External growth strategy - takeovers back in fashion for large UK firms post recession

A neat summary from the BBC of a trend developing during 2010 - the increase in the number and value of business takeovers as UK firms emerge from the economic downturn. This would make a useful lesson stimulus piece for students wanting to build their understanding of the rationale behind acquisitions as a means of business growth, and also to identify some real examples to supplement their exam research.

Several important factors are encouraging merger and acquisition (“M&A”) activity, including:

- Low interest rates (which, for credit-worthy businesses means a lower cost of capital)
- Weakness in the sterling exchange rate (which makes UK firms more vulnerable to a takeover bid)
- Less activity by private equity (venture capitalists), which means there are more potential opportunities for firms to buy competitors
- UK firms have hoarded cash balances during the recession (cutting dividends, cutting capital spending) and now they want to invest in something!
- A strategic desire amongst some management teams to diversify the product portfolios of their businesses