More regulation of the financial services sector in the world’s key markets is needed, according to a survey of M&A advisers commissioned by Merrill DataSite®, the acknowledged leading global provider of virtual data rooms (VDRs).

Sixty nine percent of M&A advisers questioned in the survey agreed that more regulation was needed, with only 23 percent disagreeing. The findings strongly suggest that many executives in the M&A industry accept the economic and political rationale for regulation following the credit crisis.

The study found M&A professionals facing up to a marketplace that is radically different, though by no means stagnant, after the economic turmoil of the past 18 months.

The survey results also suggest executives are uncertain about the future of the “integrated advisory” banking model, commonly referred to as the “bulge bracket” banks. Although 43 percent said they thought the integrated advisory model was still valid, more than one in four (29 percent) thought it was “dead” and almost as many (28 percent) said they did not know.

When asked how firms that specialised in leveraged buyouts can adapt their business model in the current credit-straitened environment, more than a third (34 percent) said they thought such firms will shift their investment focus to the mid-market. Almost as many (30 percent) said they will focus more on sovereign wealth funds, both as investors in their funds or as co-investors in deals.

Despite the difficult economic environment, those surveyed believed a certain amount of M&A and restructuring activity would still take place in 2009. The survey’s respondents expected two sectors in particular to see the most restructuring activity next year – banking and finance (85 percent) and construction and property (68 percent). The next most popular sectors were consumer goods or retail firms (29 percent).

Martin Gudgeon, Head of European Restructuring at The Blackstone Group, said: “We are seeing two main issues at the moment – illiquidity falling into the real economy from the finance markets, and uncertainty in forecasting the future. My personal view is that things will continue to get worse next year, although there will still be restructuring work for us to do. The question now is when we will see growth again.”

John Gregson, Director, Debt Advisory at Deloitte, said: “The CFOs we speak to now think it will be the back end of 2010 or even 2011 until the economy picks up again. It’s now all about taking costs out and conserving cash. There are still deals out there but, inevitably, people are asking tougher questions and deals are taking longer to get done.”

Andrew Merrett, Co-Head of European Restructuring at Rothschild, said: “We think the economic problems at the moment are macro ones and will affect all sectors, so restructuring will be very broad across the economy. It will take some time for prices to reach their bottom, but I don’t think the traditional deal sponsors will change their business models. There is a wealth of opportunities for them around the corner, and we expect plenty of acquisitions to be made in coming years.”

John Houghton, Global Head of European Restructuring and Insolvency at Latham & Watkins, said: “The question is who is going to provide funding for the restructuring that will happen next year. Very few firms have the capital available, and even if they did they can’t see the bottom of the market yet so don’t want to put money into saving companies and turning them around. The same applies to sovereign wealth funds who have assets closer to home to invest in.”

Merlin Piscitelli, Director, Merrill DataSite®, said: “The conclusion of the panel’s debate chimed with what we are seeing at the moment. Although the economic environment is extremely tough, there is still activity going on, although corporates and advisers are being more cautious than ever. Our clients are finding virtual data rooms to be invaluable because they provide a secure, efficient online due diligence environment that makes it much easier to carefully and thoroughly scrutinize deal opportunities without causing delays in deal momentum.”

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Patrick Evans / Peter Marcus - Citigate Dewe Rogerson
Tel: +44 20 7282 2913

Merlin Piscitelli - Director, Merrill DataSite®
Tel: +44 917 761438