By James Myers

With fragile M&A markets still recovering, smaller deals will be more prevalent than the mega-deals of recent years, given recent market turmoil.

Consider the premier boutique investment bank Allen & Co.’s annual conference in Sun Valley, Idaho. In the past, the conference has been the breeding ground for such notable deals as the $19.5 billion purchase of Capital Cities/ABC by Disney. This year, partnerships and smaller buyouts are the types of deals that attendees will be focusing on.

The economic woes facing the European Union are inspiring caution in the field of M&A as firms await signs of market stability and continue to hunt for bargains. The first half of 2010 saw global M&A activity at it’s lowest since 2004, largely due to the EU sovereign debt crisis. Comparatively, M&A activity was healthier in the United States, where six of the top ten deals of the year have been executed. 

Expect Private Equity firms to be looking to exit some of the investments they made during the M&A boom years circa 2007. It will take time, and most importantly, liquidity, to build back up to the mega-deals. Firms that have built up cash reserves will be in a strong position to make strategic acquisitions and lead the revival in M&A activity.