Pep Guardiola's side have been in fine form this season, having lost only two matches in all competitions. They are sitting comfortably at the top of the league table and have one foot in the quarter-final of the Europe's elite club competition after a 4-0 win over FC Basel in their own backyard.
The reigning European champions have already taken a 3-1 lead against Paris Saint-Germain in the first leg of the last 16 tie at home. Bayern face Besiktas, while Ernesto Valverde's side take on Chelsea in the first leg tie that is scheduled for 20 February.
Merson believes Guardiola's two former clubs and Real will look to be drawn against the Premier League leaders, if they progress to the last eight of the competition.
"I think Barcelona, Real Madrid and Bayern Munich are all fearful of Manchester City," Merson told Sky Sports.
"Their 4-0 win at Basel was equally as impressive. It's funny because you sort of expect them to blow teams away now, they are that good.
"Barca, Real and Bayern will not want to face them over two legs, they may fancy their chances in a one-off game, but they will want to avoid drawing them."
Meanwhile, Tottenham Hotspur came from two goals down to settle for a 2-2 draw against Juventus in their first leg of the Champions League round of 16 tie. Merson was impressed with the north London club's display against last season's finalists.
"What Tottenham did to Juventus was mind-blowing. We don't give credit when credit is due in this country, we often put great results down to luck or the opposition having an off day," he said.
"Spurs were 2-0 down to a last season's finalists, a team that had won 10 on the trot, and came back to dominate. They were phenomenal - I loved watching them.
"They took the game to Juventus. They were so much better that they were scary. For me, that told us the Premier League is right up there.
"Our clubs played at the pace of the Premier League with power and pace, and teams couldn't live with us."