Wall Street is always trying to speculate about where Warren Buffett (Trades, Portfolio) will make his next acquisition.
One of the most prominent theories at the moment is that Berkshire will try to acquire an airline at some point in the next few years as the company attempts to deploy its massive $100 billion cash pile.
This isn't an entirely unreasonable suggestion. Berkshire currently owns more than 10% of U.S. airline Delta (DAL), and Buffett has been enthusiastically buying more shares of the carrier this year.
When Buffett decided to buy railroad BNSF, he used a similar framework. After years of hating the railroad business, the changing economics of the company led him to acquire a stake in the firm, which he gradually increased until a full offer was proposed.
If acquired by Berkshire, Delta would gain an advantage over its rivals. Berkshire's fortress balance sheet would enable the company to lower its cost of borrowing drastically, and insurance, as I'm assuming the carrier would extract synergies from other Berkshire businesses if possible.
This is just speculation, however. One area where we could also see large deals by the conglomerate is at Berkshire Hathaway Energy.
Growing the energy business
Buffett actually spoke about this at the 2019 Berkshire Hathaway annual meeting of shareholders.
Speaking about the business, the Oracle of Omaha said, "There are not three owners that are more interested in pouring money into sensible deals within the utility industry ... We have never had a penny in dividends in close to 20 years of owning MidAmerican Energy." He went on to say, "It is just a question of finding sensible projects" to invest in.
Buffett then handed over to Greg Abel, who gave a bit more detail on the business. He said that the footprint in the state of Iowa is "realistically, getting pretty full," but as the state continues to grow, Berkshire Hathaway Energy has the capacity to expand its footprint further.
"Every time we get a new data center, that means we can build another 300 megawatts of renewables," Abel said.
Room for expansion in Iowa is limited, but the company is now focusing its efforts on growth at PacifiCorp, which serves six states in the Northwest:
"The first part was to build significant transmission, so expand the grid, and then start to build renewables. But just to give you some perspective of the regulation that exists in place, we started that project in 2008. And we're really building the first third of it. But we do have planning in place for the second phase and the third phase, and that's what you'll see coming into place in 2021 and '23."
To add to these comments, Buffett said, "We will put a lot of money into energy." Charlie Munger (Trades, Portfolio) then added, "We're really in marvelous shape in this department."
Energy deals
So, if there's one part of the Berkshire empire where I could see Buffett doing big deals over the next few years, it is energy.
The group already has a well-established, market-leading business in this segment, and we know Buffett likes to deploy his capital into the businesses and industries he understands best.
Berkshire clearly understands how to make money in energy and could use that experience to expand around the world. Acquisitions in Europe and the U.K. might be on the cards. Berkshire already owns a water business in the U.K., and Buffett recently said that he could be interested in acquiring companies across Europe at the right price.
That's not to say that there are no possible acquisition targets in the U.S. Berkshire could try to expand its pipelines business by acquiring one or two of the listed pipeline groups. Energy solutions businesses could also be on the cards. Berkshire Hathaway energy already owns Intelligent Energy Solutions, which provides heat pumps, solar panels and biomass boilers.
Berkshire Hathaway Energy has plenty of scope to grow from here.
Disclosure: The author owns shares in Berkshire Hathway.
Read more here:Â
Business Lessons From Berkshire's Nebraska Furniture MartÂ
Seth Klarman: You Always Need a PlanÂ
3 Deep-Value Stocks Trading at a Discount to BookÂ
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
