UK M&A activity sweeps market with 5.3 billion transactions

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Dealmaking activity in the UK accelerated this week with the announcement of four acquisition offers totaling $5.3 billion, underscoring the UK's position as Europe's top merger and acquisition destination this year.

On Friday, the board of FTSE 250 auto parts manufacturer TI Fluid Systems recommended shareholders vote in favor of a $1 billion offer from Canada's ABC Technologies, backed by Apollo Global Management.

It follows Macquarie's $701 million bid for waste management group Renewi on Thursday and Abu Dhabi-backed Fortress Investment Group's $351 million purchase of pub and restaurant chain Loungers.

On Wednesday night, Direct Line also said it had rejected a $3.3 billion bid from larger rival Aviva, prompting the FTSE 100 insurer to approach shareholders about its offer.

The disruption has highlighted Britain's position as Europe's most active trading hub so far this year. Activity has accelerated since the October Budget as dealmakers grow more confident they will move ahead with a deal before the end of the year.

According to data from Dealogic, the volume of mergers and acquisitions (M&A) involving UK companies, whether buy or sell, has reached $306.3 billion so far this year, up 57% on the same period last year.

Activity by UK companies has outpaced the rest of Europe since the start of the year, with Germany, France and Italy recording a total value of M&A activity of $143.2 billion, $142.3 billion and $91 billion respectively over the same period.

Kirshlen Moodley, head of UK advisory at BNP Paribas, said we would certainly see a lot more activity as there was a rebalanced market taking into account current interest rates and valuation levels.

The UK is selectively strong…certainly the market is much stronger now than it was in the same period last year, he added. He added that stock valuations have been much lower than in the US for a long time.

[It] Moodley said it will always be an attractive market as it trades at a structural discount to the US market.

A rise in UK M&A activity could ease concerns of a slowdown under Keir Starmers' government, which frustrated businesses last month with a budget of $40 billion in tax hikes.

The CBI lobby group said in its latest survey this week that almost half of companies are reducing their workforces following the Budget, which focused tax increases on the private sector.

Iain Fenn, partner at Linklaters, said despite these concerns, people were generally seeing a more stable environment in the UK.

Last year was terrible. A lot of people were looking at deals, but we couldn't execute anything, Fenn said. This year, you've seen your confidence rise steadily throughout the year.

Stephen Fine, chief executive of stockbroker Peel Hunt, said the London market was in the early stages of a corporate trading rebound. [M&A] 'It doesn't go away,' he said. Our pipeline is good.

In its half-year results published on Friday, Peel Hunt reported a pre-tax profit of 1.2 million compared with a loss of 0.8 million a year earlier, helped by a revival in UK trading and the work of two listings. Group revenue rose by more than a quarter to $54 million.

However, Fine warned that the outlook for IPOs remains bleak, saying the potential for a surge in London listings is limited as continued outflows from UK stocks have reduced support and kept valuations low.

M&A is great, he said, but you're losing the company. He pointed out that 100 London-listed groups will be tendered, delisted or acquired this year.

The increase in deal activity has also benefited London-based advisory firms. On Thursday, boutique advisory group Robey Warshaw reported record revenues and profits for its latest financial year on the back of a surge in deals, with four partners taking a share of the 70 million profit pool.

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