The 37 billion dollars (including debt) takeover of Precision Castparts, a supplier to the aerospace and oil industries, is the biggest deal in Berkshire Hathaway's 50-year history. The acquisition, announced on August 10th, fits the formula that has made Warren Buffett's conglomerate such a success: the target is a well-run, easy-to-understand business with a strong market position. The deal got a good reception from investors. However, it may be getting harder for Mr Buffett to find suitable candidates for purchase.
Precision Castparts shares some similarities with another firm Mr Buffett bought recently, Detlev Louis, a German maker of motorcyclists' clothing, for which it paid 400 million euros that's 454 million dollars in February. Sales of motorbikes are growing briskly, just as orders for passenger jets are strong. Detlev Louis has a strong protective "moat" against competitors, in the form of its brand; in Precision Castparts' case the moat consists of its technology and the large amount of capital it has invested in its plants.
With his latest deal, timing is vital too. Mr Buffett is betting that low oil prices have unduly depressed the value of Precision Castparts, which relies on energy firms for a fifth of its revenues. His previous largest deal, the 27 billion dollars paid in 2009 to gain control of Burlington Northern Santa Fe, America's second-biggest railway, came as the shale-oil boom was getting under way. He successfully bet that this would boost traffic for rail tankers, and the price he paid for the railway now looks like a bargain.
As Berkshire continues to grow, it gets ever harder for it to find target firms that fulfil his criteria but are large enough to "move the needle", according to Cliff Gallant of Nomura, a bank. It will be harder still now that private-equity firms have rediscovered an appetite for dealmaking and are also on the lookout for bargains. That may explain why Berkshire has set aside its usual formula in some recent deals, and gone into restructuring underperforming firms in partnership with 3G Capital, a Brazilian private-equity firm. Earlier this year the pair engineered the merger of Kraft and Heinz, two food firms.
