San Diego mergers and acquisitions attorneys have noticed that despite the bad economy, or maybe in part because of it, mergers and acquisitions are picking up. Maybe it’s not a wave yet, but there has been some attention-grabbing M&A activity that may indicate a coming wave.

Hewlett-Packard (HP) offered last week to buy 3Par, a data-storage firm, for $1.5 billion, topping the $1.15 billion offered a week earlier by Dell, a longtime rival of HP. Earlier in the month Intel, a chipmaker, paid $7.68 billion to buy McAfee, an antivirus-software firm. And the activity is not limited to high-tech firms. PotashCorp, a firm that mines potash, from which fertiliser is made, rejected a $38.6 billion offer from BHP Billiton, a mining giant. BHP is now pursuing a hostile bid.

This quarter will probably see more mergers and acquisitions than any in the last three years.

Most experts would say that M&A is a matter of confidence, and there is no reason for most businesses to feel confident right now. On the other hand, when executives hear about other mergers and acquisitions, it gets their attention. They may look again and feel more confident.

Some would say that even allowing for economic uncertainty, conditions are ripe for a surge in M&A. First, potential buyers are brimming with cash. Many companies built up record reserves during the crisis, out of fear. If they don’t spend them, investors will demand bigger dividends or share buy-backs.

Poor economic conditions have helped the top companies in many industries to strengthen their position, in terms both of market share and of stockmarket valuation. These firms are now well-placed to do consolidating deals.

The hoped-for M&A wave may dissipate as executives come back from summer vacations and find an economy that they can’t feel optimistic about. But history suggests that once a merger wave begins, it can grow quickly.

Source: The Economist “Waiting for a wave; A flurry of deals makes bankers salivate” August 26, 2010