While the deal market has been slow over the past few years, a recent wave of high-profile activity at “big ticket” prices, like Liberty Group’s £15bn bid for Virgin Media, suggests companies and investors are regaining a taste for mergers and acquisitions (M&A). Our research suggests that there is the capacity and appetite to do deals, since UK companies have largely repaired their balance sheets. The counter-cyclical activity in the power and utilities sectors, which saw big investments at Thames Water last year and at Sutton & East Surrey Water this week, continues. And the deal buzz is extending across different sectors too: we expect to see activity in consumer goods, as the big players divest “non-core” businesses and seek footholds in high growth markets. The big theme is the appeal of UK companies to international investors, particularly from Asia. This seems like a theme that is here to stay.
Andy Cox is head of transaction services at KPMG.
The completion of mergers and acquisition (M&A) transactions in 2013 will pose challenges. Both the pre-bid and post-announcement periods will continue to remain longer than the historical average, with caution and inertia categorising the market. Value and growth will not be created by waiting for a major upturn – which is still a long way off. Business leaders need to identify opportunities to break into high growth economies, transform their business models to reflect the low growth economy, and gain market share by targeted inorganic growth. In theory, the fundamentals are there to support increased activity: in developed markets there is an availability of cheap corporate debt and strong cash positions, and in emerging markets companies have cash and appetite for deals. But in reality, M&A activity is likely to remain subdued, as executives continue to exercise restraint before taking a seat at the deal table.
Jon Hughes is head of transaction advisory services at Ernst & Young.