EY’s latest Capital Confidence Barometer took the views of over 2,900 executives in over 40 countries questioned in February and March 2019. The survey is intended to examine boardroom confidence and assess trends in how businesses are managing their capital agendas.
The 20th edition of the report was published in April 2019 and puts the UK at the top of the list of ‘Top Investment Destinations’ for the first time since the report was launched ten years ago, in the wake of the financial crisis. It states that the UK is the top destination for investors and that the top sectors attracting investment are consumer products and retail, industrial and financial services.
The fact that the UK is attracting more investment than any other location is also interesting in light of the fact that Western Europe has become the focus of investment in the past months, with fewer investors considering the US as their favoured destination.
The EY report states: “The UK, Germany and France appear in the top five most targeted countries. Within them, consumer products, automotive, industrials and financial services are sought-after sectors. These are industries in which European companies have particular strengths (consumer and industrials) or look likely to be entering a period of consolidation (financial services and automotive).”
It’s all about fintech…
The UK, and particularly London, seem to remain the centre of the financial services universe. As well as the news from EY that financial services consolidation continues to drive investment in the UK, another report by Robert Walters, a fintech recruitment business, and market intelligence firm Vacancy Soft, found that London received 39 per cent of the venture capital (VC) investment in fintech last year. This was more than double the amount invested in Berlin, which was the second most popular destination for fintech VC investment.
Chris Hickey, the CEO of Robert Walters explained: “Whilst Brexit has no doubt been a concern and slowed down hiring levels somewhat within financial services, the fact that the UK has one of the best IT and banking talent pools in the world continues to be a big draw for investors.”
EY’s global vice chair of transaction advisory services, Steve Krouskos, also stated that executives continue to overcome barriers to investment and dealmaking in their search for growth. He said: “Geopolitical issues create significant challenges, but executives are determined to overcome perceived barriers and secure – or expand – their presence in markets that support their long-term strategic goals.
“While nationalism may fuel much political debate, technology has made the world a smaller place and executives remain international in their search for growth,” Krouskos concluded.
What does this mean for those looking to buy or sell businesses?
UK financial services and fintech start-ups will continue to be extremely attractive to private equity, venture capital and strategic buyers. Much of the attention is expected to come from outside the UK with foreign investors continuing to eagerly snap up UK businesses, providing that, post-Brexit, we are able to continue the open, internationalist attitude to dealmaking, recruiting and investing that has enabled the London fintech industry take off to the extent that it has.
A recent example of the types of deals being done is US fintech success story Credit Karma’s purchase of London-based Noddle in a deal intended to help Credit Karma expand its presence in the UK market. The deal sees Credit Karma taking over Noddle’s business from TransUnion, transferring some four million customers, along with 40 UK staff. Credit Karma says it intends to triple the staff count in London and Leeds and invest in larger premises for staff in both cities.
Co-founder of Credit Karma, Nichole Mustard said: “We are driven by our mission to help people make financial progress. To truly deliver on this, we knew we needed to expand beyond North America,” she added that investing in the UK was the “obvious next step” for the business.
As well as the financial services and fintech industries, investment is coming thick and fast for consumer products and retail businesses. Industrials and the automotive industry are also set for more M&A action in the months to come, so buyers and sellers alike will do well to keep their ear to the ground to take advantage of these trends.
So deals will continue to be done, regardless?
One of the EY report’s main takeaways from its latest statistics is: “Executives should factor in changing trade patterns, but not allow them to significantly alter strategic direction.” And this says it all really.
The world’s trade environment is changing, there’s no doubt about that. The US has increased regulation and protectionism and the EU may well follow suit in years to come. Right now, the UK is more popular than anywhere else in terms of foreign investment.
Although this could change as we continue the process of leaving the European Union, more opportunities for attracting investment and trade with the EU and beyond could arise as a result. Either way, though, analysts at EY and elsewhere seem pretty certain that tariffs, trade patterns, trade deals and the like actually have little bearing on dealmaking as M&A will continue to be a major driver of growth for executives around the globe.
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