M&A and the recession

• Global picture

Globally most bankers and M&A analysts expect the recession to eventually spark waves of consolidation in many industries. In fact weakened companies will need buyers to survive, whereas strong oness might take advantage of low stock market valuations to acquire troubled rivals at discounts.
Nevertheless a revival in M&A will not be that simple. First, there is the credit crunch issue. Banks and other lenders have made it tough to finance deals, making loans, especially for big deals, scarce and more expensive. A second barrier to a revival in M&A is fear. Firms are storing up cash, holding onto it as insurance against a nasty economic downturn.

• The crucial role of confidence

Confidence, has become a rare commodity. In business, M&A and everyday life, the ability to make quick and bold decisions or clinch the big deal requires a sense of confidence. The previous months have seriously dented people confidence and that is reflected in the relationship with banks, regulators and business. Trust in these organisations has simply been eroded. Banking crisis, rising unemployment...that makes a lot of terrible news. The government has tried to enhance the level of the economy with a huge bailout, and then some help has been given to the car industry. But still the level of confidence is quite low! Therefore a revival in M&A activity will be enabled only by some news which would enhance confidence.Once that confidence has come back, deals will proliferate. An M&A move is a bet on the future, and it's hard to make those bets when the outlook is so cloudy.