The UK has been tipped to remain one of the most popular locations for M&A in 2019 after the value of deals with a UK target in 2018 surged 40 per cent to £413bn.
Research published today by Willis Towers Watson and Cass Business School showed that globally 2018 was the worst year for shareholder value following M&A since the financial crash but that the UK bucked the trend, leading to a prediction that it will continue to see a strong dealflow in 2019.
Jana Mercereau, head of corporate M&A at Willis Towers Watson said in 2019 “In looking over the past year the UK has really been our bellwether across Europe and the world – we don’t have the deal volumes that the Americas get but the return on on investment has been one of the bright spots. That could be a number of factors – the value of the company was under priced or exchange rate fluctuations – we do see the UK as very much good value – and that will continue into 2019.”
According to a new report from Moody's analytics company Bureau Van Dijk, the UK was third behind the US and China with £413bn of deals last year with a UK target, a 41 per cent jump from £291bn the year before.
The volume of deals rose only slightly from 6,177 to 6,218 but the value was boosted by transactions such as Japanese pharmaceutical company Takeda's acquisition of the UK's Shire in a £62bn deal and Comcast's £47.8bn takeover of Sky, which were the third and fifth largest deals globally last year.
AJ Bell investment director Russ Mould said the under valuation of UK listed companies could help explain their attraction to overseas acquirers.
“Quoted UK companies valuations are cheap on an earning and dividend basis and economists keep saying the pound is undervalued,” he said.
Mercereau said that companies still had a lot of money to spend and that the return on investment offered by UK companies remained attractive.
“There is a lot of money on balance sheets and they want to buy things but they can’t find assets to buy that will deliver value. There are good purchases to be had in the UK across industries and I expect we will be seeing more of that across banking and pharmaceuticals in 2019,” she said.
Hargreaves Lansdown senior director Laith Khalaf said the UK’s impending exit from the EU may give acquiring companies pause for thought.
“The kind of constant beating of Brexit drums doesn’t exactly make for a soothing background music for M&A activity,” he said.
However, Mercereau predicted that the effect of Brexit may be overplayed.
“My feeling is it will be a sigh of relief, the world will not fall over, then things can only get better. There will be an uptick after March and then once we know what the world view will look like people can work towards that and move on,” she said.