Biggest threat to recovery for M&A market is end of Brexit transition

The substantial drop in the estimates for the value of domestic mergers and acquisitions (M&A) involving UK companies for Quarter 2 (Q2) from the Office of National Statistics are no surprise, highlighting the impact of coronavirus and lockdown. Q3 will see a significant uptick in deals but the biggest threat to recovery for the markets is Brexit

Kirsty Sandwell, partner and national head of corporate finance at RSM, comments: ‘There are no surprises in the Q2 figures given the impact of coronavirus on the world economy. We are now seeing a bounce back of recovery in some sectors in the M&A market, particularly technology, infrastructure and businesses who benefit from government spend, which will be reflected in the next quarter. However, it will be tricky for the sectors hit the hardest such as retail, hospitality and commercial real estate. The types of  deals done will likely change as businesses re-assess where they are, look to dispose of non-core assets and re-balance finances. 

‘The Brexit transition could soon bring the recovery to its knees whether we have a deal or not. Businesses cannot plan and operate in this environment with complete uncertainty. They are facing unknown tariffs, renegotiating complex supply chains, the possible threat of no trade agreements and potentially a row back on commitments made on the Irish border. We are seeing positive signs of recovery in the M&A market, but this will be short-lived if the Brexit transition is not managed well.’

Domestic and cross-border M&A involving UK companies in Quarter 2 2020 saw 152 completed transactions, a sizeable decrease of 311 when compared with Q1 (463) and 292 fewer than Quarter 2 2019 (444). 

Outward M&A (UK companies acquiring foreign companies abroad) was valued at £4.4 billion in Quarter 2 2020, a slight increase of £0.3 billion when compared with Quarter 1 2020 (£4.1 billion) and £2.7 billion higher than in Quarter 2 2019 (£1.7 billion).

The value of inward M&A (foreign companies abroad acquiring UK companies) in Quarter 2 2020 (£2.1 billion) was the lowest value recorded since Quarter 4 (Oct to Dec) 2014 (£1.9 billion), while also down £3.0 billion when compared with Quarter 1 2020 (£5.1 billion) and £16.6 billion lower than Quarter 2 2019 (£18.7 billion).