US companies take advantage of weak pound to buy UK firms

03 October 2018 5 min. read

While interest from EU buyers is low, UK companies are now more likely to be purchased by US corporations, as a favourable exchange rate makes Britain’s top companies increasingly attractive. Global professional services firm Moore Stephens believes that the spate of purchases shows American business bosses are keen to make the most of the pound’s deflated value to invest in innovative and well-run businesses.

Since the 2016 referendum result which saw the UK begin preparations to leave the European Union, the value of Britain’s currency has been plagued by a succession of serious falls. This has made it more difficult for many businesses in the UK to import materials, and is cited as having resulted in a number of high-street and restaurant chain collapses – however it has also led to a boom in other industries due to the increasing currency movements the pound’s performance provoked.

The weakened pound played a significant role in boosting the UK media and entertainment sector’s year-on-year revenues by £10 billion. Elsewhere, China began investing heavily in the London real estate market. In the first half of 2017 alone, £5 billion in Chinese capital was sunk into Britain’s capital city, as the low pound continues to make the present financial hub of Europe an attractive prospect, despite an uncertain future for links with the continent.

US companies take advantage of weak pound to buy UK firms

Now, following another succession of financial drubbings, as the EU and UK continue to butt heads over the negotiating table regarding the border of Northern Ireland, among other issues, the pound remains low, attracting further interest from overseas. This time, the interest is coming from the other side of the Atlantic, to be precise, with US firms now becoming the ones to take advantage of the cheap pound, snapping up a number of Britain’s most successful businesses at bargain basement prices.

Music app Shazam, which was bought by Apple for £299 million, was among the many fast-growing UK-based firms already purchased. Other firms bought up include UK-based social business network Huddle, which was acquired by private equity firm Turn/River Capital for £284 million, and investment software provider Fidessa, which was taken over by Temenos Group AG for £1.3 billion.

Growing M&A activity

On top of that, merger and acquisition figures for the current year are likely to show another rise in activity following the plan by Coca-Cola to spend £3.9 billion purchasing coffee business Costa Coffee from Whitbread and the announcement that US insurance broker Marsh & McLennan will buy UK insurance company Jardine Lloyd Thompson in a £4.3 billion deal.

According to London-headquartered audit and advisory firm Moore Stephens, US firms, unlike their European counterparts, have shrugged off Brexit concerns. The value of deals involving US companies buying UK businesses more than doubled to £79 billion in 2017-18 from £36.8 billion in the previous year, in stark contrast to interest from companies on the continent. A 5% fall in the value of deals from EU companies for UK entities in the last 12 months saw total value shrink to £13.3 billion from £14.1 billion.

“This has been in part due to the devaluation of sterling since 2014, making British businesses comparatively cheaper than many of their foreign competitors,” Moore Stephens said in a statement. The firm added, “Brexit has also been perceived more negatively on the continent by politicians, business groups and the media than in the US, making European businesses more cautious about acquiring UK companies.”

Previously, cash held outside the US had been used to fund overseas mergers and acquisitions, however new rules had been established to encourage US firms to repatriate cash they hold overseas, while offering incentives to buy and invest in domestic firms. As a result, many analysts had expected US firms to scale back interest in foreign buyouts following tax reforms brought in by the Trump administration last year, however Moore Stephens said the large number of US buyers eyeing UK firms revealed that American business bosses were still on the hunt for innovative and well-run businesses.

The firm concluded, “The confidence that US investors have placed in the UK is indicative of the underlying strength of UK businesses and the openness of its economy.”

The pound is edging higher against the US dollar at time of writing, alongside the majority of its other peers this morning, but remains in a precarious position, having nosedived by over two cents against the dollar earlier in September. That represented the largest single day loss so far in 2018, following a breakdown in Brexit negotiations between the UK and EU at a summit of leaders in Salzburg. This fall was later exacerbated by a statement from Prime Minister Theresa May, in which she suggested that "no deal is better than a bad deal", reigniting suspicions that the UK is headed for a ‘cliff-edge’ scenario, where it will exit the EU without a deal in place.

Related: Moore Stephens administrates indebted night-club chain.