Current Trends in Mergers and Acquisitions

The merger and acquisition market continues to evolve as the recession proceeds. The volume of transactions has decreased significantly. According to a report by PriceWaterhouseCoopers[1] just $1.1 trillion was spent on mergers and acquisitions in the first 11 months of 2008 compared to over $1.7 trillion in 2007. Yet if you have the stomach to take on risk deals continue to be made.

Over the last three years financial buyers’ impact has decreased while strategic buyers’ influence has grown[2] according to industry executives. In upcoming months however we may see a renewed focus on primarily financial deals – after all values have plummeted and businesses are selling at major discounts.

Changes reflect new deal structures difficulty in acquiring financing and the controversy regarding valuation of assets.   A new level of preparation is required by both buyers and sellers and considerably more thought. While the potential for great deals remains the “to-do” list has become a bit longer. It is more important than ever to negotiate effectively and be thorough with due diligence.

It doesn’t help that so much uncertainty and volatility is left in the marketplace. The transition to a new presidential administration raises questions about tax implications future regulations and the potential outcome of bailout and stimulus plans.  And if that’s not enough there is also the international aspect to consider. Now is the time to be careful and calculated as great opportunities appear on the horizon.

Banking Crisis Effects—Alternative Financing
Merger and acquisition activity has been greatly affected by the trouble in the banking industry. Banks have become extremely strict with lending and have raised their standards; there’s a direct correlation in the downturn of the M&A market.

An air of self-preservation has hit the banking industry hard. Easy credit for transactions allowed companies to leverage up but that’s come to a screeching halt.   With the lingering effects of the sub-prime mortgage crisis banks remain in a credit freeze trying to maintain their current assets so they can ride out the economic storm. To make matters worse the bailout funds distributed to various banking institutions have all but been earmarked to shore up residential lending not to fund M&A transactions though some institutions are using that cash to fund their own purchases.

Banks are avoiding M&A because the risks appear too great. Either they’re declining loans or drastically tightening the terms. Companies in the market to purchase other businesses now must be more selective as banks are more restrictive. According to executives involved in transactions affected the tighter credit market has impacted transactions in the following ways:[3]