M&A cycle seen lasting longer

NEW YORK (Reuters) - Top investment bankers at Merrill Lynch & Co. Inc. (MER.N: Quote, Profile, Research, Stock Buzz) and Greenhill & Co. Inc. (GHL.N: Quote, Profile, Research, Stock Buzz) said on Monday that they expect mergers and acquisitions to continue at their near-record pace.

In fact, Merrill Lynch's head of investment banking said that activity may be on track to beat the record volume of deals in 2000.

"The year-to-date volume looks like it's on track to surpass the peak of 2000," said Gregory Fleming, president of global markets and investment banking at Merrill Lynch.

So far in 2006, global mergers and acquisitions have risen to $3.237 trillion, according to market research firm Dealogic. And last week, on November 6 alone, deals worth more than $20 billion were announced.

Fleming's comments came after the pace of growth in the third quarter slowed, leaving many experts to question whether 2006 would indeed be a record year.

The frenzied deal activity of 2000 ended when the dot-com bubble burst in 2001, pulling financial markets with it; but mergers and acquisitions have since been on an upward path, he said.

"Global M&A volume has grown at a 17 percent compound annual growth rate since '01," Fleming said.

Much of the growth has come from outside of the United States, he said.

"The U.S. and UK combined share has fallen in that time frame. The Pacific Rim and EMEA (Europe, Middle East and Africa) are up as a percentage of total M&A, so the growth in M&A reflects the growth in the underlying economies," Fleming said.

The growth of private equity funds has been a factor, especially with large deals, he said.

"When you start talking about companies with $30 billion in market capitalization, and -- on the strategic side -- there just aren't that many firms that have the capacity and the bandwidth to buy that company and try to integrate it into their business," Fleming said.

A limited number of corporate strategic buyers, the financial power of private equity firms and continued favorable interest rates mean the private equity boom will continue, he said.

"Put that all together and you have a robust private equity environment. We would expect that to continue," Fleming said.

The size of private equity deals also continues to grow.

"We believe the deals are going to be larger and larger from an LBO perspective," said Ben Williams, head of investment banking and capital markets at Wachovia Corp. WB.N

"Some of that is a function ... of the incredibly liquid financing markets," Williams said. "The difference in liquidity in bank markets now versus five years ago is night and day."  Continued...