ISCAR Metalworking
Company Overview
ISCAR Metalworking (later renamed IMC Group) is an Israeli manufacturer of hard metal cutting tools used in precision metalworking, acquired by Berkshire in May 2006 for approximately $4 billion for 80% — Berkshire's first acquisition outside North America and one of the largest acquisitions of an Israeli company ever completed.
Investment Story
2006: First international acquisition. Eitan Wertheimer — whose father Jacob Wertheimer founded ISCAR — contacted Buffett by sending a one-page letter to Omaha. Buffett met with the Wertheimer family, learned about ISCAR's business, and committed to acquiring 80% of the company for $4 billion within days. This was one of the fastest major acquisitions in Berkshire's history.
The business. ISCAR manufactures small, consumable cutting inserts made from tungsten carbide and other hard metals, used in CNC machining operations across manufacturing industries globally. The inserts are precision products with genuine technical performance differences between manufacturers — not commodity tools. ISCAR's engineering excellence had earned it relationships with leading automotive, aerospace, and industrial manufacturers in more than 60 countries.
Geographic and business diversification. ISCAR was significant not just as a financial investment but as Berkshire's entry into: (a) international manufacturing; (b) Israel's technology-intensive industrial sector; and (c) the highly engineered components space. Each represented genuine strategic diversification of Berkshire's previous concentration in North American financial and consumer businesses.
2013: Remaining 20%. Berkshire acquired the remaining 20% from the Wertheimer family for approximately $2.05 billion — implying a total company valuation of approximately $10 billion by 2013, more than doubling from the original $5 billion valuation in 2006.
Buffett's Own Words
Nevertheless, gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We would rather have our overall results penalized a bit than engage in it. o We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less. Moreover, as a company with a major communications business, it would be ine
Hanukkah in 1988. Superb managers are too scarce a resource to be discarded simply because a cake gets crowded with candles. Moreover, our experience with newly-minted MBAs has not been that great. Their academic records always look terrific and the candidates always know just what to say; but too often they are short on personal commitment to the company and general business savvy. It’s difficult to teach a new dog old tricks. Here’s an update on our major non-insurance operations: o At Nebraska Furni
The highlight of the year, however, was our July 5th acquisition of most of ISCAR, an Israeli company, and our new association with its chairman, Eitan Wertheimer, and CEO, Jacob Harpaz. The story here began on October 25, 2005, when I received a 1¼-page letter from Eitan, of whom I then knew nothing. The letter began, “I am writing to introduce you to ISCAR,” and proceeded to describe a cutting- tool business carried on in 61 countries. Then Eitan wrote, “We have for some time considered the issues of generatio
The highlight of the year, however, was our July 5th acquisition of most of ISCAR, an Israeli company, and our new association with its chairman, Eitan Wertheimer, and CEO, Jacob Harpaz. The story here began on October 25, 2005, when I received a 1¼-page letter from Eitan, of whom I then knew nothing. The letter began, “I am writing to introduce you to ISCAR,” and proceeded to describe a cutting- tool business carried on in 61 countries. Then Eitan wrote, “We have for some time considered the issues of generatio
Berkshire’s newest acquisitions of size, TTI and Iscar, led by their CEOs, Paul Andrews and Jacob Harpaz respectively, performed magnificently in 2007. Iscar is as impressive a manufacturing operation as I’ve seen, a view I reported last year and that was confirmed by a visit I made in the fall to its extraordinary plant in Korea. Finally, our insurance business – the cornerstone of Berkshire – had an excellent year. Part of the reason is that we have the best collection of insurance managers in the business – mo
Investment Lessons
Engineered consumables in manufacturing have excellent economic characteristics. ISCAR's cutting inserts must be replaced regularly as they wear — creating a recurring revenue model in a high-precision, performance-sensitive product. Manufacturers who depend on ISCAR tools to maintain precision machining specifications are reluctant to switch to alternative brands whose performance they haven't verified. This creates both customer inertia and pricing power that commodity tool manufacturers lack.
Outstanding founder-managed companies exist globally. Buffett's stated reluctance to invest internationally had largely been a function of analytical difficulty — understanding regulatory environments, accounting systems, and competitive dynamics across multiple legal and linguistic contexts. ISCAR showed that founder-managed companies with outstanding operational performance and clear competitive advantages could be evaluated primarily on business fundamentals, regardless of geography. The ISCAR success opened Berkshire to subsequent international opportunities (BYD, Japanese trading companies).