Buffett Waits On Fat Pitch As Cash Hoard Grows

Heinz, IBM

When opportunities do arise, Buffett has shown he can move decisively. The cash pile fell to $35.7 billion on June 30 last year as he teamed up with buyout firm 3G Capital to take HJ Heinz Co. private. In 2011, it dipped to a similar level when he spent $10.9 billion amassing a stake in International Business Machines Corp.

While Buffett has said that low yields made him avoid bonds, not even stocks have tempted him much this year. The filing showed that Berkshire spent $2.05 billion on equities in the first half, about a third of the total from a year earlier. Its sales of stock more than doubled to $2.96 billion.

“It’s more difficult, across the board, to find cheap assets,” said John Fox, director of research at Fenimore Asset Management Inc. in Cobleskill, New York, which oversees $1.9 billion including Berkshire stock.

Other acquirers are also awash in cash. Private-equity firms were sitting on a record $1.16 trillion of capital as of July, according to Preqin Ltd., a London-based research firm.

“The amount of dry powder is unprecedented,” said David Fann, CEO of TorreyCove Capital Partners LLC, which advises investors in private equity. “This is the most amount of money that they’ve had to work with.”

Blackstone, Apollo

The money pile has prompted warnings from executives including Blackstone Group LP President Tony James and Apollo Global Management LLC co-founder Josh Harris that some private- equity firms are paying too much.

Transactions of more than $250 million were valued at 10.2 times earnings before interest, taxes, depreciation and amortization in the first quarter, according to PitchBook Data Inc., a Seattle-based research firm. That compares with 9.8 times in the prior period. Consulting firm Bain & Co. has said that a reasonable leveraged buyout price is less than eight times Ebitda.

Unlike private-equity firms, which are under pressure to invest limited partners’ funds, Buffett has the benefit of Berkshire’s long-term shareholders who support his refusal to rush an acquisition or stock purchase.