The Business Times

Political uncertainty looms over Britain's M&A market

Published Fri, Dec 12, 2014 · 02:46 PM

[LONDON] Britain has all the right ingredients for an M&A boom, upbeat company bosses, a vibrant economy and a buoyant stock market, but dealmaking is lagging behind the rest of the world.

And for bankers hoping to rake in more fees next year, a looming parliamentary election, creating political uncertainty, could prove a further dampener for big-ticket deals.

This year, a resurgent British economy gave some company boards the confidence to reject takeover offers as too cheap which meant a lot of transactions did not happen.

Globally, M&A has surged to US$3.2 trillion year to date, up nearly 50 per cent from a year ago and the highest level since 2007, according to Thomson Reuters data.

In Britain, although M&A activity is up compared to 2013, it has been flat for the last five years. Deals totalled US$146 billion year-to-date, 62 per cent lower than the pre-crisis boom days of 2007 when the value of M&A deals hit US$388 billion.

Ten years ago, dealmaking in Britain, Europe's financial hub and home to some of the region's largest companies, made up 37 per cent of all M&A in Europe, Middle East and Africa. That figure now stands at just 17 per cent.

One of the reasons is that some of this year's deals failed to get off the ground because the robust economic backdrop has given company boards the confidence to spurn bid approaches even with hefty premiums.

Balfour Beatty rejected Carillion's £2.1 billion(S$4.33 billion) advances and property group Songbird Estates has said a £2.6 billion approach from Qatar does not reflect its full value. "The consistent theme here is high price expectations of sellers, which in a way says there is an good underlying level of confidence," Mark Todd, co-head of M&A at Barclays told Reuters. "UK M&A started out with a bang this year but has to some extent gone backwards more recently." Early on, 2014 was shaping up as a bumper year. US telecoms giant eyed up Britain's Vodafone in what would have been a £80 billion deal, US drugs group Pfizer approached AstraZeneca with a £70 billion offer and smaller UK rival Shire came close to being sold to Abbvie for £31 billion. "In a strange way this might have been the most spectacular year of all time," said one M&A banker, who wished not to be identified. "If one of those big deals had happened, it would've changed everything. But it's not just one or two deals that didn't happen, it's 4,5,6."

Bankers who spoke to Reuters also said despite the weak M&A data, 2014 was busier in Britain than it had been for years in terms of the deals that were made public, plus a host of behind-the-scenes activity. "From a number of deals perspective the UK has been a bit unlucky in 2014. There's no one easy answer as to why volumes are lower. It's in part bad luck," Simon Mackenzie-Smith, chairman of UK and Ireland Corporate and Investment Banking at Bank of America Merrill Lynch, said.


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