Of the 66 formal M&A discussions involving fully listed companies on the London Stock Exchange and AIM which took place in 2016, 16 fell through. This is compared to 18 out of 81 the year before, according to new analysis by accounting firm Moore Stephens.
The failure of one in four deals is an increase of 2% year-on-year. While the upturn is not huge, commentators believe that the pattern could continue, as long as there is volatility and uncertainty in the UK economy caused by Brexit and the ongoing negotiations to follow the triggering of Article 50.
“Political and economic turbulence tends to make business more cautious about taking on the risks of an M&A deal, especially where a deal might require the bidder to add substantially to their level of debt”, says Debbie Clarke, head of M&A at Moore Stephens.
“It is too early to say that there actually is a rise in economic nationalism that might put deals at jeopardy, but is definitely a risk M&A teams need to mitigate”, she warned.
Notable victims of the ongoing reluctance to do deals include the recent failed merger of Kraft Heinz and Unilever at the end of February. The proposed merger of the LSE and Deutsche Boerse has similarly run into continued difficulty.
David Petrie, head of ICAEW's Corporate Finance Faculty said, "While a fair proportion of M&A deals typically don’t reach completion, this can be for a wide variety of perfectly valid reasons. This 'fact of life' is one very good reason why contingent fees arrangements are so often in the best interests of all stakeholders in M&A.
"What’s really a surprise is that the increase is barely statistically significant in a year which saw the vote for Brexit and the election of president Trump.
"Unfortunately, the figures also show a significant reduction in the number of IPOs on AIM - 66 in 2016, compared with 81 in 2015. But again, against the backdrop of macro-economic and geopolitical uncertainty, this is hardly a surprise. The good news is that 2017 looks as though it will be much busier for capital markets transactions in general," he added.
Number 10 today announced that it will trigger Article 50 on 29 March.