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by Caroline Clayfield
The UK economy is seeing an increase in mergers and acquisitions activity, as firms grow eager to take advantage of opportunities that may come their way.
During the recession years, private equity investors made the lion’s share of deals and benefitted as a result, once the recovery began. Now, it seems that a large number of UK businesses are in the position to take part in M&A activity to ensure they get a slice of the action in emerging markets.
A survey by Ernst & Young, which questioned 1,000 senior executives around the world about their M&A outlook, found that 50 per cent from the UK said they were keen to take part in M&A in the coming 12 months. This compared with a much more modest 41 per cent globally. So why are UK executives particularly keen to merge, buy and sell businesses and divisions?
The most obvious answer is the slack economy, which is expected to grow less than 1 per cent this year. As a result, it is clear that growth will not be coming from the domestic market and firms are therefore looking abroad for growth opportunities. Most of these firms have been sitting on a pile of money for the past few years, after safeguarding it through the toughest years of the recession. However, they are now looking forward to driving growth through spending or divestment.
Ernst & Young’s leader of transactionary advisory services, Jon Hughes, said, “In a low growth, volatile economic environment with reduced opportunities for organic growth, many companies in the UK are prepared to pursue diverse capital strategies. They have recognised that innovative dealmaking and bold transactions may be one of the few ways to deliver shareholder returns in such harsh economic conditions.”
The results of the survey, however, show clearly that UK business leaders are not just looking to make purchases. In fact, a third said they would like to make strategic divestments in the next 12 months. While around 14 per cent of those who said the same internationally were planning to do so to raise cash, almost all in the UK said divestments would be made for strategic reasons including focusing on core assets (44 per cent), dropping underperforming divisions (35 per cent) and enhancing shareholder value (18 per cent).
Mr. Hughes explained, “Rather than divesting to raise emergency funds to shore up balance sheets or to fund the acquisition of assets, UK companies are more likely to sell operations to achieve strategic goals and create value.”
Among the companies looking to make purchases in the coming year, many of them will be looking for opportunities in emerging markets, where growth potential is perhaps at its most enticing. The executives questioned said that their top five target countries, in terms of cross-border M&A are the US, China, Brazil, India and Germany. This is a move away from the more traditional Europe-based deals UK firms are commonly involved with and suggests an openness to look further afield for the best opportunities.
The Ernst & Young report shows that although the Office for National Statistics figures last month suggested that Q2 outbound acquisitions and mergers from the UK had fallen when compared with the first quarter, there is still plenty of activity in the pipeline. Despite the fall recorded in the second quarter of the year, Q2 was still representing the second highest spend on outbound M&A since early 2008.
UK Firms plan to increase M&A Activity
by Caroline Clayfield
The UK economy is seeing an increase in mergers and acquisitions activity, as firms grow eager to take advantage of opportunities that may come their way.
During the recession years, private equity investors made the lion’s share of deals and benefitted as a result, once the recovery began. Now, it seems that a large number of UK businesses are in the position to take part in M&A activity to ensure they get a slice of the action in emerging markets.
A survey by Ernst & Young, which questioned 1,000 senior executives around the world about their M&A outlook, found that 50 per cent from the UK said they were keen to take part in M&A in the coming 12 months. This compared with a much more modest 41 per cent globally. So why are UK executives particularly keen to merge, buy and sell businesses and divisions?
The most obvious answer is the slack economy, which is expected to grow less than 1 per cent this year. As a result, it is clear that growth will not be coming from the domestic market and firms are therefore looking abroad for growth opportunities. Most of these firms have been sitting on a pile of money for the past few years, after safeguarding it through the toughest years of the recession. However, they are now looking forward to driving growth through spending or divestment.
Ernst & Young’s leader of transactionary advisory services, Jon Hughes, said, “In a low growth, volatile economic environment with reduced opportunities for organic growth, many companies in the UK are prepared to pursue diverse capital strategies. They have recognised that innovative dealmaking and bold transactions may be one of the few ways to deliver shareholder returns in such harsh economic conditions.”
The results of the survey, however, show clearly that UK business leaders are not just looking to make purchases. In fact, a third said they would like to make strategic divestments in the next 12 months. While around 14 per cent of those who said the same internationally were planning to do so to raise cash, almost all in the UK said divestments would be made for strategic reasons including focusing on core assets (44 per cent), dropping underperforming divisions (35 per cent) and enhancing shareholder value (18 per cent).
Mr. Hughes explained, “Rather than divesting to raise emergency funds to shore up balance sheets or to fund the acquisition of assets, UK companies are more likely to sell operations to achieve strategic goals and create value.”
Among the companies looking to make purchases in the coming year, many of them will be looking for opportunities in emerging markets, where growth potential is perhaps at its most enticing. The executives questioned said that their top five target countries, in terms of cross-border M&A are the US, China, Brazil, India and Germany. This is a move away from the more traditional Europe-based deals UK firms are commonly involved with and suggests an openness to look further afield for the best opportunities.
The Ernst & Young report shows that although the Office for National Statistics figures last month suggested that Q2 outbound acquisitions and mergers from the UK had fallen when compared with the first quarter, there is still plenty of activity in the pipeline. Despite the fall recorded in the second quarter of the year, Q2 was still representing the second highest spend on outbound M&A since early 2008.
