Could the UK become a hotbed of M&A in 2019?

This week’s post comes from Steve Ivermee, Managing Partner, UKI Transaction Advisory Services at EY.

This might be a strange, even bizarre question to ask given the uncertainties currently faced by the UK economy and – by extension – UK companies. But, our latest Global Capital Confidence Barometer has two really striking UK headlines. For the first time in a decade, the UK is named as the most attractive M&A destination by global executives, moving ahead of the US. At the same time, UK executives have also signalled their highest appetite for transactions in a decade.

What’s driving these two trends and what does this mean for deal activity in the UK in the next 12 months?

New year, new trends…

At a global level, 2019 deal activity remains healthy, but down on 2018’s exceptional levels. According to figures from Dealogic, Q1 21019 saw a decrease of 13.8% and 22.1% in value and volume respectively, compared to the same period of 2018. In Europe, deal volumes in fell to their lowest Q1 level since 2002. But, within this more downbeat European deal environment, the UK maintained its leading position, ahead of Germany in deal volume and value.

The results of our 20th Capital Confidence Barometer (CCB20) underline the UK’s position as the focus of M&A activity in Europe – and beyond. For the first time in the ten-year history of our survey, the UK ranks as the most favoured M&A destination amongst more than 3,000 global C-suite respondents, moving ahead of the US. Moreover, UK deal appetites are also at a record high, with 67% of UK respondents expecting to transact in the next 12 months, compared with just 45% just six months ago and 59% globally.

All of which might seem surprising given the impact of Brexit on the UK economy and the obvious uncertainties that still surround the UK’s future relationship with the EU. To some extent, the rise in the UK’s attractiveness could be attributed a fall in other regions’ attractiveness. A year ago, the UK stood out more in terms of economic slowdown and political uncertainty.

But, our survey also shows more constructive drivers behind the UK’s deal attractions, with companies increasingly using M&A to adapt to technological and geopolitical change, with the UK a focus of that response.

Reshaping portfolios

If we look first at what’s driving UK corporate deal appetites, clearly technological and geopolitical pressures aren’t unique to the UK. But the latter has been given additional UK impetus by Brexit. The UK’s reshaping of its relationship with the EU – and heightened uncertainties around future market access – have provided a particularly strong imperative for UK companies to secure supply chains and achieve continuing regulatory alignment.

A “changing geopolitical landscape” is listed by 73% of UK respondents as “fundamental” or “very influential” to their deal strategy – which puts this equal with “technological innovation” as a motive for transacting. This trend is underlined by UK respondents listing a “response to regulatory or tariff and trade changes” as their top priority for acquisitions. Meanwhile, 47% of UK respondents state that they have considered, or are considering, an acquisition to secure their supply chain.

CCB20 - trends influing deal strategy

Meanwhile, technological disruption remains a significant driver of UK investment as UK companies show an increasing preference for “buy” over “build” strategies. This may reflect the confidence companies have in their ability to execute M&A compared with the more uncertain environment for new capital investment, which offers longer payback periods.

growth in co next 6m

CCB20 consistently shows UK respondents ahead of their global peers in terms of their commitment to investing in the development of new products. “Developing new products and services” is the growth strategy with the highest strategic priority amongst UK respondents, compared with the global priority of “expanding in domestic markets.” The UK C-suite’s priority for technological investment is also to focus “new services and products” (22%), with global respondents instead prioritizing “internal efficiencies.”

The UK’s attraction

It’s this UK corporate focus on innovation that has no doubt contributed to the UK’s becoming the global C-suite’s preferred destination for M&A in CCB20. It’s certainly striking that the UK has moved to this position given the turmoil of recent months. But, it’s important to remember that companies make acquisitions for the long, not the short-term.

Top 5 investment destinations

The UK’s reputation for developing intellectual property, its renowned universities and the strength of its talent endure and continue to attract overseas buyers. The UK has other obvious advantages of geography, in standing between the US and Asia, in its language; in its business-friendly legal system, and in the ease of access to finance.

Global respondents rank the UK as top M&A destination in most sectors

Sector Global rank
Financial services 1
Consumer products & retail 2
Oil and gas 2
Power and utilities 1
Technology 2
Telecommunication 2
Media and entertainment 1
Advanced manufacturing 1
Life sciences 1
Healthcare 1


CCB20 also shows that the UK’s attractions extend beyond technology. Most companies looking to buy in the UK, said they wanted to acquire in consumer products and retail, industrials and financial services – three sectors that face heightened pressure in the UK, as our latest profit warning data shows. This may reflect supply chain and regulatory repositioning by global companies, as they prepare for life after Brexit. In terms of consumer businesses, overseas acquirers may also be looking at a post-Brexit economy of slower immigration and faster wage growth; which – in benign scenarios – could increase consumer spending, boosting businesses that can lower labour volumes.

This angle is clearly a more speculative play for overseas companies looking from the outside in. But, we also need to remember that these figures also include responses from UK companies, who – given these higher costs – will also be looking to consolidate their sector.

What does this mean for UK deal activity?

If last six months shows us anything, it is that sentiment can change remarkably quickly and forecasts move with equal rapidity.

Making solid predictions as to deal volume and value is therefore challenging. But, what this survey undoubtedly tells us is that companies are building for the longer term and the UK still offers a great deal for businesses looking for innovation and resilient growth.

CCB20 - activists

UK companies are repositioning their businesses with much greater urgency than they expected even six months ago, with M&A seen to be providing much greater speed and certainty than capital investment alone – and investors increasingly pressing for this change. Overseas buyers are also looking beyond the UK’s challenges to its many remaining attractions, so we expect to see more significant deals in this area. What we see less of is UK companies looking outside, with outbound volumes remaining subdued. But perhaps that will change, if US valuations ease?

Let us know what you think the next 12 months will bring….

You can read more about CCB20 <here>