The number of acquisitions of UK companies by foreign buyers dropped 11 per cent in Q4 2018 to 142, down from 159 in Q4 2017, according to law firm Pinsent Masons.
EU buyers especially are increasingly adopting a “wait and see” approach before making investment decisions. The number of acquisitions of UK companies by EU buyers fell to 43 in Q4 2018, down 22 per cent from 55 in Q4 2017.
Andrew McMillan, Partner at Pinsent Masons, said: “Fears over the outcome of Brexit have intensified, choking bids for UK companies.
“European buyers of UK companies have been particularly skittish in recent months, which likely reflects the greater exposure they already have to the potential fallout from Brexit.”
Meanwhile, UK companies have been holding back from divesting any assets in order to ensure they are not sold at unfavourable prices. This has a knock-on effect in slowing down essential restructuring of some UK businesses.
Foreign acquisition of UK companies 2017-2018
|Year||Total number of buyers of UK companies||Number of foreign buyers||Number of US buyers||Number of EU buyers (excluding UK)||Number of Japanese buyers||Number of Asian buyers excluding Japan|
However, the number of acquisitions by US and Japanese buyers increased in the last quarter year on year. Acquisitions by US buyers increased to 65 in Q4 2018, up from 64 in Q4 2017, while acquisitions by Japanese buyers increased to five, up from just one, over the same period.
McMillan said: “US and Japanese buyers increasingly see bargains amongst UK companies where European buyers see risk.
“US and Japanese buyers do not appear to be scared of Brexit – they are calculating that a rational solution will be found. This is a real vote of confidence in UK companies, supported by tailwinds from a strong dollar and yen against sterling.”
“Further weakness in sterling and equities could lead to a rally in M&A deals in 2019 as foreign buyers look to pick up UK companies at a discount.”
Another trend noted by Pinsent Masons is companies taking minority stakes and establishing joint ventures, rather than buying outright. This requires less due diligence than traditional M&A. Pinsent Masons’ research found that 82 per cent of Europe’s fastest-growing companies have gone down this route.