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Companies crank up deal machine, put cash to work

Big deals are a big deal again.

From Caterpillar to Chevron to Google, some of the best-known names in corporate America are scooping up smaller companies, finally putting the piles of cash they've been sitting on to use and positioning themselves for a stronger economic recovery.

The volume of mergers and acquisitions is still running well below what it was in 2007 before the recession, but the burst in activity is a sign of economic vitality and shows that companies are starting to shake off some of their caution.

"Our pipeline is bursting," says Robert Profusek, head of mergers and acquisitions at the law firm Jones Day, who advised Continental Airlines when it was acquired by the parent of United for $3.2 billion. "We are gearing up for an incredible M&A boom."

M&A volume reached $2.25 trillion in the first 10 months of the year, a 28 percent increase over last year. August was the highest month on record, with $307 billion in deals, more than double August 2009, according to Dealogic, which tracks such data. October remained strong with $202 billion in deals, up 32 percent from last year.

"It's an early indicator that confidence is shifting," says George Geis, faculty director of the mergers and acquisitions executive program at the University of California, Los Angeles.

Almost all the deals are companies buying companies.

Private-equity firms, which spurred the buyout boom last decade, have made just 8 percent of the acquisitions this year, compared with 23 percent in 2006.

Typical is Caterpillar Inc.'s announcement Monday that it will buy Bucyrus International Inc. for $7.6 billion. Caterpillar, the world's largest maker of construction and mining equipment, was sitting on $2.3 billion in cash at the end of the third quarter. The acquisition allows it to add to its line of mining equipment, which is in high demand in emerging markets.

Just last week Chevron Corp. said it would buy natural gas producer Atlas Energy Inc. for $4.3 billion, giving the oil company an entry into the rich gas fields in the eastern part of the United States.

In other recent deals Dove soap maker Unilever Plc bought the VO5 hair care company Alberto-Culver Co. for $3.7 billion, Southwest Airlines Co. bought AirTran Holdings Inc. for $1.4 billion, drug giant Pfizer Inc. bought pain medication maker King Pharmaceuticals Inc. for $3.6 billion, and Google Inc. bought BlindType, a startup that corrects sloppy typing on mobile phones, for an undisclosed price.

The deals are happening, in part, because companies have amassed a record $1.84 trillion in cash as of June 30, according to the Federal Reserve. That was 18 percent more than a year earlier.

Unlike the deal-making of the 1990s and most of the 2000s, ego-driven blockbuster deals are rare. Most deals this year have been smaller and driven by strategic decisions emerging from the recession.

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