Often, a takeover deal, if taken seriously, will be greeted with a jump in the target company’s share, and a more muddled move in the acquiring company — particularly if the acquisition doesn’t seem to make obvious sense, or if there are worries about paying too much.

Lately, though, we’ve been seeing plenty of investor goodwill toward companies bold enough to try and swallow another company in the rocky environment. That suggests investors are liking the deals, and seeing plenty of value in these target companies, according to John Buckingham, chief investment officer at Al Frank Asset Management in Aliso Viejo, Calif.

Buckingham has been particularly encouraged by three recent deals. Last Monday, health-care giant Aetna shot up 5.6% after announcing it had struck a deal to buy Coventry Health Care. Aetna has since come back some, but remains higher than before the deal was announced. (Coventry, needless to say, jumped 20%.)

Merger’s can help the stock market. Essentially mergers should have the more efficient producers buying out the inefficient, and putting their capital to work more efficiently. In this way the total capacity of an industry is changed/modified for the better.

That’s only of course if the deals make sense. CEO’s have an unfortunate track record however of acquiring assets that don’t make much sense. Buffett and Berkshire are serial acquirer’s and have done very well from it. It is about cashflow.

In the above case, Insurance, the merger makes sense. Insurance is an industry that benefits from scale. Pooled risk is the name of the game, and purchasing another Insurer makes all the sense in the world as long as a few important caveats are observed.

Tail risk is the one you need to watch. Has the insurer that you have just acquired, carry long exposures into the past? The classic example was the asbestos risk that killed a number of private names in Lloyds syndicates a while back.

Mergers done well, indicate that there is value available. If there is value available, there is profit potential, which suggests careful, selective purchases in the market, will reap investment returns going forward. It also helps the bulls, especially if the spark triggers a fire.