BusinessCorporate FinanceLet’s not rush to conclusions

Let's not rush to conclusions

For the first time, the number of acquisitions by foreign companies of UK businesses is greater than the number of foreign acquisitions by UK-based companies.

Figures released by the Office of National Statistics show that, in the
second quarter of 2005, UK companies bought 48 companies abroad, while foreign
businesses added 53 UK arms.

What does the move reflect, and what does it mean for corporate financiers?

On the face of it, the fact that foreign businesses are in a better position
to acquire our businesses might be a cause for concern. It does not seem
intuitively likely, given what we hear constantly about the relative strength of
the UK economy, but are we losing some purchasing power?

This could be the case, or it could be, as David Brooks of Grant Thornton
corporate finance says, that the UK is simply generating some attractive
businesses.

Certainly, there is a trend for UK companies to hold on tightly to their
purse strings. If they have spare cash, they hand it out in dividends or buy
back shares.

You could also say the figures are a blip. M&A numbers are notoriously
difficult to trust – on value at least, one big purchase throws the numbers out.

On this occasion, there are a few deals making life difficult. The 48
acquisitions by UK companies had a 70% drop in numbers, but a 100% increase in
value. That was due to three transactions, worth £5.8bn in themselves.

Though the values are not at issue, can you draw significant conclusions from
48 purchases?

Whatever happens, the value of transactions on all sides seems to be picking
up, after a sluggish start to the year. Corporate financiers, whether advising
buyer or seller, can only toast that.

Alex Hawkes is a senior reporter at Accountancy Age

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