Two separate articles in the New York Times suggest that M&A activity will increase into the $2.7-$3 trillion range in 2011 (see Deal Makers Cautiously Return and M&A Ready to Soar).

From the former:

As the dark clouds of economic uncertainty lift, the environment for corporate deal-making is looking brighter.

With record cash on their balance sheets, United States companies are once again willing to invest in growth, according to McKinsey & Company’s quarterly report on economic conditions.

William Huyett, a director at McKinsey, said companies were cautiously optimistic, a positive sign for deal-making activity in 2011.

“First and foremost, there is confidence that the real markets are starting to grow again, unemployment is starting to drop and capital markets are starting to stabilize,” Mr. Huyett said. “Boards of directors are less skittish in pursuing transactions. We’re far from out of the woods, but the period of absolute uncertainty has passed.”

Thomson Reuters and Freeman Consulting Services recently predicted a 36 percent rise in global deal activity to $3 trillion in 2011. PricewaterhouseCoopers announced this month that “key conditions are in place for a resurgence in deal-making in 2011.”

From the latter:

Investment bankers should prepare for a surge in mergers and acquisitions. If deal activity follows a pattern similar to previous cycles, 2011 ought to be a considerably better year.

…the omens are favorable. In previous periods of depressed merger activity, there has been a clear bounce back by the end of the second year after the trough. For example, deal volume in 1991 was down 41 percent from its peak in 1989, according to Thomson Reuters data. By 1993, it was up by a third.

After two awful years in 2001 and 2002, when global merger deals plummeted from $3.4 trillion to $1.2 trillion, there was a 56 percent surge from trough levels in 2004.

In the current downturn, the 2009 nadir was a 52 percent decline from the peak in 2007. If there is a rebound, and the pace of recovery relative to the pace of decline is roughly the same as in previous cycles, then there should be about $2.7 trillion worth of acquisitions in 2011.

That may feel like a bonanza given the current climate. But in reality, it would only take deal activity back to the 2005 level.

I am inclined to agree that M&A activity will increase somewhat in 2011 from 2010; however, I am a bit more cautious than some of the forecasters. I believe that the $2.7-$3 trillion range is attainable, …provided that the global economy doesn’t experience a severe hiccup emanating from one of the larger European sovereigns (e.g., Spain and/or Italy).

The below is an actual academic article published in 1974, …with the referee report appended at the bottom (ht Gary). Don’t miss reading the referee report. It’s brilliant.

See, we academics have a sense of humor sometimes too…

In contrast with Pepsi, which deepened its involvement in Russia by acquiring Wimm-Bill-Dann (see Pepsistroika), Wal*Mart has decided to forego opportunities in Russia for the time being (see Wal*Mart Closes Russian Office, ht Sid).

U.S. retail group Wal-Mart Stores Inc will close its Moscow office amid a lack of acquisition opportunities, abandoning for now its long-running quest to enter the Russian market.

“We continue to be excited about our international business, including markets where we already operate, such as Brazil, China and India, where we have tremendous growth opportunity,” McMillon [EVP at Wal*Mart] said in the statement.

…overseas retailers have found it tough to succeed in Russia…with Sweden’s IKEA at times complaining openly about corruption and a surplus of red tape.

This represents a wise exercise of restraint on Wal*Mart’s part. It is, indeed, incredibly difficult for foreign retailers to succeed in Russia, one of the riskier emerging markets (see Doing Business in a Developing Country or Russia and the BRICs).

And when comparing Pepsi’s decision to acquire Wimm-Bill-Dann with Wal*Mart’s decision not to acquire a Russian retailer, the difference in operational experience makes all the difference. Pepsi has 30+ plus years worth of experience operating in Russia that predates its Wimm-Bill-Dann acquisition. Wal*Mart, by contrast, has very little experience operating in Russia to draw on.

What’s more, Wal*Mart’s performance in other foreign markets, most notably in China, have not suggested that it has a consistent track record of operating profitably in the developing world.

My kudos then to Wal*Mart on their wise non-entry decision.

For those of you who have read my blog, you know that I am generally skeptical of of acquisitions (see Great Shareholder Ripoff and Why M&A Deals Go Bad), and even more so when it comes to foreign acquisitions in developing markets like Russia (see Doing Business in a Developing Country or Russia and the BRICs).

Given that background, you probably might have guessed that my initial reaction to Pepsi’s recently announced acquisition of Wimm-Bill-Dann would have been that it was a terrible idea (see Pepsi’s Russian Challenge). However, if you thought that about this acquisition, you’d have been mistaken…

Pepsico’s special relationship with Russia began in 1959. Richard Nixon was showing Nikita Khrushchev around the American National Exhibition in Moscow. He made him stop at a kiosk hawking Pepsi-Cola. A young executive named Donald Kendall thrust a cup of dark fizz into the Soviet leader’s hands…

Half a century later, Mr Kendall, who later became Pepsi’s chief executive, flew back to Moscow with Indra Nooyi, who has the job today, to receive Vladimir Putin’s blessing for Pepsi’s takeover of Wimm-Bill-Dann, Russia’s biggest food company. They won the Russian president over by talking about the billions of dollars Pepsi has invested in Russia. It was the first American consumer-goods maker to enter the Russian market, 15 years after Khrushchev first sipped its wares. On December 2nd Pepsi announced that it would buy 66% of Wimm-Bill-Dann for $3.8 billion and launch a mandatory tender offer for the rest of the company.

Just to prove that I don’t think all acquisitions in developing markets are a bad idea, I really do believe that this one stands a chance.

Provided that Pepsi did not overpay for Wimm-Bill-Dann, Pepsico should be able to profitably leverage its 30+ years of operational experience in Russia, along with its strong global distribution network to increase Wimm-Bill-Dann’s sales. In addition, it should be able to derive value from Wimm-Bill-Dann by combining it with Nidan Lebedyansky (its previous acquisition in Russia) to capitalize on the fast-growing Russian alternative/nutritional beverage market.

My call then: Better than 50/50 odds of success.