There have been a number of articles written about how the business community has apparently been afraid to invest over the past few years. Apparently there were fears over taxes rising, healthcare costs, and government regulations that kept a lot of cash on the sideline. So, will companies start deploying their record cash hoards and return to investing in businesses?

The Return Of Business Investing

It may not have been highlighted by many financial networks but the business community has already started investing again. Mergers and acquisitions have returned as companies are starting to consolidate their forces. Just this week, there is talk of a merger between two utility companies. This was not taking place back in the fall of 2008.

IPO’s are seemingly taking place every few weeks and are going off without a hitch. Even social media companies like Facebook appear to be positioning themselves to go public over the next year or so. There was a time that private companies would not even consider going public because access to capital was so tight. Brokerage firms like Merrill Lynch and Goldman Sachs were in need of capital themselves.

Business investing has become popular again. Firms are so flush with cash that they are looking to acquire competitors so that they can increase their market share and position themselves for greater success in the future.

This Sector Is Still Lagging In Business Investment

The one laggard in the business investing industry is private equity firms.  Many P/E firms had astronomical growth rates prior to the 2008 crisis.

This was an industry whose growth was fueled by debt. The term leveraged buyout was solely associated with private equity firms. Now that private equity firms are using less leverage, their growth is much lower than it was during 2007. As a matter of fact, it’s estimated that nearly $72 billion dollars was pulled out of private equity investments.

The CEO’s are still making money and so are the private equity firms but they are being more cautious with their capital.  This isn’t just in the U.S. market. According to Reuters, private equity firms are pulling money out of the continent of Asia at a rapid rate. They are investing less money in Asia than they are pulling out.

This is not necessarily a bad things as many private equity firms were levered up 30 to 1 and were deemed a systemic risk to the economy. They might not generate the ROIC that they used to but they are hopefully making wiser investments.

Do you agree that these trends are good for business investment?

Photo by: Asthma Helper

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