Merger and acquisition value jumped 39% in the first half of 2011 continuing the trend of strong M&A activity in 2010, according to PwC US.

The increase in M&A value is driven by larger deals, with corporations responsible for much of the activity. Through the first five months of 2011, corporates made up 82% of total deal volume with 1,046 transactions worth $384 billion, or 84% of total deal value, PwC reported.

Stronger capital markets, more financing for M&A, and larger amounts of cash on corporate balance sheets and in private equity are a sign that M&A should continue to pick up through 2011, the firm said. The available cash on S&P 500 company balance sheets is currently over $1.1 trillion, according to Factset.

“As expected, the favorable conditions that escalated through the end of 2010 and drove the pickup in M&A activity carried through in the first five months of 2011,” said Martyn Curragh, U.S. Transaction Services Leader with PwC, in a press release. “An increase in total deal value in the last twelve months ending May 2011 indicates a sustained M&A cycle, and as confidence continues to build, markets stabilize and businesses look towards growth, we expect the acceleration of the M&A market to continue in the second half of 2011.”

In the first half of 2011 there were 1,276 announced transactions with a total value of $454 billion, an increase of 39% in value over the 1,336 deals worth $327 billion in the first half of 2010.

Meanwhile announced deal volume slid 4%, which was partially due to a lag time in reporting deals, said PwC. At the same time, the competitive deal landscape and improved business confidence for buyers contributed to average deal size increasing 45% to $356 million from $245 million.

“Corporate buyers emerged from the downturn as the dominant force in the deal market having stock piled cash from restructuring and cutting costs during a period when growth opportunities were limited,” said Curragh. “At the same time, competition for quality assets is helping push up valuations and average deal value. In this type of ‘sellers’ market,’ where assets are being strongly pursued, buyers are competing aggressively and are focused on identifying value drivers to optimize pricing. With sellers taking more control, they are in the driver’s seat and are demanding a swift diligence process with more certainty around the outcome. We have seen an increase in sellers’ preparation and diligence to enhance asset value, reduce business/management interruptions and decrease the overall diligence process time.”

Meanwhile, mega deals (deals greater than $10 billion) are increasing, although they are a relatively small proportion of total deal mix. Middle market (deals under $1 billion) activity continues to be an attraction, contributing 94% of deal volume and 27% of deal value with 1,066 middle market deals worth $126 billion in the first five months of 2011.

Private equity is jumping into the M&A market. In the five month period ending May 31, 2011, there were 230 deals involving private equity as the acquirer, representing 18% of total volume. Deal value involving a financial investor totaled $70 billion, or 16% of total deal value and a 50% increase over the first five months of 2010.

“Private equity players have been taking advantage of the window of opportunity to exit some of their holdings and are finding strong interest from strategic acquirers, the capital markets and secondary buyouts,” said Tim Hartnett, U.S. Private Equity Leader with PwC’s Transaction Services practice. “At the same time, they’ve been making platform acquisitions, which are typically larger than the smaller bolt-ons we’ve seen over the past three years. While financial investors haven’t yet returned to mega deals, they’ve been very active on the sell side and continue to be more active on the buy side as middle market deal participants.”