Domestic M&A activity lags behind overseas activity

The last quarter of 2020 saw notable increases in both the value and number of cross-border mergers and acquisitions, according to data from the Office of National Statistics, while domestic activity recorded sizeable decreases.

Over the period, estimates for the total value of overseas companies acquiring UK businesses were £4.3 billion, higher than the previous quarter’s figure of £3.2 billion, and representing 114 deals, an increase of 25 transactions on the previous quarter and 35 fewer than in the last quarter of 2019.

However, over the same quarter, the value of domestic mergers and acquisitions (UK companies acquiring other UK companies), was £2.2 billion, significantly lower than the previous quarter (£4.4 billion), and explained by the completion of a lower number of higher value acquisitions.

Two notable large valued domestic acquisitions completed in the quarter were Buckinghamshire-based language services business RWS Holdings plc’s purchase of Maidenhead-based SDL plc in November last year to make what RWS described as “the largest language services and software company in the world” with a market capitalisation of more than £2 billion. The second was Bristol facilities company Mitie’s £271 million purchase of Reading-based Interserve’s facilities management arm.

The value of outward M&A (UK companies acquiring foreign companies abroad) was £4.5 billion in the last quarter of 2020, a substantial increase of £3.1 billion on the value recorded in the previous quarter

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(£1.4 billion) and a £1.5 billion increase on the last quarter of 2019 (£3 billion). One notable acquisition was Ocado’s $262 million purchase of USA robotics company Kindred Systems Inc.

In 2020 there were 446 completed inward mergers and acquisitions worth a total of £16.3 billion, compared with 609 inward mergers and acquisitions with a value of £55.5 billion recorded in 2019.

Which industry sectors are seeing most disposals?

Levels of deal activity in the UK varied widely between industry sectors in 2020, according to a recent report by Experian.

Mergers and acquisitions in technology, media and telecoms have been particularly brisk. Infocomms, fuelled by deals in the cloud computing and software segments, accounted for 28 per cent of all transactions – up from 22 per cent in 2019 – and saw volume increase by five per cent year on year, accompanied with a 148 per cent upturn in deal value.

There was also decent growth in professional services, but other sectors saw activity fall in comparison with 2019’s figures. Real estate, where deals were down by 29 per cent and financial services (a 39 per cent decline) seemed hardest hit.

Data from the Office of National Statistics also reveal that disposals in wholesale, transport and accommodation industries accounted for a much higher proportion of the total value and number in 2020 than in 2018 or 2019.

In its Small Business Finance Markets Report, published in March, the British Business Bank revealed that equity investment into private smaller companies reached new heights in 2020, rising by nine per cent on 2019 levels to £8.8 billion and average deal size continues to increase, although primarily driven by a small number of very large deals.

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