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E&Y Predicts a “Sizable Uptick” in U.S. M&A Next Year

Break out the champagne and caviar! Good times are right around the corner, says Ernst & Young, whose Transaction Advisory Services group just published a very rosy 2012 M&A outlook.

Certainly, the division has its fingers crossed. It’s quick to acknowledge that 2011 won’t go in the history books as the most memorable year for buyouts. The number of transactions in the U.S. was actually down 1 percent from the previous year, and sell-side PE activity decreased 19 percent in value to $138.1 billion, thanks largely to that festering sovereign debt crisis, along with continued concerns about a sluggish economy.

But E&Y can see a silver lining in the distance, and it uses various, brighter, data points to make its case. For example, it says that boosted by buy-side PE activity, overall U.S. deal value increased 18 percent during the year, to $894 billion.

Firms also began focusing more on divestitures and spin-offs to build up their investing war chests. The number of divestitures in the U.S. increased 3 percent to 2,453, according to E&Y’s data, and rose 12 percent in deal value over 2010. It’s a trend the consultancy expects to increase, “with 30 percent of U.S. companies expecting to execute a divestiture in the next 12 months,” according to its findings.

Still, while E&Y is hoping that “strong fundamentals,” including bigger cash positions, a focus on strengthening balance sheets, and improved credit markets, will generate a “sizable uptick” in deal flow next year, even E&Y acknowledges there’s an itsy bitsy chance that they just won’t. Though corporates “should” focus on fundamentals” to “execute deals,” spooked by economic uncertainty, they simply might not.

“In the immediate term, it is hard to predict M&A activity as we see drastic market swings,” says the report. “[B]ut we know for certain that the eagerness for M&A is there.”

For the firm’s predictions – and the key sectors it expects to drive deals next year — click here.