Slump in European takeovers by UK buyers

The impact of concerns over Brexit and Covid-19 saw takeover deals in Europe by UK investors slump last year, according to new figures.

Recent European takeover deals announced by UK firms have included online car retailer Cazoo acquiring Cluno, a German-based subscription platform. Picture: contributed.
Recent European takeover deals announced by UK firms have included online car retailer Cazoo acquiring Cluno, a German-based subscription platform. Picture: contributed.

The number of takeovers by UK acquirers of continental European businesses fell 30 per cent to 342 in 2020, the research from consulting firm Accuracy found.

Although Covid-19 inevitably hit activity, the report said fears over the potential impact of a no-deal Brexit also served as a significant deterrent to UK corporates.

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“The shock to the economy caused by the Covid-19 lockdown reduced the number of deals across Europe,” the report said.

“However, deals from UK businesses targeting European companies fell even more rapidly than overall deal numbers across all countries. Covid-19 travel restrictions between the UK and continental Europe also made it harder for UK-based executives to meet face-to-face with possible bid targets on mainland Europe.”

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The risks that a potential no-deal Brexit would bring, such as restricting the free movement of business executives between the UK and EU, was a key factor that was exacerbated by uncertainty about potential divergence between UK and EU laws from January 1 this year.

The report also said that the activity has been impacted by professionals with experience of advising UK businesses on merger and acquisition (M&A) transactions in Europe relocating from London to mainland Europe in recent years as a result of Brexit.

“This has made it harder for some UK companies looking to undertake acquisitions in the continent, as it is now more difficult to source the right contacts and referrals to help secure a deal,” it said.

However, Accuracy’s research also shows takeovers in Europe by UK private equity (PE) funds held up better than those by UK corporates as a whole. The proportion of takeovers by UK-based PE houses increased from 43 per cent in 2019 to 47 per cent in 2020.

The report said UK private equity funds have been increasingly looking to diversify outside the UK since the Brexit vote in 2016, leading to an increase in PE houses’ activity levels in Europe.

Leontine Koens-Betz, a managing partner at Accuracy, said: “Enthusiasm amongst UK corporates to make acquisitions in mainland Europe has been dampened by the dual pressures of Brexit and the global pandemic.

“Businesses looking to undertake transactions have had to contend with bureaucratic barriers and logistical difficulties that have made completing a takeover even more complex.

“However, looking ahead, we may see a recovery in deal activity from UK companies who are looking to build up their base in Europe to bypass the problems of being outside of the single market.”

Accuracy says the first six months of the pandemic saw a broad slowdown in M&A transactions as visibility over future earnings was impacted and many companies tried to build up their cash balances. However, deal activity in Europe showed a strong recovery in the third quarter of 2020, with many of the deals occurring in sectors that were affected to a lesser extent by Covid-19 or even benefited from the pandemic, such as technology, pharmaceuticals and medical and biotechnology.

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