Mergers and acquisitions involving UK companies, annual overview: 2017

• There was a notable increase in the value of outward mergers and acquisitions (M&A), from £17.3 billion in 2016 to £76.6 billion in 2017 and a sizeable fall in the value of inward M&A, from £190.0 billion to £35.3 billion over the same period.

• The value of outward M&A deals reached a 17-year high in 2017; the increase mainly reflects two very-high-value transactions that completed in 2017: Reckitt Benckiser acquired Mead Johnson Inc. and British American Tobacco acquired Reynolds American Inc.

• The notable fall in the value of inward M&A in 2017 follows the record high level reached in 2016, which was dominated by a small number of very-high-value transactions (each above £10 billion); in 2017, there were no inward M&A transactions worth over £10 billion.

Office for National Statistics (ONS) collects data on mergers and acquisitions (M&A) involving UK companies. These are published for transactions above £1 million that result in a change of majority share ownership (at least 50.1% of ordinary shares) upon completion of the deal. M&A can be classified into:

• outward: acquisitions by UK companies abroad

• inward: acquisitions in the UK by foreign companies

• domestic: acquisitions in the UK by other UK-based companies

This article provides a brief overview of the number and value of UK M&A activity in 2017, before providing a context in which to view these results. Information on quarterly M&A activity can be found in the latest statistical bulletin. Statistics used in this short article include provisional Quarter 4 (Oct to Dec) 2017 estimates, which may be revised in June 2018 in light of new information.

The value of outward mergers and acquisitions (M&A) (that is, UK companies acquiring foreign companies) reached £76.6 billion in 2017, compared with £17.3 billion reported in 2016. This is the highest recorded value since 2000, when the value for outward M&A reached £181.3 billion. Approximately 93% of the value of UK companies’ outward acquisitions was in the Americas, which was affected by a few very-high-value deals in the US.

Inward M&A (acquisitions of UK companies by foreign companies) fell from its record high of £190.0 billion in 2016, to £35.3 billion in 2017. This brings the value of inward M&A in 2017 to a similar level to that reported in 2015. The value of acquisitions in the UK by European companies in 2017 was equivalent to 42.7%, which was similar to the proportion of UK companies from the Americas (42.6%).

The value of domestic M&A (UK companies acquired by other UK companies) fell from £24.7 billion to £18.6 billion between 2016 and 2017. Despite this, the value of domestic M&A activity remained above the annual totals recorded between 2009 and 2015.

Headline mergers and acquisitions (M&A) statistics are often dominated by a few very-high-value deals that can have a substantial impact on the total value. These deals help to explain much of the increase seen in the value of outward M&A in 2017. While the number of outward M&A deals showed an increase, with 150 deals completed in 2017 compared with 141 deals in 2016, it was the value of these deals that led to the large increase in the overall value of outward M&A. This increased from an average value per deal of £122.6 million in 2016 to £510.7 million in 2017.

The large increase in the average value per transaction mainly reflects two very-high-value deals that were completed in 2017, which accounted for over 75% of the total value of outward M&A activity. There were no deals of comparable value completed in 2016. These two deals were British American Tobacco acquiring Reynolds American Inc. of the US and Reckitt Benckiser acquiring Mead Johnson Inc. also of the US. This shows that while the number of outward M&A deals increased in 2017 from 2016, these two very-high-value deals were the main reason behind the higher overall value recorded.

Removing the two largest outward M&A transactions brings the value of the remaining outward M&A to £18.3 billion. The value of the remaining outward M&A transactions is in line with values recorded in recent years and shows a slight increase compared with the total value recorded in 2016 (£17.3 billion).

The value of inward mergers and acquisitions (M&A) deals saw a notable fall in the year to 2017, falling from £190.0 billion to £35.3 billion. A closer investigation of the inward deals completed in 2016 shows that the overall value was dominated by four very-high-value deals (each above £10 billion), which accounted for over 80% of the total value. By contrast, 2017 contained no deals above £10 billion. The absence of any very-high-value deals in 2017 helps to explain the 81.4% fall in the value of inward M&A activity in 2017.

While the total value of inward M&A deals fell in 2017, the number increased from 226 in 2016 to 254 in 2017. Furthermore, the value of inward M&A deals in 2017 is higher than values recorded between 2011 and 2015, and shows a small increase when compared with the value of 2016 deals excluding those exceeding £10 billion, as can be seen in Figure 3.

It is worth noting that businesses undertaking mergers and acquisitions (M&A) transactions must go through many stages before a deal is completed. This includes negotiations over price, awaiting reviews from regulatory bodies, raising funds, and gaining approval from shareholders.

As such, the values and number of completed M&A deals reported in official statistics often reflect corporate decisions made many months in advance. Caution is therefore advised when interpreting M&A activity, especially when trying to relate movements to economic or political conditions and events, including the outcome of the EU referendum.

To illustrate this point, provided in this section are timelines recorded for three large M&A deals: the acquisitions of Mead Johnson Inc. and Reynolds American Inc. in 2017, which contributed to the value of outward M&A deals reaching a 17-year high; and the acquisition of SABMiller PLC in 2016, which contributed to the record value of inward M&A in 2016.

Reckitt Benckiser’s acquisition of Mead Johnson Inc. was relatively quick to complete, taking around four months (Table 1). The British American Tobacco-Reynolds American Inc. deal started in 2016 (Table 2) and took nine months to complete. The 2016 inward acquisition of SABMiller PLC took a lot longer than both of these outward deals. Table 3 shows that it was first rumoured in 2013, implying that the deal took up to three years to complete.

Statistics published today provide a preliminary estimate for the level of mergers and acquisitions (M&A) activity in 2017, reporting on both the number and value of transactions. At a headline level, aggregate statistics point to a strong pickup in outward M&A activity, with the value of transactions rising by £59.9 billion to reach a 17-year high (£76.6 billion). In contrast, the value of inward M&A activity experienced a notable fall of £152.1 billion compared with the previous year, reaching £35.3 billion in 2017.

While these movements appear dramatic, this short note highlights that interpretation of changes in M&A activity can be difficult due to the impact a handful of high-value transactions can have on aggregate figures. For instance, the notable rise in the value of outward M&A activity in 2017 is predominantly due to two very-high-value M&A transactions; while a handful of deals led to the 2016 value of inward M&A reaching a record high and the absence of such deals in 2017 led to the overall value falling back to levels seen in previous years.

In addition to this, the fact that M&A transactions can often take months, if not years, to complete makes it challenging to connect movements in M&A statistics to economic or political events.

Authors: Sami Hamroush, Andrew Jowett, and Hannah Streck.

The authors would like to acknowledge the contributions of Philip Johnson and Gill Sanderson.