Falling asset prices and a weak pound are unlikely to encourage increased cross-border M&A activity into the UK. The current economic crisis is looming large on investors’ minds.

Falling asset prices and a weak pound are unlikely to encourage increased cross-border M&A activity into the UK. The current economic crisis is looming large on investors’ minds.

One would think that investment bargain hunters would now, more than ever look at the UK, with assets being cheaper to buy, particularly from the perspective of a foreign currency holder.

However, M&A isn’t solely about scooping bargains. Importantly, it is about catching a rising trend and riding it. If the UK economy is performing well, then foreign investors are more likely to be interested, even if assets are expensive. Acquisitions made in a growing economy are more likely to yield increasing returns and rise in value. This is an important consideration for listed companies that have to justify their decisions to shareholders. The credit crunch has also curved M&A activity, particularly for the LBO houses.

According to figures from Thomson Reuters there was $53.7 billion (£30.5 billion) worth of UK companies acquired by foreigners in the first nine months of this year. This compares with $117.7 billion (£66.8 billion) during the same time last year and $60.45 billion (£34.3 billion) in the first nine months of 2006.

Groups that might be interested in cashing on the UK’s economic problems are sovereign wealth funds and private equity groups. Both have a tendency to seek bargains and have more patience in terms of waiting for an investment to fulfil its promise.