This is definitely a noob question, but just a student trying to learn as much as possible. I recently read an article that Apple has $200+ Billion in cash reserves (of course outside of the US) and was wondering that say with Trump's tax policies by encouraging/forcing US Companies to keep their cash home, would Apple become an attractive target for an LBO since they have hoards of cash to easily pay down debt? The only concern for Private Equity funds that I see, is the size of Apple would require crazy financing and large amounts of firm's own equity and debt. What do you all think? Curious to learn and discuss.
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I laughed at Apple as a 'target' for anyone. They're expected to be worth $1T some day. There aren't any PE funds out there that can swallow up Apple. But I see how you got there. It's a very cash rich company, but they'd be a buyer, not a target.
What @iBankedUp" said is exactly right. I would also add that the vast majority of LBO targets are actually sub-$1 billion. I think most students don't understand this. You only hear about the massive deals on WSJ, by virtue of the fact that they are massive, but these are certainly exceptions rather than the norm. There are only a handful (if even that) of $1-5 billion deals that close globally each year. AAPL, with a TEV of over $800 billion, is out of the question.
@iBankedUp" @pfk" Thank you both for your input. So it looks like excess cash is something that would lure PE firms but the excessive size of the company is what makes it almost impossible for them to swallow up. But for a much smaller company with excess reserves abroad (one where PE funds can easily put up equity), bringing cash stateside may make them LBO targets?
PE firms want companies with 6 different factors and none of them include 'excess cash'. Cash flows and excess cash are not the same thing. The concepts are two totally different things. So, not to be mean, but your whole assumption is just wrong.
Understood. Don't worry, I appreciate the advice much more than I care about "how mean you sound". You provided legitimate help and that means a lot to me.
As mentioned previously, LOL at Apple being for sale to anyone, ESPECIALLY buyout shops.
Excess cash is a bad motivator for a buyout. You have to think, why is there excess cash? Excess cash typically means that there's not enough investment opportunity which is basically saying that there's no real growth opportunities. That's bad. If there's ever a high growth company with a lot of excess cash, like Apple, it's a major outlier and you'd have to pay so much that you'd still have a higher EV compared to a similar company with slightly less growth and a normal amount of cash on the BS.
Also, when making an acquisition, you don't get to keep the cash. Say you're acquiring a company with an equity of $30mm, debt of $30mm, and cash of $10mm; the total EV is $50mm. You would pay the $50mm and the other side would keep the $10mm of cash so they're getting the whole $60mm of capital in the business. If you want to put any cash on the balance sheet, then you have to fund that.
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