Merger and acquisition activity rebounded in the first quarter of 2010, with deal volumes jumping 61% over the same period last year, PricewaterhouseCoopers reported on Friday.

In its inaugural roundup of the Canadian M&A market, PwC reports that 614 deals closed in the first quarter, outpacing first quarter activity in all but one of the preceding five years.

Deals worth a total of $24.3 billion closed in Q1, a 70% increase over Q1 2009, although still below 2006-2008 peak dollar volumes.

The numbers indicate that the recession’s impact on M&A activity was short-lived.

“The Q1 numbers clearly indicate that the Canadian deal market has turned,” said Kristian Knibutat, national deals leader at PwC. “More importantly, we are witnessing a renewed sense of optimism among dealmakers. With improved access to credit, plausible deal exits and resumption in corporate earnings growth, confidence has finally been restored.”

Market strength is likely to continue, as a further 344 deals worth an estimated $16 billion were announced during the first quarter, up from a Q1 2009 pipeline of only 21 deals worth $4.7 billion.

PwC has identified several key trends based on the figures. First, it notes that Canadian deals remain highly concentrated in two sectors: energy and materials, which represent nearly 50% of the Q1 deal volume.

This contrasts sharply with the U.S. market, PwC notes, which is highly dispersed between sectors, with financials, consumer discretionary, industrials and information technology leading the pack.

Strategic buyers are driving the rebound, according to PwC, with the highest proportion of deal activity in five years. Private funds were also active in the first quarter, involved in 23% of M&A deals.

There was a mild resurgence in deal-related leveraged lending. After a complete standstill in leveraged lending between late 2008 and early 2009, the new issue leveraged loan market experienced a third consecutive quarter of tepid recovery, with North American new issue volume climbing to $42.9 billion.

The “mega-deal” – greater than $500 million – is making a comeback, with nine of these deals closing in the first quarter, and another eight having been announced, according to PwC. Still, the “middle market” dominates deal activity, with average deal value at $85 million.

Foreign buyer groups continue to be active in Canada, particularly those in China, the Middle East and India. The Chinese in particular are looking to secure access to industrial commodities ahead of future demand while seeing an opportunity to diversify away from the U.S. dollar.

There is a continued focus on due diligence, deal protections and creative structures. As a result of some market uncertainty and partially reflecting buyers’ stronger negotiating positions, PwC finds that deal terms and conditions continue to be acquirer-friendly.

IE