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Picking merger winners

A flurry of deals could be around the corner. The IC companies team looks for potential targets
January 16, 2020

One could be forgiven for assuming that three-and-a-half years of Brexit uncertainty brought about a barren period for dealmaking in the UK. There’s certainly been a dearth of initial public offerings (IPOs), although this was not entirely driven by political stalemate, as a series of botched high-profile listings scared would-be London Stock Exchange entrants away from the market.

But UK merger and acquisition (M&A) activity has actually been resilient since June 2016. Last year, the UK was the most targeted country in Europe, the Middle East and Africa (EMEA) for mergers and acquisitions, with $220.9bn (£168.9bn) worth of deals, according to Refinitiv – far ahead of Germany, which sat in second place with $91.9bn. There has also been a strong flow of interest in UK small-caps, many of which are niche and tech-focused, and therefore sheltered from some macroeconomic headwinds. That partly explains the number of takeovers on Aim, which accountancy firm UHY Hacker Young says exceeded the number on the main market in both 2018 and 2019.

None of this is to say that the return to majority government won’t add momentum to M&A and generate further interest from prospective dealmakers. The ability to pass government legislation in parliament will allow Boris Johnson to pursue his agenda for a ‘global Britain’. Nor has Brexit risk evaporated, despite the UK’s departure from the European Union (EU) being now all but certain. The UK will have to leverage its competitive advantages in areas such as technology and life sciences in a post-Brexit world. “The new government’s vision of a post-Brexit Britain places great weight on a high-tech, high-skill, innovation-led economy which looks globally rather than to the EU for its trading relationships,” says Ben Higson, a partner at law firm Hogan Lovells. This could build interest in the likes of stem-cell technology business ReNeuron (RENE), as we detail among our selection of five potential takeover targets for 2020 below.

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