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NEW YORK (Reuters) - Warren Buffett's hunt for a large acquisition could lead to targets like Eaton (ETN.N), Illinois Tool Works (ITW.N) or Cliffs Natural Resources (CLF.N), all of which seem to fit his recent preference for growth in industries outside of his core insurance unit.
Using Thomson Reuters StarMine data, Reuters Insider compiled a list of more than 80 companies that met Buffett's basic criteria -- namely industry leaders with strong balance sheets that are available on the cheap.
Names like ITW, Cliffs and Eaton feature on the list, along with high-profile international names like Rolls-Royce Group (RR.L) and AkzoNobel. (AKZO.AS)
All of them are trading at enough of a discount to analysts' expected earnings growth for the next five years that Buffett could pay a 20 percent premium and still be getting value in the deal.
"He always wants a simple defensible durable business that will still be here and still be on top of its game in 25 years," said James Armstrong, president of Henry H. Armstrong Associates, which manages about $400 million, around a quarter of which is invested in Berkshire.
The Reuters Insider analysis focused on companies with market capitalizations in the $10 billion to $30 billion range that meet Buffett's publicly stated criteria for deals, including a history of profitability and little debt.
MORE CAPACITY TO DEAL
Buffett made a splash earlier this month in buying lubricant maker Lubrizol Corp (LZ.N) for $9 billion, extending the trend of Berkshire Hathaway's (BRKa.N) recent investments in basic industries.
The deal is Berkshire's biggest since it bought Burlington Northern Santa Fe for more than $26 billion in late 2009, but Buffett is still on the hunt for big deals.
In Berkshire's annual report, Buffett said he is on the lookout for possible acquisitions -- making references to going big-game hunting with an elephant gun.
The company had amassed a cash pile of about $38 billion by the end of last year. When Goldman Sachs (GS.N) buys preferred shares back from Berkshire, the insurance company will pick up an additional $5.5 billion.
"Lubrizol changes his acquisition profile by zero," said Glenn Tongue, managing partner who helps manage around $200 million at T2 Partners.
Tongue estimates that after the Lubrizol deal, Berkshire will still have more than $50 billion of cash on hand at the end of 2011 if the company does not do any more acquisitions.
"He characterized the acquisition exercise as elephant hunting. Lubrizol is not an elephant -- I wouldn't be surprised if he announced an acquisition larger than Burlington Northern this year," Tongue said.
SPECIFIC CRITERIA
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