Foreign acquisitions of UK companies drop 11 per cent in fourth quarter amid Brexit uncertainty
The number of acquisitions of UK businesses by foreign buyers decreased by 11 per cent in the last quarter of 2018, as uncertainty around a Brexit deal forces EU bidders to adopt a “wait and see” approach before making investment decisions.
Research from global law firm Pinsent Masons reveals that foreign buyers of British companies fell from 159 to 142 between the fourth quarters of 2017 and 2018. The drop is largely down to hesitation from European buyers, who shrunk by 22 percent in the same period, in light of the lack of agreement on a withdrawal deal in Westminster.
“Fears over the outcome of Brexit have intensified, choking bids for UK companies” said Andrew McMillan, Partner at Pinsent Masons. “European buyers of UK companies have been particularly skittish in recent months which likely reflects the greater exposure they already have to the potential fallout from Brexit.”
The downturn has reportedly also lead to UK companies delaying divestments in order to safeguard against any loss from unfavourable assets prices. Pinsent Masons says a fall in divestments may mean a slowdown in the essential restructuring of some UK businesses.
Despite the drop-off from EU buyers, the number of US and Japanese buyers of UK companies slightly increased in the same period. The number of acquisitions by US buyers increased to 65 in Q4 2018, up from 64 in Q4 2017, and acquisitions by Japanese buyers increased to five, up from just one, over the same period.
Andrew McMillan added: “US and Japanese buyers increasingly see bargains amongst UK companies where European buyers see risk.”
“US and Japanese buyers do not appear to be scared of Brexit – they are calculating that a rational solution will be found. This is a real vote of confidence in UK companies, supported by tailwinds from a strong Dollar and Yen against Sterling.”
“Further weakness in Sterling and equities could lead to a rally in M&A deals in 2019 as foreign buyers look to pick up UK companies at a discount.”
Recent examples of large foreign acquisitions over the last year include Coca-Cola’s £3.9bn purchasing of the Costa coffee chain in August 2018.