Mergers and acquisitions involving UK companies: April to June 2020

• During Quarter 2 (Apr to June) 2020, the estimates for the value of outward mergers and acquisitions (M&A) involving UK companies increased slightly while both inward and domestic M&A saw notable decreases, when compared with Quarter 1 (Jan to Mar) 2020.

• Domestic and cross-border M&A involving UK companies in Quarter 2 2020 saw 152 completed transactions, a sizeable decrease of 311 when compared with the previous quarter (463) and 292 fewer than Quarter 2 2019 (444).

• Outward M&A (UK companies acquiring foreign companies abroad) was valued at £4.4 billion in Quarter 2 2020, a slight increase of £0.3 billion when compared with Quarter 1 2020 (£4.1 billion) and £2.7 billion higher than in Quarter 2 2019 (£1.7 billion).

• The value of inward M&A (foreign companies abroad acquiring UK companies) in Quarter 2 2020 (£2.1 billion) was the lowest value recorded since Quarter 2 (Apr to Jun) 2014 (£1.9 billion), while also down £3.0 billion when compared with Quarter 1 2020 (£5.1 billion) and £16.6 billion lower than Quarter 2 2019 (£18.7 billion).

• Domestic M&A (UK companies acquiring other UK companies) during Quarter 2 2020 was valued at £0.3 billion, the joint-lowest value since Quarter 4 (Oct to Dec) 1975 (also £0.3 billion) and a sizeable decrease when compared with Quarter 1 2020 (£3.2 billion) and Quarter 2 2019 (£2.7 billion).

Domestic and cross-border M&A involving UK companies in Quarter 2 (Apr to June) 2020 saw 152 completed transactions, a sizeable decrease of 311 when compared with the previous quarter (463) and 292 fewer than in Quarter 2 2019 (444). The monthly breakdown of these deals shows that this decrease was spread across the three months of Quarter 2 2020.

The estimates for the number of domestic and cross-border mergers and acquisitions each month between January 2019 and March 2020 ranged from 130 to 178. However, this fell to 58 completed acquisitions in April 2020, followed by 37 in May 2020, and 57 in June 2020.

As these statistics only measure completed transactions, they cannot provide evidence to explain a reduction in the number of transactions. However, the timing does follow the introduction of the restriction of movement in the UK, which began on 23 March 2020, in response to the coronavirus pandemic.

The Bank of England Agents’ Summary of Business Conditions report Quarter 2 2020 stated that “contacts reported a sharp fall in transactional business, such as mergers and acquisitions and property-related services”. It also reports that “companies have mostly cancelled or postponed non-essential investment to preserve cash buffers, and many are uncertain when or whether investment plans will be reinstated.”

The Forbes article, The Impact Of The Coronavirus Crisis On Mergers And Acquisitions, expected that there will be a number of delays to deals due to pandemic-related factors. Bureau van Dijk reported a reduction in the worldwide number of announced M&A deals in Quarter 1 (Jan to Mar) 2020, continuing into April 2020, and noted that “while some have pressed the pause button on planned transactions, others have opted to call off intended combinations altogether.”

The latest estimates for the value of mergers and acquisitions (M&A) of foreign companies made by UK companies during Quarter 2 (Apr to June) 2020 saw a slight increase when compared with the previous quarter. Similarly, comparing Quarter 2 2020 with Quarter 2 2019 also shows that the value of completed outward M&A was higher.

The value of outward M&A in Quarter 2 2020 was £4.4 billion. This was a £0.3 billion increase on the previous quarter (£4.1 billion) and £2.7 billion higher than in Quarter 2 2019 (£1.7 billion).

Two notable outward acquisitions which completed during Quarter 2 2020 were:

• Synthomer Plc of the UK which acquired Omnova Solutions Inc of USA

• Bodycote Plc of the UK acquired Ellison Surface Technologies of the USA.

Value of outward M&A transactions involving UK companies by quarter

Number of quarterly outward M&A transactions involving UK companies

There were 20 completed outward M&A deals during April to June 2020, 68 fewer acquisitions than in the previous quarter (88) and 38 fewer than Quarter 2 2019 (58).

During Quarter 2 2020 there were three outward disposals deals involving a change of majority share ownership worth £3.3 billion, the lowest number since Quarter 4 (Oct to Dec) 2018 (5) and notably lower than the numbers previously recorded during both Quarter 1 (Jan to Mar) 2020 (18) and Quarter 2 2019 (14).

One notable outward disposal which completed during Quarter 2 2020 was Glaxosmithkline Plc of the UK, which sold Glaxosmithkline Consumer Healthcare Ltd of India.

In Quarter 2 (Apr to June) 2020 the value of inward mergers and acquisitions (M&A) (£2.1 billion) was the lowest value recorded since Quarter 2 (Apr to Jun) 2014 (£1.9 billion), and £3.0 billion lower than the value recorded in Quarter 1 (Jan to Mar) 2020 (£5.1 billion).

The value of inward M&A involving a change of majority share ownership in Quarter 2 2020 was down £16.6 billion when compared with Quarter 2 2019 (£18.7 billion). This can be explained by fewer acquisitions of UK companies made by foreign companies abroad with values in excess of £100 million.

