On a related note, the integration of large companies almost certainly involves tackling messy regulatory and logistical hurdles. It’s safe to assume, then, that these small businesses are comparatively easy for Berkshire to simply fold into its existing operations, thus yielding synergies which can make them even better deals than Berkshire’s typically prudent managers already negotiated.
Finally, small companies offer one other significant benefit big business can’t match: strength in numbers. Buffett himself once stated, “It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
It stands to reason that, much in the same way retail investors enjoy a much larger investment universe than, say, a mutual fund with billions of dollars at its disposal, there are likely hundreds of small companies for every lone elephant that meets Buffett’s stringent acquisition criteria.
The hunt continues
Nonetheless, the world can’t help but wonder which huge company currently sits in the crosshairs of Warren Buffett’s already-loaded elephant gun. Heck, just a few weeks ago when I considered what Berkshire might buy next, the smallest of the four companies I suggested currently boasts a market capitalization of $13 billion.
I suppose, however, it should come as little surprise that Buffett sees the value in pursuing smaller game. After all, we’re talking about the man who rose to fame largely for his unrivaled ability to recognize the stocks of under-appreciated businesses. By using these acquisitions to increase the scope of responsibility of Berkshire’s proven managers, Buffett is also effectively working to ensure his business will continue to thrive long after he’s gone.
In the end, if that’s not reason enough to believe Berkshire Hathaway Inc. (NYSE:BRK.B) will continue to outperform the broader market for the foreseeable future, I don’t know what is.
The article Buffett’s Hidden $2.3 Billion Acquisitions originally appeared on Fool.com and is written by Steve Symington.
Fool contributor Steve Symington owns shares of Markel. The Motley Fool recommends Berkshire Hathaway, H.J. Heinz Company, and Markel. The Motley Fool owns shares of Berkshire Hathaway and Markel.
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