Foreign predators snap up record£81bn of British firms

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The Independent Online

The value of UK companies falling into foreign hands hit record levels last year, according to Government numbers, marking the country's fourth consecutive year as a net seller of companies.

The Office of National Statistics (ONS) yesterday revealed that the value of UK-based companies bought by foreign predators hit £81.4bn last year, the most since its records began in 1969. This marks a rise of almost 5 per cent on the previous year's total of £77.8bn.

The largest completed transactions included one by a consortium headed by the private equity giant Kohlberg Kravis Roberts, which secured high-street healthcare chain Alliance Boots for £11bn, as well as Japan Tobacco, which bought Gallaher Group for £7.5bn.

Last year also proved a milestone for UK-based companies buying abroad, with the value of completed transactions running at the highest annual level since the ONS started tracking the data at the turn of the century.

UK Plc bought £58.1bn worth of deals in 2007, up from £37.4bn the previous year, with the last three months proving particularly strong. In the three months to the end of December, the value of deals more than doubled to £25.8bn over the previous quarter, dominated by Rio Tinto's £18.5bn takeover of Alcan. Other highlights were FirstGroup's £1.9bn takeover of Laidlaw International, and the London Stock Exchange's £1.3bn acquisition of rival Borsa Italiana.

Sebastian Grigg, head of UK and Ireland investment banking at Credit Suisse, said he was not surprised by the trends. "Most sectors in the UK market are relatively consolidated. We would expect a similar degree of consolidation across Europe, and that is now happening. We live in a global economy and the merger market is a function of that." He added that the tag of "UK company" could be misleading, as some companies with London headquarters have relatively few operations in the region.

The UK still ran a £23.3bn deficit in mergers and acquisitions last year. Domestic consolidation also slowed, as the value of completed deals within the UK fell from £28.5bn to £26.3bn. The slowdown stood out in the fourth quarter as the value of deals slumped to £2.7bn from £7.8bn in the previous three months, the worst quarterly performance for six years.

The domestic sector looked "distinctly lacklustre", said David Brooks, head of M&A at Grant Thornton, the accountancy group. "One of the key factors driving down both the volume and value of domestic M&A is that many buyers are waiting for a general correction in business valuations. As yet, there hasn't been a marked drop in prices, and several of our clients in a variety of sectors believe there may still be bargains to be had in the coming months."

The M&A markets have slowed considerably since the onset of the credit crunch last year. The full effects are yet to be reflected in the ONS statistics, though, which recorded completed rather than announced transactions. But Mr Brooks remains positive. "In a downturn comes new opportunities, and UK buyers with healthy balance sheets and strong forecast earnings should still be able to make timely acquisitions without having to go cap in hand to the bank."