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The Easy Trillions Are Gone


The mood among dealmakers: The sellers' market is history, and LBOs will get scarcer

The chill is on. Back in June, dealmakers gushed about the hot market after notching a record $2.7 trillion of mergers and acquisitions worldwide in the first half of 2007. With the number of deals down 49% in the credit crunch, sentiments have cooled: Nine percent of dealmakers are calling the M&A environment "excellent," vs. 49% in midyear, according to exclusive research from the Association for Corporate Growth and Thomson Financial (TOC).

The groups' biannual survey, which polled 813 private equity executives, investment bankers, lenders, entrepreneurs, and other players in M&A, found that the once-unbridled optimism has been replaced by more realistic expectations. Although the dreams of $100 billion buyouts are gone, most pros expect strong M&A activity. After all, private equity firms are sitting on huge piles of cash after collecting billions from investors in recent years. In the latest quarter they raised $30 billion, down from a record $60 billion in the fourth quarter of 2006.

Don't expect the same type of deals, though. For one thing, it's no longer a sellers' market. Now that stock prices have dropped, 39% of dealmakers figure buyers have the upper hand, up from 13% six months ago.

Some 75% of the 212 private equity firms surveyed, a subset of the group, predict that the number of buyouts will shrink, while 93% figure distressed deals will be in vogue. Deals also may have a more international flavor. Some 43% of all participants think cross-border deals are increasingly important. Yet 46% of the private equity types say the U.S. is still the best place for their deals. Next best: China.

Despite the new mood, buyout firms don't expect their day-to-day work will change much. Some 80% say they won't change gears and modify their investment strategy. Of course, they may have to battle strategic corporate buyers over targets more than in the era of easy money. "The pendulum has shifted away from private equity," says Robert Kaiser, vice-president at Thomson Financial. "In the future, private equity will be lucky to be 25% of U.S. M&A."

Silver-Greenberg is a reporter for BusinessWeek.com.

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