UK M&A appetite hits record high

The UK is active in both domestic and cross-border M&A as trade issues drive urgency to reposition portfolios.

Transactions remain at the forefront of UK corporate strategy, with a record number of UK respondents expecting to engage in M&A in the next 12 months, according to the 21st Global Capital Confidence Barometer (CCB21). The survey also shows UK businesses striving to reposition themselves to meet the challenges of uncertainty and a changing economic, geopolitical and digital landscape.

M&A high on the agenda

In CCB21, 69% of UK respondents expect to engage in M&A in the next 12 months, compared with 45% a year ago and 67% in April 2019. This is well above the global figure in CCB21 of 52% and the UK long-term average of 47%. It also represents the highest level of deal appetite in the UK we’ve recorded in the history of this survey.

UK companies aren’t alone in putting extra focus on deals and adapting their capital strategies to the changing geopolitical, trade and regulatory landscape. Clearly geopolitical concerns also extend beyond Brexit and its challenges are not unique to UK business. But one of the strongest themes emerging from CCB21 is the greater immediacy of trade issues for UK companies, which is reflecting their strategic priorities and their urgency to transact.

Prioritizing trade

In the UK, 84% of executives are actively planning to respond strategically to ongoing geopolitical, trade or tariff uncertainty, compared to 64% globally. Just under a fifth of UK respondents plan to reconfigure their supply chains, while 15% plan to move the location of their offices and management. UK respondents also rank the need to ‘‘expand existing products into a new overseas market” as their top strategic priority, in contrast to global respondents who are prioritizing the need to use technology to retain new customers.

The trade theme also comes through strongly in UK deal intentions. In the face of existential threats to their business models, companies need to act fast and M&A provides greater speed than investment alone. More than half of all UK respondents are pursuing or are considering pursuing an acquisition in response to trade or tariff uncertainties. For almost a quarter of UK executives, responding to regulatory, trade or tariff changes is their top strategic driver for M&A. This ranks ahead of the global priority of “acquiring new technology, production capacity or innovative start-ups.”

Growth concerns

Technological disruption remains a significant strategic and transaction driver for UK companies. But there is a risk that capital is diverted into this additional need to adapt swiftly to a new trading and regulatory landscape, with long-term consequences. EY’s survey indicates that UK respondents have a less optimistic view of the future than their global peers, with 62% of UK executives anticipating an economic slowdown in the near-to-medium term, compared to 46% at a global level. Of those who expect a downturn, 50% expect to see this in the next 12 months.

The UK’s attraction

Set against the UK’s challenges are continuing economic resilience and other significant advantages for inward investment. The UK is still the second most likely place for global CCB21 respondents to pursue an acquisition in the next 12 months, falling back one place from CCB20 as the US regains its top spot.

This continuing attractiveness, the need for UK companies to reposition their portfolios, and the drive to consolidate and cut costs should ensure that UK companies remain active in both domestic and cross-border transactions. Our UK respondents certainly envisage a busy but potentially more difficult year in the deal market. In CCB21, 60% of UK respondents expect their deal pipeline to increase, but the percentage predicting more deal completions has fallen to 59%, from 89% just six months ago. The same forces that drive deal appetites, could also thwart them.