Buffett's latest acquisition
02 September, 2015
Last month legendary investor Warren Buffett celebrated his 85th birthday by making the largest ever acquisition for his investment company Berkshire Hathaway, paying $US37 billion for aeronautical parts company, Precision Castparts.
The acquisition provided an interesting glimpse into what, if anything, of Buffett's iconic investment style has changed as he has begun handing over the portfolio reins.
It is encouraging that new investment ideas are not the sole preserve of Buffett. Precision Castparts was 'discovered', researched and recommended as an investment by Buffett's likely successor, Todd Combs.
Precision Castparts is a somewhat uncharacteristic purchase as Buffett typically focuses on insurance, food, railroad and energy businesses. Precision manufactures parts for the aircraft industry such as turbine blades, as well as components for equipment used in the oil and gas industry. While Precision operates in an atypical sector, it nevertheless has a strong competitive "moat". Customers such as Boeing and Airbus have orders with Precision for thousands of planes for years ahead, and are unlikely to change suppliers of such critical parts.
Buffett is still buying great companies at reasonable prices. Precision's share price has languished this year because of concerns about currency headwinds for US manufacturers and a weaker oil price potentially leading to softer customer demand. Buffett has taken advantage of the market's lack of understanding and is purchasing the company at an attractive price given the quality of the company's earnings.
He still insists on buying companies with outstanding management. Warren Buffett needed only 30 minutes with CEO Mark Donegan to decide, in his words, that "the guy is fantastic." Buffett described his meeting as "seeing the girl across the room", and particularly liked Donegan's knowledge, passion and the fact that "he's as in love with his company as I am with mine."
Buffet gives credit for this acquisition to Todd Combs. History will tell if the Buffett approach will continue to live on at Berkshire Hathaway after he has fully handed over the reins, but early signs are promising.