The cash paradox: How record cash reserves are influencing corporate behaviour
Our Deloitte M&A Perspectives are a series of short articles where we share our views on topical M&A market themes and trends.
Market commentators often cite record corporate cash reserves as the key driver to rekindle M&A volumes yet dealmaking has remain subdued.
Our M&A Insight team have examined this paradox by analysing the FTSE 100 non-financial companies and their historical spending patterns. What emerges is a complex picture of ‘have’s’ and ‘have not’s’ who are exhibiting markedly different attitudes toward cash.
We observed the companies with the largest cash reserves display a fiscally conservative attitude towards cash, despite their position of strength. On the other hand, the ones with relatively small cash reserves are more bullish in the pursuit of growth and aggressively seek M&A opportunities. It seems such companies not only generate higher revenue growth but are also are rewarded by the markets through enhanced share price.
Deloitte Review: the global cash paradox
Financial conservatism served companies well in the downturn but in an economic recovery may be dragging companies into a vicious circle of cash accumulation at the expense of investment in growth. New research suggests markets are more rewarding of companies spending astutely in the pursuit of growth. Read the Global cash paradox.
Previous edition of M&A Perspectives
M&A Perspectives - M&A for growth: Restarting the UK's SME engine
This edition considers how fast-growing businesses have used M&A activities to significantly boost their growth, and how they can act as a template for SMEs who aspire to grow in tough conditions.
With our SMEs struggling to achieve organic growth, can M&A offer an opportunity to boost revenue, grow market share, create synergistic efficiencies and expand their client offerings?
We examined the 'UK Futures 1000' (our report into the 1,000 fastest growing companies from across the UK) and found that for the 23% of our sample who undertook M&A activities, the average three year growth rate stood at 26.2 per cent. This was 5.3 per cent higher than those who undertook no acquisitions.
We identify several market trends which prove that doing the right deal may provide one way to accelerate growth in the current environment.