Reading: KPMG comments on halving in mergers and acquisitions

Figures newly released by the Office for National Statistics show that the total number of domestic and cross-border mergers and acquisitions (M&A) involving UK companies in the third quarter of this year almost halved from the previous quarter. This is the first indication of how deal activity has been impacted following the UK’s decision to leave the EU. KPMG, however, highlights the broader context of caution and the fact that deal values have held strong.

In total, there were 140 successful deals involving UK companies, worth £34 billion during the three months, compared with 278 successful transactions valued at £33.1b 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 large values reported for inward and domestic deals over this period were largely driven by a small number of notable high-profile transactions.

Barry Carter, transactions services partner for KPMG in Reading, commented: “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.

“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 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.” 

He concluded: “Despite this, I believe there is reason for optimism as we look to 2017. 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.”