M&A has recently been in the spotlight since Pfizer called off its colossal US$160bn merger with Allergan. However, its collapse does not mean that M&A is out of favour. Conversely, an historic record for global M&A activity was set in 2015, when deal values hit US$4.28 trillion. Heinz and Kraft Foods’ merger (worth US$55bn) is one significant example and deal values may be in a similar ballpark this year.
M&A activity is a sign of business confidence and on this basis alone, some may think that the troubles affecting the global economy have subsided. However, the statistics tell a different story at country level. Such is the case in the UK where 2015’s figures released by the Government’s Office of National Statistics (ONS) in March 2016, show that in comparison to the global-level surge, UK companies are still recording some of the lowest activity as instigators or targets of M&A, since records began in the 1980s.
Figures to date
The ONS figures for completed M&A activity worth over £1m show that in 2015, there were 197 domestic acquisitions of UK companies by other UK companies, worth a total of £6.2bn. This was barely above 2014’s all-time low of 189. In comparison, in the years before the 2008-2009 downturn, up to 1,528 such acquisitions occurred annually, at total annual values of up to £106.9bn (although lower value deals were included in the statistics then). Furthermore, the total value of completed acquisitions made abroad by UK companies for the whole of 2015 was £24.4 billion, similar to the lowest ever value of £20.6 billion, reported in 2014. In comparison, in 2000 the highest recorded value on record of £181.0 billion occurred.
What needs to happen?
Important enabling conditions are in place for acquisitions to be made by UK companies, for example greater credit availability. The explanation for the discrepancy between the global and national situation lies elsewhere. Rather than point the finger at a shattered confidence that has become entrenched and that bodes ill for the economic future, the reticence may be attributed to forgotten benefits of M&A.
Nesta is a body helping business and political communities in this area. Its report "Increasing ‘The Vital 6 Percent’: Designing Effective Public Policy to Support High Growth Firms" identifies that acquisition is increasingly becoming a feature for high-growth firms. If this is the case then acquisitions should be given more consideration, even by ambitious small to mid-sized businesses and even outside sectors in which acquisitions have historically been concentrated (technology and advanced engineering, financial and business services, creative industries and energy).
International suitors
In 2015 there were a total of 114 acquisitions of UK companies by overseas organisations according to the ONS, barely above 2009’s all-time lows of 112. These inward acquisitions were worth £31.7bn compared to the highest ever value for inward acquisitions reported in 2007 (£82.1 billion).
Promising to buck this trend in 2016 is the £71bn acquisition of SABMiller byAnheuser-Busch InBev (awaiting EU approval) and the acquisition of BG Group by Royal Dutch Shell for £36bn in February. However, these are the exceptions that prove the rule. Namely, that UK companies in aggregate are presently just not being sought or found.
For what remains of 2016, UK companies need to both rediscover the benefits of M&A as a route to growth and market themselves more effectively, or risk being left on the sidelines of international progress.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.
