Companies regaining appetite for mergers

The survey of companies with turnover of more than 25 million also found that 12 per cent are planning to merge with or acquire a company overseas within the next 12 months.

Bigger firms are more likely to consider foreign swoops, with 15 per cent of companies turning over more than 100m planning M&A activity overseas. This compares to 6 per cent of businesses with annual sales of between 25m and 100m.

The research was commissioned by Royal Bank of Scotland and Citigate Dewe Rogerson and undertaken by Edinburgh-based George Street Research. Some 200 senior executives within mid-to-large corporates responded.

The findings also reveal that nearly half of the companies that are looking to acquire are targeting a business in the same line of work, while 11 per cent plan to take over a firm in a different sector. Some 15 per cent of companies expect to merge with a larger business and a further 15 per cent plan to sell their business to a competitor.

Tim Boag, head of RBS's structured finance division, said: "These results suggest we are beginning to see confidence return to the M&A market. This is encouraging as M&A activity helps firms expand where prospects for organic growth are limited.

"Businesses have sought to protect themselves through the downturn by building up cash reserves. Generally, they will have money available and access to a range of funding sources, so now is a good time to consider making acquisitions, not least because valuations for target companies will be reasonable."

He added: "Many target firms will represent excellent opportunities, whether it's through access to new regions or products, or simply the chance to increase sales at a time when the economic climate means growth is difficult to achieve organically."