The Deals Lens - Lies, damned lies and statistics: What really happened to M&A in 2014?
May 06, 2015
Recent data from the Office of National Statistics (ONS) told us that UK mergers and acquisitions (M&A) in 2014 saw the lowest volume of deals in almost 30 years. This was widely reported in the press with many market commentators, me included, expressing views along the lines of "that doesn't feel like the market I was operating in during 2014".
British Empire in decline?
There were comments that perhaps this was the beginning of the end for the UK as a force for M&A. Were we still buoyed by the memories of past glories but in reality was the M&A market, like the British Empire of old, seeing inexorable decline? The short answer is not yet. As we all know, statistics can be misleading, so I've been digging a bit deeper.
Firstly, the statistic that made the headline was a narrow one. Deals which involve only UK buyers and UK targets form a small part of the total market. We are a small island nation and have always looked, and needed to look, beyond our own shores. There are just as many deals with overseas buyers of UK targets and just as many again with UK buyers of overseas targets. This is the inbound and outbound market. What's more, those inbound and outbound deals tend to be larger in scale, on average 5-10 times the size in recent years. You could also argue that these international deals create greater long term value when looked at globally. They provide a greater opportunity to access new markets and transfer skills and intellectual property. However, this is still only part of it as the sum of these three categories has still been moribund in recent years.
Getting cash in the bank
There is a second critical omission implicit in the bald headlines around UK M&A. There are many options available to an owner of a business beyond simply selling a business outright. In M&A jargon we rather grandly call this achieving a “liquidity event”, but it is better described as getting some cash into the bank. These non M&A liquidity events have been rampant in 2014. The most obvious was the IPO market which saw the highest level of fund-raising since 2007 at c£15bn in London. To put that into perspective, that is double the value of all deals which are UK buyers of UK targets. On top of that we saw a raft of re-financings and bond issues which brought money into companies without any equity changing hands. All of these put cash into the bank that vendors are now able to re-deploy elsewhere, often overseas.
The final reason why UK deal statistics are not the whole story is that, as I’ve said before, the UK and London in particular remains a hub for international activity. This reflects the liquidity in our capital markets, plus the centre of excellence that the UK represents. Alongside many others, my team works on many deals where the buyer, vendor and target are all in different locations, none of those in the UK.
There’s life in the old dog yet
What’s the punchline? I think there is life in the UK deal market for years to come. The frenetic levels of activity seen in 2007 might not be seen again, but that’s no bad thing. What we will see is increasing imagination in how companies transact deals or partner with other investors. Access to funds for investment will also continue to see innovation. At the same time large, liquid pools of capital will always retain relevance. Innovation and efficient capital markets have always been part of the UK way of working, so I think we can call time on the death of UK deal doing.
What do you see behind the 2014 UK M&A statistics? How frenetic do you think deal activity is likely to be in the future? Share your thoughts below or schedule a meeting to discuss your situation in confidence.