UK executives lose appetite for M&A deals

Michael Bow
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A SURGE in the optimism of senior corporate executives about the UK economy is failing to translate into more appetite for M&A, with less than a third of executives planning to buy a company this year, a survey has found.

Sentiment over the last six months has boomed across British boardrooms, with 58 per cent now saying that the outlook for the global economy is improving, compared to just 18 per cent who said so in October 2012.

Despite a huge increase in M&A activity in the US, more risk aversion and a dampened push for growth in the UK means about one in three expect to make an acquisition over the next year, down from a high of 52 per cent in October 2011, the figures from Ernst & Young (EY) show.

“What we are seeing is a ‘confidence paradox’ with planned activity contradicting expectations,” Jon Hughes, head of E&Y UK transaction advisory services practice said. “In the past few years, M&A volumes have de-coupled from historical indicators of deal activity – there are signs of improvement but caution remains.”

Figures released by Thomson Reuters last week showed worldwide M&A activity currently stands at about $650bn (£426.7bn), thanks to a spate of US mega deals including the proposed acquisition by cable network Dish of phone company Sprint Nextel.

Despite about 60 per cent of UK executives polled believing the UK economy will grow between one and three per cent over the next year, a lower level believe there was a likelihood of closing an acquisition compared to six months ago, down to 25 per cent from 28 per cent.

One reason is price. Almost half believe the price of M&A assets will rise over the next year. Another is risk, with the report – which polled 1,600 executives – finding 35 per cent thought purchase price multiples were too high, compared to 18 per cent in October 2012.

While appetite to snap up firms is buoyant in the car industry, financial services and utility companies exhibited some of the lowest levels of interest in doing a deal, with just 15 per cent and 14 per cent respectively.