M&A halves post-Brexit, but deal values hold strong

M&A halves post-Brexit, but deal values hold strong

KPMG comments on latest ONS M&A data.

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Figures released today by the Office for National Statistics (ONS) have shown that the total number of domestic and cross-border Mergers and Acquisition (M&A) transactions involving UK companies in Q3 2016 (July-September) almost halved from the previous quarter – the first indication of how deal activity has been impacted following the UK’s decision to leave the EU at June’s referendum. 

In total, there were 140 successful deals involving UK companies worth £34.0 billion during the three months, compared with 278 successful transactions valued at £33.1 billion reported in Q2 2016. 

There was also a notable increase in both the number and value of inward and domestic deals during the first three-quarters of 2016 (Jan to Sep), while outbound M&A activity has fallen. The ONS reported that the large values reported for inward and domestic M&A over this period were largely driven by a small number of notable high-profile transactions.

Commenting on the data, Andrew Nicholson, head of M&A for KPMG, said:

“While it’s perhaps no surprise that the number of M&A deals almost halved in the three months following the EU referendum result, the fact that total deal values nudged up a little during Q3 will provide something of a fillip to both vendors and dealmakers alike.

“Firstly, it’s an indication that whatever the climate, people will always be willing to pay good multiples for quality assets. Secondly, it’s perhaps evidence that those larger value deals that we’ve seen in the UK over recent months – such as the transactions involving ARM Holdings, Odeon Cinemas and Poundland – have likely benefited in part from a devalued pound, where a weakened British currency gave overseas investors a degree of leverage while making the overall cost of acquisition cheaper. We’ll likely see more inbound activity in the short to medium term, particularly from foreign trade buyers who either want to gain a strategic foothold in the UK or strengthen existing ties.

“The big question is when will we see deal numbers start to recover to the levels seen earlier in 2016. Clearly we cannot discount the fact that there are a number of both micro and macro-economic factors which are prompting executives to adopt a more cautious outlook to their growth strategies. The continued uncertainty around Brexit is one obvious factor, but added geo-political uncertainty, turbulence in the currency markets, nervousness around slow wage growth and the less than stellar performance of some of the UK’s smaller listed companies means that on a general level, sentiment does remain fragile. 

“Despite this, however, I genuinely believe there is reason for optimism as we look to 2017. Undoubtedly there are many who view Brexit and any resulting uncertainty opportunistically – and this sentiment isn’t confined to overseas acquirers looking to take advantage of the cheap pound. Domestically, entrepreneurs, corporates and investors alike are still keen to pursue their M&A ambitions where they can, particularly where there are clear strategic synergies and where the fundamental business drivers are insulated from Brexit. We’re also likely to see more innovative deal structuring in the months ahead, and of course, private equity still has a large amount of capital to deploy. 

“So while the statistics don’t lie and the current economic headwinds are perhaps against us, don’t be too hasty in writing off the M&A market just yet.”

Ends

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About KPMG

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. 

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