By David M. Einhorn, Adam O. Emmerich and Robin Panovka

Merger and acquisition activity reached an all-time high in 2006, with 38 announced mergers and acquisitions that totaled more than $120 billion.

How will 2006’s whirlwind of activity impact 2007? Here are 10 developments to look for this year.

1. Going-Private Transactions. The pipeline for going-private deals remains robust. The record-breaking pace set in 2006 is likely to continue, barring a significant change in the fundamentals. The drivers remain firmly in place: unprecedented liquidity in the private capital markets, cheap debt and low cap rates on the private side
   As for the public side, a lag in public market valuations behind private valuations, regulatory burdens and expenses.
2. Public-to-Public Consolidation. Although somewhat overshadowed by the going-private deals in 2006, there was a healthy roster of public-to-public deals. This trend is likely to continue. The deals likely will be driven by REIT acquirers who are seeking strategic opportunities or higher returns; UPREIT sellers whose operating partnership agreements, among other factors.
3. Strategic Selling. As 2006 has shown, the strategy selected for selling a REIT can have a significant impact on the ultimate value received by shareholders and unit holders.
   From the acquirer’s perspective, careful thought should be given to the advantages and disadvantages of being first out of the gate, what it takes to preempt a process, how to lock up a bid and similar strategic issues.
4. Club Deals and Equity Bridges. “Club deals” remained popular in 2006, even while coming under attack by regulators and the plaintiffs’ bar as anti-competitive.
   Another route for buyers to extend their equity is the “equity bridge.” While they carry their own risks that require careful management, we can expect to see more in 2007.
5. Hostile Transactions. Transactions like The Town & Country Trust and Reckson Associates Realty attempted to derail signed deals. More of these types of transaction can be expected in 2007, as can unsolicited offers.
6. Fund/Asset Management Model. Joint ventures between REITs and institutional investors will likely continue to serve as acquisition vehicles for low-yielding pools of assets.
7. Executive Compensation. Executive compensation requires careful focus in REIT boardrooms. Boards should ensure that compensation programs are structured in the long-term interests of the REIT to attract and retain talented executives, and that they are properly adopted and fully disclosed.
8. Hedge Funds. Activist hedge funds, previously focused mostly on unlocking real estate value from retailers and other real estate-rich operating companies, are increasing their focus on the REIT world.
9. Globalization. The globalization of REIT regimes and an increase in cross-border REIT investment activity is expected to continue, but the pace is likely to remain measured for now.
10. Governance. 2007 may bring more focus on boards advising on strategy and monitoring performance, rather than the excessive and expensive focus on process and compliance.