Billionaire entrepreneur Warren Buffett, through his Berkshire Hathaway holding, has placed even higher bets on the US automotive force by investing recently $560 million in Axalta Coating Systems.
The company is a 145-year old firm specialized in making coatings for cars, sport utility vehicles and commercial vehicles. Axalta has been one of the winning bets for the recovering US automotive industry, after private equity owner The Carlyle Group bought it from DuPont back in 2013 for $4.9 billion – they then took the company public in November 2014 and more than tripled their initial investment. Berkshire will now be purchasing 20 million Axalta shares straight from Carlyle, with the investment reaching around 10 percent of the company’s stock. There is also speculation that from a secondary stock acquisition this could turn into a larger share buy in or even Berkshire outright taking the $6.5 billion market cap to assume control of the company.
Berkshire has been targeting investments in the automotive sector recently, signaling Buffet’s faith in the rejuvenated US auto market – on its way to the sixth consecutive year of growth. The automotive industry is especially benefiting from the consistent US gross domestic product surge, the best labor market since the crisis and the continued low fuel prices. Last October Berkshire began its foray into the auto sector by acquiring nationwide dealership group Van Tuyl Automotive, in a deal seen as a major investment move for a company with a market cap of $354 billion. The Van Tuyl operations, which yielded $9 billion in yearly sales in 2014, would become Berkshire’s ninth subsidiary fitting in the Fortune 500 list. The hedge fund also hinted after the purchase it was further interested in auto investments, either new or through a Van Tuyl expansion strategy.