The company’s steady growth and consistent profitability—despite the recent economic turmoil in Europe—were among them, as was its position as the dominant player in the European market for motorcycle accessories.
Zipursky suspected these characteristics would appeal to Buffett: “We know Warren likes moats,” he says. “He likes defensible businesses.”
Louis’ core products—including motorcycle jackets, gloves and motor oil—are relatively impervious to technological change, ensuring its offerings won’t become obsolete.
The management team, which has been with the firm for more than 15 years, is important, too, since it will remain in place following the sale. Heavy investment in employee development and a commitment to product-line improvements have helped the company endure and grow over the years.
Additional growth opportunities abound: Today, Louis’ retail stores are in Germany and Austria only. Meanwhile, its online presence is robust in Europe but limited in the United States.
Zipursky and Kupferberg enlisted a third party to make the introduction to Warren Buffett—Zipursky’s father, Morley.
Morley Zipursky, who founded the Omaha office of Corporate Finance Associates and now serves as the firm’s chairman emeritus, first met Buffett in the 1950s through a neighbor, the publisher of the former Omaha Sun newspapers, which were purchased by a young Warren Buffett in 1968.
Over the years, the senior Zipursky remained friendly with Buffett, showing him various transaction opportunities, none of which he pursued.
Last fall, Morley Zipursky reached out to Buffett about Louis, encouraging the investor to contact his son if he was interested in purchasing the business. Soon after, Buffett reached out to Jim Zipursky, setting the sale in motion.
Louis wasn’t Buffett’s first motorcycle-related investment. In 2009 his firm provided a $300 million loan to a struggling Harley-Davidson. Meanwhile, Berkshire Hathaway owns Geico, the largest provider of motorcycle insurance in the United States.
‘KEEP IT SIMPLE’
Working with Berkshire was unlike dealing with other financial sponsors, Zipursky recalls, starting with Buffett’s request that he name his price.
“For most investment bankers it’s hard because we like to market without price,” he says. “But not when you’re talking to Warren Buffett.”
Zipursky describes the efficiency of Berkshire’s due diligence and legal processes, in contrast to the “thousands of documents and months of review” typical of working with other financial sponsors. As Buffett’s deputy Ted Weschler explained to Zipursky, “We tell our attorneys to keep it simple.”
There’s also an implicit trust. Zipursky recalls the comfort of knowing the Berkshire team sticks to what it agrees to, and there are no surprises. He feels confident the Louis management team will remain in control and that the business will stay in its current location, as Buffett promised in a letter to Ute Louis.
Weschler assumed oversight of the Louis deal after the initial outline was worked out with Buffett and, according to Zipursky, will likely become chairman of the company once the sale closes, pending European regulatory approval.
Zipursky attests that the buyer was among the easiest he’s worked with. “Berkshire really does keep it as simple as it can for a half a billion dollar transaction,” he says.