This time last year, this column made a few predictions about how 2007 would pan out. Its conclusion – that liberal use of cheap debt could soon prick the M&A bubble – turned out to be pretty close to the mark.

Certainly, 2008 looks less rosy from a deal lawyer's perspective, even if the legal industry is nothing like as exposed as its banking counterpart. Still, for the time being at least, activity remains reasonable. The rescue of Northern Rock will generate plenty more fees for most of the magic circle while two major deals could also turn hostile in the coming months. These are BHP Billiton's £67bn bid for Rio Tinto, on which Slaughter and May and
Linklaters are advising, and the approach for Scottish & Newcastle by drinks rivals Carlsberg and Heineken. Linklaters is advising Scottish & Newcastle, while Norton Rose is acting for Carlsberg and Allen & Overy (A&O) for Heineken.

After that, the picture is less clear. Few partners are willing to predict how their pipeline of deals will look come the end of the first quarter, by which time the pre-crunch in-tray will be cleared.

They are more happy to forecast the sectors they think will be busy. The BHP deal, for example, has logically caused many to expect a wave of consolidation in the natural resources arena due to its stable revenues and need for financial backing. Freshfields Bruckhaus Deringer client Xstrata put up a 'for sale' sign in September last year, while Brazilian group Vale and Linklaters client Anglo American are said to be considering their options.

Many also predict consolidation in the financial services industry, with some smaller mortgage providers such as Bradford & Bingley, Alliance & Leicester (A&L) and Paragon touted as obvious targets. A&L in particular is thought to have generated interest from Spanish banking giant Santander. Such a deal would be likely to gift Clifford Chance (CC) a lead role for the acquirer, while Freshfields and A&O would be in the frame for the target.

Other prospective investors in the sector include sovereign wealth and other state-backed investment funds. This looks set to favour those with strong connections in emerging markets. Like the private equity houses, these clients are known for using a variety of firms. Singapore's Temasek is known to use CC, Linklaters and Lovells, while Dubai International Capital is close to Freshfields and Linklaters. GIC uses O'Melveny & Myers and Ashurst and China's Citic uses Slaughters. Perhaps the most coveted of all these, China Development Bank, estimated to have £150bn at its disposal, has links with Norton Rose.

Hope springs

Meanwhile, one mid-market City firm says that it has already been instructed on some deals that will see consolidation in the retail industry. There is still uncertainty over whether such deals will help avoid a flood of financial restructurings.