BERLINThis isnt the first or only time that Warren Buffett and his conglomerate, Berkshire Hathaway (NYSE: BRK-A.US) (NYSE: BRK-B.US) have gone shopping in Germany. But I think this latest buy the full acquisition of motorcycle gear retailer Detlev Louis Motorradvertriebs is particularly notable for investors.
1. Bullish on Germany (and Europe)
Buffett is known for going against the grain and succeeding thanks to this strategy. In 2008, he penned on OpEd in The New York Times titled Buy American. I Am.. At the time, the U.S. was reeling from the massive financial crisis. Just a month prior to Buffetts column, the behemoth investment bank Lehman Brothers had filed for bankruptcy.
Buffett backed his words with actions, loading up Berkshires portfolio with U.S. stocks, including U.S. financial companies such as banking giant Wells Fargo (NYSE: WFC.US) and investment bank Goldman Sachs (NYSE: GS.US). Time has proven Buffetts bullishness right.
Today, we see Europe still struggling to get growth back on track. The clash between Russia and Ukraine have the continent on edge. And the ongoing financial struggle of Greece have caused headaches for members of the EU notably the financially-strong Germany.
Reporting on the purchase of Detlev Louis, the Financial Timeswrote:
[Buffett] told the Financial Times on Friday that Europe is a natural location for what he calls elephant hunting searching for big acquisitions and said that the continents current economic issues would not dissuade him.
Knowing Buffetts modus operandi, the continents current situation may not only be not dissuading him, it may actually be encouraging him to look for deals in Germany and the rest of Europe.
2. This isnt a new interest in Germany
Also from the FT:
There is nothing like a deal to get peoples attention, Mr Buffett said. This is smaller than something we would normally do, but it is a door opener. I like the fact that we have cracked the code in Germany.
This suggests that Buffett has been looking for a while for opportunities to buy into the German economy. And that shouldnt be a surprise. Berkshires business base is loaded up with strong companies that produce quality products, and have leadership positions in their industries. Sound familiar? To me, it sounds a lot like Germanys Mittelstand.
Buffetts words also suggest that this is just the beginning. Hes got the code cracked now, so we may soon see Berkshire back in Germany for more and next time it may be much larger.
3. For Berkshire investors: Not much here, but
Berkshire is paying around 400 million EUR for Detlev Louis. For normal human beings, thats a lot of money. For Berkshire, its peanuts. So for Berkshire investors, it means that theres not going to be much of an impact on the overall company from this deal.
But as noted above, this may be a test case and a way for Berkshire to dip its toes in the German and European marketplace before jumping at bigger deals. And because Berkshires acquisition model is to buy companies and then let them operate without much interference, it can be a very attractive option for many owners. That may make this deal a signal to EU business leaders that Buffett has open ears for sellers from across the pond.
One of Buffetts more famous quotes is Be fearful when others are greedy, and be greedy when others are fearful. For Berkshire investors, its great when Buffett is able to put the companys cash to work by buying businesses for the Berkshire portfolio. When he can do that in situations where others are fearful, its that much better.
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Matt Koppenheffer owns shares ofBerkshire Hathaway, Wells Fargo, and Goldman Sachs.