Foreign takeovers of UK companies fall after Brexit vote
Sharp devaluation of pound was not enough to encourage foreign buyers in second half
The sharp devaluation of the British pound in the aftermath of the Brexit vote in late June failed to boost foreign takeovers of British companies, as political instability trumped the appetite for bargains.
A new study shows that despite a few large foreign acquisitions of UK groups, such as the takeover of chip designer Arm by Japanese tech conglomerate SoftBank for £24bn, overseas buyers steered away from British assets.
During the second half of 2016, the number of UK companies taken over by foreign buyers fell by 30 per cent compared with the same period in 2015, according to accounting firm Moore Stephens, as concerns about the British economy outweighed the benefits of a collapse in sterling.
After Britain voted to leave the EU, the UK currency slid from about $1.50 against the dollar to less than $1.20, fuelling speculation that British household names such as Vodafone and ITV could soon become foreign takeover targets.
However, a foreign takeover frenzy did not materialise. Moore Stephens’ research also showed that the total number of acquisitions of UK companies completed in 2016 fell 16 per cent to 1,002, down from 1,187 in 2015.
Debbie Clarke, head of M&A at Moore Stephens, said the drop in the value of the British pound had “only partly” made up for uncertainty surrounding the UK’s departure from the EU.
“There has been no rush of ‘carpetbaggers’,” she said.
“Foreign buyers still have understandable concerns over the speed of growth of the UK economy and they worry that further currency volatility would impact the future value of any dividends they repatriate. We are glad that the ‘Cassandras’ have been proven wrong for now,” she added.
That said, by different measures, the number of foreign takeovers of British businesses actually grew in the second half of last year. According to data by Dealogic, such deals increased from 428 in the first half to 446 in the second half. However, Dealogic’s definition of a takeover included any transfer of ownership starting at 1 per cent, compared with Moore Stephens’ 50 per cent or more threshold.
For many companies looking to do a deal, the US remains a preferred destination. The US economy is on track for a substantial boost to growth, according to economists and dealmakers, following the Trump administration’s promises to lower taxes and increase infrastructure spending.
“In developed economies, the US remains the preferred place to invest as the American economy is expected to grow substantially in the next year,” said Scott Barshay, a senior dealmaker at law firm Paul Weiss.
Mr Barshay added that the pound’s devaluation in the aftermath of the UK’s Leave vote was never going to be a driver for dealmaking.
“Companies won’t just do a deal in a country overseas because the currency valuation there has fallen,” Mr Barshay said. “There needs to be a strategic rationale. The currency arbitrage can make the transaction more attractive but it will never be the driver of the deal.”