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5 Unexpected Deals Themes for 2012

4. Stable to increasing company valuations will "make buyers more likely to act."

When the U.S.'s long-term debt was downgraded in August, markets tanked over 5%, but it didn't dissuade company executives from thinking their businesses would remain intact in the coming year.

As investors say the Standard & Poor's 500 Index earnings multiple fall more than 10% in 2011, company executives aren't throwing in the towel. A belief that companies will retain their value or rise in spite of an abundance of lingering economic concerns is a positive signal for M&A. "A view by companies that valuation levels are headed up, is a positive sign for deal making," says Krouskos.

Rising company values could potentially make agreements between buyers and sellers more likely. "Buyer-seller expectation gaps are narrowing and valuations are stabilizing," Ernst & Young cites as a reason that M&A might increase in 2012.

Already, the trend of rising deal valuations is in place. So far in 2011, a survey of over 1,000 mergers around the world shows that company valuations have risen in 2011.

This year, deals have been cut at an average on 9.2 times earnings before interest taxes depreciation and amortization and at 2 times book value, according to data compiled by Bloomberg earlier in December. That's an increase on the 8.35 times EBITDA and 1.87 times book value average valuation ascribed to 2010 deals, even though markets this year have shown signs of weakening.

Those rising valuations in M&A markets cut against trends in stock markets. After starting the year with an earnings multiple of 15x, the S&P 500 multiple fell nearly 13% to 13.1x as of the third quarter -- leading to overly overly optimistic stock calls based on earnings.

"We are going to see the co-existence of short term volatility with mergers and acquisitions," says Krouskos. According to Krouskos, confidence in rising earnings within companies signals that they've developed resilience to the "risk on" and "risk off" volatility that investors have grown accustomed to. Companies thinking about their long-term prospects may look to buy growth or new specializations in 2012.

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