THE number of mergers and acquisitions involving British targets is on track for a dramatic drop, with volume for the third quarter at its lowest since the 90s, according to research by Grant Thornton.
Preliminary data shows that 402 M&A transactions with a total value of £23.8bn have been recorded so far in the third quarter 2011, including the £4.2bn sale of Northumbrian Water to Hong Kong billionaire Li Ka-shing.
Accountants and business advisers Grant Thornton says the fall in volume is due to the reluctance of sellers to re-adjust their asking price in the uncertain economic environment.
With less than one week to go before the end of the quarter, deal volume is one third below the previous quarter, when 600 transactions with a total value of £13.6bn were recorded.
In the year-to-date 1,671 M&A transactions with a total value of £63.8bn were recorded. By comparison, 1,873 transactions with a total value of £71.7bn were recorded for the first nine months of 2010.
Ian Marwood, corporate finance partner for Grant Thornton in Yorkshire and the North East.
“It looks like the number of UK M&A deals will have dropped by nearly a third this quarter, which is on track to recording the lowest quarterly volume since the 90s.
“The total number of deals in the year-to-date has also dropped compared to the first nine months of 2010,”
“Even though it is normal for deal activity to drop in the third quarter, the latest statistics show a drop in the number of takeover bids from domestic, foreign and private equity bidders compared to both the previous quarter and the previous year.”
“While the total value of deals has actually risen in Q3, this is mainly down to two large takeover offers – including the offer for Northumbrian Water Group which is valued at £4.6bn.
“One of the reasons for the drop in deal activity is a widening valuation gap – potential buyers are seeking lower valuations as they are pricing in significant economic uncertainty while potential vendors are not yet prepared to drop their expectations.
“We are still seeing two main types of M&A transactions, deals that have a very strong strategic logic and those which are event-driven and cannot be deferred.
“Current event-driven transactions include the sale of non-core assets to raise liquidity and the sale of businesses by managing shareholders who do not wish to defer retirement.”
Grant Thornton says its Yorkshire and North East corporate finance team completed five substantial transactions between the last week of June and the first week of September.
Private equity firms backed 45 deals with a total value of £1.2bn.
By contrast, 74 private equity deals with a total value of £2.9bn were recorded in the second quarter of 2011 and 57 deals worth £7.8n were recorded in Q3 2010.
