Britain has had its strongest start to the year for M&A activity since 2008 on the back of a spate of big deals, a sign that some businesses are trying to plan for a more uncertain future outside the European Union.
British consumer goods company Reckitt Benckiser’s (RB.L) $16.7 billion bid for U.S. baby formula maker Mead Johnson Nutrition (MJN.N) on Thursday, pushed the value of deals announced so far this year to almost $35 billion, according to Thomson Reuters data, the highest in nine years.
Bankers say fears of an economic slowdown after Britain leaves the EU has put pressure on companies to secure growth in new markets and business areas, making them more open to large deals than they were before the June vote on EU membership.
“Brexit is a long-term structural shift which needs to be addressed now,” Dwayne Lysaght, head of UK M&A at JPMorgan, said.
“M&A has its risks but strategically sound, well-financed and properly implemented takeovers have enormous benefits in the long run.”
Last week, Britain’s biggest retailer Tesco (TSCO.L) announced a 3.7 billion pound takeover of food supplier Booker, increasing its exposure to the fast-growing catering sector.
That was followed by a long-awaited announcement by Royal Dutch Shell (RDSa.L) that it was selling a package of oil and gas fields to private equity-backed Chrysaor for up to $3.8 billion.
“Of course there may be bumps in the road with Brexit but CEOs are seeing the glass half full,” said Pieter-Jan Bouten, managing director at boutique investment bank Greenhill (GHL.N), which acted as lead adviser to Tesco on its purchase of Booker.
Most of the companies announcing takeovers, including Tesco and Reckitt, have seen their share prices rise when their deals became public, pushing bankers to tout the benefits of doing transactions now.
Outbound M&A, where British firms buy companies or assets overseas, has risen 548 percent so far this year, with deals valued at $19.5 billion, while inbound M&A has dropped 63 percent to $2.4 billion, Thomson Reuters data shows.
Last year, the fall in the pound to a 31-year low after the Brexit vote was followed by SoftBank’s (9984.T) $32 billion swoop on chip designer ARM Holdings, raising the prospect that foreign companies were looking to buy up British firms on the cheap.
But bankers said the threat of becoming a takeover target has prompted other British companies to go on the offensive.
“UK Plc want to be in control of their own destiny, rather than waiting to see what is going to happen and risking becoming prey,” Bouten said.
Source: Reuters.com