M&A Review Of 2011 - International Expansion Drives M&A Growth For Orbis Partners

It’s been a tough year for the domestic M&A market. In 2011, the total value of domestic acquisitions was £7.6bn, representing a 19-year low for the industry and almost a 50% drop in the market since 2010. The mega deal was noticeably missing from the statistics with one of the largest in the year being Birmingham’s Boparan Holdings acquiring Northern Foods for £0.3bn.

The domestic M&A market now represents less than 10% of all M&A deals involving UK companies, with cross-border activity increasing substantially. However, inward investment into the UK was also down by 10% to £32bn, with US corporates representing over half of all foreign buyers investing into the UK.

It is not all doom and gloom, however, there was a 4-fold increase in outward acquisitions increasing the market to over £50bn. So what has been driving this growth? 50% of UK corporates acquiring overseas are buying strategic assets in Europe, with a further 20% of all deals being completed in the U.S.

Notably, this is the first time since 2003 that outward investment has been greater than inward investment, and this was in a market when uncertainty in the Eurozone affected completions for the last 4 months of 2011.

In total there were 266 acquisitions abroad by UK companies and a number of those ran into the billions. SABMiller acquired Fosters group for £6.7bn and Vodafone acquired a stake in Vodafone Essar in India for £2.6bn. Acquisitions and investments of this size are often followed by confidence in the mid-market, and an increase in deal activity.

If we consider the market as a whole and look at all deals involving UK companies, either domestic or overseas, then the M&A market has seen an increase of nearly 50%. This is driven by the international expansion plans of the UK corporates and there is more to come.

Orbis Partners is the UK partner of Clairfield International, a global corporate finance partnership. This relationship is now in its second year and we are seeing a significant increase in our cross-border activity.

In the last six months of 2011, we advised on 4 cross-border disposals to strategic overseas buyers. Correl Rail was sold to SGS in Switzerland; Clifford House to Advance Childcare (owned by GI partners in the US); the Digital Partnership was sold to Martini Media (US) and Opella was sold to Fluidmaster inc (US).

The increase in our own cross-border activity was replicated by our overseas partner offices, culminating in Clairfield International featuring prominently in the Thomson Reuters League table. In 2011 Clairfield International completed 105 transactions, valued at in excess of USD 4.6bn.

So what does the future hold? The FTSE 100 companies are reported to have seen the cash piles on their balance sheets climb to a record high of some £130bn. So, there will undoubtedly be pressure to utilise these funds, meaning a distribution to the shareholders, returning cash, or investment on acquisitions to enhance shareholder value.

In a recent survey by RBS, over half (58%) of those mid to large sized companies surveyed are now actively considering acquiring a business in 2012, which is up from a third a year earlier. The number of companies looking to buy or merge with an overseas competitor has also doubled to 28%. So the future looks good.

Owner managers have been putting off their succession plans for three years now, so there is certainly some pent up demand in the domestic M&A market, and these shareholders aren’t getting any younger. The capital gains tax regime remains at an all-time low, so even average valuations will net high proceeds after tax for the pension pots of retiring owners.

Furthermore, the cash position of overseas corporates is also very healthy, whilst the long term economic growth prospects for the UK are good. The British pound is currently undervalued and when taking currency changes into account, assets are 20% cheaper than they were in 2008.

Attractive valuations will be obtained by selling to strategic overseas buyers keen to invest in the UK market. We continue to have a healthy pipeline for 2012 with interest from a wide range of prospective buyers from Europe, the US and Asia. As well as this we have some very active partner offices with strategic assets for sale in the emerging market economies of India and Brazil.

The US remains a key strategic territory for Orbis Partners and our clients, so we will continue to invest our time and resources in 2012 working with our Clairfield partners in New York, Atlanta, Dallas and Charlotte.

For more info:

Registered in England No.9098428 Registered Office: One Eleven, Edmund St, Birmingham B3 2HJ
The statutory directors of Orbis Partners Ltd are Chris Gregory, James Grenfell, Gary Ecob and Shah Zaki.