Brexit spurs near doubling of UK domestic deal-making
LONDON: Companies seeking to ‘bulk up’ to offset the uncertainty caused by Britain’s looming European Union (EU) exit helped to spur a near doubling of domestic mergers and acquisition (M&A) activity this year, according to Thomson Reuters data.
The volume of UK domestic deals surged to US$ 68 billion (51 billion pounds) from US$34.3 billion in 2016 as the number of deals between British groups jumped from 1,480 to 1,681, the highest level since 2008, the data show.
They included online gambling company GVC’s purchase of bookmaker Ladbrokes Coral for as much as 3.9 billion pounds and Hammerson’s 3.4 billion pound acquisition of rival shopping centre operator Intu Properties.
It comes against a backdrop of often fractious Brexit negotiations between London and Brussels this year, talks that are yet to provide businesses with clarity about Britain’s future relationship with Europe.
Bosses at British companies have also been eyeing new US President Donald Trump, whose decisions have repercussions for businesses around the world.
“At the beginning of 2017 there were a lot of questions about what was going to happen to the M&A market, given the global uncertainty caused by Brexit and the new US president,” said Nick Cline, a London-based M&A partner at law firm Latham & Watkins, who said the uncertain environment had acted as a driver for some deals rather than stifling activity.
“There are a lot of corporates out there in the UK and Europe who are seeing the changing landscape and as a result are even more focused on what they’re going to do to be tomorrow’s leaders.”
The jump in domestic dealmaking contrasted with falls in both inbound and outbound UK M&A volumes, the data show, with the former slipping 12.9 per cent to US$115.1 billion and
At the beginning of 2017 there were a lot of questions about what was going to happen to the M&A market, given the global uncertainty caused by Brexit and the new US president. Nick Cline, M&A partner at law firm Latham & Watkins
the latter down 9.4 per cent to US$112.5 billion.
That meant overall M& A volumes with any UK involvement dipped 0.7 per cent to US$ 375 billon, a softer decline than the 1.4 per cent slide in global deal volumes to US$3.5 trillion, according to the data.
Philip Noblet, HSBC’s co-head of global banking in the UK, said that “a lot of the obvious sector consolidation deals that people expected to happen” were struck this year and were “driven by the Brexit climate which is prompting companies to bulk up”.
However, a dearth of blockbuster deals meant that overall M&A volumes involving any British companies remained much lower than in 2015, when they totalled US$ 605.5 billion, swelled by Anheuser-Busch Inbev’s US$110 billion acquisition of FTSE 100 brewer SABMiller and Royal Dutch Shell’s US$53 billion tie-up with BG Group.
“It’s hard to see how any more of the really big deals are going to happen going forward without there being quite significant competition issues,” said Noblet.
Kraft Heinz’s US$ 143 billion attempt to buy consumer goods giant Unilever in February, which would have been one such megadeal, failed within days when the US food company walked away after the FTSE 100 business rejected its offer.
Potential British government scrutiny of the deal was a concern raised during talks between the two companies, a person familiar with the matter told Reuters at the time.
Since Theresa May became prime minister in July 2016, Britain has taken a more cautious approach towards foreign acquisitions of British assets. — Reuters