Overseas UK M&A falls despite domestic deal appetite

Expenditure on acquisitions abroad by UK companies has fallen to £10.2 billion in the second quarter of 2011, down from £20.7 billion in quarter one, in contrast to the increase seen in domestic M&A as buyers look for local value, new statistics show.

The findings, from the Office for National Statistics, which records acquisitions and disposals involving UK companies with values of more than £1 million, revealed that while UK cross-border acquisitions fell, the value of purchases in the UK by foreign businesses rose by 57 per cent to £8.5 billion over the same period.

While UK companies’ investment overseas fell in the second quarter of the year, the £10.2 billion value still represents the second highest value since quarter one of 2008.

The results showed that UK domestic acquisitions rose to £2.2 billion in the second quarter of 2011, a 69 per cent increase compared with the first three months of the year, as UK companies looked for targets closer to home.

Rhys Philip, partner and head of M&A at accountancy firm Ernst & Young, belives the findings point towards a ‘general confidence’ throughout the second quarter as macro-economic condidtions settled down and became more predictable.

However he says all that was thrown in the air in the third quarter as the Greek crisis appeared to deepen and questions were raised about US’ credit rating.

He adds: ‘I am not convinced this is a sustained recorvery and I think we need to see three to four quarters of growth before we can confirm a trend.’

Anna Smee, director of business consultancy company Hundred, says that during 2009 and 2010 the market saw a number of high value acquisitions in the UK by foreign companies, while 2011 saw a reversal of this trend.

Smee explains: ‘High value transactions are now taking place abroad as UK companies take advantage of the economic downturn to acquire assets at an attractive price.

‘Businesses in the US and Europe are looking relatively cheap at the moment after a couple of lean years.’

Smee believes that some acquirers may be ‘snapping up bargains’ with the objective of turning them around when cash becomes more available when banks loosen the purse strings and start lending again.

The largest outward transaction by a UK company in the quarter was the acquisition by Ensco of US-based Pride International for a reported value of £4.6 billion while the largest inward deal was the purchase of the Central Networks Electricity Distribution of E.ON AG by PPL Corporation for a reported £3.6 billion.

With transactions between UK companies still lagging behind historical averages, the number of deals completed in the second quarter of 2011 is the lowest in the post-recession period.

Peter Watson, managing director at Prism Corporate Broking, comments: ‘Whilst certain markets, such as TMT and Utilities remain buoyant, there are clearly still concerns over the economy and this appears to be taking its toll on M&A.

‘Given the recent market turmoil and fears of a double dip, I suspect that the third quarter of 2011 will bring little respite.’

Todd Cardy

Todd Cardy

Todd was Editor of GrowthBusiness.co.uk 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...

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