Goldman Sachs: "What managements should do with their cash (M&A) and what they will do (buybacks)"
June 2, 2015
U.S. equities have been surging and many large cap issuers have been rushing to buyback stock, at already high valuations. While buybacks (often encouraged by shareholders looking for big market gains) have been the focus of many management teams, today Bloomberg discussed how "Goldman has published a note recommending companies stop spending their cash on buying back their overpriced shares and instead use those overpriced shares to buy other companies' equity."
While most micro cap issuers aren’t rushing to buy back their stock, the concept of leveraging strong valuations to purchase other (usually private) companies is important in the micro cap space. Just like their large cap peers, micro cap executives often become enamored with their stock's performance, rather than acting rationally and leveraging strong valuations to grow their business.