Notable inward acquisitions which took place in Quarter 2 2020 included :

• Keysight Technologies Netherlands BV of the Netherlands acquired Eggplant Topco Ltd of the UK

• Infopro Digital Group BV of the Netherlands acquired Haynes Publishing Group Plc of the UK

Value of quarterly inward M&A transactions involving UK companies

Number of quarterly inward M&A transactions involving UK companies

There were 59 completed inward acquisitions in Quarter 2 2020, a decline of 85 transactions on the number reported in the previous quarter (144) and 106 fewer when compared with Quarter 2 2019 (165).

During Quarter 2 2020 there were 15 inward disposals of UK companies worth £1.0 billion,12 fewer transactions than those during Quarter 1 (Jan to Mar) 2020 (27) and 22 fewer than Quarter 2 2019 (37).

The value of domestic mergers and acquisitions (M&A) involving a change of majority share ownership was £0.3 billion in Quarter 2 (Apr to June) 2020 – the joint-lowest value recorded since Quarter 4 (Oct to Dec) 1975 (when it was also £0.3 billion).

Between Quarter 1 (Jan to Mar) 2020 (£3.2 billion) and Quarter 2 2020 (£0.3 billion) the value of domestic M&A saw a notable decline, of £2.9 billion. This decline can be explained by the absence of domestic acquisitions worth in excess of £100m. The value recorded in Quarter 2 2020 (£0.3 billion) was also £2.4 billion lower than Quarter 2 2019 (£2.7 billion).

Value of quarterly domestic M&A transactions involving UK companies

Number of quarterly domestic M&A transactions involving UK companies

There were 73 completed domestic acquisitions involving a change of majority share ownership in Quarter 2 2020, a decrease of 158 on the number recorded in the previous quarter (231) and 148 fewer than Quarter 2 2019 (221).

Domestic mergers and acquisitions

Mergers and acquisitions of UK companies acquiring other UK companies.

Inward mergers and acquisitions

Mergers, acquisitions and disposals of UK companies by foreign companies.

Outward mergers and acquisitions

Mergers, acquisitions and disposals of foreign companies abroad by UK companies.

Mergers and acquisitions transactions

Mergers and acquisitions (M&A) occur when one company takes control of another company. The internationally agreed definition of a M&A deal is when one company gains more than 50% of the ordinary shares (or voting rights) of the acquired company.

Disinvestments (Disposal transactions)

Disinvestment or disposal transaction refer to the sell-off of certain assets such as a manufacturing plant; division or product line; or a disposal of the ordinary share ownership of a subsidiary company.

Transaction aggregates

The following are definitions of reasons why revisions to the aggregates for M&A transactions valued at £100 million and greater principally occur.

Completion of transactions

On announcement of a proposed transaction, an expected completion date is usually given. The publicly-reported values will be allocated to the quarter of expected completion. If the transaction is ultimately completed in an earlier or later quarter, the recorded values will be reallocated to the new quarter.

Publicly-reported values

Publicly-reported values are initially used to compile the aggregates. These can vary considerably from the values ultimately supplied by the respondents, frequently because the assumption of debt has been included in the publicly-reported value. A nominal value is applied if no publicly-reported value is available. The final values used to create the aggregates are those supplied by the respondent.

Non-completion of transactions

On announcement of a proposed transaction the publicly-reported value of the transaction is recorded. If the transaction does not subsequently take place the recorded value will be deleted.

Non-share transactions

On announcement of a proposed transaction it may appear that there will be transactions in the share capital of the companies involved and the publicly-reported values will be recorded. If subsequent information contradicts this, the recorded values will be amended or deleted.

Control

On announcement of a proposed transaction it may appear that the transaction will give the purchasing company control of the purchased company, that is, a share ownership of greater than 50%. If subsequent information contradicts this, the recorded values will be amended or deleted.

Revisions from M&A data source

The current source provider of M&A deal information continually updates its database. Therefore, any new and additional reported transactions which completed in previous quarterly periods will be included as revisions to deal data and information.

Revisions from respondents

Very occasionally companies will restate the values that they have previously supplied to us.

Mergers and acquisitions (M&A) statistics from Quarter 1 (Jan to Mar) 2018 fully incorporate the Bureau van Dijk (BVD) Zephyr data source and methods. This new data source has improved the coverage of smaller M&A transactions and therefore results in a discontinuity in the number of transactions reported; users are therefore advised to take care when comparing the latest estimates with the number of transactions reported for quarters prior to Quarter 1 (Jan to Mar) 2018. See Mergers and acquisitions Quality and Methodology Information for more details.

The previous M&A estimates for Quarter 1 (Jan to Mar) 2020 have been revised to reflect new information received after our last publication in June 2020.The detailed revisions analysis is given in Table R1 which is attached to this publication.

No further revisions to estimates prior to Quarter 1 (Jan to Mar) 2020 have been made. Therefore, time series statistics for all quarters of 2019 and any previous historic quarterly and annual periods remain unchanged.

