M&A values plunge in Q4 but market remains broadly stable... for now

New figures from the Office of National Statistics show that the estimated total value of successful domestic and cross-border M&A involving UK companies was £13.0bn in the fourth quarter of 2017, a significant decrease on the £91.1bn recorded in the same period last year. However, the numbers are skewed by a small number of high value deals meaning the market is more stable than first appears.

Over the full year in 2017, the ONS reports that there was a notable increase in the value of outward M&A, from £17.3bn in 2016 to £76.6bn in 2017. This was due in large part to two high value transactions, Reckitt Benckiser’s acquisition of Mead Johnson Inc and British American Tobacco’s acquisition of Reynolds American Inc.

There was also a sizeable fall in the value of inward M&A from £190.0bn to £35.3bn over the same period. However, values reached a record high level in 2016 as a result of a small number of very-high-value transactions (each above £10bn) whereas there were no inward transactions worth over £10bn in 2017. 

Domestic M&A (UK companies acquiring other UK companies) was worth £18.6bn for the whole of 2017, a slight decrease on the £24.7bn total value recorded during the previous year.

Rob Donaldson, head of corporate finance at RSM said: ‘The headline figures, at first glance, could easily be interpreted as a vindication of the Remainers’ concerns about the economic implications of Brexit.  An 81 per cent fall in inbound M&A and a 300 per cent plus rise in outbound M&A provides a dream headline of a collapse of global confidence in the UK and capital flight by UK corporates. However, the reality is a little less dramatic.

‘The total value of M&A is generally distorted by the presence or otherwise of a handful of big deals. In 2017, for example, if you strip out just two large outbound deals (out of 150) the increase in outbound M&A falls to a less dramatic six per cent.

‘Our experience on the ground largely mirrors what we see in the ONS statistics - a relatively steady market in both directions with activity well below the levels seen in the boom years of 2006-2007 but holding up well compared to recent years.  

‘The extensive firepower in the private equity community, the depreciation of sterling and the better than anticipated performance of the UK economy have all served to counter the uncertainties of Brexit, at least for the moment.

‘Whether that continues will greatly depend on the smoke signals emerging from Westminster and Brussels over the next 12 months. For now, at least, the M&A market is stable.’