M&A 2017: Down but not out

In the GrowthBusiness M&A Guide 2017, we examine the opportunities for UK businesses to grow through a fundraise, merger or acquisition.

This article was originally published in the GrowthBusiness M&A Guide.

The M&A Guide is aimed at entrepreneurs and owners of growth companies, summarising the state of play of the dealmaking landscape and the various elements of the ecosystem over the past year. The aim is to help business owners understand whether a merger, acquisition, sale, or going public is right for their business, and the types of advisers and expertise they may require along the way.

Dealmaking: Down but not out

The barrage of political shocks that hit the financial world over 2016 did little to dent the growing momentum in dealmaking. The deals just kept on coming towards the end of 2016, with a surge in high-profile acquisitions that buoyed the annual total for global M&A to $3.6 trillion.

The sudden boom in activity over the last quarter of 2016 made it the second-best year for dealmakers since the financial crisis, despite the fact that total deal value was down 17 per cent from 2015. The UK’s vote to leave the EU, the election of Donald Trump as US president and the defeat of the Italian referendum were some of the roadblocks for dealmakers in 2016, yet withdrawn M&A hit an eight-year record at $805 billion. This is partly because more businesses expect weak organic growth prospects in the economic environment of uncertainty and currency volatility. Buying out competitors or expanding into new markets suddenly seems more appealing for these businesses at the cusp of the next growth phase.

For the first time in a while, businesses are seeing an abundance of capital at low borrowing rates. Meanwhile, large corporates are egged on by investors to grow aggressively through more dealmaking.

A major dealmaking theme for 2017 may be one that started to gain traction in 2016: Asia’s growing interest in UK businesses, from China’s Ctrip’s acquisition of Edinburgh darling Skyscanner, to Japan’s SoftBank buying UK’s largest technology company, Arm for £25 billion. We may see an increase in the flow of capital from Asia to Europe and Europe to the US as dealmaking chases the sun. The US still stands to retain its position as the global leader in deal activity, with Trump’s plans to slash corporate tax and encourage the repatriation of offshore funds. While the shock Brexit vote was expected to take a greater toll on the British economy, the UK has remained resilient.

According to Thomson Reuters data, foreign companies have jumped at the chance to buy British companies with the sterling’s devaluation against the US dollar. Over the past year, British M&A totalled £144.5 billion ($177.5 billion), nearly halved by the events of the year, from 2015’s record £321.5 billion ($394.8 billion).

Goldman Sachs is the UK’s top dealmaker this year, followed by JPMorgan, and Lazard, Deutsche Bank, UBS, Centerview Partners LLC and Morgan Stanley, according to Thomson Reuters data. Despite the odds, the UK is still the third-largest M&A market after the US and China. And although very little of the activity in 2016 saw UK-to-UK deals, the injection of foreign interest may help propel UK businesses to gain a larger and deeper international footprint.

Even if 2016’s uncertainty lingers well into the new year, UK businesses stand to gain a lot this year by spotting an opportunity for growth, and by knowing how and when to negotiate a deal.

The M&A Guide 2017 is supported by Clydesdale & Yorkshire Bank, EMC, Kingston Smith, Knight Corporate Finance, and Squire Patton Boggs. To read more, download the guide for free here

Praseeda Nair

Kellen Rempel

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.