M&A activity into the UK fell by 42 per cent at the start of the year, but was up over 100 per cent for the rest of Europe

Billy Bambrough
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If the market was more certain either way of the EU referendum vote there would be more M&A activity into the UK (Source: Getty)

The first quarter of 2016 was pretty bad for inbound UK merger and acquisition (M&A) activity.

Deal values decreased by 42 per cent from $51.4bn (£36.1bn) in the first three months of 2015 to $30bn in the same period this year, according to analysis from Deloitte.

During the same period in the rest of Europe, M&A investment increased from $35.6bn to $73.5bn.

The downturn is due to market uncertainty over the upcoming UK European Union membership referendum next week.

Last month the chief executive of private equity company 3i said there is currently a “hiatus” in UK M&A activity in the lead up to the EU referendum.

Read more: Why buyers are taking a "watch and wait" approach to UK-targeted M&A

The number of UK-targeted deals also took a hit – down 10 per cent to 222 in the first quarter, while for the rest of Europe inbound deal increased by four per cent to 384.

The UK’s manufacturing sector took the biggest hit, with deal values down a whopping by 93 per cent, followed by the professional services sector, where it fell by 85 per cent.

The energy & resources sector bucked the trend however, due to ongoing industry-wide consolidation as firms batten down the hatches as the oil price looks set to remain well under summer 2014 highs.

Iain Macmillan, head of global M&A at Deloitte, said:

The UK was the strongest performer last year and received $326bn worth of M&A investment, the highest for any country in Europe.

However, the global economic slowdown, compounded by uncertainties created by the EU referendum vote, has had a massive impact on deal flows into UK, with investment dropping to $30bn in the first quarter of this year.

In the months preceding the Scottish referendum the total value of deals in UK slowed by 45 per cent and as the outcome of the referendum was looking increasingly uncertain.

However during the 2015 UK general elections, deal activity increased by 71 per cent.

Read more: UK execs are worried about the economy – but want to do lots of M&A deals

Deloitte speculates that markets weren't suffering from the same degree of uncertainty due to polls consistently returning the same (ultimately wrong) result.

Macmillan said he expects the deal flow to eventually pick up once the corporate indecision abates, adding:

Our analysis shows that market uncertainties have a significant bearing on corporate confidence and the deal flow. Currently, companies are content to wait and will revaluate their plans following the outcome of the referendum vote.