PricewaterhouseCoopers Outlook: Merger and Acquisition Environment to Be One of...

PricewaterhouseCoopers Outlook: Merger and Acquisition Environment to Be One
of High Risk, High Reward for Remainder of 2009
Middle market deals dominate deal flow

NEW YORK, July 13 /PRNewswire/ -- In the current credit market where access to
syndicated loans to finance large transactions remains limited, one of the few
places that deals are getting done in the U.S. is in the middle market,
according to the Transaction Services group of PricewaterhouseCoopers. For the
first half of 2009, 135 middle market deals were announced with an aggregate
deal value of $39.2 billion. "As in the last recession, it's the smaller
transactions that are getting financed because deals of that size don't
require assistance from the capital markets or the structuring of highly
leveraged loans," said Robert Filek, a partner in PricewaterhouseCoopers'
Transaction Services practice.

Also on the deal horizon for the rest of 2009 will be a few large, bellwether
transactions orchestrated by adventurous dealmakers willing to operate in a
very high risk, high reward M&A environment, where rigorous due diligence will
undoubtedly be integral. "There is no doubt that within the next 18 months,
some of the deals that get done will be looked upon as the most lucrative,
potentially in the last couple of decades," said Filek. "It's really an era
for explorers, who are willing to try and navigate in unchartered territory,
and great riches may await for those who venture there. However, as explorers
have found for centuries, riches are difficult to find and many explorers
never return."

Among the riskiest types of deal activity in this recessionary market are
cross-border M&A transactions. In terms of outbound activity,
PricewaterhouseCoopers does not expect that CEOs of U.S. companies will be
very aggressive in looking outside of the borders. One exception for
cross-border M&A will be extremely opportunistic situations or merger of
necessity circumstances where a company's key suppliers are going out of
business and they need to firm up their supply chain.

Different from previous recessions, PricewaterhouseCoopers believes this one
will result in global restructuring, and in the process global economies are
in the midst of a long period of slower, more volatile growth. Filek stated,
"Because this recession has been global and because all of the government
stimulus packages are not created equal, it is likely that emerging markets
like China and India will accelerate more quickly than other economies. We
would expect that we will see an increase in Chinese acquisitions of U.S. and
European companies."

Expanding on acquisition activity in Asia, Greg Peterson, a partner in
PricewaterhouseCoopers' Transaction Services practice observed that developing
countries continue to pursue commodities. "If you look at acquisitions coming
out of Asia they tend to be very strategic and centered around transport and
commodities because both are critical to continued growth. China, in
particular has the capital to pursue those areas aggressively," he noted.

As forecast in PricewaterhouseCoopers' initial 2009 M&A outlook release, the
deal landscape has seen an uptick in distressed investments across several
sectors, which Peterson expects will continue. "A number of private equity
funds historically cut their teeth in distressed deals and morphed into
private equity funds in previous cycles," he said. "You have a host of private
equity players who know how to do distressed, and do it well. Overall the
private equity funds have in excess of $1 trillion waiting to be deployed but
it will not be done without discipline."

(Photo: http://www.newscom.com/cgi-bin/prnh/20090713/NY45035-a )

Peterson noted that standalone distressed funds have raised billions in
capital that will be deployed by either going after equity or transactions,
allocating it to upside down balance sheets or to buying debt as a means of
gaining control of a company or a way to be in a lead position through
bankruptcy. The number of U.S. businesses filing for bankruptcy totaled 14,319
for the first three months of 2009 compared to 8,713 filings for the first
three months of 2008, according to the American Bankruptcy Institute. Peterson
noted the lack of reliable DIP (Debtor-In-Possession) financing in this
recession will lead to more companies and investors negotiating their
re-financing packages out of court or, where unsuccessful, perhaps even moving
directly to Chapter 7

(Photo: http://www.newscom.com/cgi-bin/prnh/20090713/NY45035-b )

