We were pleased to see this article in the Financial Times last week, which highlights the trend we’ve observed for some time now.
We have seen first-hand that corporates are responding to the economic uncertainty in Europe and the US by accumulating cash on their balance sheets and are coming under increasing pressure from shareholders to deploy it to generate growth and returns – this sets the scene for increased M&A activity going into 2013.
In his article, Richard Madigan, Chief Investment Officer at JP Morgan Private Bank, makes the following points:
- Restrictive central bank monetary policy has produced negative real interest rates which penalise companies that hold ‘too much cash’;
- Nevertheless, corporates continue to issue additional debt and build cash reserves;
- Corporate activity in equity markets has shifted towards increased dividend pay-outs and share buybacks which have been welcomed by shareholders but which cannot continue indefinitely;
- Madigan believes that the resulting affordable equity valuations and strong corporate balance sheets will drive an increase in corporate M&A activity;
- He sees mid-market corporations in the US, emerging markets and certain areas of Europe as most likely to drive increased M&A activity.
Read the full article here (registration required).