Strategy

Companies Set to Unleash the (Cash) Hoards: Survey

Forty percent say their companies are set to deploy excess cash, especially on mergers and capex.
Sarah JohnsonJanuary 24, 2012

Just over 40% of companies plan to tap their cash reserves this year, according to a Deloitte survey set to be released on Wednesday.

The accounting firm’s findings stem from a fall survey of 940 business professionals during a webcast. For the most part, these listeners, including CFOs, work in their companies’ finance department.

In the status quo of this century’s second decade, companies have been tightfisted with their cash reserves, which for U.S. nonfinancial companies now total nearly $2 trillion. At the same time, boards and investors appear to be patient, says Justin Silber, a principal of Deloitte Financial Advisory Services. For now, Silber suggests, boards aren’t putting pressure on management to deploy cash. “Boards are being more conservative,” he says.

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In the same survey, the accounting firm asked business professionals what they would want from management if they were investors. Just over one-third said they’d want the companies to hold on to their cash during these shaky times.

The survey’s respondents said they would likely make acquisitions in the coming year (27.7%), increase their capital budgets (21.5%), buy back stock (11.9%), or provide dividends (5.4%). About one-third said they did not know whether their company would take any of these actions.

Still, just because survey respondents said they’d like their companies to make acquisitions, that doesn’t mean that will happen. So far, 2012 mergers-and-acquisitions activity has lagged behind 2011. As CFO reported earlier this week, 221 deals had been announced in North America as of January 20, down from 396 deals during the same period last year.

Those companies that have found level footing after the financial crisis have held cash on their balance sheets at historical levels. Indeed, many surveys suggest that the memories of 2008 are too fresh to change this behavior. If nothing else, the crisis taught — or reminded — companies that they need flexibility when things go wrong, and a pile of cash is one way to secure that ability.

In Deloitte’s survey, one-third of respondents listed uncertainty and market volatility as the top reason their companies have cash buildup, followed by a lack of “attractive investment opportunities.” A little over 20% said they had no cash buildup or the issue wasn’t applicable to their companies. Asking a similar question of CFOs last year, the quarterly Duke University/CFO Magazine Global Business Outlook Survey reported 29% of CFOs were hoarding cash because of economic uncertainty.