Merger and acquisition fever is back -- at least that's the claim of some analysts in light of the news that Hewlett Packard has decided to outbid Dell for network device maker 3PAR. This is just one of several deals we've heard about lately. British banking giant HSBC is also considering buying South Africa-based Nedbank. If M&A really is heating up, then this might frustrate some, who would prefer companies spend money hiring new workers instead of making pricey acquisitions. What are they thinking?
One thing we know is that big companies have an awful lot of cash on-hand. Yet, they aren't using it to hire many new employees and reduce the painfully high unemployment rate. That's mostly due to uncertainty. Right now, companies aren't feeling much demand. As a result, they aren't sure if the recovery will endure and consumers will soon return. So they don't feel the need to bring on many new workers at this time: their current staffs suffice.
So why engage in mergers or acquisitions? Because that's a longer-term investment and companies' market values are still relatively low. Since they've got all this money saved up, they might as well spend it on a good buy that will enhance their long-term growth. That's a very different sort of investment than hiring.