British firms set for M&A buying spree despite uncertain outlook

British businesses are poised to launch a buying spree on a scale not seen for almost a decade, buoyed by forecasts of rising profits – despite political and economic uncertainty.

Some 60 per cent of British companies surveyed by accountants EY are planning acquisitions in the course of 2018, a nine percentage point rise since April, a report to be published today will reveal.

Strong cross-border deal-making was seen as the main driver of merger and acquisition (M&A) activity by 29 per cent of the 3,000 top executives polled by EY worldwide. The UK is set to retain its position as the third most popular destination for inbound M&A deals worldwide.

Read more: Flurry of global M&A activity on the horizon for remainder of 2017

M&A activity held up in the aftermath of the EU referendum, aided by the fall in the value of sterling, which has made British assets more attractive for overseas buyers.

The planned flurry of deal-making shows the “attractiveness of the UK’s open economy” as well as the depth of valuable intellectual property held by firms, said Steve Ivermee, managing partner of EY’s transaction advisory services.

The confidence shown by executives reflects a belief that firms will be able to weather the “maelstrom of change” facing the nation, Ivermee added.

EY’s findings are corroborated by a confidence measure from the Institute for Chartered Accountants (ICAEW), which found that firms expect a profit pick-up next year in a separate survey of more than 1,000 UK businesses.

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Firms expect profits to grow by 4.7 per cent next year as sales rise and input price inflation eases back.

The survey also found signs that export sales are picking up, driven by strength in production. Meanwhile, businesses expect domestic sales will expand by four per cent in the year ahead, a pace not seen for two years.

However, economic growth is forecast to slow in the fourth quarter, with the ICAEW’s confidence data suggesting GDP growth of 0.2 per cent.

Accountants BDO will today also warn of a lingering risk that a slowdown in economic growth remains possible.

Read more: The UK's GDP growth inched higher in the third quarter

An index collating major business surveys from the Bank of England, the Confederation of British Industry (CBI) and IHS Markit’s purchasing managers’ index (PMI) to be published today will show output growth falling to a 21-month low.

The services sector, the main engine of the UK economy, dipped to a reading of 99.24 on BDO’s output index, below the 100 long-term trend benchmark.

The analysis comes as the CBI warns that uncertainty is holding back investment, with more than half of UK businesses saying the economic outlook is a concern, according to a poll carried out by the lobby group. Meanwhile, 39 per cent of firms named the Brexit process as a key concern.

Read more: BoE's Mark Carney: Brexit no deal will slow UK growth

Full story: British firms set for M&A buying spree despite uncertain outlook: City A.M.

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