UK corporate activity points to continued recovery

Economic indicators are sending conflicting messages at the moment, suggesting uncertain times ahead. This leaves fund managers divided between those who are concerned about the prospect of a double dip recession and those who are more optimistic about the strength of the recovery.

For Gartmore's Head of UK Equities Leigh Himsworth, the level of corporate activity over 2010 supports the idea of a continued recovery rather than a slip back into recession.

"Although signs are clearly mixed, this feels more like a pause or consolidation phase in the recovery. If companies were cutting jobs and reining in expenses we would be worried, but what we've actually seen this year is lots of corporate activity.  Businesses that are investing for future growth in this way are probably feeling pretty positive about their prospects."

Cadbury may be the highest profile UK takeover of 2010 so far, but there has been plenty of other activity. Prudential, Arriva, British Sky Broadcasting, Forth Ports, Delta, Gulfsands Petroleum, Rensburg, VT Group and Tullett Prebon, to name but a few, have featured in actual, abandoned, or rumoured activity this year. An important factor with this list is the range of different sectors represented (life assurance, oil, engineering, support services and so on), showing the breadth of this trend.

There are a variety of reasons for this increase in activity. Weakness in sterling made UK companies more attractive to overseas buyers, but more importantly companies that have improved their position during the downturn are now looking for opportunities to grow:

"Having spent the last few years battening down the hatches to cut costs, save cash and perhaps even raise equity, many listed companies are actually in a relatively strong position balance sheet wise but may well have not invested significantly. Management thus find themselves faced with the dilemma - build or buy. Given that a decision to build will take time, many are deciding to buy the finished article and gain a foot up on the recovery ladder."

With corporate activity showing no signs of slowing, Leigh is including companies that can benefit from this trend in his portfolios.