An easing credit market and tax breaks for overseas income have produced healthy reserves to fund growth through M&A.

Corporate liquidity levels have been steadily rising in the past 12 months, especially
at U.S.-based multinationals, many of which reaped profits from overseas subsidiaries
in 2005 because of a tax break on repatriated funds. Plenty of other companies are
also sitting on a growing mound of cash, thanks to an easing credit market. Those
reserves will fuel a sharp acceleration in merger and acquisition (M&A) activity
this year, according to a forecast from PricewaterhouseCoopers' transaction services
group.

"Cash available to corporate and financial buyers is at record levels," notes partner
Bob Filek. "What isn't spent on stock buybacks and special dividends will likely
go to M&A as companies struggle to maintain competitiveness in an economy that's
still growing fast. Retail, energy, utilities and technology are well-positioned
for continued strong M&A activity in 2006 and will attract both strategic and
financial buyers."

Funds available for deployment at S&P 500 companies and the top 50 private equity
firms totaled $1.9 trillion at the end of 2005, an increase of $147 billion from
the end of the previous year, according to PwC. That increase reflects strong earnings
across many industry sectors, successful fund-raising efforts by the top private
equity firms, and an easing of banks' lending policies.