The state of play for UK mergers and acquisitions

Despite a drastic dip in domestic UK mergers and acquisitions, Torgny Gunnarsson, CEO of Imprima, examines how trends point towards positivity for 2014.

The UK economy might have grown for the fifth period in a row, but the confidence in the marketplace seemingly hasn’t extended to M&A activity.

Despite M&A value reaching $160.6 billion in Europe – a 19 per cent increase on Q1 in 2013 – the Office for National Statistics (ONS) has released figures showing that domestic M&A activity in the UK has fallen to its lowest level since the ONS started publishing the data nearly fifty years ago.

The ONS puts this down to a ‘lag between improving economic conditions and any quarter-on-quarter increase in M&A activity’. The fact is, closing these deals does take time and we should have a much clearer picture of how M&A activity is doing when H1 comes to a close.

It’s also a case of perspective. One reason why M&A might be down in the UK is that companies are sufficiently confident to hold their nerve and demand greater premiums from their would-be friendly acquirers. That’s one explanation for why hostile takeovers are at a fourteen-year high. In the meantime, the industry can take enormous confidence from the fact that the worldwide value of M&A is up to $600 billion, an increase of 33 per cent on Q1 last year. Overall the picture is very encouraging indeed, though there have been some notable deal collapses in recent weeks which – given their scale – are worth closer examination.

The two deals which have stolen the limelight in recent months are those of Omnicom with Publicis and Pfizer with AstraZeneca. For very different reasons neither deal went ahead at this point in time. For Omnicom and Publicis, it was the finer points of the deal which proved the sticking point. Allegedly, despite claims the merger was to be a ‘marriage-of-equals’, Omnicom insisted on their people taking the CEO, CFO and general counsel roles. Despite best intentions the deal faltered, and it is claimed that both parties lost $1.5 billion of revenue in the last month of the merger process alone, owing to uncertainty.

The Pfizer and AstraZeneca deal collapse was initially about price, before spiralling rapidly into an emotionally charged political debate; an environment in no way conducive to a smooth acquisition.

More on global M&A:

Both failures draw attention to the finer points of the merger process. Mergers of this scale can be incredibly complex to put together and the process itself must be finely managed if a deal isn’t to lose momentum. Omnicom chief John Wren said himself that in the instance of Publicis and Omnicom, ‘There are a lot of complex issues we hadn’t resolved…there was no clear finish line in sight, and uncertainty is never a good thing.’ It’s vital to ensure that management teams are set up to effectively manage the process and that means making use of the time, tools and talent at their disposal to get the job done.

Critically, both parties must empower their agents to access the information they need when they need it. Technology has made the process of M&A much easier in this respect. There are the little things we already take for granted, like the ability to have a video conference call across continents between the two boards of cross-border merging companies. The more technical aspects of the deal process have also been made easier, such as the process of due diligence. This process used to involve a locked room replete with sensitive documents and guarded 24/7. These days, the technology exists to enable companies to allow access to confidential documents to a chosen few in a highly secure environment. Enabling quick, secure access to information, whether via conference call or virtual data room, is pivotal to ensuring that deals continue to completion with confidence.

In the context of global growth in M&A value compared to last year, it looks to be an increasingly buoyant time for business. With companies in the UK increasingly looking to ensure that their M&A management strategies deploy tactics which maximise the likelihood of a successful deal, the UK’s M&A activity will surely follow the trend exhibited throughout Europe in 2014.