In his 2018 annual letter, Berkshire Hathaway (BRK-B) chair Warren Buffett said that he and vice-chair Charlie Munger “hope for an elephant-sized acquisition.” At the same time, Buffett admitted that such acquisitions haven’t come easily, especially when it comes to valuation.
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In an interview with CNBC earlier this year, Buffett alluded that Berkshire was looking at a major acquisition in the fourth quarter. However, the deal apparently did not go through. Berkshire was rumored to be buying Southwest Airlines (LUV) earlier this year, but so far, we haven’t heard anything concrete about the deal.
Fourth quarter sell-off
Despite the sell-off in the fourth quarter, Berkshire’s net buys were even lower compared to the previous quarter. Among the most notable changes to its portfolio were the addition of Red Hat (IBM) and the exit of Oracle (ORCL). Berkshire also sold some Apple (AAPL) shares, sending observers into a tizzy. Buffett later clarified that the shares had been sold by a different investment manager at Berkshire.
Now, Berkshire is sitting on a massive cash pile, and a major acquisition would have helped Buffett deploy that cash. However, as market sentiments have revived in the last month, Buffett’s wait for his next elephant might become a bit longer. In a strong economy (SPY), acquisition opportunities could become even more expensive from a valuation standpoint. The last major acquisition Berkshire completed was in 2016. Buffett minced no words in calling that deal expensive.