Buyouts: Hotter than ever

NEW YORK (CNNMoney.com) -- The buyout deals keep on coming, a sign of just how white-hot the market is for mergers and acquisitions.

We're just over four months into 2007 and worldwide deal activity is on the cusp of crossing the $2 trillion mark. Announced deal volume has jumped to $1.9 trillion so far this year, up 60 percent from last year, according to deal tracker Dealogic. If the current pace holds, this year's total would easily top last year's record of $3.8 trillion.

And mergers are happening across a wide swath of industries. There's talk in the tech sector that Microsoft (Charts, Fortune 500) and Yahoo (Charts, Fortune 500) are considering joining up. In the media realm, Rupert Murdoch's News Corp. (Charts, Fortune 500) has bid for $5 billion for Dow Jones. And music publisher EMI Group is being courted by a number of suitors.

The current boom in M&A has been fueled by the easy availability of cheap money. Default rates on corporate bonds are at historic lows, which has led to a favorable lending terms.

Investors tend to embrace mergers, which can send stock prices soaring. Dow Jones (Charts) shares surged 57 percent the day Murdoch unveiled he was willing to pay a 65 percent premium for the company.

Buyouts have helped drive the stock market rally - investors like signs there are good buying opportunities out there, analysts say. The Dow has set record highs three days running, and the S&P 500 is gunning to catch up, getting close to its record from March 2000.

Despite all the excitement, there are concerns that there hasn't been enough consideration placed on risk - and that companies that have borrowed heavily to do deals will feel pressured once the credit cycle turns.

Some experts also argue that management shake-ups can destroy shareholder value. Failed mergers like the Time Warner (Charts, Fortune 500)-AOL deal remain a reminder of just how badly big deals can go. CNNMoney.com is a unit of Time Warner.

But many on Wall Street praise the rash of deals as being good for business and the economy. When two companies come together, proponents argue, they save on costs, boost business and generate more profits.

Private equity buyouts, meanwhile, can help ailing companies find their footing by taking them out of the public spotlight. Private equity buyers have accounted for about 30 percent of deals in the U.S. so far in 2007.

At the same time, though, some investors have grown more skeptical of some proposed mergers and are pushing buyers for better offers.

Clear Channel (Charts, Fortune 500) shareholders are expected to reject a $19.4 billion private equity bid for the firm when they meet next week. The suitors, Thomas H. Lee Partners and Bain Capital, have already sweetened their offer twice.

And even though ABN has reached an agreement to be bought by Barclays for $90 billion in what would be the biggest bank buyout ever, the Dutch bank's shareholders have pushed the company to consider a rival $96 billion offer from a group led by Royal Bank of Scotland.