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Mergers of Necessity to Dominate in '09

  • Mergers of Necessity to Dominate in '09The Find: 2008 was a terrible year for mergers and acquisitions, but 2009, while not exactly an M&A gold mine, will see an uptick in the number of "mergers of necessity" with deals to be found in several sectors.
  • The Source: A new report on 2009 M&A activity from The Transaction Services group of PricewaterhouseCoopers.
The Takeaway: With credit scarce, 2008 was a difficult year for M&A deal makers - the number of announced deals in the first 11 months was down 22 percent compared to last year - and when the experts at PwC look ahead to 2009, they don't foresee much of a pick-up in the volume of deals - but there do see one bright spot: so-called "mergers of necessity."

"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. "Historically, it has been during a downturn when strategic buyers and private equity firms have their best buying opportunities, yielding the best returns." So what sectors will offer deals, according to PwC?

  • Financial services â€" With results to date under scrutiny, look for more traditional consolidation to drive results in 2009. Banks of scale have significant cost advantages in a challenging market; it will be hard for small mid tier banks to go alone in this market.
  • Energy â€" The decline in stock prices over the past several months has created opportunities to acquire regulated utility or merchant companies and generation assets at a discount.... The timing of the economic turnaround and the impact of President-elect Obama's energy policy should also have a significant impact on sector M&A activity.
  • Consumer products â€" Watch for the stability of consumer products to attract corporate buyers .... As many high quality companies may get thrown out with the bath water, patient consolidators will take advantage of favorable pricing.
  • Healthcare â€" The new administration's goals include expanding access to quality and affordable health insurance, modernizing healthcare, reducing costs, and promoting public health, prevention and wellness. This will create an uptick in 2009. There will be opportunities across healthcare sectors.
  • Technology â€" Look for aggressive acquisition activity from industry leaders in internet, software, computers and networking as they take advantage of once in a decade low prices.... Semiconductors will likely sit-out the first half of the year.... Clean technology will either continue to simmer or come to a full boil, pending early decisions on infrastructure and incentives by the incoming Obama administration.
  • Retail â€" After the holiday season, this sector may present opportunities for distressed investors. Retail companies looking to grow may find opportunities in discounted lease rates on prime real estate.
For a much more detailed discussion of the 2009 M&A outlook, check out the detailed release.

The Question: Get your bets in now: what are your 2009 M&A predictions?

(Image of sale signs by timparkinson, CC 2.0)

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