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The issue to focus on with Berkshire is the ability to put money to work - not its availability.

I'm starting a new thread, based on the above.

One of the arrows often mentioned in deploying BRK cash is that private companies will prefer BRK as an acquirer - seeking to maintain operating control and preserving their culture. Last October I sent the following e-mail to some friends on this subject. How real is this arrow?

Out of curiosity, I sorted through the top 25 privately held companies as listed in the Forbes Article. I initially divided them into two groups - those I thought might be a BRK possibility and those I thought didn't fit with BRK.

The list totaled $750 billion in revenue. Of that I rejected $408 billion as follows:

Koch - $100 billion (culture and refining)
Accounting Firms - $103 billion (Deloitte, Price Waterhouse, Ernst & Young)
Grocers - $144 billion (Albertsons, Publix, HEB, Meijer, Winn Dixie)
Bechtel - $33 billion (construction)
Fidelity Investments - $16 billion (conflict of interest?)
Toys-R-Us - $12 billion (bankrupt)

I kept $342 billion as follows:

Cargill - $110 billion (agriculture related conglomerate)
Mars - $35 billion (candy - yum!!)
Wholesale Food Distributors - $41 bullion (C&S Wholesale Grocers, Gordon Food Service)
Wholesale Beverage Distributors - $43 billion (Reyes Holdings, Southern Glazers Wines & Spirits)
Vehicle Travel Service - $36 billion (Pilot & Loves)
Media - $31 billion (Cox Enterprises and Hearst)
Auto Sales - $15 billion (JM Family Enterprises)
Auto Rental/Leasing - $21 billion (Enterprise Holdings)
Staffing Services - $11 billion (Allegis Group)

Obviously Cargill and Mars would be very significant acquisitions for BRK - and chew up a lot of capital

There are opportunities to add to the McLane type businesses in food and beverage distribution. I don't know how far this could go without getting into anti-trust issues. But both beverage distributors look like BRK type companies, particularly Reyes ($26.5 billion).

Loves is a Pilot competitor. Don't know if there would be antitrust issues. Almost the same size.

With Buffett's love for newspapers and having picked up a TV station from the Washington Post, I don't know if Cox Enterprises would be of interest. Is Hearst a culture fit?

JM Family Enterprises looks like a natural target to me.

Would Allegis Group be of interest? I didn't exclude them because they're another service business.

Obviously sales revenue isn't the best measure of opportunities - profit margins probably vary widely among these firms (e.g. Mars).

My basic takeaway from this very superficial exercise is that private acquisitions such as the above list won't soak up much of BRK's capital once we get past Cargill and Mars. There are some worthwhile potentials to consider as add-ons or worthwhile new entries but it will take a lot of them to use up BRK's cash pile and annual cash generation. We'll still need JV's with 3G, market drops in equity prices, and hopefully some opportunities outside the US.

That's not intended to mean that they aren't worth pursuing.

That ends the aforementioned e-mail.

Buffett has put some added constraints to investing BRK's cash flow.

1. He won't do unfriendly acquisitions.

2. He doesn't want to pay a dividend - nor do his shareholders want one.

3. He has set buyback criteria at a level unlikely to be available in any decent amount.

4. He won't do certain equity purchases - e.g. tobacco.

5. He has avoided past opportunities in technology - because of the difficulty in forecasting the future. That changed somewhat with IBM - not a great choice - and now Apple, deciding it's a different kind of company. But still avoids the Facebook, Netflix,etc. Now admits that passing on Google was a mistake. Will this change?

6. The amount of money he has given to Ted and Todd is minor by BRK measures. Circa half of it has been in the pension funds.

Attempts to do major international acquisitions have shown little success. Iscar is the exception, but one that sought him out. He wasn't aware of it.

Hoping for a major market meltdown is always a possibility. I don't really like that as a basic investment strategy. However, avoiding an overpriced market does help meet Rule 1 - don't lose money. Will "patience grasshopper" be our hope going forward? If not, what's going to change?


What's the point of this ramble? Hopefully to promote discussion on BRK's primary challenge - to find homes for its cash flow. I don't mind folks that may disagree with some of the above statements. But I would like to hear why?
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