Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:

• A $15 million investment turned into a $1.2 billion payday
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• He 24x'd his investment buying a flooring company

🔑 How to buy a Railroad for $15 million - and sell it for $1.2 billion

I write a lot about Warren Buffett and his legendary investments in this newsletter.

But today, I'm going to cover a Berkshire acquisition that Buffett wasn't involved in.

Let's dive into the deal Berkshire Partners (no relation to Berkshire Hathaway) did in 1987 to acquire Wisconsin Central Railroad.

This deal was a leveraged buyout (LBO) that transformed a sleepy, debt-riddled rail division into a global powerhouse.

I'll break down the deal, the operational magic, the bumps along the way, and the big exit.

If you're a business buyer reading this, you'll probably find the playbook familiar:

• Spot distressed assets in a fragmented industry with recent regulatory changes
• Optimize the business by cutting unnecessary expenses and selling off non-core assets
• Scale smart by investing in the most profitable parts of the business

Spotting the Opportunity

In the Rust Belt back in the mid-1980s, the U.S. railroad industry was declining thanks to deregulation.

The Soo Line Railroad, fresh off acquiring the bankrupt Milwaukee Road, was shedding non-core assets to slim down.

One of those non-core assets was the Lake States Transportation Division.

This was a 2,000-mile network of tracks snaking through Wisconsin, Michigan's Upper Peninsula, and into Chicago, hauling paper, iron ore, and bulk goods.

It was classic deep value asset: essential but overlooked, with aging infrastructure and union-heavy inefficiencies.

Ed Burkhardt, a rail veteran, teamed up with Thomas Power (ex-Milwaukee Road CFO) and a small group of investors. They formed Wisconsin Central Ltd. (WCL) in 1987 to buy the Lakes States division.

Berkshire Partners, a young PE firm founded in 1986 by Brad Bloom and others, jumped in as a key backer.

This was one of Berkshire's first deals. It ended up helping to launch decades of successful deals for the firm.

Deal Terms

• $155 million total acquisition price
  • $5 million in personal cash from Burkhardt's team
  • $10 million in equity from Berkshire Partners and other investors.
  • $140 million in bank and insurance loans, plus leased locomotives and cars to keep capex low.

The Interstate Commerce Commission (ICC) greenlit the sale in April 1987, but union pushback delayed closing until October 1987, costing an extra $8 million in holding expenses.

Chaos on Day One

Shortly after WCL took over, a computer glitch wiped out tracking data for 3,000 freight cars. All dispatching and routing had to be done the old fashioned way, over the radio and phone.

Lesson: Anything that can go wrong, will go wrong. If you're buying a business, you need to have contingencies and a margin of error when things inevitably go wrong (especially right after closing as you're getting your bearings with the business).

But WCL weathered the problem and fixed their systems.

Growth was smooth after that, despite some labor disputes with the unions.

But by March 1988, WCL turned its first profit and closed the year with $94 million in revenue.

Reinvestment

The new owners didn't just maintain the rails. They reinvested heavily to make the network more efficient.

Starting with 660 employees, 85 locomotives, and 2,900 train cars, they focused on three pillars:

1. IT-driven ops
2. Lean labor
3. Customer obsession.

Early on, WCL adopted the Transportation Control System (TCS), a comprehensive software suite borrowed from Union Pacific, for scheduling trains, managing work orders, processing waybills, and crunching data.

This replaced a lot of the manual work with scheduling trains.

Today, this strategy still lives on. I've heard of countless business buyers adding software to antiquated business models to make them more profitable.

WCL also poured cash into infrastructure: replacing ties, ballast, and rails, plus building a new maintenance shop to refurbish gear in-house.

Within a couple years, these investments paid off.

Intermodal traffic (containers switched between trucks and trains) surged 60% by 1989, thanks to better tracking and faster turnarounds.

Scaling Up

Refinancing in 1989 cut high-interest debt, paving the way for a 1991 IPO that raised $36.2 million and delivered 700% returns to early investors like Berkshire.

Bolt-on acquisitions followed:

• Green Bay & Western/Fox River Valley in 1993 ($61M, adding 479 miles)
• Algoma Central in 1995 ($24.4M).
• Bought stakes in New Zealand's Tranz Rail (1993), UK's English Welsh & Scottish (1995-97), and Australia's Tasrail (1997).

By 1997, WCL had 2,200 employees, 242 locomotives, 12,300 cars, and $265M revenue. Traffic was up 169% since the acquisition.

In 2001, Canadian National Railway scooped up Wisconsin Central for $1.2 billion, integrating it into their network for better Canada-U.S. connectivity.

The early investors cashed out handsomely.

In 14 years, they turned a $140 million business into a $1.2 billion one, while only putting in $15 million of their own capital.

Lessons

• Look for opportunities in fragmented industries that have just been changed by new regulation. There's likely opportunity if the industry players haven't fully adapted to newly-passed laws.
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• Replace manual processes with technology. This isn't as easy today as it was in 1987, but there are still plenty of businesses using inefficient systems that can be upgraded or automated.
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• Add-ons are great opportunities for fragmented sectors. Use your platform (like WCL's core ops) to tuck in synergies, but diversify risks.

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🔑 He Bought a Small Business, Doubled Profits, and Sold for 24x

I know a guy named Chris bought a flooring business in Steamboat Springs, Colorado.

He bought the business for $1.7 million, grew revenue by 50%, and doubled SDE (seller discretionary earnings).

But he didn't put $1.7 million into the deal. He only had to put down a small fraction of that, and financed the rest with an SBA loan.

Then exited the business after 3 years, earning himself a 24X return on his invested capital.

It's a great story and an inspiration for aspiring SMB buyers.

Give it a watch for the full story.

​Watch on YouTube​

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Have a great day,

Sieva

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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