Recent analysis by Deloitte, the business advisory firm, has shown that the weakened pound looks set to increase the appeal of UK M&A and investment from overseas investors.

Andrew Curwen, Head of European M&A at Deloitte, commented: “With the UK’s open door policy, international interest in UK deals has been steadily growing.  Ten years ago, little more than 20% of acquisitions of UK companies involved foreign acquirers but by 2007 this had increased to almost 30%.  We have seen the weakened dollar increase the attractiveness of the US for foreign investors and expect the same effect in the UK as the euro / pound rate hovers around the 1.25 to 1.30 mark.”

One country which has taken an increased interest in UK M&A opportunities is India.  Sandeep Gill, Managing Director of the Corporate Finance practice at the Indian firm of Deloitte commented: “It is clear that Indian buyers are becoming increasingly active in overseas markets. In particular, we have seen a recent upsurge in interest around UK targets.  Last year, Indian buyers bought UK companies worth $1.4bn: more than double their total investment in the UK over the previous four years combined.  We expect Indian buyers to be an increasing force in M&A in the UK”.

One industry sector which looks set to benefit from international interest is the technology, media and telecommunications (TMT) sector.  Joel Greenwood, TMT corporate finance director at Deloitte, added: “We have seen a great deal of interest from Asian acquirers in UK TMT businesses and expect the devalued pound to bring this trend into sharper focus.  Big deals in the European broadcasting arena have been mooted for some years now; the weaker pound could prove the tipping point.”

While international deal interest has built up momentum, so too has investment in listed UK companies.  Curwen went on to say: “Over the past decade, ownership of UK plc has switched from nearly three quarters British to being barely 60% home owned.  Business in the UK has never been as international as it is today.  If the pound stays weak against most currencies except the dollar and relative economic growth expectations remain competitive in the UK, this trend looks set to continue.  Notwithstanding the potential upturn in international investment, UK companies also believe that they are in a strong position to capitalise on lower asset values and less competition from private equity.”

Currency fluctuations have an important role to play in an increasingly global investment market.  Ian Stewart, economist at Deloitte, commented: “The value of the pound has dropped by 13% from last year’s peak.  This is a whopping devaluation: roughly as big as the famous Wilson devaluation of 1967 and not far off the fall in 1992 when the UK was ejected from the ERM.  The scale of the pound’s decline has been obscured by the fact that sterling, at around the $2 mark, is strong against the unloved dollar.  But everywhere else the pound is in retreat.  In the last year sterling has dropped by about 20% against the euro, the yen and the Swiss franc.  While the weakened pound raises import prices and inflation, it is a natural corrective: dampening consumer spending; making exports cheaper and boosting UK exporters.  There is an expectation that the pound may become weaker against the dollar, which would give a significant boost to foreign interest in UK equities, corporates and physical assets.”

Key facts:

• ONS figures show that 28% of UK equity was owned by overseas companies in 1997, compared with 40% in 2006;
• The euro / pound exchange rate has been falling steadily from 1.5 in September 2007 to around 1.25 today
• Thomson data shows that overseas acquirers made up 21% of deal value in 1997, compared with 29% in 2007;
• The latest Deloitte CFO survey found that CFOs think the credit crunch will make it easier for corporates to undertake M&A, with lower valuations and weaker competition from private equity.

Notes for editors

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.