Companies in the UK remain at risk of being taken over by foreign institutions this year amid a weakened pound and a healthier than expected economy in the wake of the Brexit vote, according to a study by accountancy firm KPMG.
M&A activity was more subdued in 2016 than the previous year, according to KPMG’s 2017 Global M&A Predictor, with a 17 per cent drop in total deals amid geopolitical risks and a stricter regulatory environment.
But cross-border activity was more resilient, with only a 3 per cent decline in deal values last year – and UK companies are expected to remain takeover targets in 2017.
Andrew Nicholson, head of M&A at KPMG in the UK, said:
International buyers emerged as a real force to be reckoned with towards the end of last year, as overseas trade acquirers – most notably those from the US and Asia – acted opportunistically to take advantage of a weakened sterling. With no sign of a bounce in the pound on the horizon, and the UK economy continuing to confound post-referendum expectations, UK businesses will remain a target for hungry investors.
UK companies will also be in a good position to make acquisitions of their own, the report predicts. It calculates the capacity of UK firms to snap up other companies – as measured by net debt to ebita (earnings before interest, tax, depreciation and amortisation) ratio – will rise by 22 per cent over the next year.
Globally, KPMG reckons total market capacity for M&A – using the net debt to ebitda ratio – will increase by 17 per cent this year as companies continue to pay down debt and bolster their cash reserves.
Sanjay Thakkar, head of deal advisory for KPMG in the UK, said:
Couple brimming war chests with low interest rates, a favourable debt market, a relatively benign economic climate and a desire amongst corporates to disrupt, and it’s no coincidence that we have seen a plethora of bids – some successful, some otherwise – hit the headlines since the turn of the year. We foresee this to be just the start, and that 2017 could well end up being a landmark year for dealmaking.
Of course, it might not all be plain-sailing. Geopolitical uncertainty, interest rate hikes in the US and increasing talk of protectionism in key markets could all dampen enthusiasm to transact. However, my belief is that the drivers for M&A currently far outweigh the inhibitors.