In a strong market, mergers are mostly conducted as which type of transaction?

In a strong market, mergers are predominantly conducted as stock swaps because companies often have higher valuations, which allows them to use their equity as a currency for acquisitions. When stock prices are robust, companies feel more confident in their stock’s potential appreciation, making it attractive to offer their shares in exchange for the target company's shares.

Stock swaps also align well with a scenario where both firms expect continued growth. By using stock as a medium of exchange, the acquirer can conserve cash for other operational needs while sharing potential risks and rewards with the target company's shareholders. This approach tends to create a more collaborative atmosphere, as the target company’s shareholders become invested in the success of the new combined entity, aligning their interests with those of the acquirer.

In contrast, while cash transactions can occur, they may not be as favored in a strong market because firms might want to leverage their stock's appreciated value, reducing immediate cash outflow. Debt transactions are typically less common in strong markets as companies are often less inclined to increase leverage when equity is readily available. Hybrid transactions combine features of both cash and stock, but during strong market conditions, pure stock swaps are preferred for maximizing strategic benefits and aligning interests.