Bullish expectations for European M & A.

If paying for merger and acquisition advice is a leading indicator of activity, the M & A climate in Europe is definitely heating up.

Nearly 60 percent of the large European companies participating in a new research study by Greenwich Associates say they engaged the services of an M & A advisor in 2005--up sharply from the 51 percent saying they used an advisor in 2004. "Perhaps even more significant is the pick-up in activity among the very largest companies in Europe," says Greenwich Associates Consultant Jay Bennett. "More than two-thirds of companies with more than $10 billion in annual sales paid for M & A advice last year."

Greenwich research suggests that European companies are likely to maintain or even accelerate this pace in 2006. In 2004, about 47 percent of FT 500 companies told Greenwich that they expected to seek out an advisor on a cross-border merger in the coming 12 months; in 2005, that proportion rose to 51 percent. Likewise, the proportion of these companies planning to use an advisor on a domestic transaction increased from 31 percent in 2004 to 37 percent in 2005.

But don't expect the news to be celebratory for investment banks: Their role appears to be shrinking among a significant portion of European companies, Greenwich found. For M & A transactions valued at $1 billion or more, 57 percent of European corporations now say they now rely mainly on internal sources to research and generate ideas, as compared to only 10 percent that say they rely primarily on outside sources. Almost half of these companies also view the execution of deals this size as an internal responsibility, while only 22 percent say they rely on banks for execution.