Brexit clouds gather over M&A market despite stellar 2018

Deal-makers shrugged off Brexit uncertainty in 2018 to complete a run of major transactions, but advisers have warned of a slowdown as March’s official exit day approaches.

The multibillion-pound sales of Costa, Pret a Manger, Sky and Shire were among the deals to hit the headlines in a buoyant market for mergers and acquisitions.

But data from the Office for National Statistics (ONS) released earlier this month showed that the value of domestic M&A transactions was just £3 billion in the third quarter of 2018.

This marked a drop of £9 billion compared with the previous period and was the first quarterly decline since the last three months of 2016.

“While the M&A market has remained blisteringly hot over 2018, the most recent data from the ONS seemed to indicate that deal volumes are starting to decline – perhaps a sign that boards are becoming more cautious as economic and political uncertainty continues to intensify,” said Jonathan Boyers, head of M&A at KPMG.

“We’re also starting to see banks, who have previously been bullish in offering generous debt packages to support transactions, start to tighten their stance and terms on offer in recent months.”

It was another year of change for the grocery sector, with Asda and Sainsbury’s announcing their shock £12 billion merger in April.

The move followed a string of tie-ups in the industry, including Tesco’s acquisition of Booker last year and Amazon’s buyout of Wholefoods.

As of the latest update, Asda and Sainsbury’s are still seeking approval from the Competition and Markets Authority (CMA) for the tie-up and have even taken the regulator to court in a bid for more time.

A final decision must be made by March 5 2019.

Despite distress in the casual dining sector, Asian chain Wagamama was sold to The Restaurant Group for £559 million. The deal gained shareholder approval earlier this month despite some investors voicing opposition.

Elsewhere in food and drink, JAB Holdings took over Pret a Manger for £1.5 billion in May, while rival coffee chain Costa was sold by Whitbread to Coca-Cola for £3.9 billion in August.

Rob Donaldson, head of corporate finance at RSM, said the deals were exceptions in the troubled leisure market.

“You’ve got all sorts of cost pressures, you’ve got a consumer who’s very cautious. The likes of Costa and Pret are fairly unique situations and I wouldn’t say that they’re a sign of a sector in good health,” he said.

“We generally think pricing is falling or has fallen in that sector. The Wagamama deal was highly priced but the shares were punished as a result.”

2018 was also the year that sealed the break-up of Rupert Murdoch’s media empire.

In July, shareholders approved Disney’s £54 billion takeover of Twenty-First Century Fox.

Meanwhile the battle for Sky was finally won by Comcast with a £30 billion bid.

Other major deals included the sale of Zoopla owner ZPG to US private equity firm Silver Lake for £2.2 billion, which was announced in May.

One of the biggest deals was Takeda’s £46 billion takeover of Irish pharmaceuticals firm Shire, which was approved by shareholders in December.