M&A or A&E? Crisis to dominate dealmaking in 2009

By Quentin Webb - Analysis

LONDON (Reuters) - Merger bankers will spend much of 2009 tending to the corporate victims of the credit crisis, as they slim down companies, pair up banks and help the cash-rich few to swallow weakened rivals.

But tough debt markets and homegrown business problems may give many potential acquirers pause for thought, and many bankers expect a further drop in mergers and acquisitions (M&A).

In the year to date, global M&A is down 27 percent to $2.86 trillion (1.91 trillion pounds) from a record in 2007. Barclays Capital, for example, estimates next year will bring $2 trillion to $2.5 trillion of deals, the weakest year since 2004.

"We'll see bargain-hunting by well-capitalised buyers, non-core disposals by restructuring companies, and all-stock defensive deals, in some instances government-induced," said Hernan Cristerna, co-head of European M&A at JPMorgan.

Global stock markets have fallen steeply this year -- the MSCI World Index of 23 developed-world markets has lost 43 percent.

Bankers and executives say that presents opportunities for cash-rich suitors including oil majors, such as Exxon Mobil, Royal Dutch Shell, BP and Total, and consumer-goods giants such as Procter and Gamble, Nestle, and Diageo.

"M&A should be countercyclical. In a perfect world, when prices are low, people should be doing more M&A, not less," said Brett Olsher, co-head of global M&A at Deutsche Bank.

"All those targets that made a lot of sense for our industrial clients but were just too expensive are in the zipcode now."