Cash-rich firms buying small rivals sustains M&A-study

AMSTERDAM, Oct 23 (Reuters) - Cash-rich companies that do not depend on bank financing will continue to buy up smaller rivals, helping to sustain M&A activity over the next six months, according to a study released on Thursday.

M&A activity will also come from companies who are forced to trim down operations due to the economic downturn or private equity firms selling companies as they breach debt covenants or get hit by a worsening global economy, M&A advisors said.

"One market that has not gone down is big companies buying smaller ones. They have the funds to do deals," said David Bernard of Thomson Reuters (TRIL.L), which conducted a study with M&A advisory organization IMAP among middle-market M&A boutiques.

Almost half of the M&A firms participating in the survey expected M&A activity to decrease moderately in the next six months, the Thomson Reuters/IMAP study found.

Big companies such as Morgan Stanley (MS.N) and the big four accountancy firms like KPMG [KPMG.UL] would likely suffer more, said Axel Fuhri Snethlage, co-founder of Dutch M&A boutique Fuhri Snethlage & Joosten Flohil.

The credit crisis and economic downturn made the M&A market a "buyers market" as multiples had gone down, good companies could always be sold for a premium, and strategic buyers, such as multinationals, were in a strong position to finance deals, according to the study.

The multi-billion deals done by private equity firms before the credit crisis are not expected to come back soon.

"That market has dried up. It's totally dead," Fuhri Snethlage said.

Most deals are expected in the financial and energy and power sectors, according to the study, conducted in September.

"If the results were obtained a few weeks later they would be a bit more negative," said Bernard, citing the mid-September meltdown of Lehman Brothers and ensuing market turmoil.

Private equity deals such as the takeover of Dutch waste management company Van Gansewinkel or retailer HEMA were examples of highly leveraged deals that might come under pressure due to the credit crisis and economic slowdown, said Fuhri Snethlage.

"Especially deals for companies with cyclical operations are at risk," he said. (Reporting by Gilbert Kreijger; Editing by Toni Reinhold)