Swiss companies with strong local currency cash piles burning a hole in their pockets are defying a weak global economic backdrop as they hunt more acquisitions even after a raft of corporate buys helped buoy an otherwise anaemic European market.

Companies such as pharmaceuticals groups Roche and Novartis, engineering firm ABB, and food group Nestle have all made sizeable buys in recent years.

But the spree is by no means finished.

Their war chests have been amplified by a Swiss franc some 30% firmer than at the time of the Lehman Brothers collapse in 2008, despite the central bank imposing a cap of 1.20 francs per euro last September after the soaring currency threatened to hurt exports and tip the country into recession.

"It is no surprise to see Swiss companies being active in M&A today as most have strong balance sheets and are buying with a strong currency," said Akeel Sachak, global head of consumer goods at Rothschild, who recently advised Nestle on its $11.85 billion acquisition of Pfizer's infant nutrition business.

Even excluding the proposed all-share tie up between commodities powerhouses Glencore and Xstrata, total deal volume in the Swiss M&A market came to 22 billion francs in the first quarter this year, almost three times the year-earlier quarter, data from Ernst & Young showed.

The second quarter has also begun smartly, as Nestle gobbled Pfizer's baby food unit for $11.85 billion and Novartis unit Sandoz snapped up skincare specialist Fougera for $1.5 billion.

In the case of all-cash acquisitions, shareholders will focus on the valuation of the target alone, while in a stock deal, the future value of the combined enterprise must be taken into account, said M&A specialist Marc Gabelli.

So when it comes to cash transactions, a strong currency can underpin boardroom confidence to do deals and encourage merger-hungry executives to pounce sooner rather than later.

The rush to buy with cash while the franc remains strong mirrors the spike in the number of all-stock acquisitions seen during the internet boom, as tech company stock prices soared.

"Strong currencies do not always last, whether it is a one-year or a ten-year cycle, it won't always be available. When you look at cash transactions, the strength of the Swiss franc really matters," said Gabelli, president of the Gabelli Group, parent of $36.7 billion U.S asset manager GAMCO.

"Therefore a strong exchange rate offers Swiss companies a relative advantage against U.S. dollar or Euro competitors."

Stability spurring M&A

A stable economy and low interest rates have also put companies in a stronger position to make buys, analysts said.

"A strong franc makes acquisitions less expensive from a currency perspective, but it is not just that driving Swiss M&A, it is more a bi-product of being in a stable political system with an independent currency and flexible monetary policy," said Willis Brucker, a merger arbitrage analyst at GAMCO.

"It helps keep the funding rate for Swiss companies incredibly inexpensive, creating a low hurdle for managers to make value-adding transactions."

Moreover, Switzerland's conservative executives kept risk limits tight through the financial crisis, leaving them better-placed to do deals than many foreign peers, said Patrik Kerler, head of mergers and acquisitions at KPMG.

"The key driver is balance sheets. Looking at Swiss corporations, it is amazing how strong the balance sheets are, and they are looking for investments," he said.

But while many companies are flush with cash, they won't do deals at any cost.

In April, Roche put its lofty ambitions in personalised medicine on hold, walking away from a deal with U.S. gene-sequencing firm Illumina when the management of that company dug its heels in over price.

A month earlier software company Temenos ditched a bid for UK rival Misys.

"They will walk away rather than overpaying, there is not so much pressure that they have to do acquisitions," said Kerler.

More to come

On the whole, Swiss companies have not struggled with excess leverage. The exception is serial acquirer Petroplus, which overstretched its balance sheet in a series of high-profile buys in the first decade of the millennium, only to declare insolvency earlier this year after weak European markets dented its cash flows and left it unable to service its debt.

Many, like chemicals company Lonza - which bought Arch Chemicals of the U.S. last year - have curbed costs sharply, and fundamentals remain solid.

Market watchers said Swiss companies were likely to remain among Europe's biggest acquirers following the sprightly start to the second quarter.

"I think Swiss companies will continue to prop up the M&A market," said Kerler.

"Switzerland is not an island, the large Swiss corporations are involved with markets around the globe, but Swiss companies will be in a stronger position than their international peers, and will be able to take opportunities as they arise."