With increasing cash reserves and a stagnant economy, firms are looking for alternatives to M&A for excess cash, including returning capital to shareholders by way of repurchase, dividend and debt reduction.
According to the Thomson Reuters fourth annual Outlook for Investment Banking Services Survey, as valuations continue rising in the Americas, firms are becoming less interested in using cash for M&A transactions, with 36% of respondents believing firms will continue building cash reserves, up from 25% last year. Of those surveyed, 33% cited repurchasing shares as a top priority for 2013 (versus 27% for 2012) and 32% cited distributing cash via dividends as a top priority for the year (versus 24% for 2012).
Just last week AuRico Gold Inc., acting on the increased demand from influential investors in gold companies for dividends, announced that it would use much of the $750 million it received from the sale of a Mexican mine to return proceeds back to shareholders rather than looking for an M&A opportunity. Aurico’s stock jumped 21% on the day of the announcement and has increased by 4% since then.
Despite some movement towards alternative uses of cash, M&A forecasts overall for 2013 show a 12% improvement over 2012, matching 2011 with $2.4 trillion with of deals, led by activity in the healthcare industry. Areas of high activity are expected to be Latin America, Western Europe and developed Asia.