Expect more mergers and acquisitions as uncertainty becomes the new norm

We may only be two weeks into 2017 but it is already starting to feel a lot like last year. Some retailers are still struggling, a hard Brexit is looming, the Donald Trump nightmare will become a reality next week when he is inaugurated as US president, and Mike Ashley remains locked in the City equivalent of a bar-room brawl with shareholders.  The question is whether the hangover from a pretty dreadful 2016 will mar the whole of 2017. The UK’s investment bankers are certainly hoping not as last year they had to navigate an extremely volatile year when it came to large-scale corporate transactions. Data from Dealogic shows that even though global M&A deal volumes held up fairly well despite the macro-economic turmoil, in the UK they fell by more than 50% to $355bn (£292bn) in 2016. This was a far cry from the bonanza of 2015 when more than $603bn of deals involving UK companies were struck. As a betting person (by which I mean an annual flutter on the Grand National) I am predicting a better year for M&A. The issues that affected activity last year – from fears over China’s economy to shock election results and the oil price – continue to be issues, but they are known factors. Uncertainty has become the new norm and even with elections on the horizon in Germany and France it would appear that companies are getting on with things. We can already see this taking place with some big M&A transactions in the offing following a flurry of deals in the past few weeks. 21st Century Fox has made its long-anticipated swoop to buy out the rest of the shares it does not already own in Sky, in a deal that, if it goes ahead, will value the UK broadcaster at £18.5bn. Trinity Mirror disclosed this week it is in early discussions to take a minority stake in a new company that could hold some of Richard Desmond’s newspaper and magazine assets. The leisure sector, particularly the holiday parks business, remains active and Britain’s property sector is getting in on the action too. Housing association Peabody is merging with Family Mosaic and earlier this week it was revealed that Gallagher Estates is in talks to sell part of its empire to London & Quadrant. The property industry as a whole could be a net beneficiary of the consolidation under way in various sectors. At Sports Direct, Ashley is selling off non-core assets, striking a deal to sell its rights to the Dunlop brand to Sumitomo Corporation over Christmas and more disposals are increasingly likely. In between firing off stock exchange announcements to tell shareholders how “bitterly let down” he is by their actions, the retail billionaire has said that proceeds from disposals would be ploughed into its already aggressive property acquisition programme. At its half-year results, Sports Direct said it planned to “elevate” its portfolio and forecast it could invest up to £300m in freehold property acquisitions over the next two to four years. Similarly media mogul Richard Desmond has no doubt used some of the proceeds from his recent sale of Channel 5 to Viacom for £463m to build up a major residential and commercial portfolio in London. If some form of a tie-up or joint venture co-operation takes place between his Northern & Shell group and Trinity Mirror there could potentially be more property plays in the offing from him. Other sectors that should also experience fresh M&A this year include financial services – the amount of regulation this industry faces means greater consolidation is inevitable – large-scale manufacturing and healthcare. Expect activity in the telecoms sector and among high-tech businesses plus continued consolidation in the pharmaceutical sector, which in the past few years has been host to some of the biggest “mega deals” in M&A history. With many private equity houses awash with cash and the pound’s value still languishing after the Brexit vote, in many ways, it has never been cheaper to buy British and companies that can show their revenues and profits are resilient to a potentially hard Brexit will attract interest. Deirdre Hipwell is retail and M&A editor at The Times