A  new report by a leading city construction analyst predicts another wave of mergers and takeovers between contractors and big materials suppliers in Europe.

Corporate activity will driven by the need to get bigger to take on major infrastructure projects and make a serious impact in emerging markets.

The report by construction analyst Alastair Stewart at UniCredit Bank singles out the two contractors as the most tempting bid targets for predatory foreign firms.

According to the in depth report, Stewart says:  “Costain is at a crossroads. It aims to grow in professional and support services. While it failed to buy Mouchel earlier this year, it is pursuing other deals.

“However we believe its core skills make it an attractive bid target in a consolidating sector.”

The report says that Costain’s strong international brand would be tempting for a foreign contractor as well as its £100m cash pile.

Likewise, Stewart argues that Galliford Try’s hybrid housing and construction business has proved a successful model to date, with construction generating cash when other house builders were painfully short of it.

But the report says that house building and contracting  are not as closely tied as at the Kier Group and at the right price the contracting arm would be a good buy for a firm hoping to establish a foothold in the UK.

“In a consolidating sector, we see contracting as an attractive possibility to a foreign group,” says the report.

The European contracting market is already in the throes of a massive shake-up prompted by the hostile bid by Spanish group ACS for German contracting giant Hochtief.

If ACS succeeds in gaining control of Hochtief it would be propelled up the ranks to become Europe’s biggest European infrastructure group.