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5 Unexpected Deals Themes for 2012

NEW YORK ( TheStreet) -- In a year when mergers, divestitures and initial public offerings seemed on track for a sustained recovery, the second half proved to be a rude awakening. Barring any holiday mega-deals, data shows that deals markets are flat for 2011 as a result of a 22% drop in second half M&A, according to Dealogic.

But a M&A slowdown, political gridlock in the U.S., a European debt crisis and heightened bank risk, among other concerns won't dissuade companies from cutting 2012 deals, according to Ernst & Young. Following the release of its M&A outlook, Steve Krouskos the U.S. leader of E&Y's transaction advisory services team highlights five unexpected reasons why deals will pick up in 2012 -- TheStreet fills in stocks that analysts point to as potential M&A targets.

5. "Deal volumes will improve in 2012. The fundamentals will prevail over uncertainty."

Krouskos says that contrary to the direction of markets and economic growth in some of the world's largest economies - a continued slippage won't spill into C-suites. In a recent poll, Ernst & Young found that 81% of executives polled believed corporate earnings would either grow or stay at current levels in 2012. "There are a lot of strategic gaps to left fill," says Krouskos, who believes M&A will be an increasingly important way for companies to grow or streamline their operations.

Within M&A, Ernst & Young believes that hot sectors will continue to be power and utilities, healthcare, technology and financial services. It means that 2011 blockbuster deals like Kinder Morgan's (KMI) $21 billion purchase of El Paso (EP), Express Scripts' (ESRX) $29.1 billion purchase of Medco Health Solutions (MHS) and HP's (HPQ) $10.7 billion purchase of Autonomy may be a sign of things to come.

Within software, Deutsche Bank analysts point to Comscore (SCOR), LivePerson (LPSN), Ariba (ARBA), Concur Technologies (CNQR), NetSuite (N), Taleo (TLEO), The Ultimate Software Group (ULTI) and athenahealth (ATHN) as some potential targets for blue chips like Adobe (ADBE), Cisco (CSCO), IBM (IBM) and Microsoft (MSFT).

Meanwhile, Clayton Moran of The Benchmark Company points to takeover interest of data center companies like Rackspace (RAX ) and Internap (INAP - Get Report) as potentially being acquired by a strategic telecom or IT company.

In an October report, Goldman Sachs analyst Robert D. Boroujerdi updated the firm's M&A Candidates Basket, called GSRHACQN that it calculates have a 15% chance of being taken over in the next 12 months,. Across many sectors, Riverbed Technologies (RVBD), NetApp (NTAP - Get Report), Alexion Pharmaceuticals (ALXN - Get Report), Allergan (AGN - Get Report), Rockwell Automation (ROC), Anadarko Petroleum (APC - Get Report), Abercrombie and Fitch (ANF - Get Report), Lorillard (LO), Northern Trust (NTRS - Get Report), and Mead Johnson (MJN - Get Report) stand out as the biggest names to watch.

Within the report, Goldman Sachs added RPX Corp. (RPXC - Get Report), Teradata (TDC - Get Report), Green Dot (GDOT - Get Report) and Red Hat (RHT - Get Report) as new M&A picks. Companies like Motorola Mobility (MMI) , Savvis (SVVS) and Varian Semiconductor (VSEA) highlighted in previous reports were acquired in 2011.
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