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Perspectives

The Deloitte US/UK M&A deal monitor

H2 2016

The UK remains highly attractive for US dealmakers.

Trends and driving forces in the merger and acquisition (M&A) arena

The Deloitte US/UK M&A deal monitor follows trends and analyzes underlying driving forces in the most active merger and acquisition arena in the world economy today. In our third edition we focus on the latest half-year of M&A activity (July 2016 to December 2016) between the United States and the United Kingdom, set in the context of the most recent eight quarters in the US/UK corridor for cross-border M&A deals.

The Deloitte US/UK M&A deal monitor observes M&A activity and developments within the most active business sectors. It looks at the relative volumes of corporate backed and private equity together with the regional dimensions of M&A within both the United States and the United Kingdom. In this issue we focus on manufacturing, a leading sector in the US/UK M&A deal corridor.

US/UK M&A Deals

  • Source: Thomson One Banker

US/UK Deal Volume and Value by Industry

  • Source: Thomson One Banker

Deal Volume: Corporate vs Private Equity

  • Source: Thomson One Banker
N.B Deal value calculations are based on M&A deals for which value is disclosed – values are not disclosed for a significant proportion of M&A deals. Volume calculations are based on all announced deals whether or not value is disclosed.

US Outbound map

UK Outbound
London
192
South East
114
South West
24
West Midlands
25
East Midlands
23
Norh East
4
Yorkshire
21
East
57
Wales
12
Northen Ireland
6
Scotland
28
US Outbound
London
99
South East
56
South West
16
West Midlands
18
East Midlands
9
Norh East
3
Yorkshire
11
East
30
Wales
8
Northen Ireland
2
Scotland
12
  • Source: Thomson One Banker

UK Outbound map

US Outbound
California
143
Texas
51
Illinois
63
Florida
31
Georgia
26
New Jersey
30
Connecticut
37
Massachusetts
42
New York
195
UK Outbound
California
56
Texas
22
Illinois
19
Florida
14
Georgia
14
New Jersey
11
Connecticut
20
Massachusetts
16
New York
78
  • Source: Thomson One Banker
N.B Deal value calculations are based on M&A deals for which value is disclosed – values are not disclosed for a significant proportion of M&A deals. Volume calculations are based on all announced deals whether or not value is disclosed.

Key findings for US/UK M&A

  • US dealmakers signalled a strong vote of confidence in the UK economy, however some UK dealmakers have put cross-border M&A deals on hold.
  • Quantitative Easing continues to support low-cost capital raising in Europe, with Euro-denominated “Reverse Yankee” bonds driving US cross-border M&A deals.
  • Corporate buyers are bidding more aggressively, taking the lion’s share of M&A deals whereas private equity has taken a lower share of 2016 M&A activity.
  • Technology, media, and telecommunications remains the most active sector in US/UK M&A deals, and the migration of technology into all business sectors is giving a boost to manufacturing deals.
  • London continues to be the focus of US outbound M&A activity but regional deals are growing. California and New York remain the primary location for UK outbound M&A activity.

Interest rates are low, corporate cash reserves are high, and the supply of capital for corporates and private equity is massive. In a world where there is a scramble for market share, the fundamentals for M&A activity have never been better.

– Cahal Dowds, Deloitte UK head of US/UK M&A corridor

US and Uk flag

The US view

In a year of uncertainties, the US M&A market is exceptionally strong, says Dallas-based Jamie Lewin, principal, Deloitte Corporate Finance LLC. Lewin is responsible for Deloitte’s US private equity coverage and for M&A execution. “I don’t see any signs of weaknesses in US M&A,” says Lewin.

There seems to be much more capital available than there are businesses to buy it. When a quality company comes to market, buyers will pay up for such an asset. In this way it resembles a commodity market in that the threat of not being able to obtain future supply results in premiums being assigned in the present.

But Lewin acknowledges that UK companies face a steeper climb than their US counterparts when it comes to securing M&A deals in the US/UK corridor. One reason for that is lender caution. “Uncertainty in the UK impacts lenders more than investors,” says Lewin. “They suffer more from the downside. If banks are lending at 6 percent, their upside is capped relative to investors, who have the prospect of generating a multiple on their capital. Simply put, fixed returns within an uncertain environment make people cautious.”

For US investors looking for UK M&A deals, Lewin sees lender caution as the primary reason why the share of deals won by US private equity has been falling. “Strategic goals have not changed. Investor groups are making five- to 10-year investments in one of the most important markets in the world. So what is the independent variable? Access to and cost of capital. If you ask what would drive PE back to primacy in deal share, the answer is when banks get more comfort with allocating capital into the UK.”

But all bidders for cross-border M&A deals, corporate and PE, face fierce competition in 2017 for quality corporate assets, especially in the United States, says Lewin. “The level of competition and the prices that are paid are unusual. The terms that are arranged relating to limited indemnification, speed of execution, and very rapid due diligence in deals involving well-run businesses is extraordinary. The flight to quality is beyond that which I have seen in my career, in that there is a fervor around great companies when they come to market.”

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