Cash rich companies are now in the midst of a mergers and acquisition spree that can help boost the European equities market rally after being stalled for quite some time. The rally began last June and has driven the STOXX Europe 600 index to its highest levels in five years.
The issue now is that there are signs the growth is faltering as exhaustion creeps into the market. This could be averted though through a rebound with new mergers that can reignite the market.
Credit Suisse research has shown that M&A would lag behind the stock market within twelve months and it should be picking up in the next two months. Equity markets historically have risen 9% in the six months after a dip in M&A activity, according to the bank.
Another good indicator is that corporate debt as a share of earnings at its lowest since the late eighties, financing availability is at its highest and potential target companies are now at its lowest prices.
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