M&A revival on the horizon

LONDON/NEW YORK (Reuters) -- Bankers are pointing to early signs of a pick-up in mergers and acquisitions (M&A), with stronger stocks and easier credit conditions helping company bosses regain the confidence to do deals.

Global announced M&A totaled $968 billion in January to June -- little more than 40 percent of pre-crisis volumes in 2007 -- and financiers do not expect a sudden return to the hectic dealmaking of the boom years.

But they say an August holiday lull could be followed by an upswing toward the end of the year, based on more active discussions with clients and in some cases growing pipelines of future deals.

"We are increasingly optimistic about the broader level of M&A activity in the second half of 2009," said Wilhelm Schulz, head of European M&A at Citigroup.

"There were three big impediments to M&A which have all improved -- macroeconomic uncertainty, availability of financing, and market volatility."

World stocks have bounced more than 50 percent from a March low, while economists polled by Reuters forecast the global economy will return to sluggish growth of about 2.5 percent next year.

And a recent Deloitte survey, which polled chief financial officers of big British companies, found that a net 81 percent foresaw more M&A in the next 12 months, even though they expect economic growth will be weak and cost-cutting a top priority.

Citi's Schulz said the coming months could see European deals involving healthcare, utilities, mining, and energy, more activity by sovereign wealth funds, and more distress-driven deals involving automakers and banks.

While bank debt remains scarce -- particularly for riskier deals such as private equity-led leveraged buyouts -- companies with solid credit ratings are increasingly able to finance deals, sometimes turning to buoyant bond markets.

Oliver Brahmst, head of U.S. M&A for law firm White & Case, said for well-capitalised companies, "banks are more receptive now" to help complete deals, even if it requires financing.

And Lee LeBrun, co-head of Americas M&A at UBS, said: "Credit isn't back to where it needs to be, but if you're doing deals at 3.5 times leverage, it gets done."

LeBrun said technology dealmaking was gathering pace in the United States, while energy, healthcare and distressed-company M&A remained strong.

However, with future earnings hard to predict, the memory of Lehman's collapse still vivid, and with plenty of firms focused on righting their own operations rather than expanding, bankers caution any revival will be measured.

Veteran dealmaker Bruce Wasserstein, chief executive of Lazard, said this week the investment bank was planning for a "gradual" increase in M&A, and it would take about four years before activity matched previous peaks.

Similarly, Goldman Sachs Chief Financial Officer David Viniar told analysts this month his bank was having "a lot of conversation" with clients about possible deals but a few more months of market stability were needed.

"I think people are feeling a little bit better, but not enough better to really pull the trigger yet," he said.

Viniar -- whose bank has been vying with Morgan Stanley for the top global adviser slot this year -- said activity could start to pick up in the second half although it would take longer for that to translate into revenues.

Banks will welcome any upturn in deals after fees for completed deals plunged in the first six months of 2009.

But a record number of deals collapsed last year, and many M&A plans now gestating may never make it to completion, foundering on hurdles such as big disagreements over valuation.

Philip Noblet, who specializes in "multi-industries" M&A at Bank of America Merrill Lynch in London, said: "We're seeing a lot of pipeline business over the last couple of months, probably as much as we've seen since 2007."

"However, it's very hard to tell how much it is really going to translate into revenue."