The continued Brexit uncertainty has further weakened sterling particularly against the US dollar. Currencies pegged to the dollar have seen unprecedented gains against the pound. In turn, this has led to several mergers and acquisitions and the timing is opportunistic. A hard Brexit will usher further falls in sterling but if an unexpected deal is agreed, sterling will gain rapidly.
A prime driver of corporate action is that foreign groups are eager to exploit the weakness of sterling to buy British competitors. While sterling's weakness will help drive M&A’s, so too will subdued economic growth, which makes it difficult for companies to increase profits.
One of the solutions is to acquire a rival, so that instead of growing at 1% or 2% a year, the company is able to increase growth by 8-10%. Takeovers offer quick profits as the acquiring company can cut costs and boost revenue in the short term, but there is evidence that many deals are not in the long-term interest of shareholders.
· The Netherlands-based Takeaway.com agreed a takeover of the UK-listed rival Just Eat for £5bn
· Hong Kong’s richest family bought the 220-year old pub and beer company Greene King for £4.6bn
· US private equity group Advent International agreed a £4bn buyout of Cobham - the UK aerospace and defence supplier
· Hasbro, the US toymaker behind My Little Pony and Play-Doh, bought Peppa Pig owner, Entertainment One, for £3.3bn
· Merlin, operator of Alton Towers, Madame Tussauds and Legoland, was taken private by a consortium including the family that controls the Lego toy-making empire
British regional airline Flybe Group Plc is said to explore a sale or a merger with a rival, weeks after it issued a profit warning because of fuel costs, weakening demand and a weaker British pound. Stobart Group, which has previously bid for Flybe, is likely to be one of the potential suitors.
Many companies in the FTSE 100 and FTSE 250 get their earnings abroad. Companies such as HSBC, GlaxoSmithKline and Wolseley are benefiting from a boost to their share prices. Mid-cap 250 index, which has a more diverse group of companies that better reflects the UK economy, is also enjoying sterling’s pain, since it is populated by commodities companies.
Foreign-based multinationals, wealth funds and investors are acquiring property in the United Kingdom despite Brexit uncertainty and global trade wars. A company from Singapore paid £180 million for five Plymouth student apartment blocks and two other blocks are said to have been purchased for over £1million according to industry sources.
Sterling devaluation has made companies as well as properties throughout the UK, an attractive proposition. British assets have rarely looked cheaper.