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UK M&A: Value of deals increases in Quarter 2

UK M&A: Value of deals increases in Quarter 2
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The UK witnessed a notable increase in the value of mergers and acquisitions (M&A) deals in Q2 of 2021. This is according to the latest data from the Office for National Statistics.

What’s behind the increased level of M&A activity? And what does it mean for investors? Let’s take a look.

What has happened to M&A activity in the UK?

According to the ONS, the total value of inward M&A – foreign companies acquiring UK companies – was £27.7 billion in Q2. This is £19.4 billion higher than the value for Q1 (£8.3 billion).

The value of domestic M&A – UK companies acquiring other UK companies – was £10.6 billion in Q2. This reflects an increase of £6.1 billion on the value that was recorded in the previous quarter (£4.5 billion). Two notable domestic M&A deals that happened in the Q2 were:

  • National Grid Plc acquired PPL WPD Investments Ltd
  • Pennon Group Plc acquired Holdings UK Ltd

Meanwhile, outward M&A – UK companies acquiring foreign companies abroad – hit £6 billion in Q2. This is £4.3 billion more than Q1.

After falling to a low of 58 deals in May 2020, the data shows that monthly M&A activity increased, reaching a peak of 246 in March 2021 before falling to 127 in April. Activity has continued around that level to June 2021, when there were a total of 131 deals.

Why is M&A activity increasing?

One of the main reasons behind the surge in M&A activity could be pent-up demand caused by last year’s lockdowns. Understandably, business and economic activity slowed, forcing some companies to put their expansion plans on hold.

With Covid restrictions relaxed and the vaccine programme progressing well, the uncertainty that has clouded the UK economy is dissipating. Companies’ boards and management are now feeling optimistic about the future economic outlook. More of them are now willing to move forward with their plans to expand through mergers and acquisitions.

What do analysts think of the increase in activity?

Commenting on the higher level of M&A activity in the UK, Merlin Piscitelli, chief revenue officer for EMEA at Datasite, said that it, “reflects many firms’ pursuit of strategic acquisitions in industries and sectors which demonstrate significant growth potential”.

He cites the technology sector as an example, claiming that there is a particularly strong incentive for firms in this sector to acquire existing capabilities rather than develop their own. This is evident in research data from Datasite that shows that tech M&A deals in the UK increased by 50% from January to August, compared to the same period last year.

Indeed, the UK tech sector has seen a surge of interest from foreign firms, particularly North American private equity firms. Meggit, Ultra Electronics and Blue Prism are a few examples of UK tech companies that have all recently confirmed participation in takeover talks with US private equity firms.

According to Piscitelli, “Rising M&A activity is helping the UK to forge a post-Brexit, and perhaps, post-pandemic identity.”

He expects the next ONS results to paint an even clearer picture of the future of M&A in the country: “They will offer a glimpse into the effectiveness of recently introduced special-purpose acquisition company reforms and provide a better understanding of what long-term M&A trends are unfolding in the UK.”

How will investors benefit?

Increased M&A activity in the UK is likely to be a boon for local investors. For one thing, increased M&A activity implies that more companies are joining forces, combining and consolidating their assets and power. Ultimately, they’re creating synergies that will help them scale up and increase shareholder value.

A higher level of M&A activity can also be viewed as a vote of confidence in the future economic outlook of the country.  This is likely to have a positive effect on stock markets and thus benefit investors.

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