ANALYSIS - Juicy returns from M&A may prove elusive

By Harpreet Bhal and Jon Hopkins

LONDON (Reuters) - Investors eager to cash in on the prospect of a revival of merger & acquisition (M&A) activity could see their efforts go to waste as access to financing remains a major obstacle hampering bids.

Analysts urge caution against being too quick to buy into M&A target plays on the prospect of sweetened bids or successful deals, as holding on to them may be of little value in the long run in the absence of catalysts to drive M&A activity.

Equity markets were given a boost by the revival of long-mooted bid plans, including a $16.7 billion bid by Kraft Foods Inc for Cadbury Plc and Abbott Laboratories' $6.6 billion bid for Solvay SA's pharmaceutical unit.

Last Thursday, Cisco Systems Inc offered to buy Norwegian video-conferencing equipment maker Tandberg ASA for $3 billion, the latest in a rash of corporate takeovers after a lean period of a year and a half during the financial crisis.

The prospect of a sweetened bid has helped Cadbury's share appreciate almost 41 percent since the Kraft plan was first mooted in early September as investors sought to cash in on a revised offer for the confectionary firm.

Analysts, however, argue many would-be bidders face a bumpy ride in securing financing for M&A deals, leaving investors with little prospect for making gains on the back of enhanced bids.

"The heavily leveraged debt finance vehicles which were used to fund M&A activity up until summer 2007 are just not there any more," said Peter Dixon, economist at Commerzbank. "Nobody is prepared to load up on debt and banks are very wary of finance."