by 1761 the subcontinent was ripe for the foreign take over.do u agree or disagree explain.(please provide the facts with their evidence)
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Explanation:
Last year was a vintage one for mergers and acquisitions (M&A) with deals totalling more than $4trn, the highest figure since 2007 and the onset of the global financial crisis. This year is shaping up to also be a historic period for takeovers and we believe UK-listed companies are prime targets for foreign companies.
In 2018 mega deals worth $10bn or more grabbed the headlines. According to the MAN Institute, 30 transactions were announced in the first half of the year alone while mid-sized deals between $1bn and $5bn accounted for more than half of all transactions.
The low cost of debt, improving cash flows, high levels of cash both on corporate balance sheets and at private equity firms (which raised record amounts of funding in 2017), and a favourable tax regime in the US were all big factors.
M&A activity in the UK hit a record last year with more than 600 deals involving foreign companies buying UK companies according to figures from the Office for National Statistics.
Of a total of £78.8bn of foreign investment, £52.7bn or two thirds came from the US, while £17.8bn or just under a quarter came from Europe.
Domestic M&A hit an all-time record last year with 960 deals done worth a total of £27.7bn.
Ten major UK M&A deals struck in the first half of 2019
Marsh & McLennan (US) buying JLT for £4.6bn
Berry Global (US) buying RPC for £3.3bn
Vinci (FR) buying majority stake in Gatwick airport for £2.9bn
City Developments (Singapore) buying the rest of Millennium & Copthorne it didn’t already own for £2.2bn
TDR Capital (UK) buying BCA Marketplace for £1.9bn
Saputo (Canada) buying Dairy Crest for £975m
Charter Court (UK) buying One Savings Bank for £800m
Macquarie Infrastucture (Australia) buying Kcom for £627m
Roper (US) buying Foundry for £451m
Asahi (Japan) buying a division of Fuller, Smith & Turner for £250m
OPTIMUM CONDITIONS FOR UK M&A
Conditions in the UK stock market are currently ideal for more corporate M&A activity.
The continued weakness of sterling makes UK assets relatively more attractive for foreign buyers as their purchasing power is increased.
Meanwhile UK companies have high levels of cash on their balance sheets, interest rates are still low should suitors want to borrow to do a deal, and valuations are low thanks to political uncertainty.
Most of this year’s domestic M&A has been small deals as companies look to bolt on small acquisitions to make up for lack of organic growth. Therefore although the number of transactions in the first half hit 460, the total amount spent was just £4.6bn.
Finally non-trade buyers like private equity firms have huge amounts of ‘dry powder’ in the form of funding for deals. According to research by financial data group Prequin, the amount of unspent cash available to private equity firms is close to $2.5trn, of which roughly a third was raised last year.
An interesting feature of last year’s M&A bonanza was the domino effect where one mega deal lead to another. For example, Barrick’s merger with Randgold, which created the world’s largest gold producer, spurred rival Newmont to bid for Goldcorp and reclaim the title shortly afterwards.
GLOBAL EARNINGS GOING CHEAP
It’s standard practice nowadays for managers of UK funds to flag up the fact that many FTSE 100 stocks are global players, with substantial overseas earnings, yet they are trading at a discount to their overseas rivals because they are quoted in sterling.
A case in point is British American Tobacco (BATS), the seventh-largest stock on London’s Main Market, which makes more than 90% of its sales outside the UK yet trades on just nine times this year’s forecast earnings.
By contrast US rivals Philip Morris and Altria – who also sell tobacco products worldwide – are trading on 14 times and 12 times this year’s earnings respectively.
While selling tobacco may not be a great business, which is one reason why we haven’t included British American Tobacco on our M&A target list, it’s probably fair to say that at least part of the ‘valuation gap’ is down to the stock being London-listed.
On the other hand AstraZeneca (AZN) generates more than 90% of its revenue outside of the UK, and it reports in US dollars, but it trades on 25 times current-year forecast earnings according to Sharepad, while US rival Pfizer trades on 15-times and Switzerland’s Roche trades on 16-times.
Selling prescription drugs is undoubtedly a better business than selling tobacco, hence AstraZeneca has better revenue growth and better operating margins than British American Tobacco, but the shares could hardly be said to be trading at a discount either to their historic valuations or to those of their peers regardless of the level of the pound.