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IPO Stall Pushes M&A Dealmaking

For a stalling IPO and merger market, activity may also come if companies continue to spin themselves into smaller more specialized business models. "I think the opportunity is going to be in de-merger activity," said Woolery. Recently, Tyco (TYC), Kraft Foods (KFT), Sara Lee (SLE) and Sunoco (SUN - Get Report) have all announced plans to shrink. This trend will eventually create deal activity because "the higher value [de-mergers] will go to I.P.O. markets, while others will go to M&A markets," said Ditkoff of Bank of America.

The outstanding problem is falling company values are not incentivizing activity. Sellers still expect to be bought at a price reflective of a normal market and not at a premium to the last market price; meanwhile, buyers may increasingly expect steals. "I don't feel my clients are under any pressure to exit," said Ditkoff.

-- Written by Antoine Gara in New York

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