The US invasion of corporate Britain

About Tim Marlow

Tim works at Convex Capital, an award winning Corporate Finance boutique with offices in Manchester and London. They work with self-made owner managers to maximise and realise the value in clients' businesses. www.convexcap.com

M&A markets in the UK have been teetering along the ridge of the post credit crunch paradigm since 2008. There are often glimmers of hope from statistics buoyed by the large “champagne” deals such as Cadbury’s and Kraft. However, these statistical anomalies hide an underlying dearth of real M&A activity in the UK. For too long now investment in UK assets by UK companies has been static. Corporate balance sheets are brimming with cash. According to official data, UK companies are tucking away about £70bn a year – twice as much as before the crisis. Some analysts have estimated the total stash of cash under the corporate mattress at £750bn. Why then is the UK M&A market in relatively good shape? If UK companies are not using the vast amount of underutilised cash reserves, then who is buying all of our companies?

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The answers is simple. American private equity and large corporate players have been circling our prized assets for a long time and deal volumes involving US based businesses are soaring. The world’s largest economy accounted for almost half (47%) of overseas purchases of UK listed companies in the last year up from 25% the year before.

Whilst the US is not at war with China on the battle field, there is a corporate asset war unveiling before us, with Europe caught in the cross-fire. This is great news for the UK professional services market, as well as many UK based business owners. As cash laden US suitors flock to Europe to capitalise on the potential of “pan-European” expansion, our business owners should come up above the parapet and take note.

Not only are our American friends prepared to invest in the UK, they are prepared to offer strategic values. The quantitative crush in the US subsiding at a much faster rate than in the UK due to banks lending up to 3 times EBITDA and private equity funds desperately trying to get their money out to work. Therefore, US companies are well placed to oil the UK’s M&A wheels. This is great news in the short-term as the US vogue for investing in Europe ensures that our own lack of inward investment and penchant for hiding cash under our corporate mattresses means that very few businesses are being sold within our shores.

What does all this mean? Well perhaps it is part of a longer-term transition towards a truly global M&A market place – which is a very positive thing. Perhaps our skill for innovation means that the UK’s businesses are simply more attractive – again great news as we can continually reinvent our corporate landscape.

The worry however, is that this trend is endemic and with this the UK could become the 51st US state; at the behest of Washington and ultimately heading for corporate war with the Far East – something we must stoically avoid.

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