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Lucky Investors Gain Big As M&A Surges In New Year

If the means are plenty, so are the motives.

Before the Great Recession, buyout firms raised hundreds of billions of dollars from investors. They promised to use the money to buy companies within a set time or return it. Some of those deadlines are fast approaching. As of September, buyout firms had $193 billion left to spend by the end of 2013, according to Triago, which helps raise money for the industry.

About a quarter of the money spent to buy U.S. companies this year has come from leveraged buyout firms. That is about the same as before the recession, according to Dealogic.

The Dell deal recalls the era of the super-sized buyouts, a heady time before the recession of bidding wars and overpriced purchases. The motive was to cash out after a few years by flipping the acquired company to another buyout firm or by selling stock in a public offering.

Most buyout deals today, though, are smaller and involve much less debt.

Experts say many companies are buying rivals in the hope that the combined businesses will quickly add to profits. For years, companies have been cutting staff and squeezing workers. Now they are finding that path to higher earnings is tough. Earnings in the first quarter are expected to increase less than 1 percent from last year for companies in the S&P 500, according to FactSet, a financial data provider.

Morningstar's Hottovy cautions investors not to get too excited about a big year for deals. Despite the good signs, CEOs can sour on M&A if their confidence evaporates. He says a flood of deals about a year ago turned into a trickle on fears that the European debt crisis would hurt U.S. companies.

"We thought we were back," Hottovy says. "But then Europe put a halt to all that."


AP Business Writer Steve Rothwell contributed to this story.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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