Global economic uncertainty and regulatory change will continue to impact M&A activity in the coming year, according to a new Clifford Chance report.

According to the report, worries about sovereign debt, a second recession and failure by global leaders to agree on concrete measures to end the Eurozone debt crisis are contributing to an unsettled global outlook. This is despite a long term increase in activity levels – with indicators showing M&A activity ahead is up 21.5 percent compared to the first three quarters of 2010.

David Walker, corporate partner at Clifford Chance, said: “The debt markets (and in particular the high yield markets) are struggling; and whilst many corporates in Europe and the United States have significant cash on their balance sheets, this is not yet being fully deployed because of inherent uncertainties in the market".

The debt markets, particularly in Europe, currently operate in the shadow of the Eurozone crisis and until a solution to that crisis is in sight, the debt markets, particularly European, will not return to any sort of normality, according to the report.

However, Freehills partner, Tony Damian disagrees, stating that reports of debt markets being frozen are “exaggerated”. “I know people are saying debt markets are frozen, but I don’t see that at all.” He says that while there is certainly increased volatility in the market globally, and some deals may tip over as a result of this, for the most part corporates have learnt to live with volatility since the global financial crisis. “I don’t think M&A is ending because of volatility,” he said.

For all financial institutions the changing regulatory environment is impacting the cost of capital and correspondingly reducing the ability to lend, and for those prepared to underwrite loans, they face a shrinking investor base says Clifford Chance. "Regulatory changes are key drivers of M&A activity and will increasingly be so,” said Walker.

Antitrust regulation in particular continues to proliferate and technology, minerals, pharmaceuticals and manufacturing are key industries which are likely to be the focus of antitrust regulators around the world. As more countries develop merger control regimes, the opportunities for divergence of approach are expected to increase.