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Get Ready for the M&A Boom

And the cash-building continues. Consider that Fortune 500 companies issued $450 billion in in investment grade bonds 2011. In the first quarter of 2012, they issued another $310 billion, putting them on pace for more than $1 trillion in newly-issued bonds this year. Those aren't "rainy-day" funds but shopping-around money.

Who's on the Prowl?

It's fairly easy to round up a list of companies that may be in the market for a deal. For starters, we already know that some companies rely on acquisitions to extend their technology base. Firms such as Cisco Systems (CSCO), Dell (DELL), Broadcom (BRCM) and others have a history of making "tuck-in" acquisitions that are typically worth between $100 million and $1 billion. (In part two of this piece, we'll look at who these tech firms -- among others -- might be pursuing right now).

A second group of buyers seek bigger prey, the kind of major deals that can reap major cost-savings when two sets of overhead are combined into one. Take Big Pharma as an example. In just the last 15 years, Pfizer (PFE) bought Warner-Lambert for $90 billion in 1999 and Wyeth for $68 billion a decade later. Glaxo Wellcome acquired SmithKline Beecham for $76 billion in 2000, to become GlaxoSmithKline (GSK). Biotech firms followed suit; in the last decade, Biogen bought Idec to become Biogen Idec (BIIB), and Roche Holdings acquired Genentech.

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Of course, seeking big prey can be foolish if that prey is wounded. Bank of America (BAC) is still dealing with the fallout of ill-fated purchases of Countrywide Financial and Merrill Lynch. And Worldcom's acquisition of MCI in 1997 took both of those entities into eventual bankruptcy.

All of these deals were led by "strategic buyers" but the real action may lie with "financial buyers," also known as private equity. Goldman Sachs estimates that firms such as Blackstone Group (BX) and KKR (KKR) are sitting on a collective $360 billion in financial firepower.

And that figure may be dwarfed by the amount of money that foreign governments, through their sovereign wealth funds, might put in play. From Qatar to Norway to China, these funds have shown a ready willingness to diversify their portfolios away from their country and have a more globally-exposed portfolio. Foreign buyers have admittedly been fairly quiet on our shores while the U.S. dollar has rebounded in recent years, but any renewed dollar weakness, which makes our assets less expensive, should kick these foreign buyers into gear.
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