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Investors push companies to flex M&A muscle ... carefully

LONDON--Investors have received billions of euros from European companies so cautious about the economic outlook they could find nothing better to do with spare cash, but many now want boards to snap up rivals instead — and are rewarding them when they do.

Years of financial crisis meant companies used any surplus first to pay down debt and then keep shareholders sweet with dividends and share buybacks. They spent nearly US$3 trillion on buybacks globally since 2008, Thomson Reuters data shows, a rise of more than US$150 billion from the 2002-2007 period.

Now the pressure is on firms to put excess cash to work.

European M&A is down nearly a quarter on last year to US$511 billion, according to Thomson Reuters data. But globally, the shares of active buyers have enjoyed their best run since the financial crisis kicked off, beating quiescent peers by 4.7 percentage points, say consultants Towers Watson.

UK engineer Kentz, for example, rose 13 percent after buying U.S. firm Valerus Field Solutions, and French retailer Carrefour beat its sector, up 1.9 percent, on the day it announced plans to buy 127 malls from real estate group Kleppiere.

While the share price of the target company usually rises to reflect the attractive premium a suitor typically has to pay to secure a deal, it is less common for the buyer's stock to gain.

“The share prices of buyers have generally reacted positively to the announcement of acquisitions this year. That shows that investors want companies to put money to work and not to hoard cash,” said Wolfgang Fink, head of investment banking at Goldman Sachs in Germany and Austria.

For companies worth US$1 billion and more, JPMorgan research puts that hoard of cash or cash equivalents at US$5.3 trillion globally, up from US$5.2 trillion in 2012.

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