Takeover, merger (M&A) and spin-out activity is expected to accelerate in the months ahead as UK businesses aspire to bolster their competitive advantages and/or release extra shareholder value.

Already this year several UK firms have been targeted with deals either agreed or negotiations ongoing, including the £18bn-plus potential takeover of TV and broadband supplier Sky (SKY) by US cable group Comcast or 21st Century Fox.

Other £1bn-plus British buyouts struck this year include property internet business ZPG and trading software supplier Fidessa, while the merger of Virgin Money (VM.) with banking business CYBG (CYBG) is expected to complete later this year.

Mature operators looking to secure market share in the face of disruptive emerging threats from digital new entrants are one of the chief reasons for this M&A splurge, according to investment bank Jefferies. Its analysts believe this is a major factor in some of the UK’s biggest deals, Sainsbury’s (SBRY) merger with Asda being a good example.

‘On the face of it, the transaction is being driven by the need for the two companies to leverage their combined purchasing power to negotiate cheaper prices from suppliers,’ say the Jefferies research team.

However, they also see an underlying concern that Amazon is circling the food retail sector, while the likes of Ocado (OCDO) and Just Eat (JE.) are emerging players in an increasingly complex UK grocery space.

Activist investors are also playing their part in the gathering swirl of M&A. This year US private equity firm Elliot has taken stake in Whitbread (WTB), property group Hammerson (HMSO) and software business Micro Focus (MCRO) in attempts to encourage management to explore shareholder value creation measures.

‘We expect to see a wave of pending and potential vertical mergers across technology, media, healthcare, energy and general industrials,’ say the Jefferies experts. (SF)

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