M&A Binge Far From Over

Updated from 7:00 a.m. EDT

Contrary to fears circulating last week, it's premature to bemoan the end of the buyout boom because of rising interest rates. But even in the unlikely event that private equity and M&A activity does nosedive, the deals already announced but not yet closed are likely to provide a second-stage liquidity boost to the stock market later this year.

Case in point: Private equity firms Kohlberg Kravis Roberts and Texas Pacific Group offered to pay $32 billion in cash for TXU (TXU) on Feb. 26. TXU's stock jumped 13.2% that day, but the utility's shareholders won't get the cash until sometime in the fourth quarter, when the deal is expected to close.

The same thing is true for all of the cash deals to be settled among the year's $800 billion U.S. deal tally thus far, according to data from Thomson Financial. This includes $300 billion in private equity deals, which are inherently all-cash.

Among strategic deals this year, 75% are all cash. The stock market is likely to benefit from a lot of that cash flowing back into the market long after the headlines heralding the deals fade.

"When shareholders get cash for their stock, they typically redeploy that into investments, including stock," says Tobias Levkovich, chief U.S. equity strategist at Citigroup. "The timing is important: The deal is announced, it gets done, then shareholders get the cash, and then they decide where to reinvest it. That doesn't happen simultaneously."