Making the case and getting the cash


January 14, 2014

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Pop quiz. If cash is king, which major international corporation would today be wearing the crown?

It’s an easier question than you’d think.

Particularly since it’s universally acknowledged that having stockpiled almost $150bn in cash (and having subsequently come under fire from activist investors), Apple rules the roost.

However, while the firm’s cash stash is far larger than most, its spendthrift tactics are far from unique.

Indeed, since the start of the financial crisis it’s been universally acknowledged that companies have been tightening their spending and hanging onto their cash.

Moreover, while this trend has continued over successive quarters, to many of those on the outside looking in, it’s been both forgotten and overlooked.

All the same, that’s not stopped this huge concentration of capital from becoming ever tighter and, as the M&A market now begins to pick up, that will to lead to some very interesting questions.

For, let’s be in no doubt here, when we talk about corporate cash piles, we aren’t talking about small chunks of change.

Indeed, according to estimates from accountancy and auditing firm, Deloitte, about one third of the world’s non-financial companies are now sitting on an estimated cash hoard of $2.8 trillion. With the polarisation between the corporate hoarders and spenders only widening as time rattles on.

As the Apple example shows, there are some high profile cases that help demonstrate this trend and recent investor unease has already started bringing this increasingly thorny issue to light.

However, while raising the matter of a cash-heavy balance sheet is one thing, working out how to spend such vast amounts of cash is quite another.

And, while amassing these cash piles provides corporate certainty when entering a global downturn (safeguarding the financial performance of the firm and helping to iron out the lumps), they do nothing of the sort when the economy starts to pick up.

Indeed, shrewd investors already recognise this and are starting to get a little uncomfortable.

It’s why, in a recent study undertaken by Bank of America Merrill Lynch, 58% of those investors polled wanted companies to step up their corporate spending.

And for an investment intensive industry like wind, requiring significant capital expenditure, that means it’s time to sit up and pay attention.

Since although to some this may not sound like a real problem, the simple truth is that many of these cash rich corporates, while evidently good at primary revenue generation, may not be so good at reinvesting, divesting and actually spending it.

Nevertheless they must learn to do so.

Since not only does this facilitate and fuel further potential profit, but it also releases fresh capital back into the market at a critical time.

So herein lies the challenge.

With these huge cash piles putting recovery in the hands of the few, how can we position wind as a viable candidate for future funds?

And perhaps most importantly, when as an industry will we learn that in order to unlock these deep cash pools, we have to first understand the needs and priorities of these cash-rich corporate kings?

Talk of energy security on a country by country basis is one thing, but recognising the true motivations of these major multinationals is quite another.

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