By Nick Godt

As a spree in mergers and acquisitions in the health-care industry showed last week, many companies have cautiously built up cash reserves over the past year, and with many stocks at 12-year lows, some are now ready to use it.

"The market is offering a lot of opportunities in terms of M&A," said Peter Cardillo, chief market economist at Avalon Partners. "We could see M&A pick up, just because a lot of market [capitalizations] have been shaved."

And with some in the market now expecting that stocks have hit or are near their bear-market lows, an M&A resurgence could go a long way to help fuel a rebound.

Taking protective measures amid the crisis and the recession, U.S. firms took "dramatic" action through 2008 to preserve cash, according to Moody's Analytics. Not only did dividends after years of explosive growth turn negative, but also share buybacks fell by more than half, to $395 billion in 2008 from $831 billion in 2007.

Those firms with the strongest cash positions are to be found in the health-care and technology sectors, where borrowing and spending have been curbed back for a while. Out of a total of $628 billion in cash positions for S&P 500 firms, more than a third, or $224 billion, is in the information technology sector, according to Standard & Poor's. Next up is health care, with $143 billion.

Those two sectors are the best performers on the S&P 500 so far this year, with tech down 3% year-to-date and health care down 9.5%. Overall, the S&P remains down 14.5% year-to-date.

On Monday, the Dow Jones Industrial Average was up 130 points, or 1.8%, at 7,353. The S&P 500 index gained 13 points, or 1.8%, to 770, and the Nasdaq Composite (RIXF) rose 0.7 points, or 0.1%, to 1,432.

Last week, a flurry of mergers in health care was highlighted by Merck & Co.'s (MRK) plans to acquire Schering-Plough Corp. (SGP) for $41 billion. Also, Genentech Inc. (DNA) agreed to be acquired by Roche Holding AG for $46.8 billion a share, and Gilead Sciences agreed to buy biotech group CV Therapeutics (CVTX) for $1.4 billion.

A large chunk of these deals will be financed with corporate bonds. Yet, although these companies still need to access credit markets for sizeable deals, it's likely more will be on the way in the sector, according to Kevin Ellich, a health-care services analyst at RBC Capital.

"On a case by case basis, it does make sense. A lot of companies generate good free cash flow and their balance sheets are fairly clean. And they can get deals at pretty good discounts."

For tech companies, which do tend to be more in tune with economic cycles, more visibility might be required before an M&A watershed is unleashed.

"With all this cash, including a lot of cash in the sidelines from private equity, it will eventually offer an opportunity for M&A to expand across the board," said Avalon's Cardillo. "But we first need to get confirmation that the economy is on a recovery path and that we have financial stability."