Most investors do not think of tech companies as being debt-laden. Many became pubic by raising cash in IPOs over the last decade. Any debt they had was paid off with capital raised. The rest stayed on the balance sheet.
A study by Paul Kedrosky written up in Barron's paints a very different picture for some companies. Several large corporations, including Dell (NASDAQ: DELL), Take-Two Interactive (NASDAQ: TTWO), and Wipro (NYSE: WIT), have long-term debt-to-equity ratios of over 2x. For some big tech names, the figure is over 6x.
(Unfortunately, Barron's had to pull its piece because Paul's data appears to have been inaccurate.)
Under normal circumstances, this kind of data would be benign. But with the credit markets in crisis, refinancing debt on terms more favorable than firms have currently may be very difficult. Or, if the bond market gets very right, a company like Ingram Micro (NYSE: IM) could get in a real pinch.
There is another side to this. Cash-rich companies like Microsoft (NYSE: MSFT), Google (NASDAQ: GOOG), and Cisco Systems (NASDAQ: CSCO) may be able to shop for bargains. For them to pick up a company and pay its debt down may not be a significant problem.
More tech M&A this year? Almost certainly.
Douglas A. McIntyre is an editor at 247wallst.com.
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