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What's the outlook for 2017 following solid M&A activity in 2016?

 

Posted on 27 April 2017

Whilst 2016 was a period of political and economic turbulence for both the UK and the global market place, remarkably, UK deal volumes remained resilient.  In fact, 2016 UK deal volumes were the highest since 2007 and, although lower than 2015, aggregate value was above the ten year average of around £250 billion per year.

This was despite a number of destabilising factors, including the controversial election of President Trump amid rumours of Russian interference, the UK’s decision to leave EU membership and the consequent fall in the value of sterling, and growing separatist sentiment across Europe. All this was, however, countered by a pick-up in global growth and strengthening of commodity prices. Certainly, the net position seems to have created a good environment for deals with a trend skewed towards foreign buyers and a shift away from UK-to-UK activity.

The devaluation of sterling meant UK assets were exceptionally good value and international buyers seized the opportunity to invest. Amongst others, China's unquenchable thirst for overseas acquisitions helped the UK to comfortably retain its position as Europe’s leading M&A market, and the world’s third-largest M&A market after the United States and China.

From a sector perspective, industries showing strong M&A activity included Manufacturing and Infocomms, up 9.56% and 22.30% in volume, respectively, against 2015.

With regard to deal sizes, 2016 proved a bumper year for SME’s as investor demand and deal activity surged, despite Brexit fears, further illustrating the underlying confidence that investors have in British businesses. The aggregate value of investments in the lower mid-market totalled £3.33 billion, not far off the 2015 five year high of £3.43 billion.

As for the future, to quote a well-known song, some consider “there may be trouble ahead”.  However, activity levels at Smith Cooper Corporate Finance remained high in Q1 2017, usually a quiet quarter, with a stunning 13 deals completing.  These included corporate and management acquisitions, sales, and mergers across a wide sector range.  Furthermore, our work-in-progress and pipelines remain strong so we are confident that, at least in our SME market, M&A activity stands a very good chance of remaining resilient to external events.

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