Merger volume to fall 35 percent in 2009: bankers

PHILADELPHIA (Reuters) - The volume of global mergers and acquisitions could fall about 35 percent in 2009, down from an expected volume of $3.1 trillion this year and less than half of last year's record $4.4 trillion in deals, investment bankers said.

Dealmaking has dried up due to the lack of available credit, volatile equity markets and weak confidence among companies to pursue transactions in the uncertain economy.

Many investment bankers, who typically boast about a full pipeline of deals in the works, have become more somber in their forecasts as global economic crisis overshadows all merger talks.

"The end of this year will be a disaster," Martin Mannion, managing director of private equity firm Summit Partners, said this week at The Deal LLC's M&A Outlook 2009 conference in New York.

"We need a sign that things are stabilizing and I don't see that happening until mid-next year or late-next year," Mannion said.

So far in 2008, global deal volume totals $2.75 trillion, down about 29 percent from a year ago, according to data from Thomson Reuters.

That number would be even more dire -- down as much as 40 percent -- if deals involving distressed financial institutions were stripped out, said Stefan Selig, Bank of America Corp's (BAC.N) vice chairman of global investment banking and head of global mergers and acquisitions.

Jeffrey Stute, co-head of North America mergers and acquisitions at JP Morgan Chase & Co (JPM.N), showed more optimism and said he expected 2008 merger volume to be down just 25 percent from last year.

One bright spot was the steady pace of dealmaking by corporations, Stute said.

Although private equity deal flow has fallen about 70 percent this year due to the tight credit markets, Stute said deals by corporations have been roughly flat-to-slightly higher in volume compared with a year ago.

Corporations with cash on their balance sheets or stronger stock have been taking advantage of the drop in equity valuations among their rivals to do deals, investment bankers said.

This year has been marked by a jump in hostile or unsolicited deal activity, including InBev NV's INTB.BR planned $60.4 billion acquisition of U.S. brewer Anheuser-Busch Cos Inc (BUD.N) and Exelon Corp's (EXC.N) bid for NRG Energy Inc (NRG.N).

BUSTED DEALS

Getting from start to finish on any deal has been harder. One-third of U.S. deals announced in 2008 have been withdrawn or have not closed, according to data from UBS AG (UBSN.VX).

"Completion-risk is on everyone's mind. We are, on a historical perspective, amid the lowest level of deal completion. 2008 was marked by high-profile broken deals and an intense level of litigation," said Cary Kochman, Co-Head of M&A for the Americas at UBS.

Deals such as Hexion Specialty Chemicals and Huntsman Corp (HUN.N) remain locked in a legal battle, while Samsung Electronics Co Ltd (005930.KS) walked away from its $5.9 billion unsolicited bid for flash-memory card maker SanDisk Corp(SNDK.O).

"I expect to see more busted deals. We will see a healthy percentage of transactions not get to closing even after going through a thoughtful process. The certainty of closure is less now," said Paul Parker, Barclays Capital's BARCBC.UL head of global mergers and acquisitions.

"CLEAN UP THE MESS"

Parker said the next year will continue to be a transition as Wall Street cleans up after the merger boom of 2007.

"Once you have the boom, then you have the bust and you have a transitional era when you need to clean up the mess and get back to basics," Parker said.

He expects global acquisitions volume will be roughly $2 trillion to $2.5 trillion in 2009, echoing levels seen in 2004 and 2005.

"There will be a multi-year, slow crawl back," Nicole Arnaboldi, chairman of DLJ Merchant Banking, said at The Deal LLC's M&A Outlook 2009 conference. "It will start with smaller deals."

Bank of America's Selig said he does not expect a material recovery in the M&A market until late 2009 or early 2010.

"Everyone is focused on the lack of liquidity, equity market volatility and the lack of consensus for the economic outlook," Kochman said.

"There are substantial headwinds facing M&A and the headwinds are not subsiding," Kochman said.

(Editing by Leslie Gevirtz)