M&A activity was more resilient in 2009 than commonly believed, and conditions are improving for 2010. Many reviews during the past year focused on the significant decline in volumes from 2007 and 2008. Indeed, with 5,800 deals totaling $2.3 trillion announced in 2009, M&A volumes were at their lowest level since 2004. Most of the reduction during the past two years, however, came about because of a 29 percent decline in market capitalization,¹ leading to smaller absolute deal sizes, as well as a sharp decline in private-equity activity as a result of weak credit markets. When adjusted for market capitalization, the level of deals by corporations in 2009 was on par with that of 2008, only slightly lower than that of 2007, and significantly higher than it was after the dot-com crisis at the beginning of the decade.

The pattern of M&A changed in other ways during the past year. The long-term trend of an increasing number of cross-border deals ended, though in one respect the M&A marketplace turned increasingly global as Asian companies increased their share of international M&A. On a sector-by-sector basis, M&A activity was busier in strong sectors, such as energy, utilities, health care, and pharma,...