Britain is second only to US for buyouts of foreign firms

Britain is now the second-largest buyer of foreign companies in the world, new research shows, despite, concerns that it is an easy hunting ground for overseas predators.

Hewlett-Packard's £7bn swoop on Autonomy, Britain's largest software company, in August reignited concern about how many UK firms were being acquired by overseas competitors.

Northumbrian Water became the latest UK utility to fall into foreign hands after a $7.8bn takeover by Hong Kong tycoon Li Ka-Shing the same month.

But according to a report on cross-border mergers and acquisitions by international law firm Allen & Overy, the UK is among the world's top five overseas acquirers in many sectors, and is most active in utilities, financial services and infrastructure.

Examples include BP's $7.2bn acquisition of a 30% stake in oil and gas fields operated by India's Reliance Industries in February, Vodafone's $5.5bn buyout of its partner Essar from its Indian mobile phone business in July, and UK drilling services company Ensco's $7.1bn deal to buy US rival Pride International.

Overall, UK companies have made 86 foreign acquisitions this year with a total value of $83.3bn (£52.8bn), which puts Britain second to the US, with 179 deals worth $164.6bn.

Britain's cross-border net score of +14 deals – the number of UK takeovers minus the number of foreign deals – also puts it in second place after the US, which has a net score of +56. The so-called "Bric" countries of Brazil, Russia, India and China, despite their increased global prominence, remain net sellers.

New UK takeover rules developed after last year's controversial Cadbury takeover by Kraft were adopted last month and require target companies to reveal the identity of unnamed bidders at the outset and start the bidding timetable earlier.

But Richard Browne, head of UK Corporate at Allen & Overy, said while this might change companies' tactics in takeover battles, it was unlikely to have an impact on overall deals. "It's a deliberate move to give more control to the target in a public situation. It will be slightly harder to be successful in hostile scenarios."

He believed it would still be easier for foreign firms to buy UK companies than in many other countries. "We don't put many, if any, restrictions on overseas buyers in the UK. It's a free market. The top target market for the US is still the UK."

However, the gloomy outlook for the UK economy is likely to put some potential investors off. "There are bigger opportunities elsewhere," Browne added.

The Autonomy takeover aside, the UK market has seen mostly small to middle-market deals, with the equity market particularly hit as financing for all but the very best corporate blue-chips dried up, the report said.

Browne noted that the lack of transformational deals could also be partly attributed to Prudential's abortive $35.5bn bid for AIA, the Asian business of US insurer AIG, last summer. "Things like the Pru's deal not going through have a negative impact on CEOs' confidence."

Compared with last year, M&A activity is down 30% in both value and volume in the UK. This was in stark contrast to the western European average, where both the value (26%) and volume of deals (7%) has increased compared to the same period last year.

The UK's top five target markets include the US (20 acquisitions), India (7), Germany (7), France (6) and Canada (5). However, despite being the third most popular target globally, China does not feature within the UK's top 10 for M&A activity. {source}