Inbound M&A remains strong despite drop in UK dealmaking

Inbound M&A into the UK remained strong in the second quarter of the year, despite overall UK deal volumes plunging sharply compared to the first quarter. New figures from the Office for National Statistics have shown that there were 333 deals completed in Q2 2022, compared to 449 in Q1 2022 and 500 in Q2 2021.

According to analysts, market volatility resulting from the ongoing war in Ukraine has seen M&A return to pre-pandemic levels, following a wave of pent-up dealmaking that occurred last year in the wake of the COVID-19 pandemic.

Following relatively strong dealmaking during April and May, which saw 261 deals completed, M&A activity fell sharply to just 72 deals in June as a result of rising inflation, supply chain disruption, growing geopolitical tensions and fears of a recession.

However, despite this overall slowdown, the UK has continued to prove an attractive marketplace for overseas buyers, with the value of inbound M&A increasing in the second quarter. In the first quarter of this year, the value of inbound UK M&A stood at around £15.6 billion, but amid currency fluctuations which have depressed UK company valuations, this increased to £16.1 billion during the second quarter.

Victoria Scholar, Head of Investment at interactive investor, commented: “Clearly, businesses are trying to geographically expand beyond their domestic borders, diversifying amid the market turmoil by consolidating with rivals overseas.”

“Foreign businesses are also likely to be capitalising on the recent slump in the pound, particularly against the US dollar as well as this year’s 20 per cent decline in the FTSE 250, making many UK businesses considerably cheaper than they were at the start of the 2022.”

EY UK Corporate Finance partner Anna Faelten also pointed out that the UK's market-leading position in many key industries was encouraging foreign investment, saying: “We continued to see cross-border activity in sectors the UK has strengths in, including utilities, renewables, logistics, pharmaceuticals and life sciences.”

The UK, which was recently ranked as the most popular destination in Europe for cross-border M&A, has seen a number of major inbound deals during 2022 so far, including German firm DWS’s £595 million takeover of UK bus operator Stagecoach.

This has continued during the third quarter, with deals including a £211 million takeover of fashion group Ted Baker by Authentic Brands Group, while a £7 billion takeover of supermarket chain Morrisons by US private equity group Clayton, Dubilier & Rice has been approved by regulators, but is yet to complete.

Meanwhile, signalling a desire among UK businesses to strengthen their overseas operations, the value of outward M&A (UK firms acquiring foreign companies) increased significantly from £2.8 billion in Q1 2022 to £4.5 billion in Q2.


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