So much for a quiet August. Far from slumping into post-Brexit blues or heading to the Mediterranean to enjoy a last hurrah while we are still part of Europe, it has been an action-packed month for mergers and acquisitions.
Since the EU referendum, Anheuser-Busch InBev has had to up its offer price for the brewery giant SABMiller, and Steinhoff International has also had to dig deeper to win Poundland – all thanks to activist troublemaking by Elliott Advisers, the US activist hedge fund.
Rank Group and 888 Holdings have tried and failed to takeover bookmaker William Hill in a three-way tie-up, while Avnet, the US electronics distributor, gate-crashed what had seemed to be a sure-fire merger between Datwyler and Premier Farnell, the British maker of the Raspberry Pi minicomputer.
These are only a handful of a slew of deals brokered since the Brexit vote. Some of these would have been transactions that were already under way, but others are more opportunistic, taking advantage of the “will we, won’t we trigger Article 50” uncertainty that has led to a steep plunge in the value of sterling – down to a three-decade low against the dollar in recent weeks.
BDO reported earlier this month that the second quarter of 2016 had recorded deal volumes “not seen since the boom times of the third quarter of 2008”. It said that the PCPI/PEPI index, which tracks multiples paid by trade and private equity buyers for private companies, showed a total of 707 deals with “prices remaining high” in the second quarter. Roger Buckley, the M&A partner at BDO, said that the fall in sterling was outweighing the risk of Brexit, with US private equity money particularly keen on coming into the market.
However, it is likely that this short-term opportunism could give way to a longer-term slowdown in deals, particularly if Brexit ends up being a long and painful affair. As it is, despite the short-term barrage of deals in recent weeks, the global M&A market is not in such rude health.
The latest investment banking scorecard from Thomson Reuters shows that M&A activity in the US is down by 35% at $865.4bn ($657.3bn) in the year to date, while global real estate activity is down by 24% to $207.8bn compared with 2015.
There is a growing feeling, particularly in the UK, that once the short-term rush on currency-driven deals dies down, the M&A market will, as it typically always had done, depend more on strategically-driven transactions that make “industrial logic”.
For example, Steinhoff’s deal to takeover Poundland was under way before the Brexit vote happened. It has not been driven by a weak sterling but by the fact that Steinhoff’s strategy is to expand through acquisition, and because it sees value in the UK’s discount value sector, which is growing faster than any other part of Britain’s retail industry.
The real estate angle of the deal also makes sense for Steinhoff, a firm that makes it a point to have ownership of large parts of its retail portfolio. The South African conglomerate already controls 300,000 sq m of retail space across Europe through its Pep&Co, Pepco, Mac Dan and GHM! brands and that portfolio will be swelled by the Poundland acquisition if it completes.
Andy Bond, the former Asda chief executive in charge of Pep&Co in the UK, has already said that groundwork is being laid for further store openings of the value fashion chain, with a new head of property joining from B&M to manage the roll-out. Bond, who is expected to become chairman of Poundland following the Steinhoff deal, will bring a similarly proactive approach to Poundland’s property strategy.
Given the unusually active August we have had, it is hard to get a read on what is going on. However, M&A bankers I speak to (who are a bit like estate agents in that they can’t help but talk the market up) say there are high levels of interest from buyers, with companies in some sectors – such as chemicals, engineering, and the retirement home industry – starting to look quite cheap.
Deirdre Hipwell is retail and M&A editor at The Times
