The global liquidity squeeze has put the brakes on regional merger and acquisition (M&A) activity, with the volume of deals dipping close to 10 per cent for the year to date, down from the same period last year.

Experts predict the slowdown in these transactions in Asia is set to last till the second half of next year, at the earliest.

According to financial data provider Thomson Reuters, the value of M&A activity in the Asia-Pacific excluding Japan had plunged 9.2 per cent to US$482.65 billion as at last Friday. For the same period last year, the figure was $531.37 billion.

The number of deals has also fallen from 10,473 for the same period last year to 10,013.

The collapse of the $66 billion hostile takeover bid by BHP Billiton for mining rival Rio Tinto last week is being seen as the end of an era of mega-mergers.

Globally, the value of all M&A activity is down 24 per cent to $3.36 trillion so far this year, from an all-time high of $4.42 trillion a year ago, according to data compiled by Dealogic.

Analysts cite the liquidity squeeze as the top reason for the Asian slump.

"For M&A, you need to leverage, you can't rely on pure cash. In a credit crunch, liquidity is hard to come by," said Sias Research investment analyst Alan Lok.

He added that accounting to shareholders was another obstacle hindering potential deals. It may be harder to justify an M&A to shareholders now, he said.

The uncertain macroeconomic and financial climates increase the risks associated with M&A activity, which is another reason for the slowdown, said CIMB-GK regional economist Song Seng Wun.

He added: "Credit is now much harder to get access to. The uncertain financial market condition means that corporates and banks are more risk averse."

Another reason, say the experts, is plunging stock markets, which make it much harder to do valuations.

Analysts note that M&A transactions also dived by about 30 to 40 per cent in 1998--during the Asian financial crisis--and recovered only in 2000.

The flipside of the current drop in M&A activity is that opportunities for such transactions are likely to emerge across all sectors once the crisis is over, said Song.

He added: "It will cut across all sectors, as the slowdown is affecting businesses big or small. Industry leaders may want to capitalise on this."

Song said the spotlight may centre on the financial sector, which is at the epicentre of the crisis.

Companies that have suffered huge falls in valuations due to credit woes or bad fundamentals, such as property firms, may also prove to be good takeover targets, said DMG & Partners Securities senior dealing director Gabriel Yap.

He added: "Shipping companies may be attractive as well due to the recent sharp fall in the Baltic Dry Index, especially in instances in which the valuation of assets is more than the company's value."

Yap tipped that M&A activity would recover in 2010. He said: "We are past the halfway point of the crisis, so we need pricing stability in listed companies first. You will also need stability of key anchors, such as a stop in fund redemptions and stable valuations."

Lok expects a regional M&A rebound around the third quarter of next year at the earliest, once the banking system has stabilised.

He said: "When that happens, we will see big rounds of M&A in Asia and on the global front. There are just too much inefficiencies lying around, it will be a good time for companies to buy out to restructure or dismantle."

However, the current crisis could also become a chance for stronger companies to embark on bottom-fishing or cherry-picking. As one analyst noted: "It's like going to a shopping centre with big discount sales."