A drop in European takeovers has depressed global merger and acquisitions (M&A) activity so far this year, but bankers see activity picking up as a rally in stocks and bonds helps compensate for a prolonged euro-zone recession.
The volume of takeovers worldwide has dropped 7 percent year to date to $750 billion, with the week to Thursday marking the slowest week for acquisitions this year, Thomson Reuters data showed on Friday.
Bankers who broker deals were confident things would improve in Europe, as the availability of capital - boosted by government quantitative easing (QE) or bond-buying measures designed to boost economic growth - encourages cash-rich companies to pursue deals.
"There is a reasonably healthy level of dialogues, CEOs aren't without ambition and certainly in the conversations we're having, activity has ticked up a little in recent weeks," said Mark Warham, head of M&A for Europe, Middle East and Africa (EMEA) at Barclays
"If you have strong equity markets and strong debt markets it is likely M&A will happen."
Despite weak economic data, global bond and equity prices have jumped in recent weeks, with the Dow Jones Industrial Average and S&P 500 hitting all-time highs as investors bet central bank stimulus measures will keep supporting market gains.
M&A activity typically lags the stock market by 12 months and CEO confidence by 18 months, according to Credit Suisse analysts.
Deal volume in the United States has risen by a third so far this year, but in Europe takeovers have fallen by nearly 40 percent, with Britain, Europe's largest equity market, the biggest drag with volumes down by 43 percent.
The British comparison was skewed by some big deals in 2012, including Glencore's $33 billion takeover of miner Xstrata.
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"At the core of the debate is the role of central bank policy," said Tom Massey, head of European M&A at Citi .
"In a QE-driven bull market, institutional investors can afford to play, but sitting in a strategic seat, until corporates feel like the market is supporting itself, they will want to proceed with caution."
Dealmakers say all the ingredients for M&A are in place - cheap and available financing, flush balance sheets and improved equities markets - but these conditions could be putting off some corporates from making big decisions on corporate divestitures, another means of stimulating activity.
"Once people feel a stable plateau has been reached there will be a tremendous amount of activity ... As a result of the current perspectives of prospective buyers and sellers, the entire ecosystem is lacking the oxygen to complete big M&A," said Massey.
This week, the biggest deal was in the United States, where mall owner DDR acquired a string of shopping centers from Blackstone Group for $1.52 billion.
In the UK, private equity firm CVC Capital Partners ended its 1 billion pound pursuit of online betting exchange Betfair , but a consortium including the Kuwait Investment Office, tabled a bid of around 4.7 billion euros for water company Severn Trent .
Bank of America Merrill Lynch was the top M&A adviser worldwide with $163 billion worth of deals so far this year, a sharp jump from its ninth ranking a year ago. It pushed JP Morgan into second spot with $161 billion worth of deals.
Telecommunications, media & entertainment and consumer staples lead the sectors with strongest year-on-year percentage gains, while materials, energy and power, and financials all registered double-digit declines compared with the year before.
(For more detail on the week's investment banking data please click on: http://share.thomsonreuters.com/PR/IB/Scorecard170513.pdf)
(Writing by Carmel Crimmins; Editing by David Holmes)