Look for M&A Rebound to Continue

After a two-year downturn, merger-and-acquisition activity rebounded last year, and that's likely to help pave the way for a flurry of deals in 2004.

A stronger economy and an upswing in the stock market prompted an 8% rise in M&A transactions last year, the first increase since 1998. According to Thomson Financial, 7,570 deals were announced in the U.S. with a value of more than $525 billion.

"In 2003, the foundation for change was laid," said Matt Sznejwas, an analyst at U.S. Bancorp Piper Jaffray, with growth in the economy now "firmly entrenched" and corporate profits showing a big improvement.

While an unexpected slowdown in the economy or capital markets could act as a drag this year, most analysts believe the M&A market will continue to improve.

"The pace of corporate consolidations should remain active," said Richard Peterson, chief market strategist at Thomson. "It would not be unreasonable to witness a double-digit increase in the dollar volume of domestic worldwide M&A in the year ahead."

Peterson said the financial sector could see a rash of deals in 2004, with big names like Citigroup(C Quote - Cramer on C - Stock Picks), Wachovia(WB Quote - Cramer on WB - Stock Picks) and Bank One (ONE Quote - Cramer on ONE - Stock Picks) snapping up such regional players as Mellon Financial(MEL Quote - Cramer on MEL - Stock Picks), Bank of New York (BK Quote - Cramer on BK - Stock Picks) and PNC Financial(PNC Quote - Cramer on PNC - Stock Picks).

Late last year, Bank of America (BAC Quote - Cramer on BAC - Stock Picks) agreed to buy FleetBoston(FBF Quote - Cramer on FBF - Stock Picks) for nearly $47 billion in stock.

Peterson also noted that the technology sector could see a pickup in activity, with more deals likely to be struck in the fast-growing storage arena. Analysts say many larger firms are looking for smaller companies that can broaden their suite of offerings. In 2003, EMC(EMC Quote - Cramer on EMC - Stock Picks) purchased Documentum and Legato Systems while Symantec(SYMC Quote - Cramer on SYMC - Stock Picks) acquired PowerQuest Corp.

Other analysts expect to see consolidation within the software sector. Larraine Segil, partner at advisory firm Vintage Partners, thinks the marriage between Oracle(ORCL Quote - Cramer on ORCL - Stock Picks) and PeopleSoft(PSFT Quote - Cramer on PSFT - Stock Picks) probably won't materialize, but a deal between Oracle and Siebel Systems (SEBL Quote - Cramer on SEBL - Stock Picks) could be in the cards.

PeopleSoft has been attempting to thwart Oracle's unsolicited takeover bid and the deal is essentially on hold until antitrust regulators in the U.S. and Europe review the offer.

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