Why are U.S. companies being attracted to the U.K. in record numbers?
More U.K. companies have been bought by foreign corporations in the last eight months of 2021. This is more than in the previous five years altogether.
U.S. companies especially are making record levels of investment in the U.K. as they look to consolidate the market following the pandemic.
Some examples of U.S. firms buying U.K. tech companies includes NortonLifeLock’s acquisition of Avast to create a cybersecurity empire. Notably there is NVIDIA’s acquisition of Cambridge, U.K.-based ARM to create a U.S. monopoly in microprocessors. Snap acquired WaveOptics, a U.K.-based maker of optical systems for augmented-reality headsets. Additionally, Visa bought U.K. payments start-up Currencycloud to facilitate cross boarder payments.
Maintaining Post-IPO Momentum
Eric Ward is partner at global tech investment bank Drake Star Partners. He believes US tech firms often look to the UK to maintain strong growth post-IPO.
“In H1 2021, there were 250 IPOs priced in the US, a 190%+ increase from the year before. A large share of these are from tech companies such as Square Space, Darktrace, Sprinklr and Coinbase. This followed notable IPOs in 2020 including Airbnb, Snowflake and DoorDash,” he said.
“These companies generally need to maintain strong growth momentum post IPO. As such, they “are increasingly looking at M&A to do so by rapidly building out their international footprint.”
Elsewhere, North American private equity firms raised capital of $459 billion in H1 2021 – the highest level since the financial crisis. The industry now has close to $1 trillion in dry powder for acquisitions.
This could lead to record levels of investment. “That increase in capital is putting enormous pressure on PE firms to invest internationally,” says Ward. “Particularly to build their portfolio companies from U.S. leaders to global leaders.”
The U.K. is still seen as a natural port of entry to expand their business internationally. This is down to the favourable labor markets the U.K. offers and lack of local language barriers.
“Many U.S. funds have set the U.K. as their European or international base,” says Ward. “This gives a significant local market advantage to the U.K.”
However, there are always integration risks when combining businesses. This is particularly true for first-time buyers who don’t have the experience, internal infrastructure or expertise to properly manage this.
“Our experience shows that the key integration challenge is more often around getting the cultural fit right,” says Ward. He also says there are challenges aligning management incentives properly; tied to the set business objectives post acquisition.
Elsewhere, success will hinge on the ability to harmonise data quickly and efficiently between organisations. That’s according to Mike Kiersey, CTO of data integration vendor Boomi. He says ensuring data accessibility and proper governance is at the heart of any M&A success.
Kiersey says business integration “must be swift and broken down into manageable pieces”. This includes seamless application and data integration for all services.
“For a merger to be truly effective, both sides must be able to access raw data from a single platform,” he says. From there “the company may determine which innovation strategy to pursue for customers, partners, and employees moving ahead.”
However Ward adds “with great confidence” that the U.K. will continue to remain one of the most attractive M&A market for U.S. companies. “For the foreseeable future and certainly for the rest of the year.”