MEDIUM-sized companies in the food and drink and traditional energy sectors have been tipped by deal-makers as likely candidates for merger and acquisition activity over the next 18 months.

A survey published yesterday by accountancy firm KPMG shows deal-makers in Scotland remain optimistic merger and acquisition (M&A) activity will increase in the coming 18 months, although few see potential for greater deal action in the hospitality sector.

All of the deal-makers surveyed at KPMG's recent M&A forums in Glasgow and Aberdeen expected to be involved in deal activity to some degree in the next 18 months. Medium-sized businesses with annual turnover of less than £100 million in the food and drink and traditional energy sectors were viewed as most likely to be involved in M&A action.

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But only three per cent of deal-makers were confident the hospitality sector would see increased deal activity.

James Kergon, transaction services director for KPMG in Scotland, said: "With businesses having struggled with tight margins and aggressive price-cutting, we are now starting to see signs of consolidation in the food and drink sector. The feedback we are seeing suggests companies which have survived the worst of the downturn could now be prime candidates for buyers, pointing to a renewed sense of confidence in that sector.

"However, a continuing lack of confidence in Scotland's hospitality and tourism sector is surprising."

He added: "In the traditional energy sector, we're increasingly seeing large international companies acquiring Scottish oilfield services businesses."