Despite ongoing economic uncertainty as Brexit negotiations continue, deal activity in the UK has somewhat surprisingly persisted in H1 2018, as companies look to push ahead with growth plans. UK companies continue to be an inviting option for global investors enabling inward investment to stay high.
UK deal numbers have once again exceeded 3,000, and whilst deal volume is down 14% from the equivalent period in 2017, the associated value is 37% up, showing the large number of significant transactions that have been completed.
This upwards trend in M&A activity has been evident in the Yorkshire and North East region where both deal volume and deal value have increased considerably. From H1 2017 to H1 2018 the volume of deals in the region has increased from 372 to 408 deals, a 10% increase. Value also increased 437% from £3,585m to £19,262m. In fact, Yorkshire and the North East is the only region in the UK which saw a positive movement in both volume and value and in H1 2018 and was the biggest contributor of UK deal value outside of London.
A large contributor of this buoyant market is UK inbound international M&A. Deal value increased from £14.2bn in H1 2017 to £28.8bn in H1 2018, an increase of 103%. This national trend is again replicated in the Yorkshire and North East market with four of the top ten deals involving international investment (2 US, 1 Canada, 1 France).
The US/UK corridor continues to be an important M&A channel for the region which again experienced the greatest deal volume outside of London with 88 transatlantic deals completed (out of 610) during H1 2018.
Nick Marsden, Deloitte tax partner and international lead for the Yorkshire and the North East practice attributes the inward investment we are seeing across the region, as first and foremost testament to the quality of the businesses we have. He also highlights the attractiveness of the UK tax environment to overseas investors saying, "The corporation tax rate (19% reducing to 17%) one of the lowest in the G20 and there are generous reliefs for innovation and capital investment – enhanced by the new Structures and Buildings allowance introduced in the recent Budget. As the UK does not impose withholding tax on dividend payments and offers exemptions for dividends received in the UK and capital gains made by UK companies it is still an ideal intermediate holding company for groups looking to expand into Europe."
The result of Brexit and the associated possibility of a downturn in trading conditions may well be driving business leaders to consider their future strategy in shorter timeframes. Alongside this there is a widening gap between supply and demand of high quality business which will no doubt impact deal activity.
Whatever the main drivers, strong M&A activity in the UK and specifically Yorkshire & North East continues to prevail. I believe this is something to shout about and is testament to the quality of businesses in our region which continue to attract both international and domestic interest.
Sources: Deloitte analysis, Deloitte “A financial money-go-round? US-UK M&A deal monitor – 2018 H1”, Experian, ONS