M&A Opportunities May Get a Boost From Economic Downturn

With the global credit crunch and the possibility of a significant recession on everyone’s minds, Corporate Board Member assembled a number of legal, advisory and financial experts to discuss the state of M&A activity. The results, which can be found in a free Special Supplement, indicate cautious optimism for several sectors.

So while 2008 may not be the year of the megadeal, there are still quite a few viable acquisition targets, and strategic players, waiting in the wings.

While deal pace is not expected to break records or yield many blockbusters, M&A activity across most sectors should move along at a moderate clip in 2008. Distressed and nontraditional M&A activity may pick up, especially in the retail sector, which is influenced greatly by the spending habits of the middle-market consumer. Deal drivers will include companies’ need to raise capital and reduce risk by shedding noncore businesses, such as Banco Popular selling its U.S. consumer finance business to AIG.

The weak dollar will also provide a strong impetus for a number of foreign acquisitions of US firms and firms, especially for European and British firms.

While availability of credit is down signficantly since the height of M&A activity in 2007, there are sources of capital that will be able to finance a large number of mergers and acquisitions.

With over $3 trillion in assets, sovereign wealth funds will also provide alternative financing conduits, whether through partnerships with private equity or investments in companies that choose growth by acquisition.

…when companies want to resuscitate their stock prices, consumer businesses will dispose of their noncore assets and undergo product rationalization… which will obviously add to deal volume.

Commenting on the effect of a recession, several of the analysts focused on specific industries:

On the restaurant side, we tend to see the middle get squeezed. So in a challenging economic environment, you see high-end restaurants such as Morton’s not as affected as, say, Applebee’s, because many consumers will choose to eat at a quick-serve or fast-casual restaurant as opposed to a full-service establishment.

Interestingly, due to its success, the online retail industry will likely see less M&A activity than its brick-and-mortar counterpart.

In fact, 2007 was Amazon’s best holiday season in its 13-year history.

Other highlights:

• Private equity and strategic buyers dominate the broad consumer business industry, where, despite the threat of a recession, the luxury goods sector is expected to fare well.
• Product innovation, convergence, and cost control are among the many factors driving activity in the technology, media and telecommunications sector, where volume is expected to pick up in the latter part of 2008.
• High energy prices and strong cash flow, along with continued interest from foreign buyers due to a weakened dollar, have helped create a favorable deal environment for the utilities and energy sector.

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[EnergyFinancier]

If you'd like to see financial experts to discuss the state of M&A activity in person, I suggest you attend the Renewable Energy Finance Forum-Wall Street (www.reffwallstreet.com) on June 18-19, 2008. Session 7, "M&A - The coming wave of consolidation?" will be lead by exectives from Credit Suisse, Winston & Strawn, Morgan Stanley, Banc of Americas, and Citigroup.