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How Berkshire Hathaway Is Quietly Taking Over the World

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On multiple occasions, Warren Buffett has bluntly admitted that Berkshire Hathaway's (NYSE: BRK-A  ) (NYSE: BRK-B  ) enormous market capitalization will make it impossible for the company to duplicate its past rates of return going forward. That's no wonder, especially when we note by the end of 2012 he had grown Berkshire's per-share book value by 586,817% over the previous 48 years.

But that certainly doesn't mean Berkshire can't continue to beat the market going forward.

What it does mean, however, is that investors can expect the role of small acquisitions to continue playing an ever-increasing role in expanding Berkshire's moat, even as the company continues to snap up relatively large businesses.

Remember, in March, I highlighted the fact that Buffett told investors 2012 was a record year for "bolt-on" purchases, as Berkshire quietly spent around $2.3 billion for 26 companies to be absorbed into its existing operations.

With an average cost per company of around $88 million, we're talking about seriously small businesses when considered by themselves. Together, however, their collective positive influence in contributing profitable growth to Berkshire's book shouldn't be underestimated. After all, Buffett also said he and Charlie Munger love these types of acquisitions because they are usually "low-risk, burden headquarters not at all, and expand the scope of [their] proven managers."

Two more for the road
That's why it should come as no surprise that two of Berkshire's subsidiary businesses announced fresh new acquisitions of their own just last week.

The first came from Berkshire's Columbia Insurance, which on Thursday agreed to spend $285 million in cash to buy U.K.-based Hartford Life International from property and casualty insurer The Hartford (NYSE: HIG  ) . Hardford Life International, for its part, boasted $1.75 billion in assets under management as of March 31, 2013.

What's more, Berkshire's purchase price is "roughly equal to HLL's statutory surplus (calculated under Irish accounting standards) as of March 31, 2013, and is expected to reduce [The Hartford's] U.S. statutory surplus by approximately $150 million in the second quarter of 2013." Even so, it's hard to argue that Berkshire's getting the short end of the stick, considering The Hartford will take an after-tax net loss on the transaction of around $110 million.

The second acquisition -- also announced Thursday -- came from Berkshire's Oriental Trading Company, which acquired educational toy-maker MindWare Holdings for an undisclosed amount.

Curiously enough, remember this is the same Oriental Trading Company Berkshire itself acquired for around $500 million last November and for which the 28-year-old Tracy Britt -- who is one of Berkshire's most influential up-and-coming executives -- so happens to serve as chairman.

According to the press release, MindWare offers more than 1,000 educational products and has received 46 awards from nine different parenting organizations and publications.

In short, MindWare looks like a fantastic addition to Oriental Trading's own repertoire of party supplies, arts and crafts, toys, novelties, and school supplies. Better yet, for all you socially conscious investors out there, Oriental Trading CEO Sam Taylor chimed in to say MindWare "will support our efforts to respond to the needs of educators and parents as we continue our mission to make the world more fun."

For those of you who are familiar with Buffett, who tends to stress the importance of having fun and enjoying what you do, you can bet this was an acquisition that put a smile on his face.

Foolish takeaway
Whether Buffett snags another elephant this year or not, I wouldn't be surprised if 2013 turns out to be yet another record year for small acquisitions made by Berkshire. In the end, these two purchases should serve as yet another reminder that the folks at Berkshire are patiently, quietly taking over the world... one tiny business at a time.

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Steve Symington

As a technology and consumer goods specialist for the Fool, Steve looks for responsible businesses that positively shape our lives. Then he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.

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Related Tickers

5/24/2016 4:00 PM
BRK-A $215650.00 Up +3440.00 +1.62%
Berkshire Hathaway… CAPS Rating: *****
BRK-B $143.71 Up +2.23 +1.58%
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HIG $45.47 Up +0.79 +1.77%
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