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Warren Buffett badly wants to make 'huge' acquisitions, but most companies are too expensive

February 24,2018 21:15

"In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at ...

Buffett wants to do M&A, says most companies are too expensive - Business Insider

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Bill Pugliano / GettyWarren Buffett says in order for Berkshire Hathaway to boost earnings in its non-insurance business, it has to do "one or more huge acquisitions."
The billionaire investor laments the fact almost all of his desired merger and acquisition targets in 2017 ended up being too expensive.
Warren Buffett's Berkshire Hathaway badly wants to make an acquisition — but everything's just too darn expensive.
So said the billionaire investor in his company's annual letter on Saturday, while also lamenting the fact that high stock valuations derailed nearly every investment idea the firm had last year.
Here's what he had to say about it (emphasis ours):
"In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.
That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers."
Buffett said in his annual letter he's particularly keen to boost profits for Berkshire's non-insurance business through "one or more huge acquisitions," and acknowledged the company has ample resources to do so.
In early February, Morgan Stanley estimated Berkshire has enough cash on hand, and generates enough cash flow, to do a deal exceeding $160 billion. As for which industry Berkshire may pursue, UBS thinks utilities are a good bet. After all, the company's energy unit made an unsuccessful $9 billion offer for the electricity provider Oncor last year and may still be interested in the sector.
So why is it so hard to find an good, attractively-valued company? Buffett at least partially attributes the difficulties he's facing to the "can-do" nature of corporate executives, who he says "never lack for forecasts that justify" deals at lofty valuations. He also cited the continued availability of cheap debt, while noting Berkshire prefers to conduct its acquisitions strictly in equity.
Business Insider will be covering the letter in full on Saturday. Follow our coverage here.

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