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London - There’s at least one corner of corporate Britain where businesses are taking Brexit in stride.
UK companies are making more acquisitions abroad than they were before Britons voted to break with the European Union last June, seemingly undeterred by an ailing pound that’s increased the price tag for their targets by almost a fifth in dollar terms.
Reckitt Benckiser's $16.7bn surprise bid for American baby food producer Mead Johnson Nutrition this week makes it the second UK suitor in a month to make a move on a US target.
The first - British American Tobacco’s purchase of Camel cigarettes maker Reynolds American for almost $50bn - was the biggest overseas buyout by a UK firm since 2008.
“There does come a point when you just have to get on with things, despite the turmoil around Brexit,” said Dwayne Lysaght, head of UK mergers and acquisitions at JPMorgan. “Brexit will mean that UK companies have to become more dynamic internationally, and they’ll look for opportunities for expansion around the world.”
The deals are shattering assumptions that the cheaper pound would make UK assets more appealing to investors abroad, but stymie transactions in the other direction. Once they’ve swallowed the increased costs, British companies stand to benefit from venturing into new markets because they’ll generate sales in other currencies that can then be swapped back to the UK at a premium.
Making advances
Since the Brexit vote at the end of June, British buyers have announced about $136bn of deals for targets outside of the country, according to data compiled by Bloomberg. That’s up 54% from the same period a year earlier.
The offer from Reckitt Benckiser, known for making Lysol cleaners and Durex condoms, brings the value of domestic and global transactions involving British companies in 2017 to $40bn, almost double the same period last year, the data show.
Enthusiasm for mergers and acquisitions from the UK mirrors the rush worldwide, with January’s tally of $224bn in deals making it the most active start to a year since 2000.
Still, some of that activity could slow down if new administrations, including that of US President Donald Trump, impose barriers to international trade, dealmakers say. In Europe, results of elections in Germany, France and the Netherlands this year also risk altering the landscape.
“Despite the uncertain times in the UK and abroad, the world is still a global economy and international and multi-national corporates need to compete on a global stage,” said Simon Marchant, partner and London corporate head at Freshfields Bruckhaus Deringer.
Global horizons
The pound - which now trades at about 1.25 per dollar versus 1.49 before the Brexit vote - has been a boon for the domestic M&A scene, luring buyers like 21st Century Fox, which last year made an offer to acquire the rest of Sky it didn’t own for £11.7bn.
Reckitt Benckiser, meanwhile, is courting Mead Johnson to build its faster growing consumer-health business and bolster its presence in Asia. For BAT, combining with Reynolds gives it an initial foothold in the US, which will account for about 35% of the combined group’s revenue, according to data compiled by Bloomberg last month.
"While the post-referendum expectation that overseas acquirers would snap up quality UK assets at a discount has been borne out, there are still UK market leaders with substantial cash, access to debt, and strategic and global growth ambitions that offset the currency premium," said Tom Wells, a London-based partner at Arma Partners, which specializes in mergers and acquisitions in the communications, media and technology sectors.
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