Capex vs Acquisitions

"Finally, in estimating capital expenditures, you should not distinguish between internal investments (which are usually categorized as capital expenditures in cash flow statements) and external investments (which are acquisitions). The capital expenditures of a firm, therefore, need to include acquisitions. Since firms seldom make acquisitions every year and each acquisition has a different price tag, the point about normalizing capital expenditures applies even more strongly to this item. The capital expenditure projections for a firm that makes an acquisition of $100 million approximately every five years should therefore include about $20 million, adjusted for inflation, every year. Should you distinguish between acquisitions funded with cash versus those funded with stock? We do not believe so. While there may be no cash spend by a firm on latter, the firm is increasing the number of shares outstanding. In fact, one way to think 18 about stock-funded acquisitions is that the firm has skipped a step in the funding process. It could have issued the stock to the public and used the cash to make the acquisitions. Another way of thinking about this issue is that a firm that uses stock to fund acquisitions year after year and is expected to continue to do so in the future will increase the number of shares outstanding. This, in turn, will dilute the value per share to existing stockholders." Damodaran