Recent M&A activity – Volume falls but value rises

The report draws comparisons with previous quarters, with a particular focus on M&A trends since the market crash in 2008, and more immediate comparisons with the final quarter of 2015.

The report deals with three types of M&A transaction: domestic M&A (transactions in the UK involving another UK company), inward M&A (transactions in the UK by a foreign company), and outward M&A (transactions abroad by a UK company).

Domestic M&A

Quarter 1 2016 saw 57 domestic M&A deals completed, a fall of 28 per cent from the 79 completed in the previous quarter. However, the total value of those deals increased significantly, from £1.2bn in Quarter 4 2015 to £11.6bn – the highest aggregate value since the global recession in 2008. The average deal value for the quarter, £204m, was also much higher than the £28m average recorded between 2012 and 2015.

Inward M&A

Inward M&A followed the same trend as domestic M&A: the number of deals completed remained historically low (29, down from 49 in Quarter 4 2015), while the aggregate value rose to its highest since Quarter 2 2007 (£49.4bn, up from £9.2bn in Quarter 4 2015). The average value of transactions also increased from £174m between 2012 and 2015 to £1.7bn in Quarter 1 2016.

Read more about the world of M&A:

Outward M&A

Keeping with the trend in the market for the quarter, outward M&A also saw a decline in volume, with only 22 successful transactions completed (51 in Quarter 4 2015). Again, despite this decrease, the total value of outward M&A deals rose by £3bn to £6.1bn. The average value of transactions was £279m, up from an average of £157m between 2012 and 2015.

Comment

M&A deals remain at a historically low level since the global crash. However, while the volume of deals has experienced a decrease since the last quarter of 2015, the aggregate value of deals has seen a healthy spike. This suggests buyers may be choosing their investments more carefully, but despite the recent stutter in deal volume, there remains a buoyant attitude towards M&A and general market confidence. It is also worth noting that the report only takes account of deals with a value of £1m or more. It may be that the number of lower value M&A deals has increased, but this remains unknown.

There is danger of over-simplifying statistical analysis and it bears remembering that one deal can skew the results significantly. To take domestic M&A as an example, the acquisition of EE Ltd by BT Group Plc in Quarter 1 2016 accounted for the majority of the aggregate value for that quarter. We should therefore be cautious before stating that the value of deals is generally increasing.

One conclusion can be drawn with confidence: M&A activity is volatile and prone to further change moving forward. Activity is inextricably linked to confidence in the economy and wider international issues have a large role to play in any trends. The lull in deal volume seen recently may be attributable in part to the possibility of a Brexit following the upcoming EU referendum. Buyers may be seeking to hold fire on potential acquisitions until the dust has settled on the outcome. If confidence returns, we may well see a rise in activity again, as deals previously placed on hold are given the green light by boardrooms.

Andrew Betteridge is partner at Ashfords.

With RIT Capital Partners announcing it has walked away from a potential £5bn merger with UK rival Alliance Trust, it now joins a long line of M&A deals before it, both public and private, which have collapsed late in the day.

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