UK M&A to shift up a gear fueled by confidence in global growth

30 April 2018

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  • 65% of UK companies plan deals over the next 12 months – the highest level since 2010
  • More UK firms look to Europe as a deal destination
  • But UK drops to fifth place on the global M&A destination list

Intentions amongst UK companies to pursue M&A in the next twelve months have hit a record high, according to EY’s 18th Capital Confidence Barometer (CCB18).

After a strong Q1, that saw the overall value of UK M&A total $120bn and 681 deals, activity looks set to remain high with a record 65% of UK companies expecting to actively pursue deals in the next 12 months - above the global average of 52% and up from 60% six months ago (CCB17).

Strong deal intentions amongst UK firms are underpinned by exceptionally high confidence in global growth, with 86% of respondents expecting the global economy to improve, compared with 73% of executives worldwide. However, there is less confidence in the domestic economy, with 68% of UK executives surveyed expecting the domestic economy to advance.

A shifting geopolitical backdrop is affecting the direction of UK M&A, according to CCB18. In the last six months, UK deal appetites have re-focused on Europe, with Ireland (4) and the Netherlands (5) replacing the US and India in the top five target destinations, alongside France (2) and Germany (3).

At the same time, the UK has dropped to fifth place on the global M&A destination list. According to CCB18, US (1), Brazil (2), Canada (3) and China (4) complete the list of top five investment destinations of choice amongst global executives. 

Steve Ivermee, EY’s Transaction Advisory Services Managing Partner, said: “Rising confidence is seeing deal pipelines and M&A appetite shifting up a gear. We expect this trend to continue for the foreseeable future as executives regard M&A as a growth engine.

“Improving global growth and the need for UK companies to plan for life after Brexit, mean that UK executives still have a positive perspective on global markets – especially European destinations.”

UK respondents also acknowledge increasing risks on the horizon with a higher level of concern for political uncertainty (50%) - up by three percentage points compared to CCB17 - followed by currency movements (40%).

Portfolio transformation continuing to drive deals
Portfolio transformation – buying and selling assets to reshape portfolios for the future - is the biggest factor in driving deals over the next six months with 73% of UK respondents citing this as the most important influence.

Most UK portfolio reviews have resulted in divestment, either of underperforming assets (39%) or those at risk of disruption (25%), as companies look to deploy capital more effectively.

Steve concludes: “Portfolio transformation is once again the top priority on the boardroom agenda, as companies look to remain agile, alert to new opportunities and need to quickly respond to a fast-moving market environment. Current deal making conditions make this an opportune moment to sell assets.

“Digital transformation and disruption will continue to present both opportunities, in terms of new technologies, as well as threats posed by digitally savvy competitors. UK executives are well aware of this and are ahead of the curve when it comes to factoring this into their businesses’ transformation plans.”

View the survey online at ey.com/ccb.

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