ANALYSIS
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THE INVESTOR
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05
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Bids and deals seem to be back on the corporate
agenda, following a wave of large mergers and
acquisitions. Royal Dutch Shell announced
a £47 billion takeover of rival BG; while in the
US, Heinz wants to swallow Kraft and Charter
Communications has made an offer for Time
Warner Cable. Overall, Dealogic – which compiles
statistics on the mergers and acquisitions
market – says that the first quarter of 2015 set
a record for the value of deals made, the number
of large deals and the amount of cross-border
mergers and acquisitions since 2007, when the
financial crisis erupted.
EY, the global advisory firm, expects the
activity to continue. Its latest Global Capital
Confidence Barometer, a biannual survey of
business executives, found that 58% intended to
make acquisitions over the next 12 months, which
is the highest since its survey began in 2009.
While statistics relating to the housing market can
fluctuate from month to month, the underlying theme
is clear: the housing market has returned to
reasonable health and, without a significant increase
in supply, prices are likely to continue to rise.
The Royal Institution of Chartered Surveyors (RICS)
says surveys of its members point to a 25% increase
in prices over the next five years. It says: ‘There is no
real confidence that the measures necessary to deliver
a meaningful boost to new supply will be put in place
any time soon.’ The Nationwide believes that house
price inflation will eventually converge with earnings
growth, which has averaged 4% a year over the
long term, but adds: ‘Much will depend on supply-side
developments. In recent years, the rate of building
activity has remained well below that required to keep
up with population growth.’
MARKETS
M&A DEALS AT THEIR HIGHEST SINCE 2007
Firms target higher growth by bidding for rival companies
PROPERTY
HOUSE PRICES WILL CONTINUE TO RISE AS BOOM RETURNS
Supply shortage could lead to a 25% increase over the next five years
Interest in cross-border acquisitions, as well as
general economic confidence, was also high.
Mark Gregory, EY’s chief economist for the
UK and Ireland, says: ‘M&A turned a corner
in 2014, with deals once again being seen as
a route to growth. This year will see a surge
in new entrants and companies returning to the
M&A market to generate future growth.
‘Looking forward, we expect the need
to reposition for changing economic and
technological drivers to be the force behind
increased transaction activity, even in a
lower-growth world.’
Of course, such confidence could easily be
undermined by unexpected economic shocks
or by sudden turbulence in equity or bond
markets. Provided corporate confidence remains,
however, deal-making looks likely to continue
to drive the market.
Successive governments have pledged to increase
housebuilding but, as these commentators argue,
their policies have had little impact. One of the
flagship policies of the new Conservative
government is to extend the Right to Buy initiative
(currently available to local authority tenants) to those
renting from housing associations, with the stipulation
that any money raised has to be used to build new
houses on a one-for-one basis.There were also
proposals in the Queen’s Speech to build 200,000
starter homes on brownfield sites and sell them to
first-time buyers at a 20% discount.
But as RICS points out: ‘The government is clearly
putting housing at the heart of its agenda but Right
to Buy, starter homes and brownfield together still
fall short of a comprehensive supply strategy to
resolve the housing crisis.’
