Prediction: Greg Abel Announces Another Whole-Company Acquisition Before Year-End

Any prediction about any company's future acquisitions should be taken with a big grain of salt. This one is no different. Nobody truly knows what the future holds.

There are certainly reasonable, well-supported guesses about what's likely to transpire, though.

Enter Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB).

Although you may know it best for its portfolio of stocks handpicked by iconic investor Warren Buffett, that's not all Berkshire is. The conglomerate wholly owns a few dozen businesses, including GEICO Insurance, Duracell batteries, Shaw flooring, Pilot travel centers, Clayton Homes, and more. It also recently completed its acquisition of homebuilder Taylor Morrison, and in January closed on the purchase of OxyChem from previous owner Occidental Petroleum.

And the timing of these two recent outright purchases is telling. While it's certainly not unheard of for Berkshire to take a publicly traded company private, it is relatively rare. Now it's happened twice in less than a year, a period in which Buffett, as well as current Chief Executive Officer Greg Abel, have indicated there just aren't many stocks out there worth their price. (The one clear exception has been Alphabet, which is now Berkshire Hathaway's third-biggest stock holding.)

In light of how little has changed in equity markets in the meantime, it's a reasonably good bet that Abel is considering more acquisitions of undervalued companies rather than new positions in publicly traded ones. In fact, it's possible that at least one more could be announced before the end of 2026.

Private is making more and more sense compared to public

Outside of its insurance and energy businesses (where adopting a new name is relatively easy), the last major whole acquisition Berkshire made was its 2016 purchase of the aforementioned Duracell battery brand from Procter & Gamble. So again, outright acquisitions are relatively rare for Berkshire Hathaway.

One of Berkshire Hathaway's more compelling investment attributes, however, is its flexibility. It can focus on picking stocks when it makes sense. When it doesn't make sense, though, the conglomerate can change tack and opt for complete ownership.

And it's recently done so, and for good reason. On an inflation-adjusted basis, the market as a whole is very expensive right now. It would also be naïve to overlook that nearly every sliver of the market is at least somewhat affected by the artificial intelligence (AI) revolution that could live up to every lofty expectations, collapse, or end up somewhere in between these two extremes. The danger to investors is simply not knowing how any AI upheaval might shake out.

Image source: Getty Images.

It's not just Berkshire Hathaway showing heightened interest in opportunities outside the conventional equity market, by the way. Hedge fund Pershing Square's (NYSE: PS) chief Bill Ackman is creating a new venture fund specifically meant to offer ordinary investors access to private companies planning to go public, while BlackRock (NYSE: BLK) is working on a way of adding modest exposure to privately owned businesses within workers' 401(k) plans. At the same time, interest in private credit and private equity investments through publicly traded companies such as Main Street Capital (NYSE: MAIN) and Brookfield Renewable Partners (NYSE: BEP) (NYSE: BEPC) continues to grow.

All this underscores a certain level of disillusionment with stocks as a whole. Greg Abel's likely seeing and feeling the same.

Then there's the possibility that the stock market itself may be entering a prolonged period of subpar returns. A recent outlook from brokerage firm Charles Schwab suggests large-cap stocks as a whole are only going to produce an average annual return of about 6% through 2036, less than half the average during the past decade, jibing with a prediction from mutual fund powerhouse Vanguard.

Given that outright ownership of entire companies means all of their cash flow trickles up to the parent organization's bottom line -- which isn't the case with stock ownership -- it's conceivable that wholly owning a cash-generating enterprise will bear more fruit for the foreseeable future than being a stockholder of most publicly traded companies.

Possible picks

As for which company (or companies) Abel might choose to wholly acquire next, that's even tougher to predict than whether he'll make any such deal at all. There are a handful of arguable prospects, though.

One of these possible targets is GATX (NYSE: GATX), which leases out its fleet of railroad cars. Although the stock's still within sight of April's record high, it's also reasonably valued at only about 17 times this year's projected per-share profits. Its business is also growing well despite economic headwinds and would mesh well enough with Berkshire's current railroad holding, BNSF. GATX is also simply affordable, with a market cap of a little more than $6 billion.

Or, if Abel wanted to stick with a well-proven approach, Berkshire could shell out roughly $23 billion of the $365.5 billion in cash it's currently sitting on and scoop up insurer Markel Group (NYSE: MKL) while its stock is down. It would certainly be a good cultural fit, as Markel is much like Berkshire Hathaway in that it owns a combination of handpicked publicly traded and privately held companies. It's even occasionally called a "Baby Berkshire."

If Berkshire were willing to think bigger, however, don't rule out a deal for Illinois Tool Works (NYSE: ITW). Although it would cost a hefty $77 billion or more, it would be an outstanding fit.

ITW is a decentralized conglomerate itself, and a successful one because it makes a point of remaining that way, leaving managers alone to let them run their businesses. It's also the kind of reliable cash cow that Buffett loves, with 63 consecutive years of per-share dividend growth.

Just be careful about any such speculations. If a complete acquisition is in the cards, we're not likely to guess it right.

But that's OK -- current Berkshire Hathaway shareholders don't need to worry too much about which deal Abel is likely to make next. Even if it's an acquisition of a publicly traded company at a premium valuation, Berkshire's investors will be the ultimate beneficiaries of any such deal.

Charles Schwab is an advertising partner of Motley Fool Money. James Brumley has positions in Alphabet and Procter & Gamble. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, BlackRock, and Markel Group. The Motley Fool recommends Brookfield Renewable, Brookfield Renewable Partners, Charles Schwab, Illinois Tool Works, and Occidental Petroleum and recommends the following options: short September 2026 $95 calls on Charles Schwab. The Motley Fool has a disclosure policy.