Cross-Border deal activity assessed. (Business Briefs).

The merger business remains in the doldrums, relatively speaking, but some experts talk about a new wave of European buyers sizing up companies in the U.S.

"There is an unprecedented number of European companies preparing for a U.S. acquisition in the next 12 to 18 months," says Ulrike Zeilberger, a managing director with UBS Warburg AG. "There are a lot of inquiries about getting name recognition in the U.S. There is a real pent-up demand."

Zeilberger, a European-based investment banker, spoke at a midwinter panel discussion in New York on international deal-making sponsored by The Directors Roundtable. She believes that the slowdown during the past 18 months is temporary, and that the spurt of European acquisitions of U.S. firms in 1998-2000 was driven in part by the newfound acceptance of non-U.S. equity, particularly in the form of American Depositary Receipts (ADRs) -- essentially, stocks of foreign-listed companies sold in the U.S.

But Zeilberger argued that "flowback" remains a serious impediment to cross-border deals. Flowback refers to the selling of shares received by target company shareholders during the process of the merger, which can be significant if institutional investors don't like the deal or worry about one of the company's roles in the combined entity. "Flowback is a true scare word for cross-border M&A," she said.

In a typical international merger, she said, as many as 50 percent of the target company's shares may "flow back" following the acquisition -- and even more in deals involving regional industries or retail firms. Zeilberger argued, however, that flowback can be anticipated and managed proactively, especially if the companies communicate well with big investors and sell the merits of the combination.

The UBS banker added that there is a new level of cynicism in Europe about U.S. reporting and accounting standards -- often held out as the world's best -- following the Enron collapse and scrutiny of other possible U.S. reporting problems.

In other comments related to cross-border mergers:

* James Flanagan, a partner with PricewaterhouseCoopers' strategic advisory practice, said he expects a surge of smaller deals in the $50 million to $200 million range as larger corporations reassess their holdings and sell pieces that no longer make sense. He maintained that procurement is a key area in international deals, and that it's important to look at issues such as foreign exchange exposure and sourcing.

* Clyde B. Rankin III, an attorney with Coudert Brothers LLP, noted that the major mergers that have foundered over antitrust issues in recent years involved U.S. corporations falling afoul of European Commission rules, with the failed General Electric Co.-Honeywell International merger perhaps the best example. The EU has appeared more concerned with protecting competitors than consumers, he said, adding that U.S. regulators have taken more of a "business-like" approach than the Europeans, whose analysis has been more "technical." (For more on the EU, see the International Business article on page 21.)