Domestic M&A retreats in first quarter after dealmaking wave at the end of 2020
Domestic UK M&A fell in the first quarter of 2021 after a flurry of dealmaking towards the end of 2020.
During the first quarter, domestic M&A – where UK companies acquire other UK companies – was worth £3.8bn, a decrease of £5.3bn from the previous quarter last year, according to figures published by the Office for National Statistics today.
Some of the bumper deals announced towards the end of 2020 completed in the period.
This included publishing firm Future buying Go Compare in a deal that valued the price comparison website at almost £600m.
The Wellcome Trust bought housing developer Urban & Civic for around £506m, as the health research charity’s investment arm bets on the residential property sector in the south of England.
There were 195 completed domestic M&A in the first quarter, representing a dip from the last quarter of 2020 when 217 acquisitions were recorded.
The drop in the ONS figures reflect a string of high-profile and high-value UK deals, including household names such as Asda and AA, towards the end of 2020 despite an initial slowdown triggered by the pandemic.
The data also show that outward M&A, where UK firms acquire foreign companies abroad, also decreased, by £1.9bn in the fourth quarter to £2.5bn. This is likely due to the completion of fewer acquisitions valued above £1m.
There is some cause for optimism though as monthly M&A activity rose in March 2021 with 153 total deals – the highest since March 2020 when 196 deals were completed.
The increase reflects a “brightening outlook for the UK economy” said Steve Ivermee, UKI Strategy and Transactions Leader at Ernst & Young.
Ivermee continued: “The increase in activity is evidence of continued interest from overseas buyers. Private equity acquisitions have been a significant driver, with firms seeing clear opportunities for value creation in the future.
Target sectors have included engineering, pharmaceuticals, and specialist advisory services, where the UK has been strong historically. Interest in infrastructure has also increased and is expected to continue in the near to mid-term.”
More than half of executives of large organisations in the UK are planning deals in 2021, compared with 45 per cent in the US, according to EY research on corporate confidence in the UK.
Law firm Cooley also said they saw strong M&A activity in the first half of the year, particularly in the life sciences and tech sectors. Michal Berkner, partner at Cooley, said: “The M&A outlook is strong for fast growth innovative companies and more established businesses, and the UK remains an attractive market for foreign investors.”
“The SPAC slowdown in the US, in part because of SEC’s interventions, could provide an opportunity for the UK to become more attractive as a SPAC market, if the FCA’s core recommendations, including appropriate investor protections, are introduced.”