M&A All the Way

Is the recent uptick in deal announcements the sign of greener pastures, or does the increased mergers and acquisitions (M&A) activity indicate a potential market bottom NOT a market top. There are many, so called, pundits that might argue both sides of the fence. Unfortunately for many investors, half of them will be wrong. Markets tend to get overheated near “market tops.” Currently, companies have deep pockets, but very short arms, and as a result, companies have been very stingy with their capital. However, if we continue to see more internally financed cash deals, I will view that trend as a tremendously positive signal of longer-term fundamental confidence, a characteristic which was absent last year. One word…cash. About $1.8 trillion of it is just piling up on the non-financial balance sheets of domestic companies (Financial Times). Investors are getting restless with the obscene amounts of money earning 1% in this low interest rate environment. With very little potential for interest rates to increase in the near future, impatience is looming large. Shareholders want to see more productive strategies applied to their capital sooner than later. As an investor, doing your homework on corporate health and the cash holdings of a potential investment are essential in today’s marketplace.