Deal numbers are down but City is hopeful that the market will rally

UK M&A volumes fell by more than 70% between Q1 2008 and Q1 2009 while European deal activity fell by 64% in the same period, according to Mergermarket statistics, making the first three months of this year the worst for corporate activity since 2003.

Most City partners are predicting that M&A activity will continue to stagnate for the remainder of 2009, although some are now willing to admit that the bottom of the market is close.

Allen & Overy (A&O) M&A partner Alan Paul said: "I am always optimistic and activity will come back, but not for the foreseeable future. We may well be at the bottom now, but we could be here for some time. The volume of traditional M&A work will not come back until bank behaviour returns to some sort of normality."

Slaughter and May corporate partner Nigel Boardman (pictured) suggested the market is close to the bottom but added: "I do not think green shoots are being seen anywhere outside Chinese restaurants right now. Where M&A activity requires debt funding, such as private equity, it is still a very stagnant market, though where you can do something like a merger of equals, it is sometimes possible."

Their comments come on the back of the data published by Mergermarket last week (2 April) that show just 646 deals in Europe Q1 2009.

The rankings show that, for UK M&A, only four firms advised on 10 or more deals over the period – Linklaters, Slaughters, A&O and Freshfields Bruckhaus Deringer – with this figure increasing to only 13 firms looking at activity across Europe as a whole.

With so few deals taking place, much of the activity was limited to only a handful of top firms. Linklaters, for example, topped tables including global and European M&A by volume as well as UK by value and volume, with Freshfields and Slaughters also scoring highly within the rankings.

The three largest European deals of the quarter were all in the energy, mining and utilities sector, generating roles for firms including Linklaters, Freshfields, A&O and Norton Rose on deals such as RWE's $12.4bn (£8.4bn) bid for Dutch rival Essent and Swedish utilities company Vattenfall's $10.1bn (£6.1bn) offer for Dutch energy company Nuon.

Linklaters, Slaughters and Freshfields also saw their positions bolstered by one of the other busiest sectors of the quarter in Europe – financial services – with Government stakes in both Royal Bank of Scotland and Lloyds Banking Group leading to mandates for the trio.

Work in these sectors looks likely to continue throughout 2009, with many predicting that utilities, energy and pharmaceuticals will be active.