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M&A investment hits three year high for UK’s large firms

2012 was the most active year in terms of “mega deals” in the UK since 2009, fuelled by a 15 per cent upturn in the number of very large transactions, according to Experian.

The number of very large mega deals worth over GBP1bn announced in 2012 increased from 34 in 2011 to 39 - worth a total of GBP128bn.
The majority of these mega deal transactions were cross-border in nature. It included the GBP5bn acquisition of NDS Group, a Middlesex pay TV software firm, by California-based Cisco Systems and the GBP4.6bn investment of Nottingham-based retail chemist group Alliance Boots by US drugstore chain Walgreen.
Across the UK, the overall number of mergers, acquisitions, flotations, rights issues and placements announced fell by 3 per cent, from 4,683 transactions in 2011 to 4,543 in 2012.  This was led primarily by a decline in deal-making in the final quarter of the year, which saw volumes down by 11 per cent compared to Q4 2011. Thanks to the number of mega deals however, the total value of deals increased by 4.8 per cent, from GBP231bn in 2011 to GBP242bn in 2012.
Despite the fall in volume overall, the UK is performing well compared to the rest of Europe, which saw a 10.2 per cent downturn in deal volume announced in 2012, accompanied by a 10.5 per cent fall in their total value.
Meanwhile, the volume of transactions funded by bank debt increased by 11.6 per cent year-on-year, from 277 in 2011 to 309 in 2012.
Mezzanine-funded deals were also up, moving from seven in 2011 to 12 in 2012. However, funding through venture capital dropped from 651 in 2011 to 595 in 2012. This is potentially due to slower growth rates which could impact on the level and speed of returns, making some opportunities appear less attractive to investors.
Looking at M&A activity in the UK by size of transactions, the mid-market range (those deals worth between GBP10m and GBP100m) were the worst affected, with deal volume down by 6.2 per cent year on year. The level of small (GBP0.5m to GBP10m) and large deals (GBP100m to GBP1bn) however, remained relatively static.
Despite a slight decline in UK M&A and ECM activity overall, there were bright spots; Northern Ireland enjoyed a boom year, with deal volume up by 36.8 per cent, as did Scotland (10.5 per cent) and the South West of England (7.3 per cent).
The most active sectors in the very large deals segment were food and beverage manufacturing with 15.4 per cent of transactions, including Diageo’s GBP1.3bn purchase of a stake in Indian drinks firm United Spirits in Q4 and the completion of Chinese conglomerate Bright Food’s acquisition of iconic British brand Weetabix for GBP1.2bn in November. The next most active sectors were chemical manufacturing (12.8 per cent of deals) and professional and business services (10.3 per cent).
The UK market has held up well over the last year in a global context.  There was a British element in 47.3 per cent of all European transactions, up from 43.7 per cent in 2011, and in terms of value the UK contributed almost 42 per cent per cent of the European total for 2012.
Elsewhere, deals in the Asia-Pacific region were down by 15.2 per cent in volume and 13.5 per cent in value, while in the US activity was down by just under five per cent, and value by 6.4 per cent.
Wendy Driver, business development manager at Experian UK&I, says: “Despite the challenges faced by the Eurozone crisis, the UK has proven to be one of the most attractive markets in what has been a subdued year for mergers and acquisitions globally.
“The quality of UK businesses and assets, as well as favourable interest rates, has been consistently attractive to overseas investors which is helping to keep mergers and acquisitions activity buoyant and may serve to boost confidence further."

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