Cash Is King in M&A Again

Wild swings in the stock market are making shares an unpredictable currency lately, and corporate buyers are leaning on cash to get deals done.

So far this year, the average public-company takeover has been 77% cash, the highest quarterly level since early 2013, according to FactSet. Of 21 public-company deals over $1 billion, 13 have been all cash. Just one, Waste Connections purchase of Progressive Waste Solutions, has been all-stock.

Buyers using stock either have no choice Waste Connections and Johnson Controls had to pay for their deals in shares to reap tax benefits or have built in contingency plans. Microchip Technology agreed to replace some of the stock backing its $3.6 billion takeover of Atmel with cash if its share price falls too far.

In just 26 trading sessions this year, the Samp;P 500 has moved by 1% 16 times nearly twice the rate of such swings last year. Volatility makes it hard for buyers to use their stock as currency, not knowing what shares will be worth in the future.

Cash solves that, though it comes with drawbacks of its own. Shareholders dont get to reap any upside of the combined company, which is particularly relevant for holders of beaten-down stocks. And oftentimes cash has to be borrowed, sending buyers into a debt market that appear as rickety as the stock market.

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