Big day for buyouts, but tepid pace to continue

— -- By all respects, Monday was a busy one for mergers, posting the largest dollar volume of deals on a single Monday in five months, Thomson Financial says.

Still, while such harried merger activity would normally put investors in a good mood, stocks continued their slide Monday. The Dow sank 173 points, or 1.3%, to 13,167, and the Nasdaq crumbled 61 points, or 2.3%, to 2574.

Investors figure Monday's merger mini-boom was an anomaly and the slowdown in buyout activity that started after the summer will drag on, taking away a big demand for stocks. Well-known buyout attorney Martin Lipton of Wachtell Lipton Rosen & Katz predicts a 25% drop-off in buyouts in 2008 in a memo released to clients Monday. Meanwhile, other worries about the economy continue to heat up.

"The safety net for stocks (mergers) is rapidly disappearing," says Jack Ablin of Harris Private Bank.

The drying up of merger activity this year has been stunning in that the:

•Number and dollar value of U.S. deals are crashing. Just 375 deals were announced in December, Thomson says, down 63% from the May peak and 57% below last December. The $75.8 billion in deals in December so far is down 44% from last December and off 67% from the May peak, Thomson says.

Much of the slowdown is because of the credit crunch, because leveraged buyout firms are struggling to raise money to buy companies, says Ken Henderson of law firm Bryan Cave.

•Global merger activity has cooled. Despite strong growth overseas, the dollar value of global mergers is down 39% in the second half of the year from the first half, Dealogic says.

•Most industries are being affected. So far, 34 of the 49 industries tracked by FactSet Mergerstat have lower merger activity this year than in the same period last year.