The number of takeovers by UK acquirers of continental European businesses fell 30 per cent from 488 in 2019 to 342 in 2020 as Brexit and Covid-19 hampered deal activity, shows new research from Accuracy, the global independent financial and strategic consulting firm.
In comparison, the overall number of deals targeting continental European companies fell by 27 per cent from 6,665 to 4,843 over the same period. The number of acquisitions by US businesses in continental Europe declined by 25 per cent in the same period.
Accuracy says concerns over the potential impact of a no-deal Brexit deterred UK corporates from making purchases of European businesses last year. The shock to the economy caused by the Covid-19 lockdown reduced the number of deals across Europe. However, deals from UK businesses targeting European companies fell even more rapidly than overall deal numbers across all countries. Covid-19 travel restrictions between the UK and continental Europe also made it harder for UK based executives to meet face-to-face with possible bid targets on mainland Europe.
The risks that a potential no-deal Brexit would bring, such as restricting the free movement of business executives between the UK and EU, caused deal activity to slow down. This was exacerbated by uncertainty about potential divergence between UK and EU laws from 1 January 2021 and what that would mean for businesses.
Additionally, some European professionals with experience of advising UK businesses on M&A transactions in Europe have relocated from London to mainland Europe in recent years as a result of Brexit. This has made it harder for some UK companies looking to undertake acquisitions in the continent, as it is now more difficult to source the right contacts and referrals to help secure a deal.
However, Accuracy’s research also shows takeovers in Europe by UK private equity funds held up better than those by UK corporates as a whole. The proportion of takeovers by UK-based PE houses increased from 43 per cent in 2019 to 47 per cent in 2020. The number of deals by UK PE funds fell by a smaller 23 per cent from 209 in 2019 to 160 in 2020. The financial firepower that PE funds have at their disposal has allowed them to move forward with acquisitions when corporate acquirers have been more reluctant to.
Accuracy says UK private equity funds have been increasingly looking to diversify outside the UK since the Brexit vote in 2016, leading to an increase in PE houses’ activity levels in Europe.
Leontine Koens-Betz, Managing Partner at Accuracy Netherlands, says: “Enthusiasm amongst UK corporates to make acquisitions in mainland Europe has been dampened by the dual pressures of Brexit and the global pandemic.”
“Businesses looking to undertake transactions have had to contend with bureaucratic barriers and logistical difficulties which have made completing a takeover even more complex.”
“However, looking ahead, we may see a recovery in deal activity from UK companies who are looking to build up their base in Europe to bypass the problems of being outside of the single market.”
Accuracy says the first six months of the pandemic saw a broad slowdown in M&A transactions as visibility over future earnings was impacted and many companies tried to build up their cash balances. However, deal activity in Europe showed a strong recovery in Q3 2020, with many of the deals occurring in sectors that were affected to a lesser extent by Covid-19 or even benefited from the pandemic, such as technology, pharmaceuticals and medical & biotechnology. More recently corporates have started to look for acquisition targets that may be at low valuations due to the impact of the “lockdown” on their profitability.
