Mergers And Acquisitions: Today's Catalyst Is Working Capital
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Authors
Sagner, James S.
Issue Date
2009
Type
Article
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Abstract
In developed economies M&As are now used to acquire balance sheet assets, particularly cash hoards and other working capital; previously, M&A was oriented to strategic diversification or integration. Although the volume of deals is down due to global economic conditions, the premiums paid for companies remain robust. Acquirers appear to understand the risk inherent in these transactions, including the threat of investigation by US, EU, and Japanese regulators. Until the recent problems with lines of credit provided by banks, many companies held excessive amounts of liquidity, making them vulnerable to unfriendly takeovers. Various consulting companies have international practices in working capital management, including advising on mergers and assisting management to achieve efficiencies after the deal is completed. Global M&A looks for the following characteristics: a high current assets-to-revenue relationship; a holding of cash that is not likely to be applied to business operations; and a proven income stream that should provide adequate cash flow to pay down borrowings used to provide financing for an acquisition.
Description
Citation
Sagner, J. S. (2009). Mergers And Acquisitions: Today's Catalyst Is Working Capital. QFinance, (finance handbook), 1-6.
Publisher
Bloomsbury Press