Geo Week News

December 14, 2012

Why does a company with $830m in cash raise $750m more?

When people ask my why Autodesk made a recent acquisition, I usually respond, “Why not? They’ve got a billion dollars in the bank.” That’s still basically true, so why did they just announce they’re raising another $750 million?

In part, the answer is probably the same: “Why not?” Money is so inexpensive right now, it absolutely makes sense to borrow, even when you’ve got money in the bank. If invested wisely, you should be able to get a better return on your cash than the interest you’re paying on what you borrow.

For example, “The Notes consist of the following tranches: $400 million aggregate principal amount of 1.950% senior unsecured notes due 2017 and $350 million aggregate principal amount of 3.600% senior unsecured notes due 2022. Interest is payable on the Notes semi-annually in arrears on June 15 and December 15 of each year, commencing June 15, 2013.”

$400 million at less than 2 percent interest? Sign me up! Even after a 2012 where Autodesk spent $137.5 million on acquisitions, the company still has $827 million in cash on hand (all numbers taken from their most recent quarterly filing, which you can read in detail here). Especially with the Fed’s recent announcement that it will tie interest rate hikes to employment numbers, and the unlikelihood that the unemployment number will get to 6.5 percent in a hurry, Autodesk is both assured it could probably borrow again to pay off these loans if it wants to and likely to find investment growth opportunities thanks to companies taking advantage of all the cheap money lying around (this is what the Fed wants to happen, for companies to move toward “riskier” investments like stocks, their own infrastructure, employment, etc.). I think there’s probably a tax shelter in here somewhere, hedging that taxes are likely to go up in 2013, but I’m not educated enough about corporate tax structure to know what they’re doing.

So, what’s Autodesk going to do with all this cash? Well, first of all, they’re paying off the last round of borrowing (in the way I just said they would do again in the future), but, also, they’re going to buy more companies, of course:

The remainder of the net proceeds will be used for general corporate purposes, including working capital, capital expenditures, possible stock repurchases and potential acquisitions and strategic transactions.  

More important, though, will be for Autodesk to find a way to goose their growth. While the company has climbed pretty steadily out of the financial black hole that was 2009, posting net income of $58 million, $212 million, and $285 million in the last three annual reports, unless the company blows 4Q out of the water this year, it’s looking like income will go backwards this year.

They had “only” $172 million in net income for the first nine months of this year, vs. $213 million in the same period last year. And they’ve drained $300 million in cash since Jan. 31, 2012, too. While lots of us would be happy to clear $172 million in net income, Autodesk had to generate $1.7 billion in net revenue to throw off that much cash. No likes seeing net margin go from 13 percent to 10 percent when the general business climate is supposed to be improving.

In the bigger picture, I’d posit that this kind of fund raising should be happening more often all throughout American business, and that should be good for new technology adoption, construction, and a number of other investments that should be good for the 3D data capture industry. It’s not clear why the ready supply of inexpensive money hasn’t yet led to widescale corporate investment, but maybe this is a sign we’ll start to see more.

(FYI: Paul Krugman has an interesting take on the mystery of cheap money not having the effect it should here. Here’s another report, from Matthew DeBord, on investing in a cheap-money environment, that I learned some things from.)

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