Warren Buffett and Berkshire Hathaway might be having trouble finding a mega deal to soak up the $US116 billion cash float on his balance sheet, but that didn’t stop a series of ’small’ acquisitions in key parts of the company that were highlighted in Berkshire’s annual report.
Buffett highlighted four acquisitions out of an unknown number of ‘bolt-on’ purchases.
The deals cost the company $US2.7 billion. All are in traditional businesses.
Buffett said its manufactured homes group, Clayton Homes moved into traditional homebuilding with the acquisition of two builders of conventional homes.
Warren Buffett said it was "a move that more than doubled our presence in a field we entered only three years ago.” With these additions – Oakwood Homes in Colorado and Harris Doyle in Birmingham – Buffett said Berkshire’s 2018 site built volume will exceed $US1 billion.
“Clayton’s emphasis, nonetheless, remains manufactured homes, both their construction and their financing,’ Buffett said.
"In 2017 Clayton sold 19,168 units through its own retail operation and wholesaled another 26,706 units to independent retailers. All told, Clayton accounted for 49% of the manufactured-home market last year. That industry-leading share – about three times what our nearest competitor did – is a far cry from the 13% Clayton achieved in 2003, the year it joined Berkshire.”
Shaw Industries is Berkshire’s floor covering business and in late 2016 it bought U.S. Floors (“USF”), a distributor of luxury vinyl tile.
"USF’s managers, Piet Dossche and Philippe Erramuzpe, came out of the gate fast, delivering a 40% increase in sales in 2017, during which their operation was integrated with Shaw’s. It’s clear that we acquired both great human assets and business assets in making the USF purchase, “ Buffett wrote.
Buffett said the purchase lifts Shaw’s annual sales to $US5.7 billion in 2017 and its employment to 22,000, which makes it a substantial company in its own right.
The third deal invoved Berkshire’s HomeServices real estate brokerage operation. Berkshire picked up this business in 2000 when we acquired a majority interest in MidAmerican Energy (now Berkshire Hathaway Energy). "MidAmerican’s activities were then largely in the electric utility field, and I originally paid little attention to HomeServices,” Buffett wrote.
"But, year-by-year, the company added brokers and, by the end of 2016, HomeServices was the second-largest brokerage operation in the country – still ranking, though, far behind the leader, Realogy.”
"In 2017, however, HomeServices’ growth exploded. We acquired the industry’s third-largest operator, Long and Foster; number 12, Houlihan Lawrence; and Gloria Nilson.
"With those purchases we added 12,300 agents, raising our total to 40,950. HomeServices is now close to leading the country in home sales, having participated (including our three acquisitions pro-forma) in $127 billion of “sides” during 2017. )To explain that term, there are two “sides” to every transaction; if we represent both buyer and seller, the dollar value of the transaction is counted twice).
"Despite its recent acquisitions, HomeServices is on track to do only about 3% of the country’s home- brokerage business in 2018. That leaves 97% to go. Given sensible prices, we will keep adding brokers in this most fundamental of businesses,” Buffet wrote.
"Finally, Precision Castparts, a company built through acquisitions, bought Wilhelm Schulz GmbH, a German maker of corrosion resistant fittings, piping systems and components.
"Please allow me to skip a further explanation. I don’t understand manufacturing operations as well as I do the activities of real estate brokers, home builders or truck stops.” Buffett joked.
And perhaps the most interesting area of investment is the involvement of the company’s US energy utilities (BHE, or Berkshire Hathaway Energy) in renewables.
BHE Renewables is based in Iowa and owns interests in independent power projects having approximately 4,300 net megawatts of generation capacity that are in service or under construction in California, Illinois, Texas, Nebraska, New York, Arizona, Minnesota, Kansas, Hawaii and the Philippines.
These independent power projects sell power generated primarily from solar, wind, geothermal and hydro sources under long-term contracts. Additionally, BHE Renewables has invested approximately $US1 billion in seven wind projects sponsored by third parties, commonly referred to as tax equity investments, according to the Berkshire annual report.
As of December 31, 2017, BHE had invested $US21 billion in solar, wind, geothermal and biomass generation.