Collapse of sterling sees foreign investors hungry for UK firms

Despite fears that Brexit uncertainty would choke off M&A activity, deal makers have seen a growing appetite from American, Chinese and Japanese firms looking to buy British, as the pound struggles to recover from record lows.

The most eye-catching deal has been Japan’s SoftBank Group’s £24.5bn acquisition of ARM Holdings, but other deals include the Odeon & UCI cinema chain sale by Guy Hands’ private equity vehicle Terra Firma to US firm AMC Entertainment.

In Yorkshire, Premier Farnell is being sold to US firm Avnet for £691m after the American firm made a higher offer for the Leeds-based electronics distributor at the end of July.

Premier had previously recommended a takeover bid by Swiss firm Daetwyler.

Cavendish Corporate Finance said sterling’s slide against the Japanese yen - coupled with the desire by Japanese firms to invest outside the country’s stuttering economy - is driving interest in mid-sector UK firms.

Peter Gray, partner and head of financial services at Cavendish, said: “Desperate to deploy capital outside the moribund Japanese economy, Japanese buyer interest has been seen across all sectors.

“While the ARM deal has grabbed the headlines, in the lower echelons of the mid-market, acquisitive Japanese companies are also making their presence felt.

“By way of example, the quoted Japanese BPO group, appropriately named Outsourcing Inc has recently acquired two UK businesses - JBW, a debt-enforcement business, and Allen Lane, a recruitment business.”

Sterling has dropped more than 30 per cent against the Japanese yen since last year, while the pound is down 12 per cent against the US dollar and 11 per cent lower against the Chinese yuan since the Brexit vote.

UK deals struggled for momentum in the first half of 2016, with targeted M&A volumes hitting £55.5bn - its lowest level for five years.

However, a number of high-profile deals in recent months have brought fresh hope to deal makers that UK M&A activity may prove resilient despite the uncertainty triggered by the Brexit vote.

Major deals include the Odeon & UCI cinema chain sale for £921m in July.

It was quickly followed by SoftBank’s tie-up with ARM Holdings, marking the biggest investment from Asia into the UK.

Chinese investment group Yunyi Guokai (Shanghai) Sports Development is also on course to snap up West Brom football club.

Piers Prichard Jones, partner at Freshfields, said: “US and Chinese companies are certainly alive to opportunities in the UK post the vote.

“Any transactions are likely to have a robust strategic rationale, but sterling’s current weakness could be the catalyst for a US or Chinese acquirer choosing to move now rather than waiting.