Bri­tish busi­nesses ‘on sale’ as deal flow set to ac­cel­er­ate

Dig­i­tal dis­rup­tion and emerg­ing in­vestor ac­tivism key driv­ers

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Takeover, merger (M&A) and spin-out ac­tiv­ity is ex­pected to ac­cel­er­ate in the months ahead as UK busi­nesses as­pire to bol­ster their com­pet­i­tive ad­van­tages and/or re­lease ex­tra share­holder value.

Al­ready this year sev­eral UK firms have been tar­geted with deals either agreed or ne­go­ti­a­tions ongoing, in­clud­ing the £18bn-plus po­ten­tial takeover of TV and broad­band sup­plier Sky (SKY) by US cable group Com­cast or 21st Cen­tury Fox.

Other £1bn-plus Bri­tish buyouts struck this year in­clude property in­ter­net busi­ness ZPG and trad­ing soft­ware sup­plier Fidessa, while the merger of

Vir­gin Money (VM.) with bank­ing busi­ness CYBG (CYBG) is ex­pected to com­plete later this year. Ma­ture op­er­a­tors look­ing to se­cure mar­ket share in the face of dis­rup­tive emerg­ing threats from dig­i­tal new en­trants are one of the chief rea­sons for this M&A splurge, ac­cord­ing to in­vest­ment bank Jef­feries. Its an­a­lysts be­lieve this is a ma­jor fac­tor in some of the UK’s big­gest deals, Sains­bury’s (SBRY) merger with Asda be­ing a good ex­am­ple.

‘On the face of it, the trans­ac­tion is be­ing driven by the need for the two com­pa­nies to lever­age their com­bined pur­chas­ing power to ne­go­ti­ate cheaper prices from sup­pli­ers,’ say the Jef­feries re­search team.

How­ever, they also see an un­der­ly­ing con­cern that Ama­zon is cir­cling the food re­tail sec­tor, while the likes of Ocado (OCDO) and Just Eat (JE.) are emerg­ing play­ers in an in­creas­ingly com­plex UK gro­cery space.

Ac­tivist in­vestors are also play­ing their part in the gath­er­ing swirl of M&A. This year US pri­vate eq­uity firm El­liot has taken stake in Whit­bread

(WTB), property group Ham­mer­son (HMSO) and soft­ware busi­ness Mi­cro Fo­cus (MCRO) in at­tempts to en­cour­age man­age­ment to ex­plore share­holder value cre­ation mea­sures.

‘We ex­pect to see a wave of pend­ing and po­ten­tial ver­ti­cal merg­ers across tech­nol­ogy, me­dia, health­care, en­ergy and gen­eral in­dus­tri­als,’ say the Jef­feries ex­perts. (SF)

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