Awash in Cash driving values up!

 

At the recent Selling Up Selling Out conference in London, I received an interesting question Is it true that American companies are buying foreign firms in order to use some of their excess cash they have outside the U.S. which they cant use at home? My answer was Absolutely. The audience, comprised of a couple dozen tech leaders from around Europe, seemed a bit surprised. Clearly they were not aware of one of the biggest dilemmas facing American companies today doing business overseas: money they earn abroad cant be repatriated without essentially paying full U.S. taxes on top of the foreign taxes they have already paid. Since America only represents about 5% of the worlds population, these earnings have really mounted up about $2 trillion at last count. Funds that cant legally be used by the parent company for domestic investment, or to buy American real estate, American stocks or even put in an American bank. Hmmm, wouldnt that cash solve most of our problems? A consortium of tech leaders, led by John Chambers of Cisco, is lobbying for a tax holiday of a 5% dividend tax to help put this cash to work here in the U.S. So far the administration isnt listening, so the money sits in foreign banks for them to loan and invest locally, but not in America. Tech firms are at the top of the list of companies with large cash hoards. Thus, despite the falling dollar, the purchase of foreign tech firms is a good way to spend those dollars. Dont be surprised if the payment for your European or other foreign company comes from the Bahamas, Switzerland or somewhere similar. This is one more of the reasons valuations have moved up, more than doubling in some sectors over just the past year.

Posted by , CEO on 13 April 2011
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