While we are currently experiencing a short term lull in the US credit crunch crisis, it has already had a major impact upon the corporate finance industry, the movers and shakers who put the big takeovers and mergers together. While funding has been relatively cheap for some time, the ongoing credit crisis has seen funding costs literally shoot up over night. So what next?

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There are a number of implications for the current situation, the lack of corporate funding being perhaps the main one, but stock prices are set to fall further as well. Over the last 2 years we have seen a number of high profile mergers and acquisitions, something which has impacted upon the share price of many companies. For every takeover or acquisiton which has actually happened, there have literally been another 100 rumoured ones yet to materialise. So how does this effect stock prices?

Much of the recent boom in stock markets, especially in the US, has been on the back of takeover speculation which has pushed some share prices to crazy prices - prices which can easily fall sharply if no takeover occurs. As funding for such takeovers has become more expensive, and it will be difficult to raise large sums of money in the short term, we will see much of the “froth” taken off many share prices.

Even when stock markets around the world have calmed down, the froth from the ramped up prices will continue to fade away. The effects are then two fold, in that stock markets will slowly fall back to more realistic levels and investor sentiment may turn negative as they slowly see their investments falling back down to earth.

All in all we are likely to see a lot less corporate activity over the coming months, and this current credit crunch is by no means over - the US Federal Bank would not take such drastic action as seen last week, without knowing there is further bad news to come.