The report showed that there were 363 transactions in the first quarter, slowing down to 305 in the second.
However, this still played a big part in Europe’s overall M&A activity. Over the whole of the first half, the 668 transactions accounted for some 26 per cent of all deals in Europe.
The mid-market also fared better in the first quarter, with 231 deals, dropping to 184 in the second quarter, partly due to changes in Capital Gains Tax rules speeding up sales prior to the April deadline.
Private equity accounted for nearly half of all deals during the period, with 164 buy-outs in the first six months of this year accounting for £14.3 billion, although this was less than the same period last year.
The food sector stood out above all other sectors with 24 transactions worth a combined £597 million, although £350 million of this was the Vion Group’s purchase of Grampian Foods.
“Deal making in the large cap and mid-market has definitely slowed compared with the heady heights of last year’s M&A boom, but the market remains active albeit increasingly challenging.” said Hugh Matthew-Jones, head of corporate finance at PKF.
He added: “There is no doubt that we have entered a buyers’ market, but I am optimistic that bidder and vendor expectations will adjust to revised valuations post credit crunch resulting in a pick up in deal flow in the final quarter of this year and early in 2009.”
UK M&A in depressed state
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.
