Despite fears that the turbulence prompted by the UK’s vote to leave the EU would trigger a sharp slowdown in deal activity, mergers and acquisitions still remain high on the agenda of UK boardrooms with approximately two thirds of companies considering hitting the acquisition trail over the next three years.
KPMG’s survey of chief executives of companies with revenues ranging between £100 million and £1bn found that 80 percent intend to pursue inorganic growth strategies in order to drive shareholder value over the next three years, including embarking on the acquisition of other businesses and/or assets (63 percent), or the creation of joint ventures and partnerships with other firms (47 percent).
However, CEOs made clear that their focus over the short to medium term will remain honed on their company’s core competencies, or on the development and growth of complementary products or capabilities. As a result, approximately three quarters (74 percent) said that they are also considering selling non-core assets over the next three years.
Sanjay Thakkar, head of Deal Advisory for KPMG in the UK, commented: “Our survey tells us overwhelmingly that UK chief executives remain resilient and robust in the face of Brexit. From an M&A perspective, certainly the shock and nervousness that we witnessed in the first few days post-vote has dissipated - although a cautionary mood still prevails.
“Undoubtedly there are some businesses, particularly at the larger end of the spectrum, who have used the last three months to pause or reflect on investment decisions. We know from our own pipeline that deals linked to certain consumer-facing sectors have come under immense pressure.
“However, a combination of good old British pragmatism and healthy optimism means that many others view Brexit far more opportunistically. Entrepreneurs, corporates and investors alike are all continuing to pursue their M&A ambitions, particularly where there are clear strategic synergies and where the fundamental business drivers are insulated from Brexit.”
Sanjay Thakkar continued: “A notable spike in attention from overseas investors who wish to take advantage of a weaker pound to invest in the UK is an obvious example of executives willing to grasp the nettle of opportunity. However, others are leveraging the general uncertainty as a reason to push deals through more quickly.
“While the Prime Minister gave some indication over the weekend as to the timetable for triggering Article 50, Philip Hammond then followed this up by warning that Britain faces at least two years of economic turbulence.
“A desire to capitalise further on this uncertainty, coupled with sizeable corporate war chests and a fair amount of private equity dry powder, may ultimately supersede any concerns regarding consumer sentiment and uncertainty around the price of debt. So for a while at least, we can expect a steady flow of deals to come through.”
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Notes to Editors:
About KPMG's UK CEO survey
The survey interviewed 100 UK CEOs with annual sales of at least £100m and at least 500 employees, was conducted over four weeks from mid-July 2016 – one month after the UK voted to leave the EU.
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.