While the number of deals was up only 6% from a year ago, the total value of pending and completed deals rose 93% to $1.3 trillion, the second-biggest quarter on record, according to data provider Refinitiv.
Dealmakers said a boom in the stock market and low borrowing costs - driven by the Federal Reserve's loose monetary policies - emboldened companies, private equity funds and blank-check acquisition firms to pursue their dream deals. This is despite the global economy's failure to have fully recovered as yet from the virus' financial fallout.
"This is as robust and broad-based an M&A market as I have witnessed in the last 20 years," said Colin Ryan, co-head of Americas M&A at Goldman Sachs Group Inc. "We are in an environment where assets are scarcer than the available capital right now."
Dealmaking surged in most sectors of the economy, especially the technology industry, which is positioning for big changes in cloud computing and collaboration spurred on by the shift to remote working.
Real estate was the only sector to record a major slump in M&A activity, as offices and other types of commercial property became less appealing to buyers.
"We are still in an uncertain world. The first half will look pretty strong in M&A but in the kind of world today, it takes a brave soul to forecast a $4 trillion-plus market for the year," said Mark Shafir, global co-head of M&A at Citi.
Around half the deal activity came from United States where volumes were up 160% year on year at $654.1 billion.
The Asia Pacific region, excluding central Asia, was up 44.9% at $206.5 billion.
In contrast, M&A activity in Europe was up 24.5% year on year at $277.3 billion, as mega-deals became more difficult to negotiate with the French government blocking a proposed 16.2 billion euro takeover of European retailer Carrefour SA by Canada's Alimentation Couche-Tard in January.
"This year we have seen a continuation of cross-border activity. This is set to continue amidst a more positive business environment with vaccines becoming available, Brexit coming together and sustained low interest rates," said Celia Murray, JPMorgan's head of M&A for the UK which is Europe's biggest M&A market.
Major deals in the quarter included Ireland's AerCap Holdings NV agreeing to buy General Electric Co's aircraft leasing business for more than $30 billion, Canadian Pacific Railway Ltd clinching a $25 billion deal for U.S. railway Kansas City Southern, and National Grid's purchase of WPD, England's largest electricity distribution business, for 7.8 billion pounds ($10.76 billion).
Overall, volumes of deals worth more than $5 billion totaled $476 billion, up 133% year on year.
"What you're seeing right now and will see to an even greater extent throughout the year is strategics coming out of hibernation and trying to do the things they've been thinking about for months," said Alan Klein, co-head of M&A at Simpson Thacher.
A key factor in getting deals done was sell-side price expectations coming down, making it easier for investors to price assets.
"The valuation gap has narrowed during the pandemic. Both realism and uncertainty have played a part in that," said Bob Bishop, global co-chair of DLA Piper's corporate group.
A further catalyst for activity could come from activist investors, which are shareholders in a company agitating for change. In the first quarter, the likes of department store Kohl's Corp, French food and beverage company Danone SA and oil giant Exxon Mobil were subjects of activist campaigns.
"During the pandemic most activists primarily engaged privately behind closed doors and as a result public campaigns were significantly down compared to 2019," said Philipp Beck, EMEA M&A head at UBS Group AG.
"However, as markets normalize and corporates refocus on strategic portfolio decisions we anticipate more public engagement by activists."
With plentiful access to cheap debt, private equity firms jumped on the deal frenzy. Their deals rose 115.8% to $250.6 billion.
"Private equity funds are standing front and centre in the dealmaking arena and driving a strong pipeline of public-to-private transactions," said Dwayne Lysaght, JPMorgan's co-head of EMEA M&A.
Supporting M&A in the United States has been a surge in deal activity among special purpose acquisition companies (SPACs), which have captured the interest of Wall Street and amateur traders seeking quick profit.
U.S. SPAC M&A volume was $172.3 billion in the first quarter, up 3,000% year on year and almost 75% of the total SPAC deal activity worldwide.
In many cases, SPACs have emerged as serious competition to private equity bidders.
"It's a different kind of competition since SPACs only want minority stakes and it's certainly a different proposition. But it makes us think that there is a wall of capital out there that is ready to be invested in either minority or majority deals," said Patrick Frowein, co-head of EMEA investment banking coverage and advisory at Deutsche Bank.
Dealmakers said the strength of the global economy and state of the markets would dictate whether 2021 will be a record year for dealmaking.
"Current momentum could be derailed by a resurgence of inflation, a resulting increase in interest rates, or declining confidence - but I don't expect this in the near or intermediate term," said Peter Weinberg, founding partner and chief executive of Perella Weinberg Partners.
($1 = 0.7248 pound)
(Reporting by Joshua Franklin in Boston and Pamela Barbaglia in London; Editing by Matthew Lewis)
By Joshua Franklin and Pamela Barbaglia