PricewaterhouseCoopers believes that M&A activity will be dominated in 2009 by "mergers of necessity" as distressed companies seek the protection of more stable parents.
"Troubled companies will look to align with larger, stronger players in order to survive, creating the perfect storm for mergers of necessity," said Robert Filek, a partner in PwC's transaction services group, in a statement.
According to Thomson Reuters, announced U.S. activity through Nov. 30, 2008 totaled roughly $1.1 trillion, compared to $1.6 trillion for the same period in 2007. Total deal volume for the 11 months of 2008 was 8,190, a 22 percent decrease from the same period in 2007. Trailing monthly deal volume from 2007 to Nov. 2008 revealed a grim picture.
During 2008, the lack of liquidity affected acquirers' ability to do deals, especially in private equity. The number of transactions by private equity acquirers through the end of Nov. 2008 fell by 24 percent to 1,383, while deal value plummeted by 75 percent to $127.4 billion from $501.7 billion during the same period. Thus, private equity presented just 12 percent of the 2008's deal value, a significant plunge from 2007.
The latest available U.S. bankruptcy data shows growing opportunities in buying troubled assets. The number of U.S. businesses filing for bankruptcy has been on the rise. In the first half of 2008, business bankruptcy filings totaled 18,456, the highest half-year total since the second half of 2005, according to the American Bankruptcy Institute.
Meanwhile, private equity firms are actively raising distressed funds to invest in these assets. According to Private Equity Intelligence, distressed funds have raised a total of $36.8 billion in the first half of 2008, signaling more activity to come.
