US buyers set sights on UK market

As US market valuations hit new heights on news of Trump’s tax plans, the UK marketplace should expect to see growing interest from US buyers in the year ahead. But what is bringing them to our shores and how can UK businesses capitalise on sale opportunities?

Since the Brexit vote and falls in the value of sterling, which is down around 10 percent against the US dollar, US buyers have been on the look-out for investment opportunities in Britain. Any acquisitions they choose to make represent good value for money at a time when US buyers are feeling flush due to strong equity markets and favourable domestic tax reforms.

Growing interest in the UK marketplace could also be due to other factors. The strong availability of finance in the UK means US buyers can maximise profits by borrowing in sterling in order to match sterling denominated UK profits. The rapid growth of British technology businesses also means there is a rich seam of talented, entrepreneurial businesses for them to target. This trend is especially evident in fintech.

Evidence that US buyers are ready and willing to invest in UK companies is easy to find. Apple recently announced its acquisition of the London-based music recognition app, Shazam, for an undisclosed sum, which has been reported to be around $400m (£300m) and both companies have spoken of ‘exciting plans for the future’. Similarly, Vantiv Inc has announced plans to merge with WorldPay – a leading UK-based payments company with global reach for $10.4bn (£9.3 billion) – and the deal is expected to complete on 16 January 2018.

Both transactions indicate the buying power of US corporates as they look to expand into new markets and the attractiveness of innovative technology businesses in the UK, regardless of whether they are listed or private businesses. In 2018, it is likely that US buyer interest will spread further to target a wide range of industry sectors.

Data from Mergermarket has recently confirmed that US buyers are already on the acquisition trail in the UK – with 134 deals involving US corporates reported in the first six months of 2017, representing 44 percent of all inbound acquisitions. This is unsurprising, as the UK has long been an attractive destination for US investors looking for a foothold in Europe for cultural reasons. There are also fewer restrictions in the UK regarding the types of companies that can be acquired without triggering the need for Government consent. With inbound M&A activity remaining strong in 2017, it seems Brexit uncertainty is not putting off international buyers and their interest seems set to continue in the year ahead.

A steady increase in the number of private-equity (PE)-backed companies in the US could also be driving international M&A activity. According to data compiled by US financial services firm, Robert W Baird & Co, the number of PE-backed businesses in America rose by more than 30 percent between 2011 and 2017. Such businesses are more likely to have a strategic growth plan in place and good lending conditions in the US also mean they have funds available to invest.

For well-managed UK businesses pursuing a sale, there is clearly an opportunity here. If they can demonstrate a solid trading performance and profitability, combined with strong leadership, they could attract US-buyer attention. With the expectation that US-led deal making could increase in 2018, prospective sellers should consider taking preparatory action now to maximise value and iron out any issues that might be off putting to investors – in particular, long-standing employee disputes that carry a risk of litigation should be settled where possible. Environmental issues are also a key due diligence item for US buyers.  Among the assets that could prove especially attractive to US buyers are any intellectual property rights, particularly in view of the Patent Box tax relief that is available on profits generated by European and UK patents. For this reason, it is important that patent and trade mark renewals are recorded and kept up to date.

Economic forecasters see benign conditions for the UK economy for year ahead, despite Brexit concerns, and this could mean another year of strong inbound M&A activity. UK businesses are well placed to attract US buyer attention and it should be possible to secure strong valuations. Readiness is key and businesses seeking to capitalise on the investment opportunity that exists should be preparing now.

Richard Wrigley is a partner at Shakespeare Martineau, specialising in advising clients on high-value corporate transactions.