Monday saw a flurry of merger-and-acquisition activity, giving investment bankers a ray of hope for 2003 following a year of slumping stock valuations, general market volatility and geopolitical woes.

Among the firms announcing deals were Raytheon ( RTN), Yahoo! ( YHOO), Coca-Cola Femsa ( KOF), Southern Union ( SUG) and CoorsTek ( CRTK).

Despite the fact that economic conditions remain uncertain, analysts said some firms have decided to go ahead with deals anyway amid intense pressure to improve earnings and revenue growth. Yahoo! and Southern both noted that their transactions would boost earnings in the first 12 months.

In addition, M&A experts note that more and more firms are finally accepting that valuation multiples will not appreciate meaningfully in the near term, or return to levels seen in the 1990s.

"We believe that the M&A environment has stabilized and is perhaps stronger than generally perceived in the public marketplace," said U.S. Bancorp Piper Jaffray in a recent research note. "We have observed a progressive improvement in market conditions during the second half of 2002."

Defense firm Raytheon's announcement Monday would appear to back that up -- the company said it has agreed to make its first acquisitions in four years, with the purchase of two privately held companies: Solipsys Corp. and JPS Communications. The deals are intended to strengthen Raytheon's military communications systems. Terms weren't disclosed.

Meanwhile, Yahoo said it would acquire the once-highflying Internet company Inktomi for about $235 million in cash, or $1.65 a share.

Separately, Coca-Cola Femsa, the largest distributor of Coca-Cola soft drinks in Latin America, agreed to buy Panamerican Beverages for about $2.7 billion, while Southern Union said it and a partner would buy the CMS Panhandle Companies from CMS Energy ( CMS) for $634 million, plus the assumption of debt.

Also, chip equipment maker CoorsTek said it would be acquired for more than $220 million by Keystone Holdings -- a private investment group led by top CoorsTek management and other members of the Coors brewing family.

While the number of deals fell off in the second half of the year (3,139 deals compared with 3,467 in the first six months), the dollar volume of the deals climbed to $237.7 billion compared with $209 billion in the first half, according to Thomson Financial/First Call. Year to date, some 6,606 M&A transactions have been reported in the U.S., down 14% from last year.

Analysts note that any pickup in M&A activity next year is contingent on an improved equity market. And, of course, there are any number of factors that could derail the nascent recovery. A war with Iraq, for example, or another retrenchment in economic activity, could force firms to delay transactions until conditions become more favorable.

Still, Walter Murphy, a senior vice president of investment banking at U.S. Bancorp Piper Jaffray, said he believes there are "several positive trends in place which should provide the foundation for strong momentum" in 2003.

Given the modest number of deals completed over the last two years, Murphy said there is considerable pent-up demand. Private equity firms have an estimated $100 to $125 billion of uninvested capital, meaning more leveraged buyouts are a possibility.

He also noted that while valuations seem depressed now relative to where they were in the late 1990s, multiples are actually more in line with historical averages. "We expect that high-quality, top-tier companies will continue to receive significant interest and achieve premium prices regardless of market conditions," he said.

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