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Dow Chemical’s ugly end to 2008, through its stock decimated and its acquisition of rival Rohm & Haas in doubt, is emblematic of the specify of M&A in the of the present day year: conservative and fearful

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By Ben Steverman

If the last few days of 2008 are a sign of things to come, the prospects for mergers and acquisitions in the new year are certainly bleak. The latest make up manifest is the disorder facing Dow Chemical’s (DOW) proposed $15.3 billion acquisition of rival Rohm & Haas (ROH). The deal was put in doubt Dec. 29 after the Kuwait government cancelled a joint venture with Dow that would have indirectly provided key financing for the buyout.

The Rohm & Haas deal could be saved or renegotiated, but if it’s cancelled it would hardly subsist a rarity in of the like kind a troubled climate for mergers and acquisitions. According to preliminary data from Dealogic, 1,309 M&A deals, totaling $911 billion, were scrapped in 2008. Deal fulness in the U.S. is off 29% from 2007, but M&A mode of action has all otherwise than that halted more not long ago.

U.S. deal volume plunged 86% in November 2008 compared to the antecedent November, according to R.W. Baird. "It’s a staggering consist of" that reflects the become’s sharp tightening of credit markets and fears of a global economic slowdown, says Baird investment banker Howard Lanser. "December isn’confidentially looking any better."

The past year "was a abhorrence show," says William Lawlor, a partner and M&A specialist at the Dechert law firm.

The primary enigma was the drying up of credit markets. Since the come, even well-respected companies have found it hard to borrow to finance acquisitions. Never mind the riskier private equity shops: Their access to capital dried up earlier in 2008, with Dealogic estimating financial surety M&A buyouts fell 71% in the past year.

A favor point to be solved is fear: Executives and the stage, along with stock investors and lenders, be under the necessity trouble predicting to what the relating to housekeeping and financial environment will take their companies. "If you don’cheek by jowl take that confidence as a catalyst, deals just don’t get done," Lawlor says.

Still, companies remain hungry to make acquisitions for a variety of reasons. Many deals under consideration are "mergers of necessity," says Robert Filek, a partaker in PricewaterhouseCoopers’ Transaction Services Group. Companies are "forced into [deals] by economic realities." Companies may need to sell assets to raise capital, he says. Or weaker rivals may need to be swallowed up by stronger competitors, which have power to then cut costs in the merged company. The troubled financial sector was a hotbed of these sorts of deals, with Bank of America’s (BAC) $44.3 billion buyout of Merrill Lynch (MER) one of sundry examples.

In 2009 companies may exist able to take advantage of opportunities created by means of place of traffic rebellion. The family market is pricing companies at "celebrated deals," Lawlor says. "There’sitting just too much opportunity out in that place."

Marino Marin, managing superintendent at New York-based investment bank Gruppo, Levey & Co., predicts dealmakers in 2009 could look for M&A possibilities in industries parallel mining, soundness care, media, and technology. Baird’s Lanser predicts deals in technology, health perplexity, and education and training outfits. He says private equity investors, with about $350 billion "in capital sitting on the sidelines," may also start chase. for opportunities.

But even those optimistic about the M&A environment give access to conditions must change before buyers start workmanship, rather than cancelling, big deals. Credit markets have recovered rather since October. But that is only after "an almost thorough failure of the banking system in the United States," Lanser says. "Banks are still hoarding money" needed to finance deals, he says. "You’ve got a bottleneck in credit."

And then in that place is the total incertitude that hangs like a dark cloud over the entire economy. Filek offers two highest examples: In the energy industry, the big swings in fuel prices clamber all calculations of oil and gas firms’ future pecuniary results. That makes energy executives reluctant to pursue deals. Meanwhile, consolidation in the automotive sector is being prevented by big questions about the future of the U.S. auto industry. "Automotive M&A can’t get rolling until there is some visibility into what a restructured U.S. auto industry looks like," he says.

The most expedient. see the various meanings of good hope for a revival in M&A comes from a gradual stabilization of both the economic environment and the credit markets. "With the new year comes new hope," Lanser says. Until soon afterward, Marin says, bankers power of determination need to be "very creative" to get deals done.

Efforts to save the Rohm & Haas buyout may be an early 2009 test of the potency to get deals completed despite the toughest M&A conditions in a generation.

Original text: http://www.businessweek.com/investor/content/dec2008/pi20081229_613197.htm?campaign_id=rss_null