The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market

by Tobias E. Carlisle

When Buffett heard See’s Candies was for sale, he said, “Call Charlie.”25 Munger lived in California. He knew all about See’s. He told Buffett, “See’s has a name that no one can get near in California…It’s impossible to compete with that brand without spending all kinds of money.”26 Buffett looked at the numbers. He agreed he “would be willing to buy See’s at a price.”27 The offering price was sky high. Harry See, the son of the founder, wanted $30 million for a business with just $8 million in hard assets. The extra $22 million on top of the hard assets bought See’s intellectual property—its brand, trademarks, and goodwill. And it bought a business that earned $2 million after tax in 1971. Buffett hesitated; $30 million was a lot of money. But Munger argued See’s was worth paying up for, so Buffett countered with $25 million. At that price, Buffett and Munger would pay 12.5 times See’s profits and 4 times See’s hard assets. It was a huge leap for an investor who liked to buy stocks at a fraction of hard asset value. Harry See didn’t want to lower his price, but Buffett explained that he and Munger were at the “exact dollar limit of what they were willing to pay.”28 Any higher and they would walk. See caved. On January 31, 1972, Buffett and Munger bought See’s Candies for $25 million. Why was Buffett willing to pay so much? He saw the value in See’s customer franchise. See’s chocolate was especially high quality. Chocolate lovers preferred it to candy that cost two or thre...