M&As to stall at a third in 2009; government-sponsored deals to dominate

10 December 2008

Dark clouds seem to be on the horizon for mergers and acquisitions for the coming two years, with two studies predicting that M&A will stall as government-sponsored deals would be the only ones adding some shine to an otherwise bleak landscape.

As companies go through some of the toughest times ever, creditors will demand payments, and government sponsored transactions would be the only ones to take place, reports suggested, while saying that M&A activity would slow to levels unseen since 2004.

Joint research by bankers at Barclays Capital and Nomura Holdings Inc. reveals that the value of deals may decline 30 per cent in 2009, to around $2 trillion. Compared to 2007, takeovers are down by 36 per cent this year, which has reduced bank fee by 34 per cent to an estimated $63 billion, a report by Bloomberg said citing data compiled by New York-based research firm Freeman & Co and itself.

Experts are predicting a large volume of strategic deals in 2009 that come about more out of necessity than choice. A number of them would be government-forced mergers among banks and insurance companies.

Over a third of the 20 largest acquisitions announced during the fourth quarter of 2008 were at the behest of the governments. Reports quoted analysts as saying that governments would don the role of arbitrators, and would "twist elbows" if necessary. A Bloomberg report said that forecast by analysts at French bank Societe Generale predict that completed deals in 2009 could fall to 4,000 from 8,000 in 2008, the worst since 1995.

Asset sales also seem to be the flavour of the season, lead by the now government-controlled insurance International Group Inc. (AIG), which was reported to be under pressure to sell around $60 billion in assets.