M&A more than just tie-ups; underlying health of market robust

Mergers and acquisitions are more than just about companies getting hitched, willingly or unwillingly.

Like initial public offerings, some say that heightened deal activity is symptomatic of a healthy equity market.

After years of dormant deal activity, M&A is back on board and with full force.

According to data compiled by Reuters, the value of M&A transactions in the UK hit $62.4bn in the first three months of 2015, a 155% increase on the same period in 2012.

That's a staggering increase. Globally, M&A activity was up 25%, with the first quarter the strongest since 2007, the data showed.

So what's the driver behind the increase in deals?

The dominating force is undoubtedly the recovery in financial markets since the turmoil of 2008 and the Eurozone debt crisis that followed.

Corporates sat on their cash or hid it in mattresses, afraid of embarking on deals in the event that the market turmoil could catch them on the wrong side.

Can’t really blame companies, it's sensible to be prudent in times of economic distress.

Central bank unconventional easing helped, at least to some degree. Low interest rates spurred lending while quantitative easing fluffed up share prices.

But credit must be given where credit is due. Since the crisis, corporates have undertaken steps to control costs, deleverage and restructure businesses and streamline operations.

Over the years, that's helped in growing cash piles, which in turn, propped up cash reserves and even share prices.

Equity valuations have soared as such with the European Central Bank's stimulus programme adding further support to prices as market participants favour the higher yield offered by equities compared to the unusually low yield offered by bonds.

Unsurprisingly, that's led to a heat-up in deal news. On Wednesday, Royal Dutch Shell made a £47bn cash-and-shares offer for energy sector rival BG Group. This came a day after FedEx's €4.4bn bid for Dutch logistics group TNT Express.

Bid speculation is rife with the rumour mill on fire. Vivendi for Sky, Apple for ARM Holdings and a takeover of Burberry being mulled over by US private equity firms - all have been touted in recent days.

And, though the above speculation is unconfirmed and unsubstantiated, shares in those companies have posted bumper gains this week as traders latch onto hopes of incoming deals.

Perhaps those hopes will be realised. After all, traders have been hoping for a Shell/BG tie-up for close to a decade.