There are about $20 billion of mergers and acquisitions falling apart in just a matter of weeks, and the British dealmakers are enduring a bruising end to the first half of 2022.
The UK consumer giant Reckitt Benckiser Group Plc is considering a $7 billion sale of its baby formula business, according to Bloomberg News. Walgreens Boots Alliance Inc. has abandoned a 5 billion $6.1 billion plus sale of the Boots drugstore chain.
Both deals were hurt by muted buyer interest and disagreements over price, people with knowledge of the matter said. The end of easy money meant that suitors weren't able to offer the punchy prices demanded by the sellers, according to the people who asked not to be identified because the information was private.
Two rival investor groups dropped their pursuit of former British tech darling THG Plc earlier this month, while the preferred bidder for high street fashion brand Ted Baker Plc walked away. The stalled transactions are making an increasing feeling that many suitors are having trouble getting deals over the line, while cheap British companies are attracting a lot of bargain hunters and tire kickers.
The volume of the UK's mergers and acquisitions has fallen 35% year-on-year to $228 billion, according to data compiled by Bloomberg. That is more than the 24% drop off across Europe.
There were signs that the Boots and Reckitt divestments were struggling before this week. One of the two serious parties in the race was preparing to walk away because of price disagreements, according to people with knowledge of the matter. Walgreens gave suitors extra time to firm up their offers. According to Bloomberg News, the planned disposal of Reckitt had attracted little interest amid the turmoil in the US baby formula industry.
Other deals have also been scuppered, including British visual effects studio DNEG's planned $1.7 billion merger with a blank-check company and the $2 billion sale of UK holiday park operator Parkdean Resorts. A worsening credit market is hurting the ability of buyers to secure the funds needed to complete big deals, which is why the slump is due to the worsening of the credit market.
Banks have been cutting their exposure to leveraged loans because of the risk of being saddled with debt that they can't sell on to investors. A number of lenders were burned when they had problems with offloading 6.6 billion of debt tied to a private-equity buyout of supermarket chain Wm Morrison Supermarkets Plc.
Financing for other transactions is now in focus, including the 5 billion sale of UK gas station operator Motor Fuel Group Ltd. Debt is still available - particularly more expensive forms of capital from increasingly aggressive private credit funds. The question is whether sellers will adjust their expectations or put more deals on hold to wait for the money to start flowing again.
The fundamentals of the British market are attractive compared to other countries like the US. While financing markets are jittery, certain pockets of capital are willing to make bets - including infrastructure funds that have raised billions of dollars to snap up everything from bus operators to wireless towers. Bankers are hoping that sentiment will snap back after a brief hiccup, which will allow the deals to continue flowing the way they did in the depths of the Covid 19 crisis.
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