How to Choose Possible M&A Targets Before the Deal

The deals follow other signs that confidence is returning. So far this year, initial public offerings of stocks have raised the most cash in two decades; small investors are putting money into U.S. stock mutual funds at the fastest pace in five years; and professional investors are borrowing more to finance their trades because they are not as fearful of losing money.

The last time so many companies paired off, in 2006 and 2007, stocks were surging and investors were pocketing big gains on takeover news.

Now a few lucky investors are finding they're reliving the boom years. Here are some recent deals raining riches on shareholders, according to Dealogic, a data provider:

• ConAgra Foods (CAG), maker of Chef Boyardee, announces a $5 billion deal to buy private-label food maker Ralcorp Holdings. Within hours, Ralcorp shares rise 26% to $88.80.
• IntercontinentalExchange (ICE) offers to buy NYSE Euronext, owner of the iconic stock exchange on Wall Street, for $8 billion. Premium to NYSE shareholders: 43%.
• Mining giant Freeport-McMoRan Copper & Gold (FCX) says it is buying oil and natural gas explorer Plains Exploration & Production for $17 billion, handing Plains shareholders a 44% premium.

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.

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