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City advisers gearing up for a flood of M&A

ABBEY National, Rover, Corus. Just three Great British companies that have fallen prey to foreign predators in recent years. You can add Cadbury to that list now that the board has recommended the takeover approach from American rival Kraft – an £11.7bn deal which is likely to be waved through by institutional investors.

Forget the pre-election protectionist posturing from Westminster. The debate about the potential loss of British jobs is a sideshow over which the government has little control. What’s more interesting about the capitulation of the Cadbury’s board and its shareholders is that anything goes for the remaining titans of British industry. We can now rightly expect a wave of merger and acquisition (M&A) activity as overseas companies eye likely targets within these shores. It is a view that is gathering credibility. Hedge fund GLG Partners reckons Kraft’s success will fuel interest in UK deals among American corporates which enjoy a rock-solid currency compared with our own sterling as well as strong balance sheets.

It’s one thing for hedge funds to predict a flood of M&A when they have a vested interest if deal speculation will boost the share prices of likely targets. But the view is also shared by some banks. In a research note analysts at Deutsche Bank have identified potential targets. They include Smiths Group, which makes airport scanners, technology firm Logica, medical devices manufacturer Smith & Nephew and the media group Aegis.

The British utilities sector is also ripe for further deals, according to other analysts. International Power and EDF have already been linked but on Monday International Power said discussions had been discontinued.

All this is great news of course for City advisers who are rubbing their hands in glee at the potential rewards on offer from advising on such multi-billion pound mega-deals.

Lazard, Citigroup and Deutsche Bank did exceptionally well from the Cadbury/Kraft negotiations, sharing up to £35m in advisory fees. And, on the Cadbury side of the boardroom table, Goldman Sachs, Morgan Stanley and UBS are expected to share around £36m in fees between them.

With those kinds of payouts on offer it is no wonder that the likes of Bank of America Merrill Lynch is scouring the City for bankers to recruit. Morgan McKinley’s hiring outlook for 2010 is forecasting a return to hiring across the board as business activity in financial services increases again. All in all, this year is shaping up to be a good one for the advisory business.

ben.griffiths@cityam.com