Corporate coffers are stuffed to the gills with uncommitted capital, foreshadowing a surge of mergers and acquisitions on the short-term business horizon.
Peter Ricchiuti, a professor with the Tulane University A.B. Freeman School of Business, told a recent gathering of agricultural bankers that the biggest business headlines of the next year will likely center on how companies spend the massive amount of cash they have sitting on the sidelines.
"You're going to see, in the (next) 12-18 months, so much merger and acquisition activity that your head is going to spin right off your shoulders," Ricchiuti told the American Bankers Assn.'s Agricultural Bankers Conference. "The reasons are that U.S. corporations are so full of cash right now — about $3 trillion of unused cash."
Ricchiuti explained that the way entities handle cash in challenging economic conditions is fairly intuitive.
"If you're an individual and you're afraid of the future, you can pile money away; that's okay," he said. "If you're a private company, you can stockpile money in sandbags and make a levee for yourself or whatever. (However,) if you're a public company, you can't do it very long, because at some point, somebody comes in and does a leveraged buyout on you."
Ricchiuti said the prospect of a corporation being acquired, essentially with its own money, will push directors and executives to put their cash reserves into play.
"It's already happening (to some extent), but the speed is going to be blinding when it happens because the stock market is still pretty cheap," he explained. "Even after this weird run-up, it's selling less than 14 times earnings, interest rates are very low, money is very easy to get on the corporate side and the dollar is weak against other currencies."
Source: American Dairy Science Association Dair-E-News.