Appetite for M&A returns
“Sell in May and go away, don’t come back until St. Leger’s Day” is enshrined in stock market folklore but, while investors would only have missed out on a 2.8% rise in the FTSE100 if they had heeded this sage counsel in 2010, they would also have failed to take part in a mini M&A boom that has provided shareholders with the opportunity to realise some very healthy returns.
Companies from a number of sectors, from insurance and utilities to miners and retailers have been the subject of bids from a variety of suitors with trade buyers, sovereign wealth funds and private equity firms all returning to the market to ink deals during what is traditionally a fallow period in the City.
Although the global recovery is still brittle and the possibility of a “double dip” recession in the UK remains, companies that were able to ride out the worst of the economic downturn have switched their attention from paying down debt and reducing costs to utilising cash piles and making the most of low interest rates in order to snap up undervalued assets.
This apparent dislocation between the fragile state of the wider economy and the latest bout of deal making is starkly illustrated by the activity in the restaurant sector which has seen a wave of consolidation over the past two months alone.
Clapham House, owner of the Gourmet Burger Kitchen chain, has agreed a takeover by the owners of chicken chain Nandos, pub chain Mitchells and Butlers has bought up Ha Ha Bar and Grill and MHP client Carluccio’s has brokered a deal with Dubai-based retail and leisure giant Landmark Group. Across the pond, even the mighty Burger King has fallen prey to a $3.3 billion offer from 3G Capital, a Brazilian-backed investment firm.
Although diners at all of the above are likely to find their disposable income negatively impacted by the Government’s austerity measures, it would seem that companies with an appetite for growth are still prepared to do deals…providing they can tuck in to the right morsel for the right price.