Nobody Does M&A Better Than Buffett and Southwest Airlines

NEW YORK (TheStreet) -- Low interest rates have engendered a high level of mergers and acquisitions activity with Amazon (AMZN), Apple (AAPL), BHP Billiton (BHP), Google (GOOG), Tyson Foods (TSN) and many others buying. But the shareholders of Amazon, Apple and the others should not rejoice: Studies have shown that the great majority of mergers fail.

Arguably the two publicly traded companies with the best track record for M&A are Berkshire Hathaway (BRK.A), headed by Warren Buffett, and Southwest Airlines (LUV), with its unmatched streak of profitability for its industry. Most intriguing is that each approaches acquisitions with a diametrically opposing philosophy.

About buying another firm, Buffett has been quoted as saying, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." When an entity is acquired, management is left in place. Berkshire Hathaway operates as a holding company for the many different entities it has acquired, ranging from Burlington Northern Santa Fe railroad to Lubrizol, an industrial lubricants firm, to the chain of Dairy Queen Restaurants.

It is exactly the opposite for Southwest Airlines.

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The 2010 purchase of Air Tran serves an example. Southwest Airlines bought Air Tran when it had plunged to under $5 a share in 2010. In 2008, it bought the assets of ATA out of bankruptcy. Any planes that are not a Boeing 737 of the purchased airline are leased out or sold. Air Tran's Boeing 717s were transferred to Delta (DAL).

So what should investors look for to profit from mergers and acquisitions?

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