Cash-Rich Companies As Likely To Sell Parts As Make Acquisitions: Survey

Companies Have Cash, Won't Share

Companies around the world have tons of cash and talk all big about how confident they are about the economy, and yet they're sitting on their hands when it comes to using that cash to buy other companies.

In one sense this aversion to deal-making is actually good news, at least for regular non-banking humanoids, in that corporate mergers tend to end in tears, with layoffs and embarrassing efforts to meld corporate mindsets. But a reluctance to make deals is bad news if it's a symptom of a broader corporate aversion to hiring and spending. You know, like the aversion we've been seeing for the past few years.

In fact, it seems companies are as likely to sell off parts of themselves that they don't want as they are to buy another company, according to a new survey of corporate confidence and deal appetite by accounting firm Ernst & Young.

The survey found that just 31 percent of senior executives from big companies around the world expect to try to buy another company in the next 12 months, down from 41 percent last October. This is the weakest deal-making appetite since Ernst & Young started keeping track in late 2009, in the wake of the financial crisis.

You would think these numbers would be moving in the other direction if companies were feeling truly frisky, but it seems companies still want to trim down and avoid big risks, with the European debt crisis forever roiling and global growth still on shaky footing.

"The current [Capital Confidence] Barometer finds corporate executives with adequate cash and credit and in a more confident frame of mind, but still conservative about pulling the trigger on a deal,” Richard Jeanneret, vice chairman of Transaction Advisory Services at Ernst & Young, said in a press release.

Jeanneret said he was confident that companies would start to pursue deals this year, and bankers have said deal activity is starting to move again after the re-eruption of the European debt crisis last fall brought deal-making to a screeching halt.

Of course, the European debt crisis is flaring once again and economic numbers from around the world have disappointed lately, including U.S. job growth. It's consistent with the broader nature of the recovery from the financial crisis, which has been spotty at best, keeping companies reluctant to do much hiring, spending or deal-making.

A separate survey released today, this one from the National Association of Business Economics, found that just 39 percent of U.S. companies expect to add to employment in the next six months, though they also are slightly more optimistic about U.S. economic growth.

And another survey by the Association for Financial Professionals found 40 percent of U.S. companies raised their cash hoards in the first quarter. And their cash hoards were already substantial: The Wall Street Journal reported recently that the companies in the S&P 500-stock index have added $1.2 trillion to their cash stockpiles since 2007, according to S&P Capital IQ data, good a 49 percent gain.

In contrast, their hiring is up just 5 percent and business spending is up just 16 percent since 2007.

The job market does tend to lag behind improvement in the broader economy, as companies are usually reluctant to hire until they are certain demand will rise enough to justify the expense and trouble of hiring people. And deal-making can sometimes be a sign of desperation rather than strength, if companies are buying other companies simply to survive in a dying industry.

For the moment, 31 percent of global executives surveyed by Ernst & Young said they wanted to sell off companies, matching the percentage that said they want to buy companies. The numbers are similar in the U.S., where 34 percent of companies plan to buy something in the next year and 34 percent say they plan to unload businesses.

These readings come after the first quarter's deal-making was the weakest for any first quarter since 2003, according to Bloomberg. One mega-deal, the $45 billion combo of commodities trader Glencore International and miner Xstrata, made up more than 10 percent of the quarter's deal flow.

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