(Reuters) — A run of big merger deals in Britain, led by the $100 billion SABMiller takeover, has given bankers cause to celebrate this year, despite the uncertainty over the country’s future place in Europe.
After a barren few years, the value of M&A activity involving British target companies in 2015 has surged to a 15-year high of $415 billion from 2,396 deals last year, close to the annual economic output of Austria and up 136.5 percent on last year’s figures, according to Thomson Reuters data.
Riding a global boom in dealmaking that has seen $4.6 trillion worth of deals done in 2015, a 41 percent increase from a year ago, M&A involving UK targets represented 9 percent of the total, almost double the 5.3 percent figure last year.
That tally is skewed by a handful of big deals that involved British-listed companies in 2015, including the tie-up between the world’s two biggest brewers Anheuser-Busch Inbev and SABMiller which was announced in October.
That deal was the largest ever for a British company and the fourth-biggest takeover in history.
In addition Royal Dutch Shell announced a $70 billion takeover of gas producer BG Group, the biggest acquisition in the sector in a decade and among the top 10 most lucrative transactions for bankers on record.
“The difference you’ve really seen is in the number of $10 billion-plus deals,” said Charles Jacobs, M&A partner at legal firm Linklaters in London.
“The UK has always benefited from having a lot of large international companies listed in London, whereas a lot of EU exchanges are home to more national champions. And from a legal and regulatory perspective the UK has always been a takeover friendly environment.”
BRITAIN AND EUROPE
Dealmaking in Britain, Europe’s financial hub and home to some of the region’s largest companies, accounted for 42 percent of all M&A in Europe, the Middle East and Africa (EMEA) while the value of activity in the region increased overall by just 6.3 percent to $880 billion, with France, Spain and Germany experiencing a subdued environment.
In 2014 British dealmaking accounted for 30 percent of the overall EMEA activity which compares with a 37 percent share in 2007 during the previous M&A boom.
This year M&A involving French companies declined 46 percent on a year ago to just $80.3 billion, whilst German M&A totaled $82.7 billion, an 11.5 percent increase from 2014.
“The disconnect between the levels of M&A activity in Britain and Europe reflects a higher degree of investor confidence in Britain’s economic recovery, as well as sector-specific consolidation drivers,” said Paulo Pereira, a partner at boutique advisory firm Perella Weinberg.
Heading into 2016, bankers are cautious on prospects, however, as British Prime Minister David Cameron attempts to renegotiate the country’s relationship with the rest of Europe and hold a promised referendum by the end of 2017 on whether to stay in the European Union or seek an exit – “Brexit”.
“Brexit fears will be quite specific depending on the business concerned but the general level of business confidence may suffer short-term to the extent there is real uncertainty at this time about the likely result,” said Derek Shakespeare, co-head of UK M&A at Barclays.
There is also a growing consensus among economists that the Bank of England will follow the U.S. Federal Reserve in 2016 and raise interest rates, whilst the European Central Bank contemplates further monetary expansion measures as the euro zone economy stagnates.
“The Fed rate rise is a reminder to companies that rates can and will go up in other markets, notably the UK, and as such may curb buyers’ enthusiasm to an extent,” Shakespeare added.
That could boost M&A activity in the rest of Europe instead, as prices there remain constrained.
“Europe is looking cheap, especially with the dollar being so strong,” said Jacobs.
“Most sectors are open for business. It’s almost a question of where is there not going to be M&A.”
MORE DEALS, FEWER FEES
The bumper year for M&A has not translated into a bumper year for fees, however.
Investment banking fees in the UK for M&A have declined 4.2 percent from the previous year to total $1.6 billion, Thomson Reuters data shows.
Goldman Sachs topped the M&A league table, having advised on deals worth $331 billion in the UK, a 56.6 percent market share.
JPMorgan and Morgan Stanley ranked second and third, but it was a stand-out year for tiny boutique advisory firm Robey Warshaw which ranks fifth in the league table above banking behemouths Barclays and Deutsche Bank, having advised both SABMiller and BG Group on their deals.
Across investment banking products, including bonds, equity, loans and M&A, investment banking fees declined 14.8 percent to total almost $7 billion versus a 9.4 percent decline globally.