Watch for a Different Kind of Merger in 2008

If you include Wednesday's Oracle deal and Tuesday's $19 billion of announced capital infusions, this year's merger money tally gets to $40 billion, well above $32 billion logged in the first half of January 2007, according to Thomson Financial. Removing the Citi and Merrill infusions, the year-to-date total shrinks to about $21 billion.

Thomson Financial analyst Rich Peterson would agree that strategic deals are likely to outpace LBOs in the coming year. He notes that the financial sector, already a target for sovereign wealth funds and overseas investors, may see more consolidation, given current stock valuations.

Last week, rumors swirled that JPMorgan Chase(JPM) was interested in purchasing Washington Mutual(WM), another troubled mortgage lender. The company brass, which declined to comment on the rumors last week, did not squash the notion of such a union in its earnings conference call Wednesday.

Already, LBO activity has dropped sharply since the start of the credit crunch. Private equity dealmaking accounted for a record 29% of overall U.S. M&A activity in 2007, but most of it was done in the first half of the year. LBO volume dropped 63.1% in the second six months, according to Thomson.

Also long gone are some of the boom's biggest LBOs, which leaves a bad taste in many investors' mouths. As economic concerns began to dominate investor sentiment, J.C. Flowers backed out of its plans to purchase student loan provider Sallie Mae(SLM), and deals to buy Harman(HAR) and United Rentals(URI) were likewise scrapped by Kohlberg Kravis Roberts and Cerberus Capital, respectively.

"The most critical concern of sellers these days is evaluating the certainty of closing," says Chris Williams, co-founder of Harris Williams & Co., a middle-market M&A advisory firm.

He adds there is more scrutiny of that aspect of deals, given today's shaky credit environment and questionable economy. "You want buyers who do what they say they'll do."

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