There are certain people indelibly associated with American business, and Warren Buffett is one of them. The star financier has built his investment vehicle, Berkshire Hathaway (BRK-A) (BRK-B), into one of the planet’s largest companies, mainly by acquiring stakes in domestic firms.
That’s why the company’s acquisition of Germany’s Detlev Louis Motorradvertriebs (try saying that 10 times fast) last month probably surprised some Berkshire-watchers. It certainly is a departure from the veteran investor’s usual way of making a buck. Yet we should get used to it, because it looks very much like this type of purchase may become a Buffett habit from now on.
As far as Berkshire Hathaway’s recent investments go, Louis (the new asset’s brand name) was relatively small potatoes. Buffett’s company paid a bit over 400 million euros ($454 million or so at the time) for the entirety of the German company, which sells motorcycle accessories made by a wide variety of manufacturers via its website and a network of over 70 stores in Germany and Austria.
Compare that price with some of the conglomerate’s recent buys in the U.S. Last November, it coughed up around $4.7 billion in stock to acquire the Duracell battery line — and that was a single unit of a company, in this case Procter & Gamble (PG).
In 2013, Berkshire was the lead company in the consortium that acquired ketchup king H.J. Heinz. That deal went down for $28 billion, including debt assumption.
For Berkshire, the Louis buy is the beginning of a widened focus on investment opportunities throughout the world, rather than just in America. It’s “smaller than something we would normally do,” Buffett said of the purchase to the Financial Times, “but it is a door opener.”
Perfect for the Portfolio
It’s also got reassuringly familiar elements for Berskhire Hathaway. Buffett famously likes to invest in relatively straightforward businesses he can understand — for proof, look no further than the long list of companies his investment vehicle has a stake in.
There’s Coca-Cola (KO), which requires no introduction, Don’t-leave-home-without-it credit card giant American Express (AXP), banking major Wells Fargo (WFC) and monster retailer Walmart (WMT). Louis fits that mold perfectly: It concentrates solely on selling those bike accessories. Additionally, the company is privately held by a tight group of investors, in this case the Louis family. Acquiring such concerns is a Berkshire specialty; its portfolio is stuffed with them, from car retailer Van Tuyl Group to confectionery producer See’s Candies.
It also probably goes without saying that, since this is Buffett we’re dealing with here, Louis was a relative bargain to purchase. The German company takes in annual revenue of roughly 270 million euros ($306 million); the 400 million euros Berkshire Hathaway paid for it is less than 1.5 times that amount.
By contrast, Heinz went for 2.4 times, while Berkshire itself (in the form of its original A category of shares) has a market capitalization of $351 billion, 1.8 times its 2014 revenue of nearly $195 billion.
Europe in particular is fertile bargain-hunting ground just now. Weighed down by stuck-in-the-mud nations like Spain and Greece, the continent’s economy has been stagnant for years.
The U.S., meanwhile, has been growing noticeably. The disparity between the two, among other factors, has driven the euro sharply down against the dollar.
As a result, the price tags of potential buys in the eurozone (the 19 countries that currently use it as their currency) are now much lower in dollar terms. That roughly $454 million Berkshire’s spending on Louis would have cost it $552 million one year ago, assuming the same sale price in euros.
That’s a difference of around 20 percent, or almost $100 million in currency terms. This is not an immense amount for a company with the scope and financial might of Berkshire, but it becomes compelling when assets approaching the size of, say, Duracell or Heinz go on sale.
Shopping Around the World
Buffett likes what he sees in Europe. He told the Financial Times that he feels the continent “has hundreds of millions of people, high incomes, productive people, so it is a great place to be.”
Those are the words of a man who’s very bullish on overseas markets, and for the chance to acquire choice companies there at discount prices. We are almost certain to see Berkshire purchase more foreign assets in the future.
So, companies of the world looking to sell, practice your sales pitch: Berkshire Hathaway’s checkbook is ope.