UK M&A deals tail off as sentiment weakens post-Brexit

UK

After a post-Brexit spike, the number of mergers and acquisitions (M&A) in the UK has begun to tail off as deal sentiment weakens.

According to EY, the volume of M&A deals completed in the first nine months of this year slipped by 11 per cent compared to 2016 to 2,316.

On the flip side, the value of those deals was up by nine per cent to $160.3bn (£122.7bn), as buyers forked out for quality assets.

Read more: UK expected to retain strong M&A relationship with the rest of Europe despite Brexit uncertainty

“Immediately post-Brexit everyone did get back to business pretty quickly and ignored the elephant in the room during 2016,” said Tristan Nagler, managing director of private equity firm Aurelius Investments.

“But since then people have started to think about things like the snap election and the ongoing uncertainty. I consistently hear of high-quality assets changing hands, but I think the more mediocre businesses just don't garner the attention that they would in a hotter market.”

After spiking in the aftermath of the EU referendum last year, when sterling's devaluation prompted many international buyers to attempt bargain hunting in the UK, overseas buyers' interest also appears to be on the decline.

Read more: Brexit? What Brexit? M&A deal values between the UK and rest of Europe double in first half of 2017

Almost as if to make up for this shortfall, domestic buyers have stepped up to the plate. The first three quarters of the year have seen almost £60bn worth of intra-UK deals, compared to £23.6bn in the same time last year.

“British folk are probably the best placed people to understand the realities about buying another British company,” said Nagler.

We know the marketplace, we can look through economic cycles, and we are locals and can think hard about the impact of a consumer downturn or a prolonged recession. A UK-based business could be reasonably immune to a hard Brexit because ultimately people need its product.

“If it's a cross border business that has a real exposure to EU trading partners, that's a little harder to think about.”

Perhaps afraid of what tariffs or protectionism the future might hold, as staying in the EU's Single Market has become increasingly unlikely, UK businesses also appeared to lose interest in buying abroad in the third quarter.

UK businesses spent just $9.6bn abroad between July and September, the lowest amount since the second quarter of 2016.

Read more: The UK is a driving force in tech M&A while artificial intelligence is boosting global deal activity

Full story: UK M&A deals tail off as sentiment weakens post-Brexit: City A.M.

JefferiesAnd the Best Place to Work in the global financial markets 2017 is...

Register for Financial Markets News Alerts