Smaller M&A opportunities emerge

Not that Target every makes many acquisitions, but a new report from PricewaterhouseCoopers suggests now might be a good time to start, especially with regard to small companies. Overall, merger and acquisition activity is running behind pace from prior-year levels, and a similar situation could exist during the back half of the year, even though corporations are sitting on cash and buying conditions are favorable. A report from the firm's Transaction Service group indicates that food and household products companies will look to expand portfolios and enter emerging markets as a way to boost revenue growth. Retailers faced with a lackluster U.S. consumer will be focused on business models that make sense for them in emerging markets. European specialty companies depressed by the recent downturn could be attractive to opportunistic U.S. buyers, according to the report.

From a broader perspective, unforeseen economic events in the last two months triggered a global ripple effect reviving sentiments of uncertainty, setting the stage for a challenging M&A environment for large-cap transactions in the second half of the year. The situation is expected to be different for smaller scale transactions though.

"Going into the second half, record dry powder in the private equity space and unprecedented cash levels on the balance sheets of corporate America will combine with the desire of family held businesses and private equity backed management teams to sell prior to looming tax increases," said Bob Filek, partner with PricewaterhouseCoopers' Transaction Services.

U.S. M&A activity was down 3% compared with the same period in 2009. The number of closed deals in the first half of 2010 represents the lowest deal volume this decade, according to PwC. For the first five months of 2010, there were 2,969 closed deals representing $317 billion, compared with 3,065 deals valued at $323 billion in the same period of 2009.