UK M&A increased in the first quarter despite the outbreak of coronavirus, while foreign takeovers fell to their lowest level since 2017.
During the first quarter, domestic M&A – where UK companies acquire other UK companies – was worth £3.2bn, an increase of £1.1bn in the same period last year, according to the Office for National Statistics.
The UK market started the year well with some bumper deals that consolidated some key markets. Housebuilder Bovis Homes’ £1.1bn acquisition of Galliford Try completed in January with analysts predicting it would create a top five housebuilder in the UK.
Additionally, Ovo Energy bought SSE’s household energy business in January for £500m which sees Ovo become the second largest supplier in the UK, with 5m customers.
ONS figures released today also show that outward M&A, where UK firms acquire foreign companies abroad, increased marginally to £3.4bn from £3bn in the fourth quarter. But it is a notable decrease of the £4.5bn recorded in the first quarter of 2019.
It is notable that the majority of the deals were completed before the coronavirus restrictions were imposed in the UK. Additionally, the lag between announcing and completing a deal means any impact on activity might not be immediate.
Indeed by April, UK M&A had plunged to its lowest monthly level in almost 35 years after the pandemic slashed business confidence and froze economic activity. Deal value involving a UK target totalled £409.1m from 35 deals in April, while global M&A slumped to its lowest monthly total since September 2002.
However there is some optimism to be had in the tech and life sciences sectors as markets look beyond the pandemic. Michal Berkner, partner at law firm Cooley, said: “In Cooley’s core sectors of tech and life sciences we expect to see an uptick in UK M&A as the lockdown eases further.”
“Deal flow typically follows the US and there we are already seeing more M&A activity than when the coronavirus first hit the country.”
Despite an increase in domestic M&A, foreign investors backed away from takeovers in the first quarter.
The value of inward M&A fell to £4.6bn, the lowest value recorded since the fourth quarter of 2017 when it was down to £3.6bn. It marks a staggering fall of £11.1bn compared with the fourth quarter of 2019. A significant proportion of this came from the Cayman Islands-based Stonegate Pub Company’s acquisition of Ei Group in February for £1.3bn.