Warren Buffett‘s Berkshire Hathaway Inc. on Monday pulled back the curtain on plans to buy aerospace manufacturing firm Precision Castparts Corp. for about $32 billion in cash. It represents Berkshire’s largest takeover ever, topping its gigantic deal for Burlington Northern Santa Fe in 2010.  While Burlington was–and is–one of the largest railroads in the U.S., dominating freight transportation west of the Mississippi in a way that makes it nearly impossible to challenge, Precision Castparts operates in a sector where no one player has a stranglehold on the market. As news of the deal was breaking, some analysts were quick to note that Precision Castparts appears to lack the pricing power that Mr. Buffett has often sought in deal targets.  To understand what Mr. Buffett was thinking in making its $235-a-share offer for the company, the proper comparison isn’t Berkshire’s BNSF deal. Instead, look to last year’s $4.1 billion agreement to acquire car-dealership chain Van Tuyl Group, the 2011 purchase of Lubrizol for $9 billion and the $5.6 billion deal for NV Energy in 2013.  The U.S. auto retailing business is highly fragmented, and Van Tuyl was already snapping up mom-and-pop dealerships across the South and Midwest before Berkshire bought it. Now renamed Berkshire Hathaway Automotive, Mr. Buffett has said he plans to use the newly acquired company as a platform to build a giant in the industry.  “If we can buy dealerships at sensible prices,” he wrote in Berkshire’s most recent shareholder letter, “we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”  It’s a strategy that’s to some extent reflected in Berkshire’s recent pushes into newspapers and real-estate brokerages.  In both sectors, Berkshire has been rapidly snapping up assets across the U.S. Five years ago, Berkshire’s only 100%-owned newspaper holding was the Buffalo News. Now, the list of mostly small, community newspapers it owns fills an entire page at the end of Berkshire’s annual report. In the same report, Berkshire’s count of real-estate agents at its various brokerages topped 20,000–and the company keeps adding more.  The strategy for each appears to be to create a giant in a sector where none currently exists.  After Berkshire acquired specialty chemical company Lubrizol Corp. in 2011, Mr. Buffett praised the company’s CEO, James Hambrick, and described how Lubrizol would be a perfect vehicle for Berkshire to make “bolt-on” acquisitions, which are often small transactions negotiated not by Mr. Buffett, but by the heads of Berkshire’s various business units.  Mr. Buffett proclaimed himself “eager to expand [Mr. Hambrick's] managerial domain,” and said Lubrizol “will have many opportunities for ‘bolt-on’ acquisitions in the specialty chemical field.”  In fact, in the half-a-year between when the Lubrizol deal closed and when Mr. Buffett wrote about the unit in his 2011 annual report, Lubrizol had already done three such deals, costing $493 million. Such small acquisitions have continued apace, but Lubrizol has also gone bigger on occasion, with a $750 million-plus deal announced last December and a transaction last February where Berkshire handed over its $1.35 billion equity stake in Phillips 66 in exchange for Phillips Specialty Products Inc., which it then renamed as Lubrizol Specialty Products Inc.  Such bolt-on deals are attractive to Mr. Buffett because each one is relatively low-risk, yet together they can add substantially to earnings over time. He trusts his managers to pick attractive targets in their various areas of expertise so that he doesn’t have to be an expert at everything.  Bolt-on deals have become increasingly important because the bigger Berkshire gets, the fewer the opportunities to pursue gigantic deals that meet Mr. Buffett’s criteria. Across the entire Berkshire family, Mr. Buffett said the company had agreed 31 bolt-ons in 2014, committing $7.8 billion in aggregate.  Mr. Buffett entered the energy industry in 2000 with Berkshire’s $2 billion purchase of MidAmerican Energy Holdings Co., and its utility operations have grown by leaps and bounds since then.  A key example: Berkshire bought Nevada’s largest utility, NV Energy, for $5.6 billion in 2013.  The transaction shows that not all bolt-on acquisitions are small. Through big deals like the NV Energy transaction, Berkshire has assembled an operation that is now key to Berkshire’s future. It generates more than 7% of the conglomerate’s earnings–a percentage that’s likely to climb—while also providing Mr. Buffett a way to invest Berkshire’s ever-growing cash pile.  Berkshire’s energy unit now operates power plants, natural gas lines, wind farms, solar projects and hydroelectric dams. Its reach stretches across large swaths of the U.S. and into Canada. It also has a presence in northern England and on the Philippine island of Luzon. More than 11 million people get their power from Berkshire companies, and the energy operations collectively raked in more than $17 billion in revenue last year.  Charles T. Munger, Mr. Buffett’s longtime business partner and Berkshire’s vice-chairman, predicted last year that Berkshire would own “the biggest utilities business in the United States” in a few years. The unit, now called Berkshire Hathaway Energy, is headed by Greg Abel, a longtime Berkshire executive who’s considered one of the candidates most likely to replace Mr. Buffett as Berkshire’s CEO one day.  The future for Precision Castparts under the Berkshire umbrella is still yet to be written, but some of Mr. Buffett’s past deals hint at what’s to come.  Precision Castparts CEO Mark Donegan, who took the helm in 2002, already has a history of dealmaking. Dealogic counts more than 40 transactions in the past decade that helped the company grow. Many of those have been of the bolt-on variety, where the company has paid six or seven figures. Certainly, those small deals will continue under Berkshire.  The company has previously said is looking to spend an additional $5 billion on acquisitions over the next few years, and not every deal in the sector is a small one. Consolidation is sweeping the aerospace industry amid pressure to trim costs. Alcoa Inc. last month closed a $1.5 billion deal to acquire RTI International Metals Inc., a big supplier of titanium to the aerospace industry. In April, Transdigm Group Inc. paid $336 million for Pexco Aerospace, a big maker of plastic parts for the industry. For the right target at the right price, Mr. Buffett would certainly be willing to allow Mr. Donehan to tap Berkshire’s vast coffers to do a deal that would have been a stretch for a stand-alone Precision Castparts.  Over time, a company that’s already large could grow to become a giant.  Historically, Mr. Buffett has said he likes to buy companies with a large “moat,” a term he uses to refer to a company’s competitive advantages. But lately, he’s been investing in industries with no clear market leader.  The shift in tactics doesn’t represent a change in philosophy. It’s just a different path to reaching the same goal.  –Anupreeta Das contributed to this article.
Precision Castparts isn't exactly a classic Buffett-style investment.Here's how the Oracle of Omaha's tactics have changed over time.