Euro, private equity and cross-border deals see revival but market looks set to remain patchy

Last year the hope, however wishful, was that a few big deals could unblock a pipeline that had been clogged since the credit crunch hit. After all, if you stripped out the impact of bank rescue deals, 2008 and 2009 were largely a washout for M&A advisers.

Yet the latest figures from Mergermarket demonstrate that, while there was a sporadic revival of big-ticket M&A deals after Kraft Foods' bid for Cadbury got the ball rolling 12 months ago, this has not as yet translated into much of a general upturn in activity.

Not that the news is universally bad – it's just not great. In the first three quarters of 2010, the value of global deals rose annually by 25%, albeit against a very low comparator, while deal volume was up 18%.

The brightest spots in that picture were in European M&A and private equity. In the case of the former, European deals were up in value by 51.3% as a reasonable run of large deals hit the market, while deal volume rose by 19.2%. Private equity-related deals saw an even sharper rebound to see deal value of $151.3bn (£94.8bn) over the three quarters, nearly double the value of the graveyard conditions of 2009.

Deal values of $69.8bn (£43.8bn) in the third quarter alone will underline expectations that buyouts are beginning to return to something resembling normality, if hardly being robust.

Asia also performed solidly with deal value up 23.7%, though Q3 saw a lull in bids from emerging economies (but not enough to stop deal value rising by 52.1% over the first three quarters in total). As noted, Q3 proved surprisingly busy for big-ticket M&A, with a string of deals announced over the summer including BHP Billiton's $41.9bn (£26.3bn) hostile bid for PotashCorp and International Power's $27bn (£16.9bn) bid for GDF Suez Energy International.

As expected, commodities and natural resources continued to drive big-ticket deals as the energy, mining and utilities sector proved by far the most active over the year so far – representing a quarter of the value of announced deals. This contributed to the upturn in large bids, with deals over $500m (£314m) in value contributing 6.4% of announced deals so far in 2010, the highest percentage since 2007. In a related finding, cross-border deals more than doubled over the first nine months of 2009, reflecting the modest return of strategic international deals.

Allowing for the fact that deal stats are a notoriously poor guide in such volatile conditions, Slaughter and May, Linklaters and DLA Piper appear to be currently hauling in a good share on the work that is going around ([asset_library_tag 1917,see M&A activity tables]).

Of course, the outlook remains challenging, with most Western economies gearing up for waves of fiscal tightening, which will almost certainly impact on business confidence and the pace of economic recovery. While a continual gradual thawing of conditions is entirely possible – corporates have been deleveraging for three years and as such have the resources to spend on acquisitions – it seems optimistic to expect much support for a substantive upturn in the next six to nine months.

It should be remembered that deal activity, depressed as it is, is still running at around 2003 levels – but the smart money isn't banking on it getting much better in the near future.