In the latest data released by the Fed, corporate strategics in the U.S. are sitting on an estimated $1.9 trillion in cash. This represents a 35% increase since the first quarter of 2009, or an increase of approximately $489 billion dollars in cash. In some circles, this cash accumulation has been labeled as “excessive,” since investing in growth and hiring newhave not followed the increase.
However, Treasury Strategies Inc., a leading Treasury consulting firm, takes a different view of this accumulation. Beginning in the first quarter of 2009, companies began to accumulate substantial amounts of cash, which triggered accusations of hoarding.
“The data demonstrates that corporations are making purposeful decisions to spend wisely as the business environment improves,” counters Anthony Carfang, partner of Treasury Strategies.
Carfang continues, “In the end, it looks like corporations have done a tremendous job of responsibly managing theirby holding onto cash through challenging economic events. As we predicted last quarter, we will see a continuation of that responsible behavior through purposeful spending aimed at strengthening stakeholder relations and business infrastructures.”
Of course the real question is this: What will strategic players do with all of this cash? Treasury Strategies believes that during the next six to 12 months companies will begin to deploy cash in areas that maximize their return, such as capital expenditures,and , and debt redemptions.
We have highlighted the term “mergers and acquisitions” because in today’s economic environment, acquisitions are probably the fastest way to grow your business if you are a strategic player. Given projected GDP growth is in the 2 to 3 percent range as predicted this year, most CEOs know that instead of waiting for theto drive their growth, the fastest way to expand market share and gain new customers is via acquisitions.
And as we discussed yesterday, instead of taking big risks and hoping to hit a home run with a huge acquisition, most strategic players will make a number of smaller acquisitions and sustain longer-term growth without the huge risks associated with billion-dollar deals (for further details, see Bairds Expectations for M&A Activity in 2011).
All of this is clearly good news for owners of middle-market companies. Over the next year or two, with a record $1.9 trillion to spend, you can expect to see corporate players become quite active. In order to better position your company to be attractive to professional buyers, you could use the services of an M&A advisory firm.
Keep in mind that these buyers review hundreds of acquisition opportunities before closing a specific deal. In order to ensure your company is a finalist in one of these “beauty pageants,” it is vital that you have professional representation.
Before you are approached by a professional corporate buyer, you must first determine what your company is worth in today’s market. To do this, you will need to have a thorough evaluation completed on your company, which should, at a minimum, include a complete recasting of your financials (for more details on the topic of recasting, please see Documenting Your Company: The Key to Closing a Deal). This valuation needs to be accurate, professional, and completed by an organization that has the proven experience and market knowledge to do it right.
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