U.K. Plc Keeps Calm and Carries on Post-Brexit Acquisition Binge

  • Reckitt Benckiser joins BAT in making bids for U.S. companies
  • British acquisitions abroad since Brexit up 54% year-on-year

There’s at least one corner of corporate Britain where businesses are taking Brexit in stride.

U.K. companies are making more acquisitions abroad than they were before Britons voted to break with the European Union last June, seemingly undeterred by an ailing pound that’s increased the price tag for their targets by almost a fifth in dollar terms.

Reckitt Benckiser Group Plc’s $16.7 billion surprise bid for American baby food producer Mead Johnson Nutrition Co. this week makes it the second U.K. suitor in a month to make a move on a U.S. target. The first -- British American Tobacco Plc’s purchase of Camel cigarettes maker Reynolds American Inc. for almost $50 billion -- was the biggest overseas buyout by a U.K. firm since 2008.

“There does come a point when you just have to get on with things, despite the turmoil around Brexit,” said Dwayne Lysaght, head of U.K. mergers and acquisitions at JPMorgan Chase & Co. “Brexit will mean that U.K. companies have to become more dynamic internationally, and they’ll look for opportunities for expansion around the world.”

The deals are shattering assumptions that the cheaper pound would make U.K. assets more appealing to investors abroad, but stymie transactions in the other direction. Once they’ve swallowed the increased costs, British companies stand to benefit from venturing into new markets because they’ll generate sales in other currencies that can then be swapped back to the U.K. at a premium.

Making Advances

Since the Brexit vote at the end of June, British buyers have announced about $136 billion of deals for targets outside of the country, according to data compiled by Bloomberg. That’s up 54 percent from the same period a year earlier.

The offer from Reckitt Benckiser, known for making Lysol cleaners and Durex condoms, brings the value of domestic and global transactions involving British companies in 2017 to $40 billion, almost double the same period last year, the data show.

Enthusiasm for mergers and acquisitions from the U.K. mirrors the rush worldwide, with January’s tally of $224 billion in deals making it the most active start to a year since 2000. Still, some of that activity could slow down if new administrations, including that of U.S. President Donald Trump, impose barriers to international trade, dealmakers say. In Europe, results of elections in Germany, France and the Netherlands this year also risk altering the landscape.

“Despite the uncertain times in the U.K. and abroad, the world is still a global economy and international and multi-national corporates need to compete on a global stage,” said Simon Marchant, partner and London corporate head at Freshfields Bruckhaus Deringer.

Global Horizons

The pound -- which now trades at about 1.25 per dollar versus 1.49 before the Brexit vote -- has been a boon for the domestic M&A scene, luring buyers like 21st Century Fox Inc., which last year made an offer to acquire the rest of Sky Plc it didn’t own for 11.7 billion pounds ($14.7 billion).

Even though it’s more expensive for U.K. businesses to buy assets abroad, the opportunity to diversify revenue streams seems compelling enough to pursue acquisitions anyways. If Reckitt Benckiser succeeds in taking over Mead Johnson, it will bolster its presence in Asia, while BAT’s American foray means the combined group will generate 35 percent of sales from the U.S.

While the post-referendum expectation that overseas buyers would snap up U.K. assets has "borne out," U.K companies with "substantial cash" are still in a position to bolster the acquisition pipeline, according to Tom Wells, a London-based partner at Arma Partners, which specializes in communications, media and technology M&As.

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