Strongest M&A activity for a first quarter in a decade -EY

UK deal making has had an impressive start to the year as domestic and cross border activity accelerate, according to data released by EY today.

The overall value of UK M&A reached levels similar to those last seen in Q1 2007, which remains the high watermark for deals activity. UK M&A totalled $120 billion and 681 deals, more than twice the overall value of transactions in Q4 2017 ($51 billion, 586 deals) but shy of the $147 billion and 1,045 deals seen in Q1 2007.

While domestic ($32 billion and 366 deals in Q1 2018 vs $27 billion and 310 deals in Q4 2017) and outbound (£21 billion and 138 deals vs $12 billion and 143 deals in Q4 2017) M&A saw significant increases in both value and volume compared to the previous quarter, it was inbound M&A that lead the way. Value for inbound transactions jumped from $11 billion and 133 deals in the last quarter of 2017 to $67 billion and 177 deals in Q1 this year.

At a sector level, telecommunications ($44.6 billion), automobile ($18 billion) and healthcare ($13.5 billion) top the list of sectors with the highest transaction values, while computers and electronics together with professional services saw the most deals with 151 and 105 transactions respectively.

Ally Scott, EY’s head of corporate finance in Scotland, said: “It’s been a positive start to the year for the UK deals market with international investors continuing to find UK companies with an international presence attractive and UK businesses making international deals. Evidence of the attractiveness of Scottish businesses to international investors has built momentum in recent months and looks set to continue. Those with access to global markets and the knowledge of how to capitalise on M&A opportunities will be best placed for successful outcomes.

“The significant increase in inbound transactions is likely to lead to a new environment for M&A and deal makers. Some of these deals are likely to face increased scrutiny by regulators, Government and the public about their purpose, which will need to extend beyond cost savings. Articulating this narrative in a compelling way to ensure all stakeholders are onside will become increasingly key to help ensure deals are done.”

According to EY’s data, US investors topped the list of foreign acquirers buying UK firms followed by France, Switzerland, Japan and the Netherlands. The first quarter of 2018 saw 68 deals from the US into the UK worth $60 billion. At the same time, the US was the second most favoured destination for UK companies doing deals abroad ($4 billion, 38 deals), after Switzerland and followed by Germany, Oman and France.

Mr Scott added: “The trade flow between the UK and the US has always been strong and there is no sign of slowing. While early days, shifts in policy, such as the recent US tax reforms, could trigger some near-term large deals, as boardrooms reassess capital allocation between the US and non-US territories.

“We predict Q2 to be equally strong as businesses look to lock in more favourable financing prior to any interest rate increases. However, the biggest M&A story of this year will be portfolio transformation. Because of the relatively low growth of the economy, employment concerns and technological change businesses are under more pressure to find different, better and smarter ways of operating. They are unable to carry non-core assets and will continue to evolve through the acquisition of technology and digital innovations. Tech smart deals will help companies future-proof their operations and address continuously changing business models.”