UK firms ready for takeover action

British businesses have sought to protect themselves through the downturn by building up cash reserves. Photo / Thinkstock

More than a third of large British companies plan to buy smaller businesses during the next year, as firms start to shake off their cautious approach to corporate action after the last recession, the Royal Bank of Scotland says.

Its survey of large businesses with turnover of more than £25 million ($31 million) also found that a tenth intend to buy a firm overseas in the next 12 months.

Tim Boag, head of Royal Bank of Scotland structured finance, said: "These results suggest we are beginning to see confidence return to the merger and acquisition. This is encouraging as M&A activity helps firms expand where prospects for organic growth are limited."

In a sign of wider ambitions, among companies with annual sales of more than £100 million, 15 per cent plan an international acquisition.

This compares with only 6 per cent of British firms with a turnover between £25 million and £100 million, which suggests size is a crucial requirement for those planning an overseas shopping trip.

"Businesses have sought to protect themselves through the downturn by building up cash reserves," Boag said.

"Generally, they will have money available and access to a range of funding sources, so now is a good time to consider making acquisitions, not least because valuations for target companies will be reasonable."

Among recent deals, the fitness club operator Virgin Active bought rival Esporta in a £77.6 million deal last week.

RBS found that nearly half of those companies seeking to buy plan to target a business in their sector, while a tenth intend to buy a firm in another line of work.

It said that 15 per cent of British businesses expect to merge with a larger company in the next year, while the same percentage plan to sell their business to a competitor.

"Many target firms will represent excellent opportunities for a buyer to generate good returns on their investment, whether it's through access to new regions or products, or simply the chance to increase sales at a time when the economic climate means growth is difficult to achieve organically," Boag said.

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