According to Thomson Reuters’ scorecard for Q2 2016 looking at trends in deal making, UK M&A activity totals $95 billion (£72 billion), down 53 per cent compared to year-to-date 2015. However, industry figures contradict the assertion that deal making may slow post-Brexit
2015 was a record year for M&A activity in the UK, and according to the Thomson Reuters scorecard for Q2 this year, institutions have revealed a significantly bigger appetite for deals as opposed to individual funders.
However, figures comparing Q2 2016 to the same period under review, the number of non-institutional transactions fell from 42 to 28. This decrease is evident in the deal value figures, with 2016 Q2 at £105 million compared to £125 million for the same period in 2015. Institutional deal values remained steady with a marginal increase from £209 million (Q2 2015) to £213 million (Q2 2016).
Assessing deal activity in the market from the first half of the year, Jonathan Garbett, director at Kingston Smith Corporate Finance counters concerns of slowing M&A activity. “2016 is not far off with £678 million raised in the first half. There is no evidence that we can see of a reduction in deal activity post-Brexit,” he said.
“Speaking to fund managers generally and having taken deals to market post-Brexit, we have seen a ‘business as usual’ approach although specific sectors may experience delays due to market uncertainty. Overall though, the investor attitude seems to be one of continuing to look at new opportunities as they arise and to invest where the case is strong in terms of growth and returns.”
Growth capital statistics
“The sectors that continue to dominate growth capital activity, being technology and on-line and in particular business-to-business software and on-line offers, do not appear to be directly affected. Many of these businesses have global strategies with competitors in North America and Asia. For them UK or EU regulatory matters and short-term consumer spending patterns do not impact on current trading or long term forecasts. Investing institutions continue to have billions of ‘dry powder’ that needs to find a home,” Garbett added.
“As a result of these factors we believe that we will continue to see substantial activity in this growth capital market through the rest of 2016.”
Sector transaction review
The technology (including software and digital) and on-line B2B sectors still dominate, with around half the transactions falling into these two sectors. “Basically if you are not tech or on-line in some respect or do not have a genuinely disruptive model in traditional sectors you might as well pack up and go home,” according to Garbett.
“Having spent the past few weeks discussing the impact of Brexit in the fund raising markets, we’ve noted that while deals are continuing to go ahead, additional attention is being given to business risk and portfolio investments may experience a short term downturn,” he explained.
“It is difficult to make any specific predictions in terms of H2 2016 however we expect that transactions in process will be closed out wherever possible and institutions in particular continue to have appetite for quality investment opportunities.”