U.S. M&A slumps, but strategic deals help fill void

By Jessica Hall

PHILADELPHIA (Reuters) - Merger activity in the United States dropped 29 percent in the second quarter, faring better than the 40 percent global slump, as corporations filled the void left by buyout firms and targeted big consumer brands such as Anheuser-Busch Cos Inc (BUD.N) and Wm. Wrigley Jr Co WWY.N.

"Strategic buyers see an opportunity here due to the absence of the financial buyers. For the last 24 months, prior to the downturn, strategic buyers were getting outbid by financial buyers. That's not happening now," said Bob Filek, a partner with PricewaterhouseCoopers' transaction services.

During the first half of the year, private equity deal volume dropped 85 percent in the U.S. and 76 percent globally, according to Thomson Reuters data released on Friday.

The strength of corporate deal-making came as private equity firms were hobbled by the difficulty of borrowing money -- and the high cost -- in the tight credit markets as well as banks' uneasiness to lend in the wake of the subprime mortgage crisis.

Jimmy Elliott, global head of M&A at JP Morgan, said he expected strategic acquisitions to continue in the second half of 2008.

"Once CEOs and boards feel confident that they are at or near the bottom, and believe there is a window of opportunity, they will not stand on the sidelines anymore," Elliott said.

"So, yes, strategic acquisitions will continue to dominate the activity."

Corporations with strong balance sheets have often had cash on hand to make acquisitions, and been able to amass additional funds for large takeovers of well-known brands with proven cash flow and high credit ratings, analysts said.