U.K. Deal Bonanza Poised to Hit Record Amid Brexit Concerns

(Bloomberg) -- Dealmaking in the U.K. is poised to hit a record this year as a surge in foreign takeover interest eclipses Brexit jitters.

Acquisitions involving British firms have soared to more than $275 billion this year, on track for an annual high, according to data compiled by Bloomberg, helping power an acceleration in global deals. Takeda Pharmaceutical Co. is pursuing U.K.-listed biotech Shire Plc for $64 billion and Britain’s largest pay-TV company Sky Plc is juggling multiple suitors in the two biggest deals through April.

“We continue to see wide-ranging interest in M&A across different sectors of the U.K. market and expect activity to continue to be strong through the rest of the year,” said Ian Hart, co-chairman of U.K. investment banking at UBS Group AG. “It could make 2018 a record year.”

At home, J Sainsbury Plc’s pact on Monday to acquire Walmart Inc.’s Asda unit in a 7.3 billion-pound ($10 billion) deal boosted the U.K. grocer’s clout in a highly competitive market. The transaction partially reflects local companies’ efforts to bolster defenses before the U.K. exits the European Union, advisers say.

For foreign buyers, the boom also illustrates the abating concerns about long-term economic prospects after a transition deal was struck last month, some advisers said. Volatility in equity markets has also helped dampen expectations around asset prices that had ballooned following years of access to cheap credit. Meanwhile, U.S. acquirers -- particularly ones with lots of cash overseas -- are showing confidence in deals given last year’s tax reforms and persistently low interest rates.

“Many boards are thinking the window of historically cheap financing is drawing to a close and if there are deals they want to do strategically, now is a good opportunity,” said Henry Stewart, head of U.K. investment banking at Morgan Stanley, the No. 1. adviser on British mergers so far this year. Also, “much of the M&A is actually domestic consolidation and that reflects the need to drive earnings growth.”

EU Foothold

U.K. companies concerned about growth and business prospects in post-Brexit Europe are taking steps to get a foothold in the EU, according to Tom Whelan, global head of private equity at the law firm Hogan Lovells LLP.

Some are doing that by striking deals on the continent. London-listed power generator ContourGlobal Plc agreed to buy five solar thermal plants in Spain from Acciona SA for $1.4 billion in February. A month earlier, DCC Plc said it would purchase an LPG and refrigerant gas distribution business in Germany from Linde AG.

“If the wave of optimism from U.K. businesses feeling bullish about global growth continues, then we should see this translate into greater deal volume for the rest of this year,” Whelan said.

Across the Atlantic

His colleagues across the Atlantic have been busy too. U.S. M&A is off to an energetic year after concerns about tax reform and regulatory changes made for a rocky 2017.

U.S. companies so far this year have been involved in deals totaling nearly $700 billion, or about one-fourth more than a year ago, according to data compiled by Bloomberg. Eleven companies have announced deals worth at least $10 billion, including T-Mobile U.S. Inc.’s $26.5 billion combination with Sprint Corp. and Marathon Petroleum Corp.’s $23.3 billion acquisition of refiner Andeavor on Monday.

The best year for dealmaking in the U.K. since the 2008 financial crisis was 2015, when companies in England, Scotland, Wales and Northern Ireland announced about $570 billion in transactions, according to data compiled by Bloomberg.

Activity for the rest of this year will hinge on companies’ access to new growth opportunities, asset values and changes in the competitive environment, according to UBS’s Hart.

©2018 Bloomberg L.P.