UK M&A feels the pinch

The number of M&A deals involving UK companies fell by more than a third (36%) during the first three months of 2008 compared to the average quarterly level for 2007, new statistics show.

However, deal values in Q1 2008 stood firm, falling by just over 6% when compared to the quarterly average for 2007 and actually rose by 8% compared to 2006, according to the latest figures from the Office for National Statistics (ONS).

The number (115) and value (£3.6bn) of acquisitions in the UK by UK companies fell in Q1 2008 to their lowest level since Q1 2003 and second lowest level since Q1 2005 respectively.

By comparison, the volume of deals (60) completed by foreign acquirers targeting the UK has remained stable with Q1 2008 witnessing investments of £19.9bn, an increase of 116% on the previous quarter and of 211% on the same time last year.

Despite a continued gradual decline in the number of foreign acquisitions by UK based businesses witnessed since the second half of 2006, deal values in Q1 2008 (£15.5bn) were in line with 2007 quarterly averages and represented the third highest quarterly foreign investment level since 2002.

Mark Rawlinson, head of Freshfields’ corporate practice, says the outlook for UK M&A remains uncertain but financial institutions, mining and natural resources and utilities are still likely to feature at the more active end of the deal market.

“The challenging economic conditions are likely to continue and will undoubtedly increase the number of profit warnings in the coming months and, as is typically the case, trigger further deal opportunities,” he adds.