Overseas buyers lured by a plunge in the pound are looking to snare British companies on the cheap, ensuring a steady flow of deals since Britain voted to leave the EU and defying expectations of a merger and acquisitions (M&A) drought.
About 60 transactions totaling US$34.5 billion have been struck by foreign companies for British firms since June 23, according to Thomson Reuters data, compared with 79 deals amounting to US$4.3 billion in the month leading up to the vote.
This activity — dominated by Japanese group Softbank Corp’s US$32 billion swoop for chip designer ARM Holdings PLC — has defied warnings that dealmaking could dry up for a period if Britain backed Brexit, given uncertainty surrounding risks to the economy and access to the EU single market.
The list of British takeovers could grow after the summer, according to bankers who say they are working on possible bids on behalf of foreign companies interested in UK targets.
However, M&A bankers said some of the post-vote takeovers had more to do with the relatively low valuations of British companies given current exchange rates, rather than being driven by confidence in the British economy.
Sterling has taken the brunt of market concern since the Brexit vote on June 23, falling to a 31-year low in the aftermath of the vote.
“Clearly this is a buying opportunity,” said Ben Ward, head of UK corporate at law firm Herbert Smith Freehills LLP. “People with strong currencies — [US] dollar, renminbi, yen — will no doubt be interested in acquiring sound sterling-denominated assets.”
There have been dozens of other deals since the referendum.
South African retailer Steinhoff International Holdings Ltd agreed to pay about £600 million (US$786.81 million) for British-based discount chain Poundland Group PLC on July 13, for example.
It came a day after AMC Entertainment Holdings Inc — a US company majority-owned by a Chinese conglomerate — said it would buy London-based Odeon & UCI Cinemas Group to create the world’s largest cinema operator, in a deal valued at about £921 million.
On Thursday, China’s Fosun International Ltd (復星國際) snapped up English football club Wolverhampton Wanderers.
Some M&A bankers in London say they are working closely with British companies that feel vulnerable to hostile bids from cash-rich foreign buyers, in sectors including aerospace, housebuilding and retail.
Others say they are trying to win advisory mandates at firms viewed as potential takeover targets.
After the vote British companies have become 10 to 15 percent cheaper for overseas buyers due to the devaluation of the pound, which was trading at US$1.31 on Friday against US$1.50 the day before the referendum.
“When you have a material currency discontinuity it makes sense to dust off previous M&A analyses and crunch the numbers again,” said Paulo Pereira, a partner at boutique advisory firm Perella Weinberg Partners.
The sectors with the highest concentration of foreign takeovers in the past four weeks were technology, consumer, industrials and media, with an overall 37 sales valued at US$33 billion.
Industry sources said some had roots in discussions that began well ahead of last month’s referendum.
“If we have learned one thing from the global financial crisis it’s that standing still means moving backwards,” said Steve Krouskos, global vice chair for Transaction Advisory Services at EY, adding that companies need to carry on doing deals to boost their organic growth, build a global presence and stay ahead of the technology curve.
Hernan Cristerna, co-head of global M&A at JPMorgan Chase & Co, said that “boards still have strategic needs and ambitions and need to remain open to external sources of growth.”
However, pricing aside, dealmaking is to be still tough for overseas buyers who must evaluate the uncertainty surrounding Britain’s future relationship with the EU, and the prospects of a messy divorce that might take several years to conclude.
Additionally, any sizable takeover could face tighter government scrutiny, after British Prime Minister Theresa May pledged to oppose foreign companies trying to buy British champions deemed “strategically important,” citing the sale of chocolatier Cadbury PLC in 2010 and Pfizer Inc’s attempted takeover of AstraZeneca PLC in 2014.
However, Softbank's friendly takeover of ARM, which won the blessing of the government in less than 24 hours, established a useful blueprint for dealmaking following the Brexit vote, banking sources said.
The Japanese company made legally-binding commitments to double ARM's UK headcount in the next five years and preserve its Cambridge headquarters.
"There is so much 'political football' going on that if you want to pull off a significant transaction in a sensitive sector it is wise to start planning some concessions beforehand to ease government approval," Pereira said.
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