Deals market hots up as M&A war chests brim over

Stuart Sewell

UK plc’s M&A war chest is set to multiply over the next 12 months as companies continue to look to deals to fuel growth, according to KPMG’s 2017 Global M&A Predictor.

This echoes what the professional services firm is seeing for transactions in the East Midlands, most notably in the food, manufacturing and technology sectors.

Stuart Sewell, director in KPMG’s corporate finance team in the East Midlands, focuses on M&A transactions. He said: “Businesses across the region need to transform far more radically and quickly than is possible via organic means. Both CEOs and shareholders know this, which is why M&A remains a vital driver for companies in the East Midlands that are seeking change. The good news is that their capacity to transact is buoyant thanks to healthy balance sheets and swelling cash reserves.

“Couple brimming war chests with low interest rates, a favourable debt market, a relatively benign economic climate and a desire amongst corporates to disrupt, and it’s no coincidence that we have seen a plethora of bids across the East Midlands – some successful, some otherwise. We foresee this to be just the start, and that 2017 could well end up being a landmark year for deal making”.

“Of course, it might not all be plain-sailing. Geopolitical uncertainty, interest rate hikes in the US and increasing talk of protectionism in key markets could all dampen enthusiasm to transact. However, my belief is that the drivers for M&A in the region currently far outweigh the inhibitors”.

KPMG’s 2017 Global M&A Predictor also analysed historic transaction data both across regions and seven key sectors – financial services, healthcare & pharmaceuticals, industrial markets, consumer markets, energy & utilities, chemicals & basic materials and technology, media & telecoms.

The study found that while global deal activity was dominated by the U.S, targets from the UK accounted for a significant proportion of acquisitions, ranking second by volume for all but one of the seven sectors analysed. These findings echo new statistics published by ONS which report that 2016 saw 227 successful inbound deals in the UK worth £187.4 billion – the highest volume since 2011 and the highest annual value since the ONS first published M&A data in 1969.

Sewell said: “International buyers emerged as a real force to be reckoned with towards the end of last year, as overseas trade acquirers – most notably those from the U.S and Asia – acted opportunistically to take advantage of a weakened sterling. With no sign of a bounce in the pound on the horizon, and the UK economy continuing to confound post-Referendum expectations, regionally and nationally, businesses will remain a target for hungry investors.

“In the near-term, the fly in the cross-border ointment may come from the increasing protectionist rhetoric emanating from certain countries and uncertainty around international trade policy. However, the long-term outlook remains positive for increased cross-border deal activity”.

A similar analysis shows that cross-sector deals have climbed steadily as a proportion of all deals, rising from the low 30s in the mid-2000s to 43 percent in 2015 and 2016. The value of these M&A activities also rose from 16 to 24 percent over the last 10 years as a proportion of all deals.

Sewell added: “Cross-sector M&A opportunities will also continue to be a major focus for corporates.

“Whether it’s to grow capabilities, competencies or gain a competitive advantage, companies are increasingly eyeing up targets from different markets to their own. Perhaps unsurprisingly, the ones to watch over the coming twelve months will be the tech firms, whose collective war chest continues to outstrip that of any other sector, making them well-placed to continue to disrupt”.