Warren Buffett used his annual letter to shareholders to bemoan a problem that others including Apple’s Tim Cook have also complained about: the lack of big, quality companies to buy. Buffett wrote that one of his disappointments in 2012 was “my inability to make a major acquisition. I pursued a couple of elephants, but came up empty-handed.”
Cook has separately said that Apple was looking at acquisitions but couldn’t find any big deals that passed the test.
Buffett was able to address his elephant problem earlier this year with a $23 billion acquisition of ketchup maker Heinz, in which Berkshire Hathaway teamed up with Brazil’s 3G Capital.
Still, he said he wasn’t satisfied and used the hunting analogy to say he was on the prowl again: “We still have plenty of cash and are generating more at a good clip. So it’s back to work; Charlie and I have again donned our safari outfits and resumed our search for elephants.” (“Charlie” is Charles Munger, Berkshire’s vice chairman.)
Dealmakers go into a frenzy when they hear Berkshire wants to do a big deal, especially because he is known to shun auctions and as a result, usually pays a good price for his targets. But Buffett has shown that the bar is high.
He is known to have certain preferences such as favoring companies whose businesses he understands, which leaves most tech companies out (IBM being a notable exception.) His stable of investments and portfolio companies includes a candy maker, Coca-Cola and American Express.
So if you’re a company that is looking for an acquirer and has products found on a grocery store shelf, it may be time to knock on Buffett’s door. But you probably already have.