Acquisitive mood

Over a third of private British businesses plan to expand by making an acquisition during the next three years.

The International Business Report from professional services firm Grant Thornton finds there has been a jump in the number of businesses looking to acquire compared with other growth strategies in the past year. The report shows 36 per cent plan to make a purchase, up from 26 per cent last year.

The primary reasons to embark on a merger or acquisition are to build scale (61 per cent) and gain access to new markets (61 per cent). Acquiring new technology or established brands (41 per cent) and gaining access to lower-cost operations (40 per cent) are other factors companies consider.

On a European scale, the percentage of businesses planning to expand in the next three years differs markedly between country. In Poland 59 per cent plan to grow (down from 66 per cent in 2010), while in Germany only 11 per cent say they will acquire (down from 17 per cent).

Europe (EU) as a total figure rose from 15 per cent in 2010, to 28 per cent.

Mike Hughes, corporate finance director at Grant Thornton UK, comments that the increased interest in M&A activity will lead to higher valuations because of the intensified competition for high quality companies.

‘Over the last 12 months there has been a significant improvement in the interest, appetite and financial capability of trade buyers to do deals,’ says Hughes. ‘We have seen evidence of high quality businesses attracting premium prices. In particular fast-growing online retail businesses have attracted impressive takeover offers in recent months.’

He adds that trade buyers are back in the market for online companies, including bricks-and-mortar retailers such as Morrisons, which recently acquired baby products supplier Kiddicare for £70 million.

‘Trade buyers are back on the front foot and can bring much to a deal in terms of strategic input and resource,’ says Hughes. ‘For traditional retailers, the acquisition of a high quality online business offers welcome growth opportunities.’

Compared with previous years’ research, the motivations for merger or acquisition activity have shifted significantly. In 2009 and 2010, the most common goal of the surveyed companies was to gain access to new markets.

However, with the increase in private British businesses wanting to acquire, other deciding factors have become more important, such as a desire to build scale and gain access to lower cost operations.

When looking to complete a merger or acquisition, the research finds that 85 per cent of respondents expect to make domestic acquisitions, compared with 29 per cent planning to acquire overseas businesses. This result is similar to previous years, with domestic acquisitions being the favoured route for private British businesses.

The International Business Report is an international survey of the opinions of privately held businesses. It questioned 349 British companies last year.

Todd Cardy

Adelbert Swaniawski

Todd was Editor of between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital. Connect with...