Wednesday, August 7, 2013

Companies Still Risk Averse as Economy Grows

The financial markets are watching the recent stock market records with a great deal of interest relative to a potential renewal of significant merger and acquisition activities. This indicator that the downturn that started in 2008 is now history is only one reason for expectation of increased M&A announcements. 

The fact that many companies now carry record cash balances while they experience historically low interest rates would normally drive an interest in aggressive hunting for industry-shaping deals. This is especially the case in light of the relatively limited global opportunities for strong organic growth. 

Evaluating the reasons for so many CEOs remaining risk averse can be found, in part, in the ongoing concerns over major market-shaping events. The continuing issues of problems in the Eurozone, the U.S. budgetary fiscal cliff, and several large deals that were announced but failed to happen are examples. 

These traumas all weigh heavily on companies and their boards when any consideration of major transactions takes place. While macro factors affect every industry, there are indications that some areas are more inclined to aggressive actions than others. 

For example, chemical M&A advisors see an increasing necessity to return to acquisitions and mergers as a viable way for larger companies to achieve their strategic growth objectives. 

When evaluating the most productive ways to put their cash hoards to work in a way that will increase earnings, there are simply limited opportunities to grow organic revenue streams. Analysts are most focused on the possibility of a sustained period of market and global stability to light the fires in the M&A market segment.

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