KPMG has warned that the number of distressed merger and acquisition (M&A) deals involving small and medium-sized businesses is set to increase during the second half of 2009.

Richard Hathaway, head of travel, leisure and tourism at the international financial consultants, said that companies' concerns over the valuation of assets will be outweighed by an increasing need to raise cash. Hathaway said: "Later in the year, while large deals remain unlikely due to funding constraints, those with the necessary cash reserves for smaller investments will be keeping a watchful eye for bargains, which will become more plentiful as distress increases and selling assets becomes imperative for survival."

According to Hathaway, the hotel sector will see an increase in M&A deals during 2009 as budget and luxury brands acquire assets from mid-market competitors, while the health and fitness and travel sectors will look towards further consolidation. Pubs, bars and restaurants, however, face a mixed outlook as the economic downturn continues to cause concerns within the sector, with only stronger brands set to remain attractive to potential investors.

"For all companies, once the decision to sell an asset has been taken, doing a deal quickly will minimise the chance of prices falling further," added Hathaway. "However, in the haste to secure cash, it is very important to ensure the transaction is executed as robustly as possible to protect remaining value."