Comment: We are looking through a small M&A window

Martin Flanagan
Martin Flanagan
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THERE was a marked drying up of merger and acquisitions involving UK businesses in the first quarter of this year, according to data from the Office for National Statistics. It has been remarked on before that, ironing out inevitable quarter-on-quarter volatility, M&A involving UK companies has been bobbing around historically low levels for quite some time now.

But from January to March there were only 28 acquisitions involving UK companies taking over other UK businesses – the lowest number since data collection started on corporate takeovers in the first quarter of 1969. So we are at 46-year lows.

Foreign bidders for UK assets were also wary in the latest period, with 21 completed transactions compared with 28 in the fourth quarter of 2014. That is the lowest quarterly number of inward M&A in the UK since the first three months of 1988.

What to make of it all? Well, it does show that there is less appetite currently for takeovers. Actual value of transactions will always be lumpy from quarter to quarter as the data can be totally skewed by one large deal.

But as the ONS data relates to deals with a value as low as £1 million, it highlights that, including small and medium sized businesses (SMEs), there remains greater focus seven years after the financial crash on conserving balance sheet strength than on splashing out on strategic prizes.

Apart from that conservative approach, it is quite likely that M&A tailed off in the first three months of 2015 because of the run-up to the UK general election.

Corporates do not like to make significant investment decisions in a time of political uncertainty. And we have had that in spades since last summer, with the Scottish independence referendum segueing into the wider UK election following five years of coalition government and endless speculation about fragile-sounding majorities (which came to pass).

There may at least be a window of a year or 18 months now when political uncertainty subsides, and the more placid backcloth encourages companies to hit the takeover trail.

But after that the government’s in/out referendum on whether the UK remains in the European Union will cloud business thinking and may again lead to an extended period of quiet M&A waters.

Potts not so drastic

“Drastic” Dave Lewis got off to a good start at struggling Tesco when he joined as its boss last year, with early signs that sales were improving. David – no current nickname – Potts, his equally new counterpart at rival Morrisons, also seems to have a little bit of the Napoleonic lucky general about him.

Potts replaced the hapless Dalton Philips at the helm of a similarly adrift Morrisons last March, and yesterday the supermarket group enjoyed its first quarterly rise in sales in nearly 18 months. Admittedly, it was only a nominal 0.1 per cent increase in the 12 weeks to 24 May, but a comeback has to start somewhere and with something, however small.

It still looks likely to be a chequered week for Potts, however, as the odds are that Morrisons will be turfed out of the FTSE 100 due to the fall in its stock market value.

Potts will not worry too much about that. A return of Morrisons to its fundamental no-nonsense roots will be higher in his in-tray than disappointment that Footsie tracker fund managers might not automatically take a weighting in the company’ shares.