Cross border M&A activity into the UK remains strong despite Q4 blip

The appetite amongst overseas’ buyers to complete mergers and acquisitions (M&A) in the UK fell in the last quarter of 2022 but was stronger overall than in both 2020 and 2021, according to our own analysis of Experian’s MarketIQ database.

MarketIQ revealed that overseas M&A activity into the UK resulted in 1,125 completed transactions last year compared to 1,104 in 2021 and 927 the year before that.

The US accounted for 324 deals in 2022 followed by France and then Sweden. Ireland was in fourth place followed by Canada, the Netherlands, Germany, Jersey, Guernsey, and Luxembourg.

The US was the most active in 2021 also however Ireland was in second place followed by France, Sweden, Germany, Jersey, Canada, the Netherlands, Switzerland, and Guernsey.

Comparison of most active countries completing M&A in the UK Source: Experian’s MarketIQ (Irwin Mitchell analysis)

London was also revealed to be the most attractive place for M&A with 31% of all overseas’ transactions into the UK targeting an organisation based there.

The South East was next attracting 16% of overseas’ transactions, followed by the North West which had 8.4% of the deals. Wales had the fewest deals in the United Kingdom accounting for just 1.7% of overseas deal activity.

Our analysis also revealed some of the sectors that were driving activity and interest in the UK.

Over 200 deals into the UK were related to the manufacturing sector with 69 of these having a US bidder. 22 deals were within the sport sector with 13 of these being led by a US bidder. Highlighting the challenges within the consumer sector, only five deals were in retail and 15 in hospitality sector.

We examined when most of the transactions occurred and found that the quietest period in 2022 was the last three months. However, although the volume of deals fell by 13% in Q4 compared to Q3, our analysis revealed that Q4 levels last year were almost 7% higher than the same period in 2021.

Good barometer of FDI

M&A activity is a good barometer of foreign direct investment and is helpful in identifying how other countries view our economy, the opportunities that exist and the strength of our businesses and networks.

Our analysis highlights a reasonably positive picture for the UK with deal volumes remaining relatively high in 2022 despite a very difficult and uncertain economic period. The findings mirror what we saw on the ground in 2022 where it was clear that the relatively low value of Sterling against the Euro and the Dollar meant that strong well-run businesses offered good value to international purchases investors. 

When comparing 2022 with 2021 there doesn’t appear to be a notable shift in terms of where overseas M&A into the UK is happening. It’s clear that London continues to dominate however it will be interesting to see how this changes over time particularly as the economy evolves, ESG moves higher up the corporate agenda, and zero carbon becomes a higher priority.

According to a recent report by the Energy and Climate Intelligence Unit and the CBI, the net zero economy is concentrated in regions outside of London. Adding to this, the Local Green Jobs report published by the Local Government Association say that 88% of the 1m plus direct green jobs projected to reside in England by 2050, would be outside the capital.

It is too early to predict exactly what will happen to foreign direct investment trends in the future but the move to zero carbon looks like it could have a significant impact.

Earlier this year, the Irwin Mitchell City Tracker revealed that despite the current economic challenges, growth would return to the majority of the UK’s cities by the second half of this year. The report revealed the Devon city of Exeter as having the fastest economic growth and said this is due in part to its focus on carbon reduction.

According to the research, Exeter’s economy is predicted to be 1.3% larger in Q4 2023 compared to how it was in the final quarter of 2022. It is also expected to be in the top five for employment with levels rising year-on-year by 1.7%.

It will certainly be interesting to see how FDI changes not just in 2023, but over the coming decade.

Bryan Bletso is a partner and Director of Strategic Growth (International) at Irwin Mitchell.