M&A Could Increase As Offshore Cash Hits $2 Trillion

By Mani
Updated on

Outbound U.S. M&A is on pace in the first half to touch $638 billion, marking the second highest figure since 2007, notes a Bloomberg Briefs report.

Bloomberg, in its Mergers report dated June 30, 2014, titled “Offshore Cash Is Begging to be Spent” notes the current appetite to buy overseas is strong.

M&A: $2 trillion in offshore cash

An analysis of 307 company securities filings by Bloomberg reveals almost $2 trillion in offshore cash, and the cash pile and the ex U.S. M&A opportunities are still growing.

The Bloomberg report argues that there are two primary reasons behind big-time deal activity. One reason is desire of large companies to lower their tax rates by merging with foreign companies. However, the second, less discussed reason is the stash of profits stockpiled offshore by U.S. companies as the companies must pay up to 35% to the U.S. Treasury if they repatriate the cash or deploy that capital abroad.

The following graph illustrates the surge in overseas acquisitions by U.S. companies:

The report highlights that American companies continue to amass greater sums of repatriated profits viz.: cash they retain in overseas subsidiaries. The Bloomberg report highlights that the 70 companies in the S&P 500 (INDEXSP:.INX) with the largest cash piles held $1.55 trillion offshore at the end of their 2013 fiscal years, an increase of 56% from the end of the 2010 fiscal year.

Accumulating cash in overseas subsidiaries M&A

Strong appetite to acquire

The Bloomberg report points out that in the past 18 months, only a fraction of top companies’ offshore cash has been put to use outside the U.S. The following table sets forth overseas deal-making by the most cash-rich U.S. companies since 2013:

Overseas dealmaking since 2013 M&A

Interestingly, as depicted in the following graph, deal announcements last week continued to run at a pace not witnessed since the average weekly level in 2007.

Spate of deal making M&A

Tracking regional trends, the Bloomberg report points out that Europe witnessed two deals worth over $1 billion, including Alcoa Inc (NYSE:AA)’s $2.85 billion takeover of U.K. aerospace-components maker Firth Rixson Ltd.

The following graph highlights the regional breakdown of deals:

Regional breakdown of deals M&A

The Bloomberg report highlights the following largest deals announced between June 21 and June 27:

Recent large deals M&A

The report also offers some interesting analysis. For instance, the odds of a takeover bid spike sharply if the CEO is 65 or older, which is elucidated in the following graph:

Odds of a takeover at 65

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