Buyers Rule in Investment Banking

For the first time in years, buyers have gained the upper hand in corporate deal-making, according to a report in the Globe and Mail highlighting the 10 M&A trends for 2009 in a report by Tory’s LLP. This shift will have a profound impact on mergers and acquisitions in 2009 and moving forward.

During the recent M&A boom, buyers had to contend with multiple bids and soaring asset prices on deals. But now, with the global credit crisis and economic uncertainly, asset values have shrunk and companies are having a hard time finding buyers, let alone multiple bids.

Buyers are in the driver’s seat now, able to demand exclusive negotiations and lower prices. Sellers will also have to face the harsh reality that their company is worth much less than they thought it was just a short time ago. Also gone are the debt-heavy mega-deals that characterized the M&A boom.

On the other hand, those sitting on large piles of cash such as pension funds and sovereign wealth funds are well-positioned to take advantage of the buying opportunities ahead. There will also be a jump in distressed sales, along with more public-to-private deals.

Nevertheless, there are challenges for buyers, too, such as the lack of available credit. Buyers will also be expected to commit more equity to any deal – closer to 40 percent rather than the 15 to 20 percent favored in the past. There will also be more strings attached to those loans in the form of covenants.

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