Deals Index*

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After a subdued 2016, is Article 50 a new beginning for deal activity?

2016 was an eventful year for the United Kingdom with the Brexit referendum, but less so for the deal market. The number of deals per quarter and the deal mix (e.g. private equity vs. corporate and domestic vs. inbound/outbound) remained broadly stable throughout 2016 – but still below record-breaking 2015.

We did not see an increase in inbound deals in the second part of the year, suggesting that although the weakening sterling rate may have facilitated some deals, uncertainty about the future status of the UK remained high on buyers’ agendas.

The question now is what next, especially with the recent triggering of Article 50.  Our view is that we expect to see a modest uptick in deal activity in 2017.  The immediate uncertainty led to a deal hiatus in summer 2016, but that has now passed and deal doers will not have a clearer picture for, potentially, years.  Given that backdrop, plus large pools of equity and debt on offer, coupled with buoyant equity markets, the indicators point to a growth in M&A.

Looking back to 2016, our Deals Index data shows that overall 2016 deal volumes were 21% below prior year, but deal value was more than double. This diverging trend was mainly as a result of a number of mega-deals (above £10bn)  that completed in 2016. Excluding these deals, aggregated deal value was c.20% down on prior year.

Sources: Thomson Reuters, Preqin, PwC analysis as at 31 December 2016

Sources: Thomson Reuters, Preqin, PwC analysis as at 31 December 2016

The ‘post-referendum’ status of the UK seems to represent the new “business as usual” for M&A operators, as the number of deals in the second half of 2016 was in line with the first half, but with a higher proportion of private equity deals (22% in H1’16 vs. 30% in H2’16).

2016 was also characterised by the completion of five deals above £10bn (vs. none in the previous three years): Shell/BG Group (£55bn), BT/EE (£13bn), the ‘reunification’ of Visa Inc and Visa Europe (£15bn), Softbank/ARM (£24bn) and SAB Miller/AB-In Bev (£77bn).

Guarded UK inbound activity

There were  mixed results on inbound activity during the year: the number of inbound deals completed in 2016 was c.40% lower than in 2014 and 2015, but value was much higher, due to the mega-deals, and also a number of acquisitions from North American corporates in the £1bn-£10bn range.

The decline of inbound deals was evident in the private equity space (including pension funds), with a c.60% decline vs. both 2014 and 2015, primarily driven by US and Canadian investors, who appear to have taken a conservative approach during this period of uncertainty.

Overall, 2016 acquisitions from North American buyers were c.40% below 2015 in volume terms, whereas the decline of ASPAC and Europe was limited to c.25% and c.5%, respectively.

Soft UK outbound activity

There were also mixed messages from our analysis of outbound deals. In 2016, deal volumes declined 10% vs. 2015, with broadly stable North American acquisitions, a limited increase in ASPAC deals and a 25% decline in European deals. This declining trend (driven by corporates) was not unexpected given the uncertainty on the future terms of the UK/EU relationship, which was exacerbated by the glide path of sterling vs. Euro.

Within the European region, we have observed UK buyers acquiring more in southern countries (particularly in Italy, following significant private equity activity) and less in the “traditional” German, French and Dutch investment markets.  This speaks positively to UK investors’ views of those countries’ direction of travel from a macro-economic perspective.

Private Equity picking up sharply

Whilst acquisitions of UK assets by foreign private equity houses remained limited, we saw a significant increase in activity from UK-based private equity houses in H2’16 compared to H1’16 (+c.50%, both outbound and domestic). We believe there was a degree of “catch-up” in this trend, following a quiet Q2’16.  In value terms however, private equity was outgunned by corporates, reflecting the mega corporate deals seen in 2016.

Private equity houses still have a lot of dry powder and much of their funding is in US$ or Euro, therefore we anticipate that this level of activity should continue at the level seen in the second half of 2016. 

We also saw increased activity from sovereign wealth funds and family offices (both included in our “Private Equity” category), even if the “traditional” private equity houses still have the lion’s share of non-corporate transactions. 

Sources: Thomson Reuters, Preqin, PwC analysis as at 31 December 2016

Sector summary

Sources: Thomson Reuters, Preqin, PwC analysis as at 31 December 2016


  • Deals in the Financial Services space tend to be hit harder by uncertainty than other sectors, especially with the concerns around “passporting” in a post Brexit world. Deal volumes were down 41% vs. 2015 as these concerns were more keenly felt.
  • Perhaps more surprisingly, the number of deals in the Industrial Products & Services was 24% below 2015, driven by the depressed Engineering and Construction segment. However, we saw a marked improvement in the second half of the year, which is likely to continue in 2017.
  • Technology Media and Telecom (TMT) also declined by 32% (in volume terms), following a record-breaking 2015 in the Technology space, particularly with corporates.
  • Healthcare & Pharma and Retail & Consumer showed a slight decline in volume terms vs. prior year, with lower corporate activity partially offset by private equity.

Sources: Thomson Reuters, Preqin, PwC analysis as at 31 December 2016

What’s in store for the rest of 2017?

Overall we are positive about the deals market in 2017, but we expect the ride to be bumpy ride during the course of the year, as the UK and the European Union sharpen their negotiation tools with arguments which may have a direct impact on buyers’ investment thesis and deal structures (including the thinly veiled threats on duties and corporate tax rates).  There also remains the chance of political shocks in some major European territories that could impact on buyer and seller confidence levels – a lack of confidence always spells trouble for M&A.

However, deal doers need to do deals.  There is plentiful debt, equity markets are at all time highs and there is more money sloshing around in the hands of financial investors than ever before.  These human and demand side factors all point to positive momentum. 

Couple that with a traditional British approach of “don’t panic, carry on” and we feel good about M&A in 2017 and beyond.

*PwC Deals Index is a PwC analysis of UK deals involving a UK asset or acquirer, sourced from Thomson Reuters, Mergermarket and Prequin as at 31 December 2016, for completed deals with a disclosed value greater or equal to £25 million, and an equity stake greater than or equal to 25%.

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James Fillingham
Head of Transaction Services
Tel: +44 (0)20 7212 3991

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Marissa Thomas
Head of Deals, PwC United Kingdom
Tel: +44 (0)20 7804 5281

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