Mergers & premonitions
Burst of UK takeovers may be a false signal
What looks like a rash of dealmaking involving British companies is really the ghost of a bygone era. In the four weeks since the UK voted to leave the European Union, foreign and domestic acquirers have made a dozen offers for UK targets worth more than $100 million. These have a total value of $35.6 billion, according to Thomson Reuters data. SoftBank’s acquisition of ARM Holdings is the big one. But, in most cases overtures will have been planned well in advance, which makes this a lagging indicator.
Brexit-induced sterling weakness is one reason why foreign predators could continue to circle. But, the medium-term prospects for British companies look uncertain as Brexit negotiations begin, and the general corporate mood is pessimistic. Four out of five chief financial officers at FTSE350 companies polled by Deloitte said they planned to cut capital spending next year. A survey of 700 businesses by the Bank of England points to an expected reduction in corporate finance activity as plans are starting to be shelved or put on ice.
Nor do the deals that have made it past the finish line instil much confidence. Strip out SoftBank’s £24.3 billion ($32 billion) bid for UK chip-designer ARM and there’s little left – besides which, the Japanese group’s plan says more about the global market for microchips than Britain’s prospects. It is a speculative punt on an unproven tech trend: the “internet of things”. And, only two other deals – for Odeon & UCI Cinemas Group and VocaLink – have exceeded the $1 billion mark.
Mergers and acquisitions typically take at least three months to fructify. So, it is possible that any slowdown won’t be evident until the fourth quarter of this year. August holidays in European countries could muddy the picture further. Since British M&A activity is already down 53 percent year-on-year, and it typically accounts for between a quarter and a third of Europe’s total, it’s safe to say this year will be lumpy and lacklustre.