U.K.'s Hit-And-Miss Year for Dealmaking Seen Extending Into 2019

(Bloomberg) -- Dealmakers have had what one banker described as a “hit and miss” year in the U.K., buffeted by the ebb and flow of the Brexit negotiations.

On the one hand, there was Comcast Corp.’s no-holds-barred fight with 21st Century Fox Inc. to scoop up Sky Plc. On the other, both Hammerson Plc and Intu Properties Plc found themselves abruptly shunned by suitors. Now, as the year draws to a close amid growing concern that the U.K. will crash out of the European Union without a deal, some market experts predict a worse 2019 for British mergers and acquisitions.

Key Insights

  • A no-deal Brexit may prompt M&A and IPO values to plunge by at least 60 percent in the U.K. next year, Baker McKenzie and Oxford Economics forecast earlier this week. Even if the two markets hammer out an accord, dealmaking may plummet 33 percent, they projected.
  • The failure rate on M&A activity in the U.K. climbed this year amid concerns ranging from Brexit and the euro region’s woes to growing tensions between the U.S. and China, according to Derek Shakespeare, co-head of U.K. M&A at Barclays Plc.
  • Uncertainties surrounding Brexit contributed to the “hit and miss” M&A activity in the U.K. by slowing down corporate decision-making, and hence an agreement with the EU may “remove some brakes,” Shakespeare said. He anticipates that the first quarter may be “reasonably slow,” and more deals will be announced in the second half.
  • Balancing the scales is the weaker sterling, which makes U.K. assets look cheaper for overseas acquirers, according to Klaus Hessberger, co-head of JPMorgan Chase & Co.’s strategic investors group in Europe. Many U.K. businesses -- like their counterparts elsewhere -- remain keen to bolster growth through M&A “despite the uncertainty caused by Brexit,” he said.
  • Private equity firms have a particular incentive to scoop up assets even in the U.K., according to Axel Beck, co-head of JPMorgan’s strategic investors group for Europe. That’s because buyout firms globally are sitting on more than $1 trillion in investment firepower.
  • NOTE: Bemused by Brexit? Here’s a Guide to the Endgame: QuickTake

©2018 Bloomberg L.P.