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There are deals to be done

2016 was a record year for transatlantic deals between the UK and the US. Grant Murgatroyd asks if a revitalised relationship between the countries could mean more M&A despite political uncertainty.

We live in interesting times – 2016 will be remembered as a year of monumental political upheaval. What happens now is uncertain but, if stock markets on both sides of the Atlantic are any kind of indicator, it’s going to be good for business. At the end of February this year, the Dow Jones Industrial Average was at a high of 20,812.2 and rising. In London, the FTSE 100 hit an all-time high in January, climbing in February and again in March, where it topped 7,440 at the time of going to press and could climb even higher.

So, what’s going on? First, many think that the new US president Trump is likely to cut taxes and regulation – although that’s not necessarily the case in the UK. Second, low interest rates are driving money into equities, while corporates are borrowing to buy back shares. The third – and slightly more speculative – assertion is that companies are getting more used to uncertainty.

“Businesses are looking globally at opportunities to grow,” says Jackie Bowie, chief executive of risk consultancy JCRA. “There is uncertainty and it does get reflected in valuations or price or leverage, but it doesn’t stop us doing deals. Uncertainty creates opportunity and you cannot get away from it. The EU referendum was a real shock, and people started slow pedalling on deals, but then they decided to just get on with it because we could be in this state of flux for years.”

Anecdotal and statistical evidence bears that out. Pencils were downed on 90% of cross-border transactions with last June’s referendum result, but it was a matter of weeks not months before dealmakers had picked them up and were scribbling away furiously. With 418 US acquisitions of UK companies by American corporates, with a combined value of $55.6bn, and 228 worth $81.5bn in the other direction, 2016 was a record year, according to data from Thomson Reuters.

The second half of 2016 was particularly strong for inbound M&A. Cahal Dowds, vice-chairman of Deloitte in the UK, said: “Two trends stand out in the second half of 2016 – the strength of US outbound dealmaking and the sharp fall in UK outbound dealmaking. A widely expected collapse in US outbound dealmaking following the UK’s vote to leave the EU has not come to pass. On the contrary, US buying of UK assets outperformed the previous six months.”

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