UK companies wind down their European M&A activity

UK investments in continental Europe are suffering a Brexit related hangover, according to a new study. While the coronavirus pandemic hampered deal activity around the world in the last year, UK investments on the continent saw a sharper than average decline.

The uncertainty of the last year saw the number of international investors targeting European companies sink by more than a quarter. According to a new study from global consultancy Accuracy, such activity saw a 27% decline from 6,665 deals in 2019 to 4,843 in 2020. However, the chaos of the pandemic economy impacted some regional investment markets worse than others.

The same report found that the number of acquisitions by US businesses in continental Europe declined by 25% in that period, in stark contrast to those from the UK, where the number of takeovers by UK acquirers of continental European businesses fell 30% year-on-year. Having stood at 488 in 2019, 2020 saw just 342 deals, as the crises wrought on Britain’s economy by Covid-19 were exacerbated by the continued Brexit saga.

Pointing to one example of why this was, Accuracy suggested that one contributing factor to the fall in UK investment in the mainland was that Covid-19 travel restrictions between the UK and continental Europe made it harder for UK based executives to meet face-to-face with possible bid targets on mainland Europe. However, on top of this, the longer-term risks that a potential No Deal Brexit would bring – such as restricting the free movement of business executives between the UK and EU – further caused deal activity to slow down.

The situation was worsened by uncertainty about potential divergence between UK and EU laws from the start of January 2021, when the UK and EU’s final deadline for negotiating a deal had passed, and what that would mean for businesses. While a sizeable portion of doubt still hangs about the agreements hastily drawn up to avoid a No Deal scenario in December 2020, though, Accuracy does believe that there is now enough certainty in place to speculate on a recovery.

Much of this will depend on building on the private equity sector – with Accuracy’s research showing that takeovers in Europe by UK private equity funds held up better than those by UK corporates as a whole. The number of deals by UK private equity funds fell by a smaller 23% from 209 in 2019 to 160 in 2020 – something which saw the proportion of takeovers by UK-based private equity houses increase from 43% to 47% in 2020.

The financial firepower that private funds have at their disposal has allowed them to move forward with acquisitions when corporate acquirers have been more reluctant to – but when they see a return on that investment it may prompt corporate acquirers to re-evaluate their strategies.

Leontine Koens-Betz, Managing Partner at Accuracy Netherlands, commented, “Businesses looking to undertake transactions have had to contend with bureaucratic barriers and logistical difficulties which 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.”