In little more than 48 hours, followers of Cadbury will find out whether the biggest proposed cross-border takeover in Britain for nearly three years will proceed. But whether or not America’s Kraft follows through on its informal bid for the FTSE 100 confectionery group, the wider logic behind September’s cash-and-shares approach holds good. At a time when muted economic growth has made underlying advances in corporate sales and profits difficult to achieve, merger and acquisition activity provides a powerful alternative for boosting returns.

Deutsche Bank concurs. It cites the ability to spur growth through takeovers as one of the key reasons why M&A in Europe is set to rebound from recent lows.

Just how low is evident from the chart below. The German bank observes that, over the past ten years, the level of takeover activity in Europe has averaged 1.1 per cent of its combined stock market value per quarter. However, in the three months to September 30, that tally fell to only 0.6 per cent. Deutsche calculates that, should activity levels return to their long-term average, total European M&A could run to €300 billion next year. If it rebounds to the level of previous takeover booms — notably the period between late 1998 and early 2000, when it averaged 2.3 per cent of total listed equity — the value of public market bids and deals could touch nearly €600 billion.

If that appears fanciful, Deutsche advances additional factors that should favour M&A. First, the capital markets are open once again: issuance of equity, bond and hybrid financial instruments is running at high levels, with only the bank lending market remaining subdued. However, although bank loans are commonly used to provide bridge finance in cash-backed takeover deals, Deutsche believes acquirers could side-step that obstacle by opting for all-share deals instead.

And that leads to its second consideration. Two successive quarters of rising stock markets have made paper-based deals relatively more attractive to target shareholders, who may want to retain exposure to the assets they are selling. Further, history suggests that upswings in M&A activity tend to lag stock indices by about six months: the product of a self-perpetuating phenomenon whereby a more bullish view of stockmarkets underpins the willingness of boards to pursue M&A.

Finally, Deutsche believes that recent currency moves will prove persuasive. Just as a weak sterling relative to the euro and US dollar has stimulated interest in the UK property market from foreign buyers, so too should an under-strength pound draw the attention of overseas corporate predators. That helps to explain why, of the 30 companies from across Europe that Deutsche identifies as possible bid targets, 18 are drawn from these shores.

Who are they? With Resolution’s offer for Friends Provident now in its closing stages, the life insurance sector seems a reasonable place to start. Deutsche picks out Legal & General — which it says enjoys some strong franchises, but lacks the diversification to utilise its capital base efficiently — and Standard Life, which is sitting on more than £1 billion of excess capital and has tidied up its portfolio with last week’s £226 million sale of its banking division to Barclays.

The cash-generative strengths of industrial companies indicates that bid activity could pick up sooner rather than later, according to Deutsche. It likes Invensys, the automation and controls group, where the funding of its pension scheme is likely to be less of a poison pill than in the past, and Smiths Group, the engineering conglomerate with a strong position in security detection equipment and mechanical seals. Meggitt is favoured because it is smaller than commercial aerospace rivals, and so vulnerable to the efforts of Airbus and Boeing to encourage consolidation among their suppliers. The same rationale, albeit in defence, applies at Ultra Electronics. In healthcare, Smith & Nephew, the maker of orthopaedic devices, promises strong long-term sales growth, but, again, is viewed as sub-scale relative to its peers.

Aegis Group, the media agency where France’s Vincent Bolloré has a 29 per cent stake, is an obvious choice. So, too, Informa, the publisher; Michael Page International, the recruitment agency (both have attracted bid interest in the recent past); and Cable & Wireless, which this week dusted off its demerger plan. Burberry Group is seen as a logical target for one of the larger luxury goods conglomerates. In a less glamorous retail niche, Deutsche pinpoints Kesa Electricals, the owner of Comet, which it touts as a break-up candidate. It also believes Game Group is on the shopping list of Gamestop, its US rival. In technology, Logica is seen as susceptible in lacking global scale and an offshore presence. Misys, the software house, has strong recurring revenues and a customer base that gives scope for cross-selling.

That leaves the two clear heavyweights on the list. Centrica, the £12 billion owner of British Gas, and Scottish & Southern Energy, the Perth-based utility. They sit in a sector short of potential bid targets, but Deutsche thinks either could fall to overseas buyers without significant political interference.

So, what am I bid?

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive