Hedge Funds Expect Uptick In Distressed M&A Deals

Jan 29 2009 | 12:07pm ET

Hedge fund managers and proprietary desk traders are anticipating a rise in North American distressed mergers and acquisitions in 2009 due to consolidation and forced selling amid the current economic climate.

According to a new Debtwire report, the financial services sector is expected to offer the most opportunities for distressed investors. Auto manufacturers and suppliers are also viewed by hedgies as lucrative sectors in 2009.

As the consolidation among banks and fund closures in 2008 are expected to carry over into 2009, competition for positions will be cut, allowing new funds to push into the market, according to the report. Investors likely will continue to see a buyers’ market in 2009, allowing them to be more selective with where they commit their capital.

More than half of the 100 survey respondents believe the recession will stretch through at least the first half of 2009, while 35% think it will extend through the end of 2009, making it the longest on record since 1933.

“A good number in the distressed investing community view the downturn as an opportunity and expect to take advantage in 2009, through an increase in distressed investing, including increased distressed M&A activity and DIP financing—provided they have their own cash to finance it without outside leverage,” said Michael Reilly, co-leader of Bingham McCutchen’s global financial restructuring group.


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