Warren Buffett is one of the most respected businessmen in the world. With a net worth of $67 billion dollars, Buffett’s wealth only continues to grow as his diversified holding company, Omaha-based Berkshire Hathaway, increases their profits year after year. Forbes reports that Berkshire Hathaway posted $182 billion in revenue in 2013. Numbers like these mean that when Buffett makes a decision, everybody listens closely.
Buffett’s latest news-making feat has exploded in headlines around the world this week, particularly because it broke the mold of his usual purchasing history. According to USAToday, Berkshire Hathaway concluded a deal valued at $37.2 billion to acquire aerospace manufacturer and supplier Precision Castparts. The investor is known for buying low and only acquiring things he understands, so a purchase-price of this magnitude is particularly notable. As usual, Buffett paid for the entire Portland, Oregon, based company in cash at $235 per share.
“I’ve admired PCC’s operation for a long time,” Buffett said in a statement. “For good reasons, it is the supplier of choice for the world’s aerospace industry, one of the largest sources of American exports.” The company was founded over sixty years ago as a small manufacturer of investment castings for aircraft engine, industrial gas turbine, airframe, and other applications. They still manufacture those products today, but have expanded to manufacture high-performance alloys for aerospace, power generation, and general industrial applications, as well as engineered fasteners and fastening systems. In total, the company employs over 29,350 employees at 157 manufacturing operations around the world.
Some analysts speculate that the purchase was made because such an extensive expenditure of capital will take Berkshire out of the market at least through the middle of 2016. USAToday suggests that “by deploying $37 billion in capital on the Precision Castparts deal, Buffett is taking some pressure off his company’s next leader.” Edward Jones analyst Jim Shanahan says that “anybody taking over the company from Warren Buffett—I think it’s potentially positive here that they would be able to focus on running the business as opposed to putting capital to work initially.”
For aerospace manufacturers, this type of massive investment is a vote of confidence in an industry dramatically affected by the great recession. Scott Livingston, CEO of the Horst Engineering Family of Companies, says that while the defense aerospace industry is still weak, the commercial side of the industry is regaining trajectory more quickly: “By most accounts, 2014 was a very strong year. Right now the fundamentals of our industry are good and the forecast is bright.”
Although his interview took place before the Precision Counterparts purchase, Livingston predicted a similar occurrence: “Investment is coming into the manufacturing side at a record pace because there isn’t a next generation leading these companies. So we will see a wave of consolidation.” PCC is a vital source of components for Airbus, Boeing, GE, Rolls-Royce, and many other leading commercial manufacturers, and nearly every aircraft in the sky flies with parts made by PCC.
For those who may be interested in a career in aerospace manufacturing, the skies ahead are looking clear. To learn more about other manufacturers purchased by Berkshire Hathaway, read a previous blog post here.
Photo Credit: Precision Castparts