U.K. Rainmakers Eye Dealmaking Return Post Tory Election Win
(Bloomberg) -- U.K. bankers are gearing up for a rise in dealmaking after the Conservative Party’s election victory, which is poised to give fresh confidence to corporates hamstrung by Brexit uncertainty.
Acquisitions involving U.K. companies are down 31% this year to $343.4 billion, data compiled by Bloomberg show. There’s been a dearth of megadeals, with just a single transaction above $10 billion for the first time in 16 years. That has dragged down volumes in Europe, since Britain is typically the biggest contributor to the region’s M&A numbers.
“Among our corporate clients, many of them have held off when thinking about deals or fundraisings because they haven’t known the rules of engagement,” said Ross Mitchinson, co-chief executive officer of advisory firm Numis Corp. “There’s always been a risk that there could be a change of government or we might have a hung parliament and Brexit would get kicked down the road.”
Most of the country’s corporate chieftains have held back from making bold bets this year, leaving buyout firms to account for much of the deal activity. That’s in stark contrast to their neighbors in France and Germany, where companies like LVMH and Infineon Technologies AG have been pursuing large overseas acquisitions.
A clear majority for the Conservative Party should help “unblock the system” and remove the uncertainty hanging over the market, said Chris Sim, managing director of investment banking at Investec Plc.
Private equity takeovers of listed U.K. companies more than tripled this year to $25.3 billion, with targets ranging from Legoland operator Merlin Entertainments Plc to defense contractor Cobham Plc. While financial investors still have plenty of dry powder, the newfound stability may also encourage British blue chips to start seeking growth through acquisitions.
“Greater conviction in the U.K. macro outlook could see a strong rebound in M&A activity, with international corporates looking again at the U.K. as well as U.K. corporates having more confidence to pursue their strategic priorities,” said Matt Cannon, Bank of America Corp.’s co-head of U.K. and Ireland corporate and investment banking. His firm worked on the year’s biggest take-private deal.
In the first sign of deals to come, British broadband network provider CityFibre Ltd. has revived talks to buy TalkTalk Telecom Group Plc’s fiber business, people with knowledge of the matter said Friday.
The negotiations were put on hold last month when U.K. opposition leader Jeremy Corbyn pledged to nationalize dominant carrier BT Group Plc’s broadband network if he won. CityFibre, whose owners include Goldman Sachs Group Inc., may announce a deal as soon as the coming days, the people said.
Cineworld Group Plc on Monday became one of the first British companies to announce a major purchase since the election. The London-based movie theater operator said it will spend C$2.15 billion ($1.64 billion) to acquire Canada’s Cineplex Inc., adding to a consolidation push in the industry. Bank of America and HSBC Holdings Plc were lead financial advisers to Cineworld, which also worked with Goldman Sachs.
British companies will start making acquisitions, particularly in high-tech industries and the defense sector, said Peter Watts, a London-based partner at law firm Hogan Lovells. They may also do deals in areas like life sciences and robotics, which are among the Conservative Party’s priority sectors for development, he said.
There’s still plenty of scope for opportunistic private equity deals as well. Even after Friday’s recovery, the benchmark FTSE 100 Index trades at just 13.9 times this year’s estimated earnings. That’s down from 17.8 times at its September 2016 peak.
“The result of the election provides stability, which is welcome,” said Dominic Lee, CEO of Gleacher Shacklock LLP, one of the advisers to Takeaway.com NV on its bid for U.K. delivery app operator Just Eat Plc. “We are likely to see a continuation of recent M&A themes, including robust cross-border activity and private equity firms seeking to deploy high levels of capital.”
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