Slump in pounD leAves UK firms vulnerable to hostile takeovers

US and Asian firms will continue to circle British companies as sterling’s slump and the resilience of the UK economy lays fertile ground for deals, a report has said.

The total market capacity for global mergers and acquisitions (M&A) activity is expected to jump by 17% as firms pay down debt and boost their cash reserves, according to KPMG’s global M&A predictor.

The prospect of a surge in domestic deals has also increased, with the capacity for UK companies to fund inorganic growth rising 22% over the next year thanks to robust bottom lines and hefty corporate balance sheets.

A brighter picture for M&A activity comes on the back of “subdued” transactional levels for 2016, as total deals slid 17% in the face of stricter regulation and greater geopolitical risks.

However, cross-border activity proved more resilient, falling 3% over the period.

Andrew Nicholson, KPMG’s UK head of M&A, said the allure of UK companies showed little sign of waning in the short term.

“International buyers emerged as a real force to be reckoned with towards the end of last year, as overseas trade acquirers, most notably those from the US and Asia, acted opportunistically to take advantage of a weakened sterling,” Mr Nicholson said.

“With no sign of a bounce in the pound on the horizon, and the UK economy continuing to confound post-referendum expectations, UK businesses will remain a target for hungry investors.”

Domestic M&A recorded its highest levels since 2008, with 400 successful deals reaching a total value of £23.9 billion last year, according to official data.

The Office for National Statistics said there was 227 inward M&A worth £187.4 billion over the period – its highest annual value on record.

Sanjay Thakkar, KPMG’s UK head of deal advisory, added: “It’s no coincidence that we have seen a plethora of bids – some successful, some otherwise – hit the headlines since the turn of the year.”