The top 5 public technology companies (Apple, HP, Microsoft, Google and Cisco) have $150B collectively in cash on their balance sheets, according to CapitalIQ. Large cash balances tend to forecast significant M&A activity – a boon for the startup ecosystem which has come to rely on M&A for exits as the IPO market has declined. Ostensibly, these balances may indicate a great time for M&A in the US, but the truth is a bit more complicated.

Last week, Cisco raised $4B in US debt, a strange move for a company with $35B in cash and equivalents.

The wrinkle: most these billions in cash is abroad – by my estimate, somewhere between 60 to 80%. Of the $35B in cash Cisco holds, no more than $2 or $3B is in the US. For Apple, only about 33% of cash is held in the US. Repatriating this cash requilres paying 35% corporate tax to the IRS, which makes any acquisition dramatically more expensive.  As a result, many technology companies have been lobbying the government for a tax holiday to bring $1 trillion foreign profits to the US. The Obama rejected this request last week.

To avoid paying this tax, US companies look abroad for acquisitions with this cash. The converse is true for foreign companies selling goods to the US. These companies build large US cash reserves. As a result, we should expect Chinese, Japanese and Korean social and gaming companies to US startups as expansionary forays, as DeNA did with the acquisition of ngMoco. 

The next wave of large M&A in the consumer and mobile will likely be dominated cross-border transactions in number as cash constrained US companies pick and choose their acquisition targets while foreign acquirors can afford to be more aggressive.