Warren Buffett is always looking for good deals. Much of Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) long-term success has come from the major acquisitions that the parent company has made, including big subsidiaries like GEICO and Burlington Northern Santa Fe, that resulted from Buffett's jumping on opportunities when they arose.
Finding big deals that meet Buffett's standards has been difficult recently. But the way that the Oracle of Omaha allows Berkshire's various divisions to operate autonomously offers additional opportunities to grow. As he explained in his annual letter to shareholders, when one of Berkshire's subsidiaries makes a purchase, it has a beneficial impact on the entire company. Below are four of the ways that the business model spurred growth through bolt-on acquisitions at Berkshire's existing businesses over the past 15 months.
1. Clayton Homes goes mainstream
Since 2003, Berkshire has owned Clayton Homes, a homebuilder with national scope that has traditionally focused on manufactured homes. With the housing market still doing well, Clayton has been on an acquisition spree to broaden its scope and boost its exposure to traditional homebuilding. With the purchase of Oakwood Homes in Colorado and Harris Doyle in Birmingham, Clayton will see big increases in sales of homes built on-site to go with its market-leading share of the manufactured home industry.
2. Shaw Industries joins the vinyl craze
Berkshire has fully owned Shaw Industries, which specializes in floor coverings, since 2002. It initially took a stake of more than 80% in Shaw in 2000, but then proceeded to purchase the remainder less than two years later.
Shaw has taken advantage of its strong position in the flooring industry to build up its business, and the late-2016 purchase of U.S. Floors expanded its exposure to luxury vinyl tile. Buffett praised the U.S. Floors management team, which helped boost sales by 40% in 2017, and attributed the deal to the efforts of Shaw CEO Vance Bell. The move will help make Shaw Industries an even bigger contributor to Berkshire's overall success.
3. HomeServices blows the roof off the competition
Buffett freely admits that he didn't initially think that real estate broker HomeServices would necessarily amount to much, given that it came as an add-on to the MidAmerican Energy utility, in which Berkshire bought a majority stake in 2000. The broker has taken off in the past 20 years, and HomeServices made a big push toward upending the existing industry leader in real estate brokerage services with key acquisitions.
HomeServices bought No. 3 brokerage operator Long and Foster, No. 12 player Houlihan Lawrence, and the Gloria Nilson brokerage business, boosting its number of brokers by more than 40% to nearly 41,000. The Berkshire Hathaway name lends prestige to properties that the brokerage lists, and that bodes well for the potential for further growth in an industry that's still highly fragmented.
4. Adding to precision
Finally, Precision Castparts is one of the newest companies within the Berkshire empire, with Buffett having bought it for $37 billion in 2015. Its growth has been powered by acquisitions, and Precision CEO Mark Donegan added German manufacturer Wilhelm Schultz to its list of purchases during 2017. The move broadened Precision's exposure to corrosion-resistant fittings, piping systems, and related components at a time when rising industrial activity promises to bolster long-term demand. Buffett's praise of Donegan shows the value of bringing on talented people to run the various components of Berkshire's conglomerate effectively and efficiently.
Don't forget bolt-on acquisitions
High-profile deals involving Berkshire Hathaway always earn headlines, but that's not the only way Warren Buffett is growing his business. Be sure to keep an eye on its subsidiaries to see how they're making smart moves to add to Berkshire's long-term growth trajectory.
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