Commentaries
Now raising intellectual capital
Where cash is not yet king
In deal-making, the appeal of cash is obvious. Cash offers a cleaner exit for investors, particularly foreign ones. It has a value that will not fluctuate the way that stock prices can between when a deal is announced and when it closes.
For companies sitting on large piles of cash, using some of the money for deals makes sense given the low-yielding alternatives.
And a number of American acquirers are stumping up and putting cash on the barrel. Abbott Laboratories said today that it would spend 4.5 billion euros in cash ($6.6 billion) in cash for the drug unit of Solvay of Belgium. Last week, Dell announced that it would spend $3.9 billion in cash for Perot Systems. (Abbott will be left with more than $2 billion in cash on its balance sheet, while Dell will have $9 billion.)
Yet cash accounts for a smaller slice of the M&A universe than it did pre-financial crisis. Cash-only deals by American acquirers account for only 20.3 percent of total merger volume so far this year, according to Thomson Reuters data. That’s 803 transactions representing $93 billion worth of deals. Compared that all of 2007, when 1,919 all-cash transactions accounted for 54.5 percent of total dollar deal volume in the United States – or $796 billion worth of deals.
Cash M&A still lifeless
Bond sales are at a record, equity markets are at year-highs, private equity firms are sitting on huge cash piles — Blackstone alone has $29 billion — and banks are lending to each other again.
The ingredients should all be there for a resurgence of cash-driven mergers and acquisitions. But instead, the market is in hibernation.
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The Wall
