One of the hardest decisions an investor can make is deciding how best to sell a stock. We don't want to cash in our chips too early, but sometimes circumstances dictate that we must sell. That was certainly the case for current U.S. Commerce Secretary Penny Pritzker who, along with her cousin Thomas, was tasked with unwinding her family's vast business empire due to internal disputes.
Given those circumstances she did a remarkable job to maximize the value of the businesses being sold. By taking a closer look at her accomplishments we can learn a valuable lesson on how to be better sellers, especially when needing to unwind large positions in our portfolio.
Squeezing another billion out of Buffett
The Pritzker family's wealth is partially derived from the Hyatt Hotel Corporation (NYSE:H), as Penny's father Donald was one of the co-founders of the hotel chain in 1957. In fact, Penny Pritzker owns 6.7% of Hyatt Hotel's stock, which is currently worth $575 million. However, the Pritzker family's assets extend far beyond hotels, which is why Penny Pritzker alone has a net worth of $2.5 billion according to Forbes.
In addition to starting the Hyatt Hotel chain, the Pritzker family owned a vast menagerie of businesses, several of which were part of the Marmon Group. That company traces its roots back to 1953 when the family acquired Colson Corporation, which would eventually have its name changed to Marmon Group.The family built Marmon Group into a holding company that owned 125 units across a number of industries including railroad tank cars.
As part of the unwinding of the family's empire, Marmon was sold in 2007 to Warren Buffett's Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B). However, what was unique about the sale to Berkshire Hathaway was the fact that the family only initially sold a 60% stake in the business for $4.5 billion. As part of the deal Berkshire Hathaway acquired the rest of the business over the next half-dozen years at a price determined by Marmon's revenue.
When the initial deal stake was acquired by Berkshire Hathaway it valued the entire company at $7.5 billion. However, by the time Berkshire Hathaway finished acquiring the Marmon Group in 2013 Buffett ended up paying a total of $9 billion for the company. So, by selling the business over time Pritzker netted the family another $1.5 billion in wealth.
Twice as nice
Pritzker did something similar when she sold off the family's holding in TransUnion (NYSE:TRU). The credit information provider was originally acquired by the Pritzker family in 1981 and over time the family built it into one of the top three credit reporting companies. When Pritzker sold the business nearly 30 years later she did so in a similar manner as the Marmon Group sale.
In 2010 the family sold a 51% stake in the business to private equity firm Madison Dearborn Partners in a deal that valued the entire company at $2 billion. That wasn't a bad return for a business the family initially acquired for $688 million, which at the time also included a tank car company that was later sold to Bufett as part of the Marmon Group. However, less than two years later the Pritzkers and Madison Dearborn Partners unloaded the entire business to two more P/E firms for $3 billion. By selling the same business twice to two different buyers the family was able to pick up over half billion dollars more than they'd have received by selling the entire business in 2010.
That being said, in hindsight the family could have made even more if they held out another couple more years. That's because TransUnion went public earlier this year, something the Pritzkers and Madison Dearborn attempted to do before selling the business to the two P/E firms, and has a current market value of $4.5 billion. So, they did still leave a lot of money on the table, however, the family still ended up with a lot more money than if they sold the entire business in 2010.
Penny Pritzker was handed a difficult task when she was charged with unwinding her family's business empire. However, instead of just selling the family's assets to the highest bidders at once, she only sold roughly half of a business at first and then sold the rest later. That practice brought in an additional $2 billion in wealth to the family's coffers.
The lesson for the average investor is to consider the same thing when selling a stock. Whether it's to prepare for retirement, or just to cash in on a winner, selling only half initially and the rest over time could potentially net an investor a much higher total sales price, which will do wonders for one's net worth.
Matt DiLallo has the following options: long January 2017 $135 calls on Berkshire Hathaway and short January 2017 $145 calls on Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway and Hyatt Hotels. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.