By now, many of you will have heard of Berkshire Hathaway’s $37.2 billion acquisition of Precision Castparts Corp. (PCC), an aerospace parts manufacturer. The acquisition is Berkshire Hathaway’s largest to-date which goes to show with each strategic acquisition, Berkshire Hathaway must make bigger and bigger deals to “move the needle.”
Strategic and to the Point
The straightforward nature of the deal’s press release is particularly refreshing and reflective of Warren Buffett’s overall attitude toward strategic acquisitions.
“I’ve admired PCC’s operations for a long time. For good reasons, it is the suppler of choice for the world’s aerospace industry, one of the largest sources of American exports,” said Warren Buffet.
Mark Donegan, PCC’s chairman and chief executive officer stated: “We see a unique alignment between Warren’s management and investment philosophy and how we manage PCC for the long-term.”
You can read the full press release here.
You’ll notice there are no flowery words or long-winded paragraphs in the press release, unlike the now infamous AOL-Time Warner deal. As I’ve stated before on this blog and in my book, at Capstone, we are big proponents of having only ONE reason for acquisition. Having a simple, clear, strategic path forward leads to success. On the other hand, pursuing many reasons makes the deal unnecessarily complicated and unfocused.
Finding Growth through M&A
Warren Buffett’s latest acquisition reflects the overall trend in the market – M&A is the pathway to growth. Dealogic data reports $2.63 trillion in deals as of August 3, perhaps the most robust year yet. The Wall Street Journal notes, robust M&A “…has been driven largely by companies buying others to drive growth at a time when earnings increases aren’t easy to achieve.”
Organic growth options are anemic or stagnant at best, forcing companies to seriously consider M&A to drive growth. In today’s market, businesses cannot be content to sit on the side lines and go about business as usual. They should take a careful look at all of their growth options – including acquisitions – and determine the best path forward based on a strategic, proactive approach. Those who fail to move now and consider their strategy for growth will be unfortunately be left behind.
