If recent events are any clue, M&A activity appears to be heating up on Wall Street. That's no surprise: Shares of smaller companies still trade below 2007 valuations, and cash-rich industry giants are searching for ways to outgrow sluggish economies.

Lately, the tech and pharma sectors have been grabbing headlines, with acquirers including Abbott Labs (NYSE: ABT), Dell (Nasdaq: DELL), and Cisco (Nasdaq: CSCO). But there's another sector in which M&A action looks poised to take off: consumer staples. 

Buying growth
True, this sector generally lacks the cash-bloated balance sheets of large-cap tech and pharma. But staples companies areknown for their stable cash flows and steady share prices, which means that the big boys of the sector can raise funds by issuing shares or low-rate debt. Kraft investors are familiar with this equation. The $40-billion mac-n'-cheese-maven is currently pursuing$17.6 billion Cadbury, prepared to bankroll the acquisition with a mixture of existing cash plus new debt and shares.

Whether or not that particular deal pans out, the industry appears ripe for consolidation. At least, that's what Unilever (NYSE: UL) CEO Paul Polman recently said, not long after the basic-goods giant snapped upthe personal-care brands of Sara Lee . Polman's forecast makes sense; with the outlook for U.S. and Western European consumers uncertain, companies are eager to expand their product portfolios and push deeper into developing and emerging markets.

What might sector M&A activity look like? In the table below, I've listed companies that boast a portfolio of strong, market-leading brands, all wrapped up in a digestible enterprise value:

Company

Enterprise Value

Current Share Price

2007 Share Price *

2007 / TTM OCF per Share

% International Sales

H.J. Heinz (NYSE: HNZ)

$17.7 B

$41.15

$46.68

$3.18 / $3.71

60%

Clorox (NYSE: CLX)

$11.0 B

$59.40

$65.17

$4.47 / $5.15

20%

Hershey

$11.1 B

$39.57

$39.40

$2.27 / $2.50

14.4%

Sara Lee

$9.8 B

$11.68

$16.06

$1.32 / $1.23

45.5% **

Data current as of Oct. 22. Sources include Yahoo! Finance and company reports.
* Year-end price.
** Includes brands the company has agreed to divest.

Except for Sara Lee, each company has boosted operating cash flow since 2007, yet their shares trade mostly lower. For a deep-pocketed competitor on the prowl, that's an appealing combination.

Assuming that potential bids would come from companies within the sector, the list of potential acquirers is limited.

Company

Market Cap

Total Debt

Interest Coverage

Unilever Continued...