Momentum in UK and European dealmaking is expected to accelerate in what Morgan Stanley analysts believe will be a "multi-year global M&A rebound", where mining, telecoms and defence sectors are seen as most likely to benefit.
European corporate merger and acquisition activity is up around 5% this year compared to last, the bank said in its latest global M&A analysis, with deal volume up 43% when including private equity and venture capital purchases.
While Europe led the global M&A recovery in 2024, the region is "more of a passenger in a strengthening global cycle" this year.
But European activity is expected to pick up, supported by company demand for growth and ongoing sector fragmentation.
Following activity in the past quarter, Morgan Stanley's strategists argue that the "return of M&A is here".
The team expects "a major, multiyear global rebound in activity, aided by global equities strength, lower rates, open capital markets, greater corporate confidence, less policy uncertainty, positive regulatory change, and growing pressure on private asset managers to act".
The outlook is also supported by strong corporate balance sheets and gradually easing barriers at competition authorities.
In a survey of its European sector analysts, 60% expect M&A activity to rise over the next 12 months, with ‘growth ambitions’ and ‘synergies in fragmented sectors’ cited as the top drivers.
Funding via cash or debt remains attractive across most sectors, reflecting low levels of corporate gearing.
Key sectors flagged to benefit from increased M&A activity include metals and mining, business services, telecoms, and defence, with real estate, construction, financials, and banks also showing potential.
Morgan Stanley also highlighted companies with higher probabilities of receiving takeover offers using its proprietary screening models, highlighting BT Group PLC (LSE:BT.A), Experian PLC (LSE:EXPN), Diploma PLC (LSE:DPLM), CRH PLC (LSE:CRH, NYSE:CRH) and Barclays PLC (LSE:BARC) among London-listed names, plus Rheinmetall, St Gobain and Bureau Veritas on the Continent.