Byline By Nick Beare, Managing Director, Stephens Inc.

Although M&A activity has been frozen in recent months, with many firms avoiding decisive action due to current economic volatility, there is a strong possibility that this may change in the second half of 2009.   

Due to the bonding requirements intrinsic to the engineering, procurement, fabrication and construction industry, many E&C firms are sitting on cash that exceeds that needed for bonding relative to current levels of backlog.  Backed by strong balance sheets, E&Cs have split into two schools of thought: 1) ride out the storm with current cash, waiting for the weaker players to surrender or 2) use this trough in the cycle as an opportunity to buy smaller players that may open new growth avenues.   

When the markets eventually normalize, and capital spending returns, the best positioned companies will be those that exhibit strength not because other players have been weakened, but because the companies made strategic moves to enhance their business models. Expansion will most likely come in the form of acquisitions, and we could see transactions as early as the second part of 2009.  

The facts described in the summaries have not been independently verified and the opinions expressed are the individual opinions of the authors, and that none of the summaries will be updated if additional facts come to light or if the opinions of the authors change in the future.