You can almost hear the cogs of global capitalism seizing up. Among the bits of the machine shutting down is mergers and acquisitions. See Xstrata/Lonmin, or the abandoned bid for Informa. Problem one is financing. Banks’ extreme reluctance to load any more risk onto the balance sheet means deals in the tens of billions of dollars – for example, another InBev/Anheuser-Busch – are pretty much ruled out. Smaller deals, at least for investment-grade companies, can still be financed – but at higher costs and on tighter terms than many bidders will accept. Even then, they may require assembling syndicates of 10 to 15 banks.

That makes deals complicated, and vulnerable to last-minute pull-outs. Problem two is multiple layers of uncertainty. Why buy now when the price may fall next week, or when, absent a US bail-out package, there are still concerns the financial system could collapse? Companies also realise the banking crisis is washing over into the real economy, as rising unemployment and mortgage payments hit households.

So while M&A departments are crunching spreadsheets for clients, potential bidders are loath to pull the trigger. Global M&A values in the first three quarters, says Dealogic, were down 25 per cent year-on-year to $2,856bn. The outlook is much gloomier. Continued emergency or opportunistic financial sector consolidation will keep M&A alive; some well-funded energy companies may also feel confident enough to take the plunge. Beyond that, most M&A bets will be off until stability returns. Assuming that happens, banks and companies will find themselves in the more recognisable terrain of a “conventional” recession.

That could see, perhaps by the first quarter of 2009, M&A activity characteristic of downturns – consolidation in battered consumer sectors, all-stock deals, even some hostile bids exploiting disagreements between boards and shareholders about companies’ worth. But do not expect to see volumes regaining the giddy levels of 2007 for a long time.

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