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Is Britain in the midst of a takeover boom?

May 2nd, 2018 by Chris St Cartmail

The end of April represented a crescendo in what has already been a year packed with deals involving UK companies. Excluding the value of the mega-merger proposed between Sainsbury’s and Asda which was unveiled just at the end of the month, there have been more than £200 billion worth of deals struck involving British firms.

According to Thomson Reuters data compiled just before the supermarket chains announced their deal, there have been 35 such transactions carried out since the start of 2018 totalling around £204 billion. If withdrawn bids are also considered, an extra £8 billion of mergers, acquisitions and other transactional deals have been proposed for UK companies.

This is far lower than activity seen in previous years: in 2015, the first four months of the year saw £74 billion; in 2000 – just before the internet bubble burst – £104 billion was reached.

Not only do these deals see UK companies consolidating their position in the market or merging with rivals, but represent the country’s largest firms becoming the target of overseas organisations. Shire’s £46 billion offer from Takeda, a Japanese rival, is one of these, the fifth offer made for the biomedical firm. Then there’s US giant 21st Century Fox’s bid for fellow broadcaster sky.

Some represent larger groups splitting off into more profitable units, such as Whitbread’s announcement that it would spin off Costa Coffee after pressure from shareholders who saw demerging the coffee chain as a profitable move.

According to David Lomer, co-head of mergers and acquisitions for EMEA at JP Morgan, this stream of activity – “one of the busiest starts to a year ever”, as he puts it – is set to continue, both in terms of the size of transactions as well as their number.

This is largely because “boardroom confidence is high”, Lomer explains, and because an appetite to make deals in order to seek better corporate value is growing around the world.

British companies also represent something of an attractive proposition to a buy who has enough cash to find their next growth opportunity. “British companies’ answer to Brexit is to get stronger domestically and also to grow internationally,” he explains. “Overseas companies are seeing past the noise and uncertainty surrounding Brexit and have refound their belief in the value of UK assets.”

Not everyone agrees with Lomer’s assessment of the market conditions, it’s true: Warren Buffett, a veteran Wall Street player, recently said that a “sensible purchase price” was hard to come by – speaking about the opportunities open to him in the US.

Looking at British firms, however, Lomer says the opportunities for savvy buyers are becoming bigger and broader, particularly those seeking consolidation in a competitive market.

Spikes in the retail sector, in particular, are showing that although some companies are finding trading conditions a little more difficult, there is an opportunity for companies with a unique business proposition to find their niche and grow into it. The losses incurred in recent weeks by brands like Prezzo or Pizza Express may make for worrying reading on first impressions, but also belie a market that is underserved or undervalued. For the right buyer, it could represent a fantastic opportunity.

So, just as city bankers have welcomed this recent flurry of activity, Britain’s business owners may soon be realising that growth is well within their reach.