Renowned as Scotland’s two unicorns, classified as tech firms valued at more than $1 billion, Edinburgh-born Skyscanner and FanDuel both confounded a post-Brexit M&A slowdown to ink key deals with overseas parties.
The two transactions were unveiled within days of each other in November, with fantasy sports operator FanDuel revealed to be merging with US rival DraftKings, and Chinese giant Ctrip.com’s £1.4 billion takeover of travel search website Skyscanner then emerging.
We’ll likely see more inbound activity in the short to medium term, particularly from foreign trade buyersAndrew Nicholson
They also prompted moves to accelerate the development of more UK digital technology start-ups with a view to following in such landmark and lucrative footsteps.
The two deals were just some of a host this year, many involving household names and some set to have long-lasting and major repercussions.
Sainsbury’s said in January that it was seeking to snap up high street retailer Argos in a bid to better compete with the likes of Amazon. The supermarket giant faced stiff competition from South Africa’s Steinhoff, but eventually saw the deal home in April, shelling out £1.4bn in the process.
The move surprised some observers, but Sainsbury’s said the combination would create a “world-leading” retailer in food and non-food. The group has since announced plans to accelerate the roll-out of Argos stores in its supermarkets, with boss Mike Coupe saying that every outlet in the country will have either a concession or a click-and-collect point.
Steinhoff made a comeback to the deal-making arena in September, finally snaffling budget retailer Poundland for £610 million.
The gambling sector also saw growing consolidation, with Coral and Ladbrokes inking a £2.3bn merger.
Additionally, and although announced in 2015, shareholders of beer giant SABMiller gave the green light in September to the firm’s £79bn takeover by Budweiser brewer Anheuser-Busch InBev, paving the way for the biggest deal in UK corporate history. The record-breaking deal – dubbed “megabrew” – completed in October, creating a brewing giant with a raft of some of the world’s biggest beer brands.
Also into tens of billions was the proposed £21bn merger of London Stock Exchange (LSE) and Deutsche Börse, announced just three months before the Brexit vote.
The deal, the duo’s third attempt at a merger, faced shareholder approval, which it duly received, but then came Brexit. Rather than disintegrate under the weight of the referendum, the pair argued that the tie-up made more sense following the vote.
LSE said in July: “Whether the UK is just European or a member of the EU, the merger will create a globally competitive, industry-defining market infrastructure group at the service of European industry.”
That said, the Brexit vote had a paralysing effect on dealmaking in general, with official data out in November showing that M&A activity nearly halved between July and September.
The Office for National Statistics said there were 140 successful £1m or more deals worth £34bn in the third quarter, against 278 worth £33.1bn in the previous three months. The data provided the latest sign that firms are putting investment decisions on hold after the Brexit decision in June, with the Bank of England recently warning that corporate spending was being reined in amid uncertainty.
But the sharp falls in the pound since the vote is thought to be helping spur on demand for foreign takeovers of British firms.
The biggest deal since the vote was Japanese firm Softbank’s £24.3bn takeover of British tech firm Arm Holdings. The latter is widely regarded as the jewel in the crown of the UK tech sector, designing microchips for Apple iPhones, Samsung’s Galaxy smartphones and Amazon’s Kindle e-readers. The deal, announced in July, was seized upon by the UK government, deeming it a “vote of confidence in Britain” after the referendum result.
Andrew Nicholson, head of M&A at KPMG, said larger UK deals such as this “have likely benefited in part from a devalued pound, where a weakened British currency gave overseas investors a degree of leverage while making the overall cost of acquisition cheaper.
“We’ll likely see more inbound activity in the short to medium term, particularly from foreign trade buyers who either want to gain a strategic foothold in the UK or strengthen existing ties.”