the S.&P. 500 are sitting on more than $1 trillion in cash. With
interest rates near zero, that money is earning very little in bank
accounts, so executives are looking to put it to work by acquiring
The private equity deal-making machine is also revving up again. The world's largest buyout firms have hundreds of billions of dollars of "dry powder" -- money allotted to deals in Wall Street parlance -- and they are on the hunt. The proposed leveraged buyout of Dell, led by Mr. Dell and the investment firm Silver Lake Partners, was the largest private equity transaction since July 2007, when the Blackstone Group acquired the hotel chain Hilton Worldwide for $26 billion, just as the credit markets were seizing up.
But perhaps the single biggest factor driving the return of corporate takeovers is the banking system's renewed health. Corporations often rely on bank loans for financing acquisitions, and the ability of private equity firms to strike multibillion- dollar transactions depends on the willingness of banks to lend them money.
For years, banks, saddled with the toxic mortgage assets weighing on their balance sheets, turned off the lending spigot. But with the housing crisis in the rearview mirror and economic conditions slowly improving, banks are again lining up to provide corporate loans at record-low interest rates to finance acquisitions.
The banks, of course, are major beneficiaries of megadeals, earning big fees from both advising on the transactions and lending money to finance them. Mergers and acquisitions in the United States total $158.7 billion so far this year, according to Thomson Reuters data, more than double the amount in the same period last year. JPMorgan, for example, has benefited from the surge, advising on four big deals in recent weeks, including the Dell bid and Comcast's $16.7 billion offer for the rest of NBCUniversal that it did not already own.
Mr. Buffett, in a television interview last month, declared that the banks had repaired their businesses and no longer threatened the economy. "The capital ratios are huge, the excesses on the asset aside have been largely cleared out," said Mr. Buffett, whose acquisition of Heinz will be his second-largest acquisition, behind his $35.9 billion purchase of a majority stake in the railroad company Burlington Northern Santa Fe in 2009.
While Wall Street has an air of giddiness over the start of the year, most deal makers temper their comments about the current environment with warnings about undisciplined behavior like overpaying for deals and borrowing too much to pay for them. Though private equity firms were battered by the financial crisis, they made it through the downturn on relatively solid ground. Many of their megadeals, like Hilton, looked destined for bankruptcy after the markets collapsed, but they have since recovered. The deals have benefited from an improving economy, as well as robust lending markets that allowed companies to push back the large amounts of debt that were to have come due in the next few years.
But there are still plenty of cautionary tales about the consequences of overpriced, overleveraged takeovers. Consider Energy Future Holdings, the biggest private equity deal in history. Struck at the peak of the merger boom in October 2007, the company has suffered from low prices for natural gas and too much debt, and may have to restructure this year. Its owners, a group led by Kohlberg Kravis Roberts and TPG, are likely to lose billions.
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