By: Caroline Humer

January 31, 2005, Reuters

NEW YORK, Jan 31 (Reuters) - The buzz around mergers and acquisitions is back and valuations are creeping up, although deal prices still have a ways to go to replay the heady days of the late 1990s, industry experts say.

In the last week alone, there have been tens of billions of dollars in deals announced, including Procter & Gamble's $57 billion bid for Gillette Co. and SBC's $16 billion offer for long distance giant AT&T.

Another sign of the M&A market's rise has come in companies using stock, or stock and cash. As the stock market strengthens and the deals get bigger, companies turn to stock instead of cash as currency.

In recent deals, they have left out the type of limits, or collars, that might put a halt to the deal if their stock falls too much, showing confidence that both their stock price and their deals will hold up.

Backed by strong stock prices, companies are adding to the competition among buyers. For the past few years, financial sponsors such as private equity firms have been driving M&A amid low interest rates that makes leveraged purchases easy.

In an increasing number of deals, companies are changing hands after competitive auctions, said Jonathan Layne, co-chair of the corporate transactions practice at Gibson, Dunn & Crutcher in Los Angeles.

"With so much capital out there, I'm seeing many more deals being done as auctions, driving valuations," Layne said.

Corporations stung by the collapse of the technology market at the beginning of the decade and the corporate scandals at companies like Enron are getting the go-ahead from less nervous boards of directors to pursue deals.

"People are doing strategic deals and valuations go where the strategy leads people. But I don't know if people would say there have been any crazy valuations," said Morton Pierce, head of mergers and acquisitions at law firm Dewey Ballantine in New York.

Procter & Gamble Co. (PG.N: Quote, Profile, Research) , for instance, paid about an 18 percent premium to Gillette Co. (G.N: Quote, Profile, Research) based on closing stock prices before the deal was announced, which was not out of line with other premiums.

However, based on a price-to-earnings ratio, it offered to pay on a per share basis 28 times the company's expected 2005 earnings, far above the levels that Gillette's competitors, such as Colgate (CL.N: Quote, Profile, Research) with a price-to-earnings ratio of 20, are trading at.

"How much they would have to grow earnings just to break even?" said Thomas Lys, mergers & acquisitions professor at Northwestern University's Kellogg School of Management.

"It looks like the market is heating up and people are paying -- relative to earnings -- a large number," Lys said.

In addition, he said, the use of stock in recent deals shows that companies are confident that their stock is either at the right value, or possibly overvalued. "Certainly they are not undervalued or they would prefer not to issue stock," Lys said.

Many of the large recent deals, such as SBC Communications Inc.'s (SBC.N: Quote, Profile, Research) $16 billion for AT&T Corp. (T.N: Quote, Profile, Research) and utility company Exelon Corp.'s (EXC.N: Quote, Profile, Research) $13 billion bid for Public Service Enterprise Group Inc (PEG.N: Quote, Profile, Research) , have relied largely on stock.