The strong Swiss franc is expected to fuel more merger and acquisition deals in 2011, as cash-flush Swiss companies exploit the currency's buoyancy in pursuit of euro- and U.S. dollar-denominated targets, experts and companies told Dow Jones Newswires.

They expect the flurry of fourth-quarter deal-making to continue into 2011, in large part because the strong Swiss currency makes deals in the euro zone and the U.S. particularly enticing. The fourth quarter saw a spurt of deal-making, including major transactions like Novartis AG's (NVS) $38.7 billion purchase of Alcon Inc. (ACL) from Nestle SA (NESN.VX), ABB Ltd.'s (ABB) $4.2 billion bid for Baldor Electric Co. (BEZ) and CVC Capital Partner Ltd.'s $3.5 billion purchase of Sunrise Communications AG from Danish telecommunications provider TDC A/S (TDC.KO).

The rise in the value of the franc makes it much cheaper for Swiss firms to conduct deals overseas. The currency gained around 16% against the euro and 7% against the dollar last year, partly due to its status as a safe haven for investors.

"With this development [strength of the Swiss franc], mergers-and-acquisitions activity is anticipated to remain strong, in line with the fourth quarter of 2010," said Juerg Stucker, head of Swiss M&A at Ernst & Young.

Having stockpiled cash during the financial crisis, when financing was far tougher to come by, many Swiss companies are sitting on ample war chests that can be put to use for deals, and will be pushed to do so by shareholders, predicts Ernst & Young. Many Swiss companies have already started to look beyond their borders for M&A targets, particularly in emerging markets.

"The currency situation makes some companies act because they don't want to miss out while the franc is strong," Howard da Silva, head of corporate finance at Deloitte in Zurich, said.

Swiss chemicals company Sika AG (SIK.EB) aims to spend around 200 million francs ($213 million) on acquisitions this year.

"We suffer a bit when we translate money back into francs, but it helps when it comes to buying things. It means we can buy a bit more with the same amount of money," Sika spokesman Dominik Slappnig added.

Because domestic demand is moderate, many Swiss firms like Sika are hunting for growth outside Switzerland's borders, and have the cash to do so. Strong balance sheets and the currency situation give companies confidence to do deals, Deloitte's da Silva said, with many buying companies to access emerging markets or to add new technology or products.

However, E&Y said deal-hungry Swiss firms are also taking a bet on currencies, even if the strong franc is making targets cheaper.

"Firms are also buying cash flows in these currencies [euros, U.S. dollars], which begs the question of whether they will recover or not--it can be a bit of a gamble on currencies," said Louis Siegrist, Zurich-based head of transaction advisory services in Switzerland with Ernst & Young.

Healthcare, energy and technology are specific sectors where experts such as fund managers are betting on an increase in takeovers globally," Dexia Asset Management's Ludovic Ferras said.

Debt markets are stable enough for more companies to bolster their cash piles, should need be, while a gradually recovering economy provides a more confident backdrop for companies to pursue deals, according to Dexia's Ferras, and low prices provide an extra incentive to hunt targets.

For services-based companies like SGS, on an acquisition tear in recent weeks as part of 2014 targets, deal-making based on the strong franc ends up being a zero-sum game because revenue and cash flow being bought are eventually translated--unfavorably--into Swiss francs, SGS executive Jean-Luc de Buman said.

"It depends what you're buying: if you're an industrial company--not a services one like we are--and machinery, equipment and similar assets form the largest part of your acquisition, then it's cheaper at the moment. But for service-based companies, it's a zero-sum game," de Buman said.

Travel company Kuoni concurred, saying that while the strong Swiss franc isn't reason alone to hunt for acquisitions, its buoyancy certainly helps.

"For instance in auctions, it becomes more obvious that the strong Swiss franc affords us the opportunity to put a little bit more in, which can be an advantage even if it's not the deciding factor on whether we do a deal," Kuoni spokesman Peter Brun said.

To be sure, there is little indication companies will return to the levels of deal-making seen before the financial crisis. Winterthur-based oil and gas industry supplier Sulzer AG (SUN.EB), which wants to spend up to CHF1 billion on acquisitions this year, with a particular focus on emerging markets, said its deal focus is still firmly on what fits strategy, not currency.

-By John Revill and Katharina Bart, Dow Jones Newswires; +41 43 443 8042; john.revill@dowjones.com