Deals bonanza in UK set to hit record amid Brexit fears

Bloomberg

Brexit is helping to drive big year for UK mergers. Dealmaking by UK companies such as J Sainsbury Plc, GlaxoSmithKline Plc and Sky Plc is poised to hit a record this year amid a surge in foreign takeover interest and domestic consolidation as local businesses brace for Brexit.
Acquisitions involving British firms have soared to more than $275 billion this year, according to data compiled by Bloomberg, helping power an acceleration in global deals. Sainsbury’s pact to acquire smaller grocery chain Asda Group Ltd. capped a hectic four months that saw a Japanese drugmaker pursue biotech Shire Plc, while aerospace and defense contractor GKN Plc succumbed to a hostile takeover and Britain’s largest pay-TV company Sky juggled multiple suitors.
“We continue to see wide-ranging interest in M&A across different sectors of the UK market and expect activity to continue to be strong through the rest of the year,” said Ian Hart, co-chairman of UK investment banking at UBS AG. “It could make 2018 a record year.”
This year’s flurry of deals reflects local companies’ efforts to bolster defenses before the UK exits the European Union, advisers say. It also illustrates that their concerns about long-term economic prospects are abating after a transition deal was struck last month.
Volatility in equity markets has also helped dampen expectations around asset prices that had ballooned following years of access to cheap credit. Meanwhile, US acquirers — particularly ones with lots of cash overseas — are showing confidence to buy following last year’s tax reforms.

EU FOOTHOLD
UK companies concerned about growth and business prospects in post-Brexit Europe are taking steps to get a foothold in the EU, according to Tom Whelan, global head of private equity at the law firm Hogan Lovells LLP.
Some are doing that by striking deals on the continent. London-listed power generator ContourGlobal Plc agreed to buy five solar thermal plants in Spain from Acciona SA for $1.4 billion in February. A month earlier, DCC Plc said it would purchase an LPG and refrigerant gas distribution business in Germany from Linde AG.
“If the wave of optimism from UK businesses feeling bullish about global growth continues, then we should see this translate into greater deal volume for the rest of this year,” Whelan said.
M&A is a tested tool for driving returns for companies struggling to grow by selling more goods and services, said Henry Stewart, head of UK investment banking with Morgan Stanley, the No. 1. adviser in UK mergers so far this year, according to data compiled by Bloomberg.

CHEAP FINANCING
Boards also want to do deals that make sense now before the era of historically cheap financing ends, Stewart said. His colleagues across the Atlantic have been busy too. US M&A is off to an energetic year after concerns about tax reform and regulatory changes made for a rocky 2017.
US companies so far this year have been involved in deals totaling nearly $700 billion, or about one-fourth more than a year ago, according to data compiled by Bloomberg. Eleven companies have announced deals worth at least $10 billion, including T-Mobile US Inc.’s $26.5 billion combination with Sprint Corp. and Marathon Petroleum Corp.’s $23.3 billion acquisition of refiner Andeavor.
The best year for dealmaking in the UK since the 2008 financial crisis was 2015, when companies in England, Scotland, Wales and Northern Ireland announced about $570 billion in transactions, according to data compiled by Bloomberg.
Activity for the rest of this year will hinge on companies’ access to new growth opportunities, asset values and changes in the competitive environment, according to Hart, the banker with UBS.