Although a surge in mega-deals in H1 (including Comcasts’s £37bn acquisition of Sky, the £16 bn Vodafone takeover of part of Liberty Global, and GlaxoSmithKline’s £9.2bn acquisition from Novartis and, in the Midlands, Melrose’s takeover of GKN) led to a record-breaking full year, the activity levels did not sustain in H2.
In fact, Q3 was one of the weakest periods for years, with just £46bn of UK deals; a stark contrast to the £144bn in Q1. Whether this is a bell-weather indication of falling confidence, or merely a blip remains to be seen. Certainly, there is some concern that 2019 will start more modestly, especially following upset in the global markets last autumn.
Nevertheless, in 2018 M&A deals involving UK firms rose 38% from 2017 values to a hit a staggering £372bn – a very significant figure because in the last decade values have only surpassed £3bn once, in 2015.
Furthermore, the 7,539 UK-wide deals broke all-time volume records, beating the 2017 total of 7,369, and representing 25% higher volume than the ten-year average of 6000.
Furthermore, the UK was the third most popular country to be targeted (by value) in 2018, third in line behind economic powerhouses China and the USA.
We at Smith Cooper were pleasantly surprised by the robustness of the 2018 M&A market volumes and pricing, given the national and international economic and political backdrop. Low interest rates, good access to capital, favourable currency movements and an uptick in growth undoubtedly combined to create high activity throughout the year.
A feature of 2018 Midlands deals was the virtual doubling of acquisitions funded by debt to 14%. This is perhaps unsurprising given the plethora of non-high street bank debt offerings which include innovative mezzanine, bullet repayment and royalty-based products – not to mention crowdfunding at the low end. Nevertheless, Private Equity funded deals represented a still-higher 15% of Midlands deals.
So, what can we draw from this for 2019?
Whilst some companies and private equity firms anticipate growing UK-wide M&A volumes and values throughout 2019, here at Smith Cooper Corporate Finance we remain cautiously optimistic of a good (rather than record-breaking) 2019. Whilst we have quiet confidence in the stability of the SME deal market that we operate in, our suspicion of a slight slowing in activity in Q1 whilst Brexit uncertainties work through, means that 2018 will be a tough act to match.
Smith Cooper Corporate Finance are an award-winning corporate finance team, offering a comprehensive range of advisory services, from high-intensity fully project-managed deals, to add hock advice on more discrete aspects of a transaction. To get in touch today, click here.