After EU withdrawal

As the UK leaves the EU, it is important that our statistics continue to be of high quality and are internationally comparable. During the transition period, those UK statistics that align with EU practice and rules will continue to do so in the same way as before 31 January 2020. We will continue to produce statistics broken down to EU and non-EU aggregates.

After the transition period, we will continue to produce our mergers and acquisitions statistics in line with the UK Statistics Authority’s Code of Practice for Statistics and in accordance with internationally-agreed statistical guidance and standards. This is based on the International Monetary Fund’s (IMF’s) Balance of Payments and International Investment Position Manual sixth edition (BPM6), until those standards are updated.

Data published in Mergers and Acquisitions involving UK companies statistical releases also form part of the broader system of UK National Accounts, which will be produced in line with international standards as laid down in the European System of Accounts (ESA) 2010 until the EU budgets are finalised for the years in which we were a member, as specified in the Withdrawal Agreement.

We produce statistics on the number and value of M&A transactions. This information is presented in the following way:

• transactions are only recorded in Office for National Statistics (ONS) statistics once the deal has been legally completed
• each transaction has a value of at least £1 million
• the transactions results in a change of ultimate control of the target company
• all values are in current prices, and therefore have not been adjusted for the effects of inflation

These are among the main reasons our M&A statistics can differ from those reported in other sources. There can be a substantial time gap between the point at which a deal is announced and when it is legally completed. In addition, in some cases, announced M&A deals do not take place. ONS statistics on disposals (or de-mergers) are also included in tables alongside this bulletin. These are typically fewer in number per quarter, which can lead to greater suppression of statistics to mitigate disclosure. The focus of this bulletin is on acquisitions, although some of the more complex deals can include the disposal of some part of the newly-created corporate structure.

It is sometimes necessary to suppress figures for certain items in order to avoid disclosing information about an individual business. Further information on why data are suppressed is available in the ONS Disclosure Control Policy.

It is not uncommon for the value of M&A transactions to vary considerably from one quarter to the next. This mainly reflects the nature of M&A activity in that these capture one-off deals. Therefore, if a particularly high-value M&A deal completes in a given quarter, it can make that quarter seem out of line with those that precede and follow it.

The volatility of M&A transactions also makes it difficult to link M&A statistics with other economic indicators – such as gross domestic product – or global events because of the time it can take between announcing and completing a M&A deal. It can therefore be more informative to look at longer-term trends within M&A statistics rather than focusing on quarterly movements. Details of any notable M&A deals that completed in Quarter 2 (Apr to June) 2020 can be found in the respective sections of this bulletin.

Contextual external evidence

Global merger, acquisitions and disposals activity can be driven by the availability of credit. Therefore, when credit conditions deteriorate, as happened in the 2008 to 2009 economic downturn, M&A activity may decline. M&A activity can also be affected by the economic outlook and company profits, in addition to a range of other economic factors. The process of completing a M&A transaction takes time and sometimes there may be a lag between improving economic conditions and any change in M&A activity. Therefore, it is important to consider the M&A data within the wider economic context.

The following commentary summarises some external evidence from the Bank of England’s Credit Conditions Survey and Agents’ Summary of Business Conditions report.

The Credit Conditions Survey for Quarter 2 2020 stated that “the availability of credit to the corporate sector increased for all business sizes in Quarter 2 2020. Total corporate credit availability was expected to increase only slightly in Quarter 3 2020. Several lenders noted that the schemes recently launched by the Government to support lending to businesses underpinned the reported increase in availability in Quarter 2 2020”. The same report also stated “Lenders reported that spreads on corporate lending to small firms narrowed in Qurter 2 2020, but had widened slightly for medium businesses and widened for large businesses. Spreads on lending to small and medium businesses were expected to narrow in Quarter 3 2020, while for large firms they were expected to widen slightly”.

The Agents’ Summary of Business Conditions report Quarter 2 2020 stated that “contacts reported a sharp fall in transactional business, such as mergers and acquisitions and property-related services. Demand for marketing, advertising and recruitment services also weakened markedly as companies cut discretionary spending and put hiring on hold. Demand for credit is high and expected to increase as companies start to reopen over the coming months. Many companies across different sectors continued to report high demand for credit – either in the form of existing facilities or new loans – to address cash flow issues or finance working capital. Government schemes have helped to increase the supply of credit, but availability remained tight for some larger companies in vulnerable sectors. Many small companies are reluctant to increase their borrowing, often because they already have high levels of debt, are concerned they will struggle to repay loans or are reluctant to encumber their assets”. The report also stated that “companies have mostly cancelled or postponed non-essential investment to preserve cash buffers, and many are uncertain when or whether investment plans will be reinstated. So far there have been relatively few reports of insolvencies, which contacts attributed to government support measures and recent legal changes. However, insolvency practitioners and lawyers expect business failures to increase in the coming months as the Government’s Coronavirus Job Retention Scheme (CJRS) is phased out”.

More quality and methodology information on strengths, limitations, appropriate uses, and how the data were created is available in the Mergers and Acquisitions Quality and Methodology Information (QMI).