Companies get into deal mode

— -- Even as investors nervously wonder if now's the time to buy stocks, companies themselves are beginning to open their wallets.

On Monday, Oracle said it is buying Sun Microsystems, drugmaker GlaxoSmithKline is buying Stiefel Laboratories, PepsiCo is looking to snatch up two of its bottlers, and Chesapeake Utilities is buying Florida Public Utilities.

While merger and acquisition activity is still well below 2007 levels, the recent flurry of deals signals to some that companies are starting to get more comfortable investing in acquisitions so they'll be ready once the economy mends. "It's a sign companies see value," says Hugh Johnson of Johnson Illington Advisors. Companies are more "willing to part with some hard-earned cash to make investments."

Investors, though, didn't find much comfort in the latest deals. The Dow Jones industrial average snapped a three-day winning streak to sink 290 points, or 3.6%, to 7842 on worries over the health of financial firms.

Still, some are hopeful recent M&A activity might bode well for the future, since it's:

•Breaking the downward trend. The dollar volume of U.S. mergers nearly doubled in the first quarter of 2009 from the fourth quarter of 2008 to $217.1 billion, the first time volume has increased in consecutive quarters since the second quarter of 2008, Dealogic says. And the $61.7 billion value of deals in March was up 16% from February and 37% from March 2008.

Companies with cash and confidence are finding great opportunities, says Roger Aguinaldo, CEO of merger information service M&A Advisor.

•Pushing companies to be more aggressive. Larger companies with resources are thinking about how to position themselves to thrive rather than just to survive, says Kurt Kunert of FactSet Research Systems. A rising number of executives have said they're considering acquisitions, he says.

•Prompting companies to stop waiting. When companies with piles of cash take advantage of low valuations, it prompts rivals to make a move before values slip away, says Sara Moeller, professor of finance at University of Pittsburgh. For instance, speculation Coca-Cola may have to follow PepsiCo's lead pushed the price of one of its top bottlers, Coca-Cola Enterprises, up 2.6% Monday. Companies "have been paralyzed," she says. "Now we're seeing the purse strings opening up and companies making decisions," she says.