With the economy sliding into recession, no sign of an end to the war in Ukraine and the spiralling cost-of-living crisis, you would be forgiven for thinking that the world of business mergers and acquisitions in the United Kingdom would be grinding to a halt.
In fact, it is quite the opposite, with recent figures released by the Office for National Statistics confirming that the value of takeovers of UK companies more than doubled to £25 billion in the third quarter of 2022, compared with £12.5 billion in the third quarter of 2021 and £11.1 billion in the second quarter of this year.
A significant factor in this increase in the UK M&A market, particularly around London-based businesses, is the large number of overseas investors who are actively acquiring companies here. The appetite to “buy British” is being fuelled by the relatively weak value of the pound (particularly when compared with the dollar) and low business values, which are a consequence of the current bleak economic climate.
It also remains a fact that, while our political and financial credibility have taken some pretty severe knocks over recent months, there is still a certain perceived kudos, particularly in the US, Middle and Far East, to doing business in the UK.
Even now after Brexit, we are seen as a stepping-stone into Europe. This trend shows no sign of abating in 2023 and, although there may be some slowdown in larger, listed takeovers, there remains an appetite to buy and sell privately owned companies.
Just as was seen in the credit crunch of 2008, in times of economic adversity, there are always cash-rich, often overseas, investors looking to pick up a bargain and many business owners, having been through the cycle of boom and bust too frequently, looking to exit. This is particularly true of the SME market, where many corporate lawyers are reporting a high level of activity. With such an uncertain economic outlook, business owners are willing to take a more realistic view of the value of their businesses, preferring to cash in their chips now and passing their companies on to those with resources to ride out the storm.
At first sight, the influx of overseas investors may give some cause for concern, particularly in larger takeovers involving utilities and infrastructure - there is a sense that the Crown Jewels are being sold.
There is also the concern that jobs will be lost, either through job rationalisation or the wholesale relocation of operations abroad. While these may be legitimate worries, the influx of overseas investment into UK companies, particularly at times like these, is not all bad news and there are many benefits to be had.
Foreign-owned businesses, particularly those owned by Middle and Far East entities, often have access to greater cash resources or lines of credit, making them less reliant on the traditional sources of bank finance (which is always difficult to obtain when it is needed the most). Foreign ownership also frequently opens up new markets to UK businesses which, previously, may have focused and relied on the domestic market.
Research published by the Department for International Trade indicates that foreign-owned businesses consistently export a greater value of goods and services from the UK than domestically owned business.
It is also the case that employees of foreign-owned businesses are frequently paid more than those employed by those which are domestically owned. Employees will also often benefit from the ability to work abroad for their foreign owner or have the opportunity to learn new ideas and business methods from foreign employees seconded to the UK business.
London is, of course, at the epicentre of the UK economy, and it is here that the impact of overseas takeovers will be most acutely felt. While there are, undoubtedly, challenges presented by extensive overseas takeovers, there are also considerable economic benefits for the businesses concerned as a whole, for their employees and for the wider economy.
John Andrews is the head of corporate in the London office of law firm JMW Solicitors
