Despite the fact there are significant concerns regarding the future direction and future strength of the UK economy it seems that investors are becoming more and more excited about the potential for takeovers and mergers in the UK. Today saw the FTSE 100 and the second line stocks pushed markedly higher on takeover talks regarding various stocks and various sectors.

While you could argue that takeover speculation in the market could mark the bottom of the UK economic cycle it is more likely that finance is becoming more readily available to would be bidders. Despite many investors feeling that the Kraft Foods acquisition of Cadbury would mark the start of a significant mergers and acquisitions period in the UK, and around the world, this has yet to materialise.

The problem with takeover speculation and rising markets is the fact that if takeovers and mergers do not appear in the short term, it is likely that some investors will lose faith and move on to the next rumour. This can cause significant price swings and ultimately if this expected new burst of corporate activity does not materialise in the medium term then markets could well suffer large falls. Buying on takeover and merger rumours is a very dangerous game to play!

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