Following a pause in activity for M&As, private equity firms appear to have taken a renewed interest in UK companies, sparking concerns for UK investors as the weak pound has made a number of FTSE 250 businesses’ripe for takeovers’. Claire Trachet, CEO of business advisory, Trachet and M&A expert, comments on the future of M&As and the UK as a foreign investment destination.
In the last few weeks, there has been an increase of private equity firms bidding on British companies, such as Dechra Pharmaceuticals – a veterinary medicine group – announcing they received a £4.6bn cash bid from Swedish private equity firm, EQT. In addition, John Wood, an Aberdeen-based oil fields services groups are in talks with US investor Apollo, who has recently made headlines for acquiring online retail company, THG, previously known as The Hut Group.
According to new research from KPMG’s latest study, private equity experienced a record year in 2021, completing 863 deals for UK transactions. Despite a slowdown in 2022, with deal volume decreasing by 26% and deal count falling by 15%, 2022 was still recorded as the second most active year. A report from Bain & Co found has also found that private equity firms are still sat on £3.7 trillion of unspent cash – a record amount – and are now under pressure to cash in on their investment.
UK investors have previously expressed concerns that UK companies are becoming increasingly targeted by foreign firms. This comes as the UK continues through its period of adjustment after leaving the EU, coming out of the pandemic, and overcoming political instability. The UK also faced several economic challenges last year, including rising interest rates and inflation, which left investors hesitant to capitalise on deals that could collapse due to unsteady market conditions. As a result, these foreign investors are now acquiring these UK companies at low values to make the most out of the cash they are sitting on and deploy capital.
Claire Trachet (CEO/Founder) comments on the future of M&A and the UK as a foreign investment destination:
“Although this is a positive reflection on the UK in terms of what has happened to date, it also signals how there is no one in the UK who is big enough to be acting on these acquisitions, showing us that a lot of the financial power for deals currently lies outside the UK. This leaves us with a question mark of what will happen next.
“However, the outlook is definitely better now. Investors are no longer frozen; they know that there will be opportunities and they are ready to actively seize them. They also know that a lot of these opportunities will be coming from struggling companies, so acquirers know they will be getting a bargain, which presents a more positive outlook for activity.
“In addition, there is a growing number of investors who are sat on a dry powder pile having paused investments due to uncertainty in 2022. This means there are significant opportunities on the horizon, and now is the moment to prepare and get deal ready as optionality will increase in H2 of this year.
“In terms of listing, there is often more potential in the US compared to the UK, so when you are a tech company in the Europe, there will always be the question of whether you should list in your home market or go to the US.
“The reason it’s so much stronger now is because the dollar is strong, I think one of the things we will see in the next five or ten years will be European governments being focused on improving their own currencies to combat this.”
