Henry Singleton’s Twin Tailwinds

After reading The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, I wanted to learn more about the CEOs profiled in the book. I was especially interested in Henry Singleton, given that Warren Buffett likely borrowed from Singleton’s playbook when building Berkshire Hathaway.

Singleton didn’t do many interviews, and no one has written a biography about him. I managed to dig up Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It. It’s hard to find, but I got lucky and started reading it.

Singleton went on an acquisition spree during Teledyne’s early years in the 1960s. Two things likely led to Singleton embracing this strategy and making it so effective:

  • The stock market valued Teledyne richly in the 1960s, and Singleton shrewdly took advantage. He used Teledyne’s stock as currency. Teledyne traded at a double-digit P/E multiple ranging between thirty to seventy times earnings (i.e., high valuation) as a public company, while smaller, private companies were valued at single-digit P/E multiples of roughly nine times earnings (i.e., lower valuations). Singleton recognized this arbitrage and paid for his acquisitions using overvalued Teledyne stock.
  • World War II took place mostly in the 1940s. New technologies were created, and many small companies were founded to help the war effort. After the war, veterans benefited from the G.I. Bill, receiving tuition-free college educations, from which they learned new technologies and methods. This combination of newly educated and tech-savvy veterans and a wave of new technology led to a boom in entrepreneurship in the 1940s and 1950s. By the 1960s, many of these small companies had matured, and the founders were ready to sell or needed growth capital to reach the next level.

Singleton’s genius was in recognizing that he was positioned to benefit from twin tailwinds. Two forces were occurring simultaneously, and he crafted a strategy to take full advantage of both. There was a large supply of entrepreneurs interested in being acquired, and he could fund acquisitions using richly valued Teledyne stock instead of cash. His strategy led to over one hundred companies being acquired in a decade and Teledyne growing from $4.5 million in revenue and $58,000 in profit to $1.3 billion in revenue and $60 millions in profit annually by the end of the acquisition spree.

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