Eurozone crisis blamed for 14pc cut in UK takeovers

The declining number of deals in the first quarter of 2012 compared to the previous three months was driven by fears over the future of the eurozone as Greece threatened default, Ernst & Young’s M&A Tracker said. The same trend was echoed on a global scale, with the number of deals down 24 per cent.

However, in the UK, a 41 per cent rise in the average size of the deals to £167m ($264m), meant their total value rose 20 per cent, beating the global picture where average transaction values increased slightly.

Leeds M&A director Mark Clephan, at Ernst & Young, said: “The market uncertainty of late last year has clearly impacted transaction activity in first quarter of 2012. That said, the small upswing in average deal values could indicate an increase in confidence amongst buyers – who whilst still cautious about undertaking transactions are more willing to push through larger deals.”

The proportion of deals in the UK financed by cash rose to 91 per cent from 88 per cent previously, driven by an increase in the number of companies sitting on large surpluses.

This was much higher than the 55 per cent of deals financed by cash on a global scale. Jon Hughes, transaction advisory services leader at Ernst & Young, added: “Globally, the historically low cost of debt and improving equity markets have driven funding towards external sources of finance.

“This reflects an increasing confidence about access to capital markets for transactions. In contrast, deals in the UK have been, on the whole, financed by well rated companies utilising their healthy cash piles to fund 100 per cent cash payment transactions.”

The Middle East and North Africa was the only region where both the number of announced transactions and their total value increased quarter-on-quarter in the first quarter of 2012.

Deal volumes increased marginally by three per cent whereas the total announced deal value increased by 85 per cent. Western Europe saw an increase of 36 per cent in terms of total deal value announced, despite a 19 per cent fall in the number of deals announced quarter-on-quarter. While Oceania saw quarter-on-quarter decreasing deal volumes of 29 per cent and deal values of 44 per cent.

Mr Clephan said: “From the wide variance in activity levels by region, it is clear that confidence levels are increasingly decoupled.”