In Current Market Environment, Companies Face Rare Opportunity to Do Transformational M&A Deals, Says Report by The

NEW YORK, NY, Oct 08 (MARKET WIRE) --
With equity values stabilizing and debt markets returning to life,
companies face a rare window of opportunity to do mergers and
acquisitions that will reshape industries and create new leaders, says a
new report by The Boston Consulting Group (BCG).

For those with the financial wherewithal, current conditions offer a
"once-in-a-lifetime opportunity," say the authors of "Be Daring When
Others Are Fearful: Seizing M&A Opportunities While They Last."

"Time is of the essence. The capital markets are gradually reopening, and
growth is returning in economies that had previously fallen into
recession," write the authors. "When the window of opportunity flies open,
the prizes will go to those that have grasped their position and prepared
themselves for the surge in M&A. With the clock ticking, there is no time
to lose."

Earlier BCG research established that the returns from M&A are much
greater in downturns than they are in upturns. The firm's latest research
-- based on an analysis of more than 5,200 M&A transactions since the
start of the subprime crisis in the late summer of 2007 -- confirms that
insight. Moreover, it shows that some of the best opportunities in the
last two years have been acquisitions of fundamentally healthy but
financially distressed companies. Returns from distressed M&A were higher
for both acquirers and targets (2.4 percentage points higher and 30.1
percentage points higher, respectively) in 2008 than in downturns during
the previous 15 years.

The authors also found, after analyzing more than half the companies in
the S&P 500, that about 20 percent are "predators," ready to take on the
risks of a deal. Another 20 percent are "prey," so weak and vulnerable
that they must focus on surviving the downturn. The remaining 60 percent
have the potential to become either predator or prey. These businesses
must assess their financial and market positions as a matter of urgency
to ensure that they make the right strategic moves.

"For the majority of companies that are neither predator nor prey, the
good news is that up to one-quarter of them can transform themselves into
predators before the M&A market surges," says Alexander Roos, a BCG
partner and coauthor of the report. "To do so, however, they will have to
strengthen their finances and reshape their businesses -- to seize M&A
opportunities when they arise."

Who Are the Predators and the Prey?

The most active acquirers now are financially sound companies with strong
balance sheets, high profitability, and sufficient cash to capitalize on
the weaknesses of competitors. They can take advantage of the current low
valuation levels to transform their industry and improve their own
position within it, according to BCG.

Transactions over the last year have often been in industries such as
finance and automotive, which are on the ropes. But there are also
opportunities for large-scale transactions that could transform the
competitive landscape of other industries, including currently robust
sectors such as pharmaceuticals and utilities.

Other potential predators include private-equity (PE) firms, which have
around $500 billion at their disposal, and sovereign wealth funds, which
were sitting on assets of more than $3 trillion before the crisis started.

Many of the targets for M&A in the current crisis have been in sectors
hard hit by the credit crunch, such as financial services and the
automotive industry. But there has also been M&A in relatively healthy
sectors, such as pharma. Companies whose shares have fallen the most will
be seen as potential prey. Other targets will be businesses divested by
larger companies and PE-owned portfolio companies.

The Clock Is Ticking -- Be Ready for Action

Since the start of the crisis, companies have tended to focus inward. Cost
cutting and restructuring have been seen as the overwhelming priorities,
necessary to maximize cash flow, strengthen the balance sheet, and ensure
survival. But now conditions are beginning to turn.

"Investors appear to recognize that today's extraordinary circumstances
present once-in-a-lifetime M&A opportunities on which companies should
capitalize," says Roos, citing a recent BCG survey of investors and
analysts. "They want companies to use the crisis to strengthen their
competitive position -- even if their stock price takes a short-term hit.
Investors expect companies to do what is necessary to secure their
financial viability, but they are concerned that potentially game-changing
moves will be neglected for fear of missing quarterly earnings-per-share
guidance."

The report cautions, however, that conventional M&A strategies must be
updated to deal with the heightened uncertainty in a downturn as severe as
the current one.

"With earnings set to reach their lowest levels in the second half of 2009
or the first half of 2010, existing multiples may be too high," notes Jeff
Gell, a BCG partner and coauthor of the report. "Valuation of targets
requires a good deal more than analysis of their financials and simple
multiple calculations. Executives need to do real business planning and
explore worst-case scenarios. But for the predators, after they've done
their homework, they may see the best deals they will see in a
generation."

To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm
and the world's leading advisor on business strategy. We partner with
clients in all sectors and regions to identify their highest-value
opportunities, address their most critical challenges, and transform their
businesses. Our customized approach combines deep insight into the
dynamics of companies and markets with close collaboration at all levels
of the client organization. This ensures that our clients achieve
sustainable competitive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private company with 66
offices in 38 countries. For more information, please visit www.bcg.com.

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