Friday 5 August 2016 10:08 am

Why UK M&A activity is on the rise despite Brexit vote fears

Figures recently released by Thomson Reuters have shown that widespread concern about M&A activity slowing down as a result of Brexit has very much been unfounded.

In the first half of 2016, as the Brexit vote loomed, M&A activity was tailing off due to uncertainty in the corporate world, and experts were warning that the UK was headed for a serious drought.

In reality though, as the markets made a turn and the sterling dropped to its lowest value since the 1980s, British companies have recently turned into attractive acquisition targets for overseas investors.

The fact that the pound is down by 10 per cent against the euro and the dollar is without a doubt a further incentive, making deals much more viable.

Read more: Shot in the Arm for the City as £24bn mega-deal is agreed

Despite financial analysts reporting that the UK might potentially lose around £250bn in deals post-referendum, just one month later we have seen an increased interest in Gulf Corporation Council and other international funds in the City.

Data shows that since 23 June, nearly 60 deals have been signed, altogether amounting to $34.5bn – a substantial rise from the previous month where just $4.3bn worth of deals were struck.

It is unsurprising that overseas investors are seeing the UK’s fall in currency as a buying opportunity. Combine relatively cheap equity markets, a beneficial exchange rate and the knowledge that the UK is leaving the EU, and this is enough for investors to begin making plans and decide whether they want to acquire or merge with a UK company.

In a sense, there is now a two-year window in which dealmakers can feel-out the market, namely while the UK’s currency is depressed, and before the UK economy may be more likely to pick up when it officially exits the EU in 2018.

Read more: The impact of Brexit on SME dealmaking? Not a lot it seems

While M&A activity notoriously ebbs and flows, after the vote to leave the EU, the UK market has been stimulated by activity coming from Asia, the Middle East and the Americas.

This is reflected in the type of deals that have been completed since 23 June, for example Wolverhampton Warriors club being acquired by Chinese investment conglomerate Fosun International Ltd, and North America’s AMC Entertainment Holdings’ acquisition of Odeon and UCI cinemas to name a few.

It has not so much been our European neighbours that have jumped on the opportunity to invest in the UK, most likely due to a current lack of trust across continental Europe.

What we can say for now is that Brexit has not changed the rest of the world’s perception of Britain as a safe harbour in the middle of so much global uncertainty.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.