This has been an amazing past couple of weeks for the future of the M&A market. Monday, August 2, was the sixth most active day of debt trading this year with $11.5 Billion placed according to Dealogic. IBM raised $1.5B of 3-year debt for an astonishing 1%!
Other takers of debt were ArcelorMittal, Citigroup, Credit Suisse, Expedia, Omnicom, Altria, and Newell Rubbermaid. After they pay down preexisting debt what are they going to do with all of this cash? I see five options:
1. Sit on it
2. Pay dividends
3. Invest in CapEx
4. Buy back stock
5. May acquisitions
One, two and four aren’t really exciting and don’t grow the company so I predict you’ll see companies investing in CapEx and making acquisitions. With Treasuries selling for record lows last week, I doubt strong companies can do much more to improve their balance sheets – they already have record amounts of cash and debt is historically low.
But growth is anemic. So their best option is to make acquisitions to tap new markets, new technologies, or capture plain vanilla market share. In any event, with all this cheap debt they have a lot of inexpensive fuel for growth.
Photo taken by futureatlas.com