If the trend of the first six months of 2009 holds, the overall number of M&A deals this year will have plunged to a level last witnessed in 2004. That is the painful truth, according to a report published today by The Boston Consulting Group (BCG).

The world's largest and most active investors who took part in the BCG survey nonetheless want companies to be ready to capitalize on M&A opportunities when they arise - on the basis that the financial crisis will provide opportunities for game-changing acquisitions by companies that are ready to make the right strategic moves when the M&A market returns to growth.

"We expect a window of opportunity offering attractive takeover prospects to open soon," says Alexander Roos, a BCG partner and coauthor of the report. "But only those companies that have prepared themselves for action will be able to benefit from these favorable opportunities. We have already seen some of our smarter clients making preparations in recent months."

Of course not every company is in a position to make acquisitions. BCG's analysis of a sample of companies in the S&P 500 shows that about 20 percent are "predators," ready to take on the risks of a deal, while another 20 percent are "prey" - so weak and vulnerable that they must focus on survival or be swallowed. The remaining 60 percent have the potential to be either predator or prey - and BCG estimates that up to one-quarter of these companies could become predators by rigorously strengthening their finances and reshaping their businesses.

Conventional M&A strategies must be updated to deal with much more uncertainty during the current financial crisis, the report says.

"This time more than ever, it will be important for predators to actively stress-test their own businesses and those of potential targets throughout deal preparation, execution, and integration," says Jeff Gell, a BCG partner and coauthor of the report.

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