If I were a journalist, I’d say that UK companies in the technology, media and telecoms industries are going to be selling like hot cakes in the coming months.
I’m not a journalist, but I can tell you that M&A data indicates that we are heading into a period of increased deal activity. Something that’s backed up by both the number of deals that BDO has been involved in and what BDO UK are hearing from industry sources on both the buy and sell side.
Data shows UK is red hot
Let’s start with some data from a reliable source, specifically M&A data from Mergermarket, who have just released the “Deal Drivers” report, published in association with Merrill Corporation, concerning Europe, Middle East and Africa (EMEA) in 2016 and beyond.
The report contains a heat chart based on Mergermarket Intelligence that provides a graphic representation of all companies rumoured to be up for sale, as well as companies that are actually up for sale.
As illustrated by the chart, the UK/Ireland tech, media and telecoms (TMT) sectors top the billing as the hottest spot in EMEA for M&A deals.
The number of companies rumoured to be for sale is, of course, a good indication of which sectors will produce most announced M&A deals in the coming months.
Buy side shows great interest
In terms of announced deals this year-to-date, there is plenty of enthusiasm on the buy side as well. Thomson Reuters UK reports that the year is off to a flying start, with 2017 so far representing the best start to a year for British M&A since 2008. The total value of deals involving UK parties has already passed £27.8 billion.
"The total value of deals involving UK parties has already passed £27.8 billion."
BDO UK’s team is in daily contact with industry sources, and both they – and I – are hearing of increased interest in making acquisitions and investments. This is both from companies, private equity funds and venture funds.
In short, the early part of 2017 looks like it will be busy and build on the activity levels from 2016, which was a great year for both the TMT sector and for BDO’s corporate financial advisors working with the TMT-sector. Mergermarket’s 2016 pan-European TMT Financial Adviser Tables for Announced Deals shows BDO climbing from 22nd to 9th place. Something that is closely attributed with our company’s international presence and being able to connect buyers and sellers thanks to our on-the-ground presence in nearly 160 countries.
A driver for the increased activity levels is the interest in UK media companies from American buyers. As covered in the recent BDO MEDIAtalk report, there are many reasons for this, including shared language, shared culture – both in regards to media and business – and the pound’s recent fall in value.
"A driver for the increased activity levels is the interest in UK media companies from American buyers."
The pound’s drop makes UK companies cheaper to acquire. Something that extends across all industries, including technology and telecoms, which are also seeing steadily rising interest from US buyers. This is part of the reason why I expect to see an increased proportion of cross-border acquisitions in the early part of 2017.
Tipping point post Brexit
The trend of rising M&A activity could be pushed further by a couple of other factors.
Firstly, both foreign and UK based PE and VC funds have been sitting on portfolios of companies that are about ready to be sold on. This, coupled with the amount of money raised by PE but not yet invested, is likely to increase deal activity and potentially prices as the environment becomes even more competitive against a backdrop of low cost of debt (for now at least).
Then there is the fact that while Brexit is still creating uncertainties, the market and investors can only play the waiting game for so long – especially with the current number of attractive acquisition targets either up for sale or rumoured to be up for sale. As always, the money will be invested in high quality businesses with strong management teams.
As Dwayne Lysaght, head of UK M&A at JPMorgan, put it to Thomson Reuters:
“Brexit is a long-term structural shift which needs to be addressed now. M&A has its risks but strategically sound, well-financed and properly implemented takeovers have enormous benefits in the long run.”
A point I definitely agree with.