Equity markets have been buoyed by activity returning to the mergers and acquisitions (M&A) arena - witness Disney's $4 billion (pound 2.5 billion) takeover of Marvel Entertainment and Kraft's unsolicited bid for Cadbury. With companies able to raise capital cheaply, sentiment remaining strong, and equities at their current levels, we could be entering a boom time for such activity.

Globally, markets are up by about 50% since their low point on March 9, as the vicious spiral of negativity following Lehman's bankruptcy has gradually given way to tentative optimism. Manufacturing and consumer confidence surveys have generally troughed, improvements in global GDP forecasts are fuelling optimism for a swifter-than-expected recovery, and earnings reports continue to be generally in line with, or better than, expectations. Yet share prices still look inexpensive on an historical basis, many companies are flush with cash and chief executives are looking for deals that will allow them to reshape their companies and create value for shareholders. Correlation between equity markets and M&A activity has historically been strong, typically with a lag of two or three quarters. Fundamental data also supports a resurgence in M&A: cash relative to share prices in 2010 will be at its highest in at least two decades, while debt financing for acquisitions - particularly investment grade credit - is more readily available.

The M&A boom in the 1980s was driven by strong economic growth, rising equity values and the formation of the junk bond market that provided funding for leveraged buyouts. Hostile bids were popular as acquirers took advantage of the relatively depressed market value of takeover targets. It all came to a rather sticky end after Black Monday on October 19, 1987, when equities and the junk bond market collapsed.

Out of the 1980s M&A boom emerged anti-takeover strategies - a backlash to the hostile bids that had typified the boom. These included "poison pills" and "staggered boards", which could prevent takeovers or at least secure a higher price for shareholders. These were popular until the late 1990s when memories of the 1980s finally dimmed and markets were spurred on by the prospect of the next M&A boom. This lasted until 2001 when the collapse of the dotcom bubble took the wind out of M&A's sails.