Overseas takeovers of UK firms jump to six-year high

Glencore's multi-billion-pound tie-up with Xstrata pushed foreign takeovers of UK businesses to a six-year high during the second quarter, it emerged yesterday.

Overseas companies spent £23.4bn buying British targets during the three months to June, up from £3.5bn in the first quarter. The ONS statistics are the highest since the second quarter of 2007.

"This upturn in inward activity in the first half of 2013 would seem to indicate some optimism in the view that the M&A market may be recovering as investors renew their appetite for investment," the ONS said. "This follows a long period in which companies have focused on paying off debts, improving cash flow and restructuring their balance sheets."

The quarterly figures were heavily skewed by Glencore's $35bn (£22.5bn) merger with Xstrata, which was completed during the period after months of negotiations by the two parties and regulators. Overall, the number of transactions by foreign companies increased from 19 to 30 quarter by quarter.

Despite this, British firms remained wary of doing deals overseas with both purchases and disposals of foreign firms at their lowest levels since records began in 1987. Domestic merger activity was also low.

Mark Gregory, transaction partner and EY's chief economist, described the market as being "confused" but said there were "green shoots of recovery".

"It is encouraging to see that transactions in the UK by foreign acquirers have held up, and although deal numbers have fallen, deal values have increased dramatically. The numbers suggest that the UK economy is still viewed as relatively stable and domestic assets continue to attract foreign investors," he said.

"Recent economic indicators suggest that UK economic growth is building momentum and with deal fundamentals improving we could well see a sustained and significant improvement in next quarter's activity."