Political deadlock in the wake of Germany's general election threatens to derail the current revival in national commercial activity, deal advisers are warning, despite expectations that the expected run of cross-border bids will continue.

Speaking in the wake of the shock weekend result that defied predictions that the conservative reformist challenger Angela Merkel would unseat chancellor Gerhard Schroeder, German business has reacted with dismay at the prospect of political deadlock.

The failure of Merkel's Christian Democratic Party to sell an agenda of economic reform to the electorate has been viewed as a further setback to the prospects for reform of Germany's tax system and rigid labour market.

Linklaters German senior partner Michael Lappe told Legal Week: "The worst outcome is a weak government, so everyone is slightly frustrated. In the short term, there may be more M&A activity but Germany is becoming less attractive for foreign investors, which is bad news for the long term."

Many advisers fear the loss of confidence could impact on the domestic deals market, which has seen a notable revival this year after a three-year slump.

However, some lawyers argue the result could provide a short-term boost to one of the most coveted areas of the market as poor economic prospects at home are expected to encourage German bluechips to step up their hunt for acquisitions abroad.

This week has already seen Deutsche Post secure its €5.3bn (£3.6bn) bid for UK logistics group Exel, generating lead roles for Linklaters and Slaughter and May, while Freshfields Bruckhaus Deringer client Bayer last week emerged as a bidder for Boots' £1.4bn healthcare division.

Other firms to bag major German deals this year include Shearman & Sterling and Weil Gotshal & Manges, who advised on German publisher Axel Springer's £1.7bn takeover of national television group ProSiebenSat1.

Other major roles include that of Cleary Gottlieb Steen & Hamilton, which acted opposite Freshfields Bruckhaus Deringer on UniCredito's €15bn (£10bn) merger with HypoVereinsbank.

Likewise, faltering confidence is viewed as stoking the already robust levels of investor interest from foreign private equity funds looking for bargain assets.

Hengeler Mueller partner Oleg de Lousanoff told Legal Week "Without the private equity companies pushing the markets, it would have been more difficult."

Commenting on the election, he added: "It is too early to say how much influence the result will have but German companies are still a bargain to foreign investors."

Gleiss Lutz managing partner Martin Diller predicted that the upturn in M&A would ride out the current political storm.

"A lot of people in industry were hoping for a conservative government," he added. "I do not think that it will make that much difference. There is a lot of activity in M&A at the moment."

As Legal Week went to press Germany's main political parties showed little sign of agreeing some form of coalition, a stalemate that sent the Euro sliding against major world currencies.