Chillin' out till it needs to be funded
With Apple’s war chest a $50 bln and Google itself holding $30 bln, Deal America may not be a one way slide down the water pipe in the next few months. Among the S&P 500 members itself, America could be holding almost a $1 Tln in cash and with HSBC’s Card portfolio going for a likely less than $10 bln price tag all of America’s retail debt could probably value for just a couple of Hundred billion in sale and purchase transactions.
Net of the retail debt the pile would be lighter at $10 tln esp after defense cuts are effected in new weapon and research spending that has no proven productivity parameters scaled in the recent past. America’s Big pharma ( mostly European) has also learnt the hard way about allocating to Research and Development indiscriminately though innovation and innovation spending without big research has been key to America’s growth
Hulu and other digital champions like Twitter are n’t yet proven revenue horses for example and everyone has been trying to hitch them up for the last 3 years without success, which has nto diummed their growth in the steps of Facebook over the last three low growth years.
Also America’s corporate default rate has been the lowest for 2011 even though 63 new banks have shut down in 2011 , the numbers are much lower than the 1000 shutdowns each completed in 2008, 2009 and 2010.
Not all cash is good though, the debt crisis bringing a lot of American deposits to bank cash
Cash held by U.S. banks surged 8.4% to a record $981 billion during the week ending July 27, the Federal Reserve said in an Aug. 5 report. That’s more than triple the amount they had in July 2008, before the collapse of Lehman Bros. almost froze bank-to-bank lending.
Banks have been happy at growth in Credit Assets and Lending of even less than 4% in the last few quarters esp even when investment banking fees started declining and only comml bank fees gladdened their balance sheets. Easy credit with casht o pay for the deal could mean big deals happening withut stock swaps that leave a lot of deals seemingly in a soup. Though many of the large deals from 2010 even outside the area of stock exchanges have not been cleared by anti trust, such healthy cash balances would finally be deployed in larger chunky growth initiatives or more generated for others through a penchant for splitsville among the don’t haves like Kraft and ING outside the USA
Despite the flexibility offered by a cash purchase as investors and shareholders a re a more satisfied lot, deals in cash have also engendered an inviolate right from the acquirer relying on destroying all value making pieces of the acquirees business model as more pieces are available to consider during the integration and there is more temptation on the table
Also cash sales are seen in the context of distress capital raising , so an all cash deal may yet not be the preferred dealmaking tool. Nevertheless this high cash is unlikely to be associated with an ecnomy in recession and that contrariness is what we hope to bring out in the next few months till a recovery sidesteps the renewed talks of a global recession