According to Thomson Reuters, announced U.S. deal value and volume through May
2009 totaled $248.7 billion and 2,507 deals respectively, down from $428.6
billion and 3,750 deals for the same period in 2008. Private equity accounted
5% of the U.S. deal value and 20% of volume for the first five months of 2009,
compared with 26% and 17%, respectively, for the same period in 2008. With
regard to new deal activity, Peterson noted from the private equity
perspective that deal volume and pipeline will continue to be slow for the
balance of 2009 because of uncertainty around leveraged markets assisting
private equity in the short term, and a fall off in club deals... "There may
be some exceptions such as high-profile opportunities where the government or
seller would make financing available or there may be some bolt-on
opportunities to existing portfolio companies, but the folks with the
checkbooks and the currency right now seem to be the corporates."

(Photo: http://www.newscom.com/cgi-bin/prnh/20090713/NY45035-c )

Sectors that continue to present opportunities include...

-- Technology -This sector is poised for another wave of consolidation
with
mature business models and healthy balance sheets.

-- Energy- The stabilized crude price and great cash flow prospects,
buttressed by continued opportunities to grow these businesses makes
this sector a consolidation hotspot.

-- Pharma/Healthcare-The healthcaresector will continue to be in the
spotlight, most notably pharmaceuticals with drug companies seeking to
fill their pipeline through acquisitions and focus on true core
competencies by selling non strategic divisions/operations. As the
Obama
administration realigns the health care system, there are going to be
players who look to basically realign their business model to take
advantage of the emerging environment.

-- Financial services - Consolidation in this space will be rampant,
driven
by mergers of necessity where companies combine because the
opportunity
is compelling and the sellers have to exit, and in many cases will be
a
distressed situation. Specifically in banking, there will be a flight
to
quality, referring to banks performing in the upper quartile and
getting
out from under TARP and heavy government oversight.

Both Peterson and Filek are optimistic about an upturn in the deal market.
"There are a growing number of dealmakers, including private equity firms, who
want to get on track now for the market's ultimate return," said Peterson.

Similarly, Filek sees opportunities for companies on both ends of the spectrum
- those that have been moderately affected by the recession and those that
have been hurt badly. "While some companies will be compelled to make
acquisitions only if it is key to their survival, others may believe that it
is a good time to combine with a partner and prepare for the uptick in the
economy. We are seeing early signs of restored confidence needed for the
return of a robust M&A market, which can in part be attributed to stimulus
activities beginning to take effect." Filek also noted that the "slower pace
of deals getting done can be attributed, in part, to increased and more
tightly controlled due diligence by both buyers and sellers, which is
necessary in this environment."

*The accuracy of our previous forecast does not guarantee future accuracy.

The PricewaterhouseCoopers Transaction Services practice provides due
diligence for M&A transactions, along with advice on M&A strategy and
integration, divestitures and separation, valuations, accounting, financial
reporting, and capital raising. With approximately 1,000 deal professionals in
16 cities in the U.S., and a global network of over 6,000 deal professionals
in 90 countries, experienced teams are deployed with deep industry and local
market knowledge, and technical experience tailored to each client's
situation. The Transaction Servicesteam can be involved from strategy to
integration and employ an integrated business approach to uncover the
realities of a deal. The field-proven, globally consistent, controlled deal
process helps clients minimize their risks, progress with the right deals, and
capture value both at the deal table and after the deal closes. For more
information, visit www.pwc.com/ustransactionservices.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax
and advisory services to build public trust and enhance value for its clients
and their stakeholders. More than 155,000 people in 153 countries across our
network share their thinking, experience and solutions to develop fresh
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"PricewaterhouseCoopers" refers to the network of member firms of
PricewaterhouseCoopers International Limited, each of which is a separate and
independent legal entity.

(C) 2009 PricewaterhouseCoopers LLP. All rights reserved.

SOURCE PricewaterhouseCoopers' Transaction Services

Jennifer Gery-Egan, Brainerd Communicators, +1-212-986-6667,
gery@braincomm.com; or Kate Oliver, PricewaterhouseCoopers' Transaction
Services, +1-860-241 7333, kathryn.oliver@us.pwc.com