Mergers and acquisitions involving British targets are likely to drop dramatically to their lowest level since the 1990s, new research shows.
Some 402 transactions worth a total of £23.8bn have been recorded so far in the third quarter of this year. And with less than two weeks until the end of the three-month period, deal volume is already a third below the previous quarter, when 600 transactions were recorded.
The figures from accountants Grant Thornton show in the year to date nearly 1,700 transactions with a total value of £63.8bn were recorded. By comparison, in the first nine months of 2010 there were 1,873 transactions with a total value of £71.7bn
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Grant Thornton’s South West corporate finance director Mark Naughton said: “Even though it is normal for deal activity to drop in the third quarter, the latest statistics show a drop in the number of takeover bids from domestic, foreign and private equity bidders compared to both the previous quarter and the previous year.”
While the total value of deals rose in the third quarter, this was mainly due to two large takeover offers – the offer for Autonomy Corp is valued at £6.2bn while the offer for Northumbrian Water Group is valued at £4.6bn.
“One of the reasons for the drop in deal activity is a widening valuation gap,” added Mr Naughton. “Potential buyers are seeking lower valuations as they are pricing in significant economic uncertainty while potential vendors are not yet prepared to drop their expectations.
“We are still seeing two main types of Mergers and acquisitions (M&A) transactions – deals that have a very strong strategic logic and those which are event-driven and cannot be deferred. Current event-driven transactions include the sale of non-core assets to raise liquidity and the sale of businesses by managing shareholders who do not wish to defer retirement.”
Domestic bidders have announced 255 M&A transactions worth £8bn in Q3, a drop of 32% compared to the number of deals announced in Q2 2011, when 375 domestic deals worth £6bn were announced.
Meanwhile foreign bidders announced 141 UK deals worth £15.8bn, representing a drop of 33% compared to Q2 2011, when 210 foreign inbound deals worth £7.5bn were announced.
The data also reveals that private equity firms backed 45 deals with a total value of £1.2bn in Q3. By contrast, 74 private equity deals with a total value of £2.9bn were recorded in the second quarter of 2011 and 57 deals worth £7.8bn were recorded in Q3 2010.
