Mergers and Acquisitions : UK Takeover Activity at Lowest Recorded Level

The Office for National Statistics (ONS) has revealed that takeover activity among UK companies has dropped to the lowest level since records began 45 years ago. It is believed that companies are holding back to assess the strength of the recovery before embarking on deals.

The value of Britain’s mergers and acquisitions (M&A) was £700m between January and March 2014, its lowest level for more than a year and down from £1.2bn in the fourth quarter of 2013. Only 26 companies with a value in excess of £1m were acquired in the period compared to 59 acquisitions in the final quarter of last year.

“The decline in domestic M&A may be due to UK companies continuing to postpone any real commitment to capital spending and investment until they feel more certain that the domestic economic recovery can be sustained,” the ONS said.

David Clark, partner and solicitor in the corporate and commercial team at IBB Solicitors comments: “Economic forecasts continue to improve and business confidence is increasing. Employers are taking on more staff and there is talk about skill shortages already. Yet confidence has not yet returned to such a level that businesses feel comfortable to commit to material borrowings and/or expenditure for capital investment and/ or m&a activity. There is still some way to go yet.”

For advice on any aspect of corporate deal-making please contact our team.

Value of foreign deals rises

Overseas companies bought 20 British firms between January and March, which was also one of the lowest levels on record and compared with 30 in the previous quarter.

However the total value of these transactions rose to £5.4bn from £2bn. There was a rise in the number of foreign companies bought by UK firms, to 26 in the first quarter from 11 in the previous quarter, but even this was low by historical standards.

“While the value of inward cross-border transactions increased, the number of these transactions remained relatively low in the first quarter 2014. This may be due to the political instability abroad and a continued lack of confidence in the global M&A markets because of slow foreign economic growth,” the ONS said. “The process of completing an M&A transaction takes time and sometimes there may be a lag between improving economic conditions and any quarter-on-quarter increase in M&A activity,” said the ONS.

In May, the high profile takeover by U.S. giant Pfizer failed, but was seen as underlining the growing attraction of the UK to foreign investors. The ONS said there were eight “significant” foreign takeovers of UK companies in Q1 2014, including the acquisition of Invensys by French company Schneider Electric and of Deepmind Technologies by Google.

Increase in manufacturing M&A forecast

Nearly three quarters of UK-listed manufacturing and industrial companies are expecting an increase in M&A activity over the next year, according to a new survey from a leading accountancy firm.

Almost half of respondents to the latest Deloitte Manufacturing and Industrials M&A Predictions report cited a rise in private equity activity as a primary driver for this increase.

The bi-annual report includes the views of M&A chiefs on the current economic environment, deal drivers, valuations and key themes of successful deals. Companies surveyed have a combined market cap of nearly £300bn.

A spokesperson said: “While corporate sector fundamentals have been strong, economic uncertainty over the last few years has significantly dampened corporate risk appetite. However, since the start of the year, stronger economic growth forecasts across many western economies, particularly in the UK, have given a major boost to confidence and, as a result, interest in M&A activity. The latest CFO Survey suggests that risk appetite among UK CFOs rose to a six-and-a-half year high in the first quarter of 2014.”

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