What's in store for the M&A market in 2009? Deals are down, multiples have hit bottom ... but credit is still tight.

• Author: Oppenheimer, Charles K.
• Position: Merger and acquisition - Viewpoint essay

Last year in these pages I noted that M&A activity was dropping and credit was tightening. Hopefully we have hit the bottom, although that doesn't mean a return to historic levels anytime soon. It took a little longer than expected for the multiples to drop, and no question deals are down. In spite of some who say credit is softening, I don't see many signs of that.

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What is the market for this year? Some deals will continue to get done but at lower multiples than last year. Financing for M & A transactions remains very hard to get and I don't see it coming back very fast.

Private Equity: Private equity still has billions of dollars to put to work and transactions continue to be completed. Estimated dry powder is in the range of $400 billion. Fund raising continues but at a slower rate. "PitchBook" reports that $296 billion was raised in 2008 while only $81 billion has been raised the first half of 2009. Private equity transactions are still getting done but it is much harder. Almost all transactions closed have an owner carryback component. The majority of the private equity community is focusing on addons for existing portfolio companies versus new platforms.

Many private equity groups have focused on working with their portfolio companies, helping them cut costs, find new customers, and get more sales from existing customers. Some private equity groups have scaled back their staff, including Sun Capital Partners and others.

Corporate Strategic Acquisitions: Corporate acquisitions have fared better than private equity acquisitions. Many corporations see this downturn as an opportunity to acquire market share, expand product lines, and gain talent at reduced prices. Healthy corporations have cash and can also get financing for transactions. Strategic acquirers can look at a transaction differently than private equity that needs to reach certain returns.

Foreign Buyers: Foreign buyers seem to remain skeptical of US investments. If you track them over the years in good times as well as bad, many come in strong but end up leaving. For example, Marks & Spencer Group plc in London acquired several companies in the US but sold their last US holding. Kings Supermarkets, in 2006.

Financing: Financing is probably the most difficult issue with all transactions today. What most borrowers will find with lenders is that they are not lending and if they do you won't like the covenants. For a private equity group a transaction has...