Pre-election uncertainty and the strength of sterling undermined UK merger and acquisition (M&A) activity last year as numbers dropped lower than during the financial crisis, UK equity managers have said.
The Office for National Statistics (ONS) recorded 376 domestic and cross-border acquisitions completed in 2014, compared with 437 in 2013 – an annual decline of 14 per cent.
The number of deals carried out last year was the lowest since 1987, when the ONS first published its M&A data.
Domestic M&As fell to 173 deals in 2014 from 238 in 2013, a drop of 27 per cent. Foreign purchases of UK companies also declined, from 141 deals in 2013 to 98 last year.
Richard Buxton, head of UK equities at Old Mutual Global Investors, said “the real elephant in the room” for UK M&A activity recently had been the upcoming election.
“We don’t know what the shape of the next government looks like and whether it will be overtly pro-business, or anti-overseas buyers,” he said.
The manager said there had been a long-running trend of overseas companies looking to buy up UK firms. But right now they might be holding off because they “want to see what the nature of the new government is before making any calls”.
Liontrust’s Stephen Bailey, co-manager of the Macro Equity Income fund, said: “Regarding M&As into the UK, no one would be that rash to have a stab at it prior to the election, especially when we may have a second general election before the end of the year.”
However, Mr Buxton pointed out that UK companies shopping overseas had bucked the downward trend, as the number of foreign businesses bought by UK firms in 2014 nearly doubled to 105 from 58 in 2013.
He said: “Last year we felt that levels of chief executive and board confidence were still building and they were prepared to do deals. The numbers show that has been true, it’s just that is has been UK companies buying overseas.”
But Mr Bailey said the strength of sterling throughout much of 2014 probably played a role in holding back inbound M&As.
He said: “[Sterling] was trading at 172 [cents to the pound] for the vast majority of 2014 [and] I think it was at an unrealistic level, which would have been a massive deterrent to any overseas predators.”
Mr Buxton said that now sterling had become “weaker than it was seven or eight months ago”, a weakness that could continue, it “may attract overseas buyers and will make UK companies acquiring overseas that little bit harder”.
Matthew Tillett, UK equities portfolio manager at Allianz Global Investors, said he was surprised by the ONS headlines, given that the global M&A picture had picked up in 2014.
But he noted the distorting potential of the UK deals that had “almost happened”. He said AstraZeneca and Shire would have made a significant difference to M&A numbers, certainly by value if not by the number of deals.
