March 20, 2020 / 3:00 PM / 10 days ago

Britain's dealmaking drops a third on coronavirus, recession fears

LONDON (Reuters) - The volume of merger and acquisition (M&A) deals involving companies based in Britain has dropped 31% so far this year to a six-year low, according to Refinitiv data, amid the coronavirus outbreak and fears of a recession.

The spread of the disease caused by the virus, COVID-19, has sent financial markets into a tailspin, fuelling fears of severe economic damage and forcing central banks to take some of the biggest emergency stimulus measures since the financial crisis.

In Britain, where Prime Minister Boris Johnson has ordered schools to shut down and people to work from home, four mega deals have skewed the picture, driving up the value of dealmaking while the volume has dropped significantly.

On March 9, insurance broker Aon (AON.N) agreed to buy rival Willis Towers Watson (WLTW.O) in a $30 billion all-stock deal which is set to create a global powerhouse.

In February, a consortium involving buyout funds Cinven and Advent clinched a deal to take control of Thyssenkrupp’s (TKAG.DE) elevators business for 17.2 billion euros ($18.5 billion), while Blackstone (BX.N) bought UK student accommodation company iQ for 4.66 billion pounds.

And British retailer Tesco (TSCO.L) agreed to offload its Thai and Malaysian businesses for an enterprise value of $10.6 billion on March 9.

These deals have played a key role in doubling the value of UK dealmaking to 84.3 billion pounds so far in 2020, compared with the same period last year.

But the pace of dealmaking has almost come to a halt.

In March, only 131 deals involving a UK-based company have been announced, compared with 447 in March 2019. The overall volume since the start of the year has also dropped to 749 from 1,090 in 2019, the lowest since 2014.

The value of deals involving UK-based companies buying targets overseas is down 14%, totalling 7.7 billion pounds so far in 2020 and a seven-year low.

This year, the vast majority of deals have seen British companies being sold to foreign rivals or merged with domestic players, with the value of inbound M&A totalling 13.7 billion pounds so far, up 8% on the same time last year.

The value of domestic dealmaking has more than tripled with 31.4 billion pounds worth of deals in 2020, but Aon’s 22.9 billion pound swoop on Willis Towers Watson accounted for 81% of that, as both firms are headquartered in London.

Investment banking fees generated in Britain have totalled 822.4 million pound so far in 2020, 12% less than at the same time last year and the lowest year-to-date total since 2013.

After a strong start to the year with 405.6 million pounds generated in January, fees subsequently declined to just 131.3 million pounds in March.

($1 = 0.9314 euros)

Reporting by Pamela Barbaglia; Editing by Mark Potter

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