The post-Lehman M&A scene looks a lot like 2003 – which could be worse

There is scant evidence of new year cheer for deal lawyers surveying the year ahead, even though figures from Legal Week's exclusive data provider Mergermarket illustrate that deal activity has fallen less than the business headlines of late would suggest.

The broad picture for M&A in 2008 was clear: despite the credit squeeze paralysing activity from private equity bidders, overall M&A held up well in the first half of the year. This picture of resilience, however, did not survive the chaos unleashed by the collapse of Lehman Brothers. So while the total number of announced bids in Europe exceeded 1,500 in both the first and second quarter of 2008, by the fourth quarter, that number had dwindled to 786, according to Mergermarket. Overall that leaves 2008 roughly on par with a solid year like 2005. But expectations that the conditions we have seen in the fourth quarter will be repeated through the coming year suggests that M&A activity in 2009 in major regions will be in line with the deal drought of 2002 and 2003.

Nevertheless, major companies will not be sitting on their hands. Discretionary bids of the kind that this week ended in disaster for RBS (meaning ABN Amro) are obviously off the agenda. But there will be no shortage of companies that need to do things. This will mean disposals, restructurings, distressed M&A. Oh, and with credit hard to come by, plenty of refinancing. As such, corporate lawyers will be working on rights issues and debt-for-equity swaps.

There is, however, little consensus about where the work is going to come from now the hardy performers are looking less robust. With less work to spread around the same lawyers, who will clean up in 2009? Certainly, expectations that the key markets in Asia and the Middle East would ride out the market have now been swiftly revised. Mergermarket's figures underline the extent to which deal activity in the wider Asian region fell back in the fourth quarter of 2008, plunging to 413 announced deals, against 600-plus seen in the first two quarters. Yet the region's long-term prospects look considerable for advisers so it would be surprising to see firms cut and run. And current indications are that there are still bids to keep the City's leading firms (just about) occupied. Recent examples have included RBS's £1.6bn sale of its stake in Bank of China, generating roles for Linklaters and Slaughter and May.