Do record market highs have corporate executives running scared, or are they getting smarter, or are they just feeling plain competitive?

Whatever's happening out there, the number of big-ticket mergers and acquisitions seems to be swelling like a tidal wave. There are mind-numbing figures floating around, like U.K.-based Vodafone's (VOD) $55 billion rival offer for AirTouch Communications (ATI), announced earlier this year.

Then there's all the talk of a pending mega hook-up in the auto industry. On Friday, meanwhile, talk focused once again on the telecom sector. Shares of British telecommunications group Cable and Wireless (CWP) surged almost 8 percent on speculation that Germany's Deutsche Telekom (DT) may make a bid.

One thing's for sure -- there's going to be plenty more talk and action in the months ahead, if the merger pundits are right.

Just look at the stock market -- one of the prime motivators for the M&A explosion. U.S., U.K., and key Continental bourses posted double-digit gains last year, even though emerging markets and hedge fund chaos broke out in the fourth quarter.

At least one correlation stands out in this picture: when markets surge, so do M&As. Last year in Europe, it was another record M&A year, with roughly $600 billion in completed deals -- including combinations between U.S. and European companies -- according to figures from Morgan Stanley Dean Witter and IFR Securities Data.

"There's obviously a relationship between [the number of deals] to the [high] level of the market, which is a great inducement to exchange paper," said John Hatherly, head of research at the U.K. fund managers M&G Investment Inc. Indeed, share swaps have become the norm among companies teaming up.

That's a big change from the last merger tidal wave of the 1980s, when M&As were fueled by huge levels of bank debt and large helpings of risky junk bonds. Morgan's Gary Dugan, a European equity analyst, said most shareholders from those days ultimately turned up negative returns. That's since changed. He said his group tracked 29 M&As deals over the past two years, through July, and found that the average outperformance rate was 8.7 percent.

Corporate executives, meanwhile, are also finding other reasons to ring up counterparts at home and abroad. As global market economies cool their heels this year, competition is going to take a further toll on corporate pricing power, not to mention corporate profits. In this kind of world, it pays to be big.

"I think you'll find the driving force behind those deals will be diminishing pricing power and the constant need to cut costs. A lot of companies are competing in a much more difficult global environment, and they see the advantage of being a market leader," Hatherly said. Hatherly says the M&A boom will be concentrated in four big-cap sectors -- oil, telecom, pharmaceuticals, and banks.

Victor Basta, the London managing director of the M&A advisors Broadview (which specializes in IT, telecom, and media), says the bigger a company the better the revenue growth multiples tend to look. For instance, U.S. companies with a market capitalization between $50 million and $1 billion on average have multiples of 1.25 percent, while those with more than 1 billion pounds (near $1.65 billion) have a multiple of 3.6 percent.

On the FTSE Information Technology, which contains 31 companies, those with market caps of less than $163 million have average price/earnings ratios of 13.7, while those over $400 million have price/earnings ratios of 57.9. Merging, Basta says, "is [almost] all you have to do to maintain earnings growth at a greater multiple."

That, of course, depends on who's merging, and how well top management ends up getting along. Certainly as big companies in different countries come together, there's the danger of culture and ego clashes in the boardroom. That's one of the anxieties still surrounding Deutsche Bank AG's takeover of Bankers Trust (BT), and the so-called merger of equals between Germany's Daimler (DCX) and American's Chrysler Corp.

Mark Howdle, head of European equities at Salomon Brothers Smith Barney in London, thinks there are other things to worry about, too -- namely the prospect of an overheated market. As chief executives watch their share prices take flight, are they keeping a cool eye on their balance sheets? Howdle worries that some may be on a runaway train.

"Maybe six out of ten [M&As] can be defensible, but four out of ten are probably questionable," he said. He thinks some are getting distracted by the euphoria, forgetting to focus on hard valuation.

He says European shares have managed in one week to attain the kind of valuation levels his group had predicted for the year. While he believes the market reflects fair value at the moment, he thinks these levels can't be sustained.

"Markets will continue to get pushed up for a while, and then people will focus on valuation. They'll ask, are we paying too much for shares? At the the moment we're fairly valued, but [soon] maybe they won't be," he cautioned.

Laura Diamond is a senior writer with InvestmentLife.com. She may be reached at ldiamond@investmentlife.com.