UK M&A activity bounced back strongly in July and August, according to analysis by the deals practice at PwC.
There was a 54% increase in the number of deals with a disclosed value of more than £25m which completed in July and August 2016, compared to the same two months in 2015 (51 deals v 35 deals).
While the overall value of deals decreased from £11.6bn in 2015 to £7.4bn in 2016, this is down to the completion of three £1bn plus mega deals in the technology, media and telecoms (TMT) sector last year. Although the value of TMT deals was down this summer, the combined deal value across all other sectors increased by £2.5bn year-on-year.
The full M&A picture for Q3 2016 won’t be clear until after the end of this month, however, the indications are that the appetite to complete deals continued into September.
The transactions which completed in July and August are dominated by domestic deals which more than doubled in value year on year. Interestingly, activity was particularly strong in the financial services, industrial products and retail, consumer and leisure sectors – sectors thought likely to be most impacted by Brexit.
There was a decrease in inbound deals, which fell to £733m from £3.8bn last summer, which may reflect overseas buyers pausing to take stock of the EU referendum. It is too early to see exactly what impact the weaker pound will have on inbound investment, although the early signs are that activity is up as UK businesses are seen to be attractively priced.
Lisa Hooker, deals partner at PwC, said: “After a short hiatus during July whilst businesses reflected on the impact of the EU referendum, M&A activity appears to be back on track. Appetite for deals is back and, importantly, the debt markets are open meaning so is the access to funding.
“There is undoubtedly uncertainty ahead for the UK, but business is not being paralysed by the fear of the unknown. This is encouraging, as we need the economy to be as confident and buoyant as possible as the UK prepares to enter trade negotiations.”
John Williams, head of debt and capital and advisory at PwC, added: “After the initial period of uncertainty following the Brexit vote, debt markets have rebounded strongly, supported by the impact of Central Bank policies. Although August is traditionally a quiet month for both the loan and bond markets, lenders have been keen to deploy funds and demand has exceeded supply, resulting in attractive technical conditions for borrowers.
“Companies accessing both loan and bond markets have taken advantage of these conditions by reducing pricing on existing debt facilities and/or gaining more flexible terms such as removing of financial covenants. Much of the issuance has been of an opportunistic nature reflecting the fact that M&A driven supply has failed to keep up with the current levels of demand in the debt markets.”
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