Takeovers of British firms have surged to their highest levels in nearly three years, driven predominantly by foreign investment. According to the latest data from the Office for National Statistics, inward mergers and acquisitions (M&A) reached a remarkable £19 billion in the first quarter of the year, signalling a significant upswing compared to previous periods. This figure is nearly four times higher than the last quarter of 2024, underscoring a renewed interest in the UK market as firms look to capitalise on attractive valuations.

Prominent transactions include the £5.8 billion acquisition of packing company DS Smith by US-based International Paper and Carlsberg's £3.3 billion takeover of drinks group Britvic. In contrast, UK companies themselves only managed to attract £9.4 billion through outward M&A, highlighting the stark disparity in investment flows.

Despite the robust monetary values associated with these deals, the total number of inward transactions has shown a decline compared to earlier periods, marking the second-lowest figure in four years. Emma Danks, head of corporate at Taylor Wessing, remarked that buyers are taking a more discerning approach, scrutinising valuation gaps before committing. “While deal volume may have slowed down this quarter, the fundamentals remain strong, with deal values reaching the highest levels since late 2022,” she stated.

The growing interest in UK companies is corroborated by a separate report from Taylor Wessing and Bayes Business School, which outlined that the UK continues to be a highly sought-after destination for M&A, particularly within the technology and energy sectors. While the domestic M&A volume fell to £2.9 billion at the start of this year, following two successive quarterly climbs, this decline further accentuates the trend of cross-border deals becoming more predominant.

However, challenges persist. The Bank of England noted that uncertainty surrounding global trade and regulatory environments has led to a cautious approach from investors, with many postponing plans. Nevertheless, there remains optimism for future increases in deal values, especially after Vodafone announced its intention to merge with Three in a deal valued at £15 billion, contingent on regulatory approval.

Patrick Sarch, head of UK public M&A at White & Case, indicated that UK firms are still perceived as “attractively valued.” With economic conditions gradually improving, there is a consensus among industry experts that the appetite for UK assets will persist, driven by both domestic and international interest. This growing interest aligns with findings from the London Stock Exchange Group, which reported that 72% of the UK’s total deal value in recent quarters originated from foreign bids.

Despite the promising outlook, regulatory scrutiny remains a significant aspect of the landscape. For instance, the UK competition watchdog has raised concerns regarding the proposed £16.5 billion merger of Vodafone and CK Hutchison's Three UK, suggesting potential negative impacts on customer pricing and services. This scrutiny illustrates the delicate balance that regulators must strike between fostering a competitive market and allowing business consolidation.

While the road ahead appears bumpy due to geopolitical tensions and the evolving economic situation, analysts remain hopeful. They believe that as inflation rates stabilise and economic confidence returns, stronger M&A activity could resume, bolstered by both international interest and the resilience of domestic companies.

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Source: Noah Wire Services