FINANCE
from that inferior business to invest in successful insurance companies and used that cash flow to purchase businesses with incredible economics . Buffett is less of an investor than he is master capital allocator .
The same principles should apply with a growing business . Capital needs to be deployed into areas where you are able to reap the highest returns . If a business or segment isn ’ t successful , you need to be able to quickly divert valuable capital to areas which are generating a strong return . That means backing strong performing business units with not only money , but management
attention .
The other area where you can spur growth is through careful acquisition . The emphasis is on careful . There ’ s no point in purchasing a business if you lower your over return on equity – too many acquisitions occur when managers seek to broaden their empire , rather than improve real returns for owners .
We ’ ve found the best combinations are bolt-on acquisitions , where we can add to an existing business line with a similar offering . This allows the ability to realise actual synergies , at both the expense side ( through removal of obvious duplication ) and more
18 July 2014