While the domestic market remains volatile for UK corporates, M&A, particularly in the emerging markets, offers a promising alternative for those hoping to drive growth, says new findings.
While the domestic market remains volatile for UK corporates, M&A, particularly in the emerging markets, offers a promising alternative for those hoping to drive growth, says new findings.
In a study of 1,000 global senior executives (including 120 in the UK), accountancy firm Ernst & Young has revealed that 52 per cent of respondents in the UK are planning acquisitions, and a third contemplating divestments in the next 12 months.
The result is ‘considerably higher’ than the global average, at 41 per cent, and the highest since the inception of Ernst & Young’s biannual Capital confidence barometer.
Transaction advisory services leader for UK & Ireland for Ernst & Young, Jon Hughes, comments: ‘In a low growth, volatile economic environment with reduced opportunities for organic growth, many companies in the UK are prepared to pursue diverse capital strategies.
‘They have recongnised that innovative deal making and bold transactions may be one of the few ways to deliver shareholder returns in such harsh economic conditions.’
Hughes believes that the increased appetite can be put down to the eagerness for corporates to avoid the kind of missed opportunities which they faced on the back of the recession when he sees the greatest value as that bought up by private equity.
The study also reveals that 56 per cent of the corporates surveyed are set to use excess working capital as a source of finance for deals on the back of improved capital structures. Of those questioned, less than a third said that funding would come from debt.
Of those saying that divestments were part of their 12 month plan, 44 per cent stated the reason was a focus on core assets, 35 per cent highlighted the desire to drop underperforming businesses while 18 per cent revealed enhancing shareholder value was the primary objective.
Compared to the rest of the world, only 2 per cent of companies surveyed were intending to use divestment to compensate for underperformance or to fund M&A, with the figures reading 13 and 14 per cent respectively for global results.
Hughes explains: ‘Rather than divesting to raise emergency funds to shore up balance sheets or to fund the acquisition of assets, UK companies are more likely to sell operations to achieve strategic goals and create value.’
The report finds that the five most attractive markets where UK businesses would consider making outbound investments are China, US, Germany, Brazil and India.
‘Although the UK’s traditional stomping ground – Western Europe – still attracts the lion’s share of investment, the results show that UK corporates are pursuing strategic investments in emerging markets.’
