The latest data on UK M&A published today by the Office of National Statistics demonstrates the effects of the credit crunch on the market, wit
The latest data on UK M&A published today by the Office of National Statistics demonstrates the effects of the credit crunch on the market, with the number and value of UK deals for the first half of this year falling by around a quarter compared to the same period a year ago, according to international law firm Freshfields Bruckhaus Deringer.
‘The market’s pipeline of deals has gradually narrowed over the past 12 months with a noticeable squeeze since the turn of the year. While the latest data covers deals through to June this year, July and August have certainly not provided a reversal in fortunes,’ says Mark Rawlinson, head of Freshfields’ UK corporate practice group.
‘Despite a tougher market,’ continued Rawlinson, ‘major deals are still taking place though many dynamics are changing. With private equity houses currently doing smaller deals financed by equity which can be refinanced later on, corporates are finding less competition in the market. There are opportunities for transformational deals at reduced cost.’
Looking at this year’s data in more detail, a total of 555 transactions took place in the first half of 2008 valued at GBP 72.6bn, representing a drop of 26% in volume and of 24% in value on the same period last year. The latest three months of data available (Q2 2008) saw an even worse fall, recording 240 deals (down 39% on Q2 2007) with a value of GBP 31.8bn (down 60% on Q2 2007).
Domestic M&A:
During the first half of 2008, the number (284) and value (GBP 13bn) of acquisitions in the UK by UK companies fell by 30% and 17% respectively on the previous year. While Q2 confirmed a downward trend in terms of deal volumes (125), deal values actually increased by over 100% on the previous three months; mainly as a result of the Pearl Group’s acquisition of Resolution Plc for almost GBP 5bn.
Foreign Acquisitions in the UK:
The second quarter of 2008 witnessed the lowest level (35) of acquisitions in the UK by foreign companies in four and a half years, down by over 50% on the previous quarter and similarly on a year earlier. However, the levels of investment made between April and June 2008 (GBP 18.1bn) remained relatively stable when compared to the previous three months (GBP 20.7bn). Among the UK companies acquired by foreign players in Q2 2008 were Reuters by The Thomson Corporation for a reported GBP 8.5bn and Scottish & Newcastle by Heineken NV and Carlsberg A/S for a reported GBP 7.5bn.
Offshore Acquisitions:
A continued gradual decline in the number of foreign acquisitions by UK based businesses since the second half of 2006 (80 in Q2 2008 compared to 105 in Q2 2007) was matched by deal values plummeting by over two thirds (to GBP 5bn) from the GBP 15.8bn recorded in the previous three months and by even more when compared to a year earlier (GBP 17.6bn). A half year comparison between the first half of 2008 and the first half of 2007 shows a less sharp decline of 6% in terms of value and of 25% in terms of volume.
Looking ahead, Rawlinson comments, ‘The UK M&A market is patchy and its outlook uncertain. However, the expectation of more profit warnings in the coming months could trigger more deal opportunities for confident companies with cash or access to the financing which seems to be available for the strong’.
