Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

The U.K. government's unexpected hesitancy on the planned 18 billion pound ($24 billion) construction of the country's first new nuclear plant in two decades could complicate relations with China, a major investor in the project.

Usually when governments flip-flop on policy the resulting uncertainty is a dampener on other commercial activity. In this case, one casualty could be the notable upward trend in Chinese appetite to bid for U.K. targets.

An increasing prevalence of Chinese buyers in auctions has cheered and challenged sellers in recent years. The sudden arrival of a powerful (and typically state-backed) bidder as deals progress has typically been welcomed. Chinese buyers have added price tension to auctions, in effect underwriting the sale process.

Increasing Appetite
The monthly deal count for U.K. acquisitions by Chinese buyers has dramatically picked up
Source: Bloomberg

It's as if mergers and acquisitions have had a "China put," rather like the "Greenspan put" supporting the stock market at the turn of the century.

The only difficulty is that it has been hard to identify some potential Chinese buyers before they have surfaced -- many have come out of the blue, as Gadfly noted in March. They have been dubbed "wildcard" bidders.

The upward trend in Chinese purchases of U.K. assets over the last five years has been volatile, and included some pretty odd transactions -- Shandong Hongda Mining, a coal miner, purchased British video game maker Jagex for $300 million in March. 

The sinking pound after the Brexit vote -- it's down almost 10 percent on a trade-weighted basis -- has now made many U.K. assets cheaper even cheaper for foreign acquirers.

Would frostiness over the Hinkley Point nuclear plant change the overall picture? Perhaps, if all Chinese outbound M&A was mired in identical critical issues like Hinkley's generous taxpayer guarantees and the national security dimension.

But that's not the case. Chinese buyers have sought a range of assets. If anything, consumer and leisure, for example hotels, have been a particular target. On paper, the Prime Minister's rethinking of a nuclear reactor project championed by her predecessor shouldn't change these dynamics.

Gimme More
The volume of Chinese deals involving U.K. targets has been growing since 2011
Source: Bloomberg

But it may affect sentiment in ways that are hard to fathom, and that could restrain the hand of "wildcard" bidders. Sellers of U.K. assets will be less certain now of relying on the "China put."

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net