Brexit and falling pound value led to decline in domestic deals but attracted foreign buyers

There were just 1,355 domestic deals in 2016 –- the lowest in nearly two decades

Foreign buyers, such as Rupert Murdoch’s Twenty-First Century Fox, were shopping with dollars for bargains while domestic UK-to-UK dealmaking fell off sharply (Reuters)

Britain’s mergers and acquisitions activity following the UK’s vote to leave the EU has led to a sharp decline in domestic deals owing to the slump in the value of the pound.

Britain’s total M&A deals volume has fallen to about $177bn (£144.5bn), a steep drop from 2015, when more than $394.8bn (£321bn) of deals involving a UK company were struck, according to Thomson Reuters data.

There were just 1,355 domestic deals in 2016, which was the lowest in nearly two decades.

Despite the decline Britain retained its place as the third-largest M&A market behind the United States and China. M&A activity was also in line with the longer five-year trend.

The declining value of sterling was attributed to the fall in domestic deals. However, foreign buyers – such as Rupert Murdoch’s Twenty-First Century Fox – used sterling’s sharp devaluation against the dollar to snap up British companies and prevented an M&A collapse in the country in 2016.

The pound is down about 10 per cent against the euro since the EU referendum in June, and is 17 per cent weaker against the dollar.

“Brexit should never have been talked up as an Armageddon moment for UK M&A, especially with such a sharp devaluation in the currency which has clearly been a stimulus for overseas buyers,” Tim Gee, London-based M&A partner at law firm Baker & McKenzie, told Reuters.

“Much of the activity in 2016 was skewed toward foreign buyers with less UK-to-UK activity,” Gee said.

Last year was a record year for deal-making involving UK-listed companies thanks to a series of deal including Anheuser-Busch Inbev’s $110.3bn (£89.8bn) acquisition of SABMiller and Shell’s $53bn (£43.1bn) merger with BG Group.

Derek Shakespeare, co-head of UK M&A at Barclays, said: “The worst predictions surrounding Brexit and its potential impact on our economy have so far failed to materialise,” Derek Shakespeare, co-head of UK M&A at Barclays, told Reuters. “With the weaker pound UK businesses have become 10 to 20 per cent cheaper.

“But the devil is in the detail: we have several years ahead of us to understand what the trading relationship with the EU will look like. So there’s a degree of caution when looking at transactions in Britain,” he said.

Additional reporting from Reuters