Warren Buffett (Trades, Portfolio) has never been in any rush to do deals. Throughout his career, he's always been happy to sit on the sidelines and wait for the perfect opportunity, no matter how long it takes.
However, that does not stop the media and Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) investors speculating as to what the next deal could be.
Two recent deals
Buffett has been linked with two large transactions recently. First was technology distributor Tech Data, which Buffett reportedly bid $5 billion for after he received word that the company was planning to sell itself to private equity behemoth Apollo Global Management. Shortly after, Apollo upped its offer and out-bid what Buffett was willing to pay.
Berkshire has also been associated with Tiffany & Co. in light of reports that the jeweler was looking for an alternative suitor after receiving a takeover approach from Louis Vuitton (MIL:LVMH).
Apparently, Buffett turned the deal down because he did not want to be responsible for Tiffany's turnaround. The company is currently struggling to return to growth, and it seems that Buffett did not want to take on the struggling business for $17 billion. Besides, LVMH has much more experience in the luxury sector.
Both of these businesses have been auction situations, which Buffett typically avoids.
No business auctions
Speaking about the process of business acquisitions in 2004 at the Berkshire annual meeting, the Oracle of Omaha said:
"If somebody wants what we are offering, you know, we are somewhat one of a kind, in that we can — we will buy a business, and the people that sold it to us, if they built that business, are really able to run it as if it's their own indefinitely in the future. So they — If they have a tax reason, if they have a family situation, or whatever, where they want to sell some business they love, and they don't want to auction it off like a piece of meat, and they don't want some guy buying it and then leveraging it up, and then reselling a couple years after changing the accounting or something of the sort, they come to us.
I think it's kind of crazy, you know, to spend — I think it'd be kind of silly to auction off your daughter to whatever, you know, whatever man is willing to pay the most for her. And I feel the same way about a business you've created lovingly over decades, and decades, and decades."
So far, this approach has worked for Buffett, although in recent years, private equity has become more active in bidding for companies, and the industry is usually willing to pay more than Buffett.
Private equity competition isn't a new development, it's something Berkshire has had to deal with for many decades. As Charlie Munger (Trades, Portfolio), Buffett's right-hand man and the vice-chairman of Berkshire, said at the 2004 meeting:
"It's been interesting, though, that we've had this private equity competition for a long time, and one way or another we've managed to buy a few things."
That was in 2004. Since then, Berkshire has completed a large number of huge business deals, as well as growing its net worth by several hundred billion dollars.
The lesson from all of this is that we've been here before. Buffett was priced out of the market in the mid-2000s, just as he was in the late 1990s.
However, after a few years, the Oracle was offered multiple opportunities to buy companies, stocks and debt at attractive prices. He was able to take the billions in cash he built up during the quiet periods to make the most of Mr. Market's erratic nature.
Disclosure: The author owns shares in Berkshire Hathaway.
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