| Weak pound attracts foreign investors |
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| Written by Adrie van der Luijt | |
| Tuesday, 29 April 2008 | |
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The weakened pound looks set to increase the appeal of UK M&A from overseas investors.
Andrew Curwen, head of European M&A at business advisory firm Deloitte, explained that with the UK’s open door policy, international interest in UK deals has been steadily growing. Indian buyers increasingly active Ten years ago, little more than 20 per cent of acquisitions of UK companies involved foreign acquirers but by 2007 this had increased to almost 30 per cent. The weakened dollar has increased the attractiveness of the US for foreign investors and Curwen expects 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, said it was clear that Indian buyers were becoming increasingly active in overseas markets. In particular, he has seen a recent upsurge in interest around UK targets. Technology, media and telecommunications sector 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. Gill expects 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, has seen a great deal of interest from Asian acquirers in UK TMT businesses and expects 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,” he added. While international deal interest has built up momentum, so too has investment in listed UK companies. Capitalise on lower asset values Curwen said that ownership of UK plc has switched from nearly three quarters British to being barely 60 per cent home owned over the past decade. He believes that 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,” Curwen added. Currency fluctuations have an important role to play in an increasingly global investment market. Whopping devaluation Ian Stewart, economist at Deloitte, said that the value of the pound has dropped by 13 per cent 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,” he added. He pointed out that everywhere else the pound is in retreat. In the last year sterling has dropped by about 20 per cent against the euro, the yen and the Swiss franc. While the weakened pound raises import prices and inflation, Stewart said it is a natural corrective: dampening consumer spending; making exports cheaper and boosting UK exporters. Significant boost “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,” he added. Official statistics show that 28 per cent of UK equity was owned by overseas companies in 1997, compared with 40 per cent 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 per cent of deal value in 1997, compared with 29 per cent 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. Related articles
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