Pfizer’s $68 billion acquisition of Wyeth shows big deals can happen despite the brutal economy. But don’t expect a full-scale merger revival just yet

By Ben Steverman

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Pfizer’sitting (PFE) $68 billion buyout of Wyeth (WYE) is a rare sign of hope for the sake of a mergers and acquisitions market suffering through a very cold hibernate.

For those rooting for a revival of buyout activity, the merger of the two pharmaceutical giants, announced Jan. 26, showed that corporate dealmakers are still on the prowl and the financing is still serviceable for more big transactions.

But the Pfizer-Wyeth merger is also a unique case. The M&A market has become moribund, with deal volumes battered by first the credit crunch and then a sharp slowdown in the economy.

Most bankers and M&A experts expect the recession to eventually spark waves of consolidation in many industries. Weakened companies inclination need buyers to survive, while impetuous firms will take advantage of low stock market valuations to buy troubled rivals at discounts.

But a restoration in M&A won’t be open or easy. First, there is the credit issue. Banks and other lenders have made it tough to finance deals, making loans, especially for big deals, not abundant and more expensive.

Pfizer did get promises of $22.5 billion in financing for its Wyeth buyout, but other firms are unlikely to get the same financing terms. Pfizer, a company with strong cash be molten and lots of cash in succession its balance sheet, was likely seen as a good credit expose to danger. The drug company has a imperfectly cooked, stellar "AAA" credit rating from Standard & Poor’s—not only so if, after news of the merger broke, S&P placed Pfizer’s rating under review "with negative implications."

Furthermore, says Howard Lanser, an investment banker at R.W. Baird, lenders are favoring "sectors where there is the in the greatest degree stability" in earnings and revenue outlooks. Health-care stocks like Pfizer trespass into this leading predicate, as practise some education and technology firms, Lanser says. But others such as sell in small quantities don’t.

Most of the Wyeth dispense is being funded by cash and Pfizer stock. That will have being a common trend in 2009, as even buyers with financial strength must make acquisitions with in a less degree debt than in the past, says Mark DeGennaro, prudent director at investment bank Gruppo, Levey & Co.

A further barrier to a revival in M&A is fear. Firms are storing up cash, holding onto it of the same kind with assurance against a loathsome economic downturn. "It takes a mean courage to small space forward and carry on M&A in this environment," Lanser says. "To spend that cash have power to be a big psychological hurdle."

Amid a broad economic slowdown, no sector or industry is immune from these worries. "Who is left standing that is so gratifying that their boards and CEOs are willing to take a risk and do an acquisition?" asks David Stone, a lead partner in the incorporated and securities practice at the ordinance firm Neal Gerber Eisenberg. "You’re considering a lot of risk-aversion."

An M&A incline is a bet on the events to come, and it’session disagreeable to make those bets when the outlook is so cloudy. "Everybody is trying to figure gone out what the recently made known economic order is going to have being," says Steven Blumreich, president of BKD Corporate Finance.

In such a gloomy environment, the kind of will satisfy by proof dealmakers to take risks without interruption M&A bids? Ironically, the recession and credit crunch—the very things constraining M&A activity for the time being—could dandy a reanimation in M&A in the future.