The collapse in the value of the pound since Brexit failed to attract an increase in overseas bidders for UK businesses, with the number of UK companies taken over by foreign firms falling in the second half of 2016.
The number of UK companies taken over by foreign firms dropped to 174 (42% of all UK M&A deals) down from 248 (41% of all UK M&A deals) for the same period in 2015. The total number* of acquisitions of UK companies completed in 2016 fell by 16% to 1002, down from 1187 in 2015.**
Following the dramatic fall in the value of the pound post-Brexit, commentators had speculated that there would be a surge in the number of overseas companies bargain hunting for UK acquisitions.
Debbie Clarke, Head of M&A, says: “The fall in the value of sterling has only partly made up for the Brexit bombshell. There has been no rush of ‘carpetbaggers’.
“Foreign buyers still have understandable concerns over the speed of growth of the UK economy and they worry that further currency volatility would impact the future value of any dividends they repatriate. We are glad that the ‘Cassandras’ have been proven wrong for now.”
Our research also found a fall in the share of US acquisitions of UK companies – down to 16% of UK M&A deals in H2 2016, compared to 18% in H2 2015. This can be part explained by the Obama administration’s crackdown on ‘tax-inversion’ deals which had made it attractive for US companies to acquire a UK company in order to reduce their US corporation tax bill.
Suggestions that Donald Trump will reduce US corporation tax and lower taxes on the repatriation of the overseas cash piles of US companies (which had been used to pay for the acquisitions of UK companies) may also cause some delay to US-led M&A activity in the UK.
There also continues to be low levels of acquisitions of UK companies by Chinese businesses. The number of UK companies acquired by Chinese firms increased to 11 in 2016, from 8 in 2015. Whilst acquisitions by Chinese companies increased by a third, the country’s share of UK acquisitions stayed around 1% of all deals.
Significant increases in Chinese investment could still be some time away as moves by the Chinese government to discourage aggressive overseas purchases may continue to slow the growth of these acquisitions.
Debbie Clarke adds: “Despite the collapse in sterling, Chinese companies have yet to start aggressively ‘bargain hunting,’ instead preferring to continue their focus on strategic acquisitions.
“Many Chinese buyers are still constrained by foreign currency control. However, this policy has been relaxed in recent years and looks set to improve in the future.
“If this continues, investment in specific sectors such as real estate – which Chinese investors are particularly keen on – should increase, buoyed by ‘discount’ opportunities in the UK.”
Debbie Clarke says that healthy bidding interest for UK companies is vital to help encourage entrepreneurs. Without the prospect of being able to exit a company at attractive multiples, entrepreneurs will be less willing to take the risks needed to expand a company from generating a modest level of cash to being a major employer.
*Measuring M&A activity by deal numbers avoids the distorting effect of a small number of very large value deals.
The total number of acquisitions of UK companies has fallen 16% from 2015 to 2016 – by completed acquisitions
Brexit has not seen a rise in the share of acquisitions of UK companies by overseas companies
**Includes only “change of control transactions,” based on deals completed by year end December 12