Cash-rich Australian corporates are growing at a much slower rate than their more bullish, M&A-focused counterparts, says Deloitte.
A new Deloitte report, The Australian Cash Paradox, has found 32 companies held more than 80 per cent of Australia’s cash reserves as at 31 December 2014.
Those 32 companies held $57 billion in cash, whereas the remaining $13 billion was distributed among 129 companies.
Deloitte found that the companies with comparatively smaller cash reserves have grown three times faster than the ‘cash-rich’ companies since 2009.
“Companies holding small cash balances have been more bullish in their pursuit of growth and consistently more aggressive in their M&A activities,” said the report.
Deloitte mergers and divestments lead partner Robert Arvai, who co-authored the report, said the 32 ‘richest’ companies are “growth laggards … and lazy capital is delivering lazy growth”.
The GFC has had a “profound impact” on corporate cash hoarding tendencies, Mr Arvai said, particularly when it comes to larger companies.
“The cash reserves of our large cash holders jumped from $24 billion in 2008 to $46 billion in 2009.
“In contrast, the small cash holders held a balance of $11 billion in 2008 – and this remained fairly constant throughout the crisis years, and currently stands at $13 billion,” Mr Arvai said.
Report co-author and Deloitte Mergers and Divestments director Lee Dryden said the underperformance of cash-rich companies was measured by quarterly growth or share price performance.
“Remarkably, the gap widened even more after the GFC, suggesting that in the long run, financial markets are rewarding companies that take a bullish attitude towards growth,” Mr Dryden said.
The authors noted RBA governor Glenn Steven’s comments on the topic:
“At some stage, the equity analysts, shareholders, fund managers, commentators and so on will want to be asking not ‘Where's your cost cutting or capital return plan?’ … but ‘Where's your growth plan?’”
Mr Arvai concluded: “So, it’s time to address the cash paradox in corporate Australia and for cash-rich companies to re-evaluate their ‘yield versus growth’ strategies.”
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