Avondale M&A Predictions 2018

1. Strategic M&A a key outlet for UK firms

By popular consensus, the UK is once again the sick man of the world’s advanced economies, having been singled out by the IMF as a “notable exception” to an otherwise improving global outlook.

In 2018, a paltry 1.5% increase in GDP will force British companies to be more resourceful – and strategic M&A will be an important tool for growth.

2. Cross-border growth opens doors for sellers

For those looking to exit, the UK’s exchange rate discount bonanza makes for an increasingly favourable selling environment, as foreign buyers bring forward plans for acquisitions.

Expect US buyers to be especially spendthrift – 9.8% of European deals involved a North American acquirer in H1 2017, according to PitchBook, up from 7.7% in 2010.

3. Technology ever more in vogue

In a slow-growth economy, we’ve seen digital disruption become a key vehicle for growth
– and M&A as a means to harness this. Technology deals accounted for 18.6% of global transactions in the first six months of 2017, according to Pitch Book, up from 15.9% in H1 2016.

Artificial Intelligence will remain a particular bright spot, with AI-related deals increasing a remarkable 26-fold during the first 11 months of 2017.

4. Time for infrastructure to think strategic

The productivity question, a hot topic in the build-up to November’s Budget, has put the spotlight firmly on Britain’s stagnant infrastructure and transportation sectors.

They’d do well to take inspiration from other industries – notably tech and finance – for whom strategic acquisitions of smaller, innovative companies have generated fresh thinking and productivity gains.

5. PE further to the fore

Amid a dearth of investment opportunities, and with ‘dry powder’ money sitting idle, 2018 will see M&A etch its way more firmly into Private Equity playbooks.

PE-backed purchases made up nearly 30% of global acquisitions in H2 2017, according to PitchBook; that’s up from 24.7% in the first half of 2016. Deals targeting innovation and disruptive trends will be the core focus for PE managers.

6. Brighter horizons coming into view

While the UK economy may look a little green around the gills right now, the latest round of EU negotiations shows that Europeans do want a soft Brexit… and so too most of Parliament.
If a deal can be thrashed out, then Britain can go back to what it does well, which is being a global trading nation. Throw in fresh agreements with traditional partners the US, India and Canada – and perhaps even China – and the future starts to look a little brighter.

Intelligent observers, able to imagine the long-term implications of a more open Britain, will place their bets whilst the economy is weak, and prices are still low, increased inbound M&A deals (particularly whilst the exchange rate remains attractive) seem more likely.

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