Mergers and Acquisitions

Speculation in the UK stock market last week would suggest that, if anything, mergers and acquisitions are set to accelerate. Suggestions for possible takeover/merger targets encompassed firms as diverse as EMI, BG, Cable & Wireless and even BP.

Once, the UK’s largest companies were thought to be out-of-reach of acquisitive hands, however, talk of a possible offer from BHP Billiton for Rio Tinto earlier this month would suggest otherwise. A merger between these two would form a “mega-miner”, with a market capitalisation in excess of US$250 billion.

Gartmore continues to hold a significantly overweight exposure to the mining sector, in its Gartmore UK Focus Fund, and Gartmore UK Growth Fund.

Although interest rates may be going up, they remain low enough for private equity buyers to arrange financing on attractive terms to fund acquisitions. In addition, after an extended period of steady economic growth and low interest rates, company balance sheets and cash-flows are strong. Increasingly it would appear that, for some companies, there is a choice to be made between acquiring assets and becoming an acquired asset.