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Volume and value of yearly UK M&A falls by over a third as buyers wait in the wings, says Freshfields
The final quarter of 2008 has witnessed a fall of 25 per cent in the volume of M&A deals involving UK companies (165 transactions) compared to the previous quarter (220). Although their value rose by 140 per cent to £27.9bn (from £11.6bn), this was largely the result of one transaction, namely the UK government’s acquisition of a majority share in the Royal Bank of Scotland. Notwithstanding this, Q4 still reported a decline in M&A expenditure of 27 per cent compared to Q4 2007 (£38.2bn). This latest quarterly performance resulted in the volume of 2008 deals falling by over 33 per cent to 1,055, and their value by over 30 per cent to £116.2bn compared to the previous year. 2008 now ranks as the worst year for M&A involving UK companies since 2003 in volume terms (930 deals), and 2005 in value terms (£108.1bn). The findings are part of figures released today by the Office of National Statistics and analysed by Freshfields Bruckhaus Deringer’s corporate practice. Looking at the data in greater detail, the level of activity in Q4 2008 compared to the previous three months does not seem to have deteriorated in terms of acquisitions in the UK by UK companies (even discounting the RBS deal). The level of foreign acquisitions of UK companies improved in terms of value (plus 150 per cent) but declined in volume (minus 26 per cent). On the other hand, substantial foreign acquisitions by UK corporates seem to have all but ground to a halt, with just £1.5bn invested in the three months across 44 deals, compared to 87 deals worth almost £26bn in Q4 2007. Mark Rawlinson, head of Freshfields’ UK corporate practice group, said: ‘The M&A optimist would forecast that, at some future , but as yet unidentified time, attractive prices and struggling targets will trigger a series of acquisitions, as was the case in the previous recessions of the 1930s, 1970s and late 1980s. This is likely to prove to be the case eventually, but for the time being the market is gripped by fear and hesitancy. ‘Survival is the main priority for most companies, and those with cash reserves are holding onto them. Chances are that would-be targets will still be around next quarter and may be even cheaper, so no prizes for being brave and calling the bottom too early,’ he continued. ‘Many within the M&A industry and investors at large are talking in terms of only doing deals that rank as ‘deals of the year’, almost once-in-a-lifetime opportunities. Run–of-the-mill deals are being indefinitely postponed to brighter economic times,’ said Rawlinson. Confident companies with cash will at some point bounce back and buck the trend, according to Rawlinson. ‘In the words of Warren Buffett: “Be fearful when others are greedy and be greedy when others are fearful”. I suspect that we are not yet at that point but some of the signs to look for may include a growing trend of international, most likely Euro-backed buyers, taking advantage of a weakened Sterling and investing in UK assets,’ he concluded.
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