Micro Focus deal revives hopes for post-Brexit M&A

Micro Focus International said on September 7 that it had agreed to buy Hewlett Packard ’s software business in a deal worth $ 8.8 billion – by far the largest acquisition by a UK company since the Brexit vote and the biggest of the year to date.

Since the Brexit vote, M&A activity by UK companies by total deal value stood at $ 12.6 billion as of September 6, according to data provider Dealogic, down by more than 80% on the $ 74 billion worth of deals in the corresponding period a year earlier.

Bankers say the Micro Focus deal offers hope.

Philip Noblet, who co-heads HSBC ’s UK investment bank, said: “People have got their minds around the initial impact of Brexit. If you still want to do M&A because it’s a good deal to be doing, then you’re going to do it despite currency fluctuations. We expect there’s going to be an active cross-border M&A pipeline affecting UK companies.”

Another banker in the City, who didn’t want to be named, said the fact a “minor UK company is doing a major acquisition tells you that stability is back. If the currency was going all over the place they probably couldn’t do this.”

Dealmakers based outside of the UK are also taking stock – before this deal, Melrose Industries ’ $ 2.8 billion deal to buy US manufacturer Nortek in July was the largest acquisition by a UK business since Brexit.

Scott Bok, the New York-based CEO of Greenhill, said the Micro Focus deal and the recently closed deal by Japan’s SoftBank for the UK’s ARM Holdings, are “public signs that confirm what we are seeing in private discussions with clients”. He said his firm had been pleasantly surprised by how quickly M&A dialogues had resumed, for inbound and outbound deals from the UK, in recent weeks.

“As for why things bounced back so quickly, the quick transition to a new government, decline in the pound, decline in UK borrowing rates and rebound in stock markets have all helped,” he added.

A number of foreign firms have looked to buy UK companies since the Brexit vote, with US group AMC Entertainment Holdings citing the weak sterling as a driver behind its bid for Odeon & UCI Cinemas Group in July. Around the same time, UK Prime Minister Theresa May said she would crack down on takeovers that benefit big foreign firms but leave UK companies diminished.

“Since the financial crisis people have had a habit of predicting doom from every new negative event, but markets have repeatedly proven resilient, albeit with a lot of help from central banks,” said Bok.

This story was first published by The Wall Street Journal

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