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Mergers
and acquisitions (M&A) rose for the first year since 2007,
potentially marking the start of a new, multiyear M&A cycle in
which emerging economies account for a bigger share of global deal
making.

Thomson Reuters
data showed announced M&A grew nearly a fifth this year, to $2.25
trillion globally. The preliminary figures show emerging markets made
up a record 17 percent of transactions, and energy was the busiest
sector.

Next year could be
busier still. Executives, bankers, big investors such as Schroders, and
analysts at banks including Credit Suisse, Nomura, and Societe Generale
are among those predicting a further rise.

Cheap debt, record
cash piles, the need to outpace sluggish economic growth, and positive
market reactions to many deals in 2010 should embolden companies to
strike more deals, they say.

“We feel M&A
volumes will improve next year; there’s certainly going to be more
cross-border activity than ever, and Asia – again – will be a bigger
part of the equation,” said Scott Matlock, chairman of international
M&A at Morgan Stanley.

Deutsche Bank, the world’s fifth-busiest merger adviser, said this year could bring a bigger rise.

“The increase in
M&A activity in 2011 should exceed that of 2010. There’s more
confidence, there’s ample liquidity, financing costs are attractive,
and there’s an intense focus amongst corporates to identify growth
opportunities,” said Henrik Aslaksen, Deutsche’s global head of M&A.

“The pipeline is very broad-based. It’s not just confined to one to two sectors,” he added.

Senior executives on average expect $3 trillion of M&A this year, a recent Thomson Reuters/Freeman survey found.

Goldman leads

That means 2011
could be the second of several years of rising deals. Earlier in 2010,
Citi analysts said the world was “in the foothills” of a new M&A
cycle. These cycles typically last years: the last peaks came in 2000
and 2007.

Bankers say a
combination of cheap stocks, as measured by price-to-earnings ratios,
and even cheaper debt means many deals would offer a big boost to
earnings.

The optimism comes,
despite a slower fourth quarter and the worst spate of withdrawn deals
since the height of the credit crisis: two collapsed BHP Billiton
deals, in Canada and Australia, alone cut $100 billion from M&A
volumes.

Jeffrey Kaplan,
global head of M&A at Bank of America Merrill Lynch (BAC.N), said
it was still “challenging to get deals done,” despite “good momentum
going into 2011 for both corporate and private equity activity.”

Morgan Stanley is
lagging archrival Goldman Sachs, after beating it to the No. 1 ranking
in 2009 for the first time in 13 years. Goldman Sachs, under M&A
head, Gordon Dyal, has advised on $513.1 billion of deals to Morgan
Stanley’s $499.5 billion.

‘Land grab’

Emerging markets
deals hit a record $378 billion, while developed markets lagged. Global
M&A increased 19 percent, while U.S. M&A rose 11 percent and
activity in Europe climbed 5 percent.

Colin Banfield,
Citigroup’s head of M&A for Asia-Pacific, said currency rates were
aiding the region’s companies, which were growing “more ambitious” and
contemplating bigger deals.

But aside from
several major telecommunications tie-ups in the developing markets, and
the odd banner deal such as Chinese carmaker Geely’s purchase of Volvo
from Ford, many deals from newer markets were aimed at securing
resources or technologies.

“We’re still in the early days of emerging markets M&A,” said Matlock at Morgan Stanley.

“When it gets
really hot is when people decide they want to buy and build truly
global multinational corporations, and we’re not there yet. It’s more
focused on acquiring natural resources or on opportunistic deals,” he
said.

Energy and power
was the year’s busiest sector, with a near-40 percent rise in announced
deals to $482 billion, followed by the financial and basic materials
sectors.

A widely predicted
European resurgence failed to occur as debt crises rattled the
continent and forced Greece and Ireland to seek bailouts. European
M&A rose 5 percent to $589 billion.

“All the right
ingredients are in place for an upturn,” said Philip Noblet, Merrill’s
co-head of M&A for Europe, the Middle East and Africa.

“But it could be another lost year for M&A in Europe if economic
worries don’t subside and chief executives don’t regain the confidence
to do deals. The outlook is very uncertain – and people hate
uncertainty when they are buying,” Mr. Noblet added.