Global M&A deal value may halve this year: BCG

The value of global mergers and acquisition (M&A) deals is likely to drop by nearly 50 per cent this year, even as the financial crisis throws good opportunities for takeovers, a study says.

According to the report by advisory firm The Boston Consulting Group (BCG), the value of M&A deals is on track to plunge almost 46 per cent this year as compared to a year-ago, taking them down to mid-1990s levels.

The mergers and acquisition space has witnessed only 12,700 transactions with a combined valuation of mere $681 billion in the first six months of the year, with the number of deals dropping by 17 per cent from the same period in 2008.

"If the number of transactions for all of 2009 turns out to be double the figure for the first six months, the drop would take the number of deals down to a level last witnessed in 2004," the BCG report said.

However, the report asserted that the financial crisis would provide opportunities for 'game-changing' acquisitions by companies that are ready to make the right strategic moves when the M&A market returns to growth.

"We expect a window of opportunity offering attractive takeover prospects to open soon. But only those firms that prepared themselves for action will be able to benefit from these favourable opportunities. We have already seen some of our smarter clients making preparations in recent months," BCG partner and report co-author Alexander Roos said.

The 'Be Daring When Others Are Fearful: Seizing M&A Opportunities While They Last' report, analysed more than 5,200 transactions to identify the factors behind successful deals, with a special focus on the period since the start of the subprime crisis.

BCG research shows that the most promising opportunities as the M&A market returns to growth would be the acquisition of distressed businesses with further financing needs.

"In addition to businesses divested by larger distressed groups, targets in the coming period are likely to include a significant number of private-equity portfolio companies unable to refinance their debt," the report added.

However, not every company is in a position to make acquisitions.

The BCG analysis of a sample of companies in the S&P 500 shows that about 20 per cent are "predators," ready to take on the risks of a deal, while another 20 per cent are 'prey'—so weak and vulnerable that they must focus on survival or be swallowed.

The report revealed that the remaining 60 per cent have potential to be either predator or prey. BCG estimates that up to one-quarter of these companies could become predators by rigorously strengthening their finances and reshaping their businesses.

"Investors want management teams to take advantage of these adverse conditions in order to improve position in the competitive landscape whenever possible," Roos added.