Why Did Buffett Buy Duracell? Finding Growth in Mature Markets

At first glance you may ask, “Why in the world would Warren Buffett buy Duracell?”

One explanation is financial. Through a bit of fiscal engineering Berkshire Hathaway is able to avoid triggering significant taxes. The Duracell transaction, is essentially a merger through a stock swap. Berkshire will give P&G $4.7 billion of the shares it now owns and P&G will infuse $1.8 billion in cash into Duracell before the deal closes in 2015, Reuters reports.

The financial aspect aside, it is puzzling why Warren Buffet wants to acquire Duracell. The battery industry is a fairly mature market. What more can he do?

We may be tempted to think “mature” equals “boring,” but there is still room for creativity. The Duracell transaction is just one example.

Last month, Berkshire Hathaway acquired Van Tuyl Group, an $8 billion automotive dealership. Again, this is a mature industry. The reality is that Berkshire Hathaway sees this acquisition as an opportunity to consolidate and to add what we call “optionality.”

Now, not only will Berkshire Hathaway sell you a car, they may offer a preferred rate at Geico insurance, an after-market warranty package and even financing. By acquiring these businesses, Warren Buffett is able to bundle and sell more things under the family of Berkshire Hathaway.

Even if you are in a mature market, I challenge you to creatively look for growth opportunities.