GKN PLC Share News (GKN)

By Ben Martin

LONDON, March 29 (Reuters) - British companies have beenswept up in a global boom in dealmaking that has seen the amountof M&A involving UK firms hit its highest level since 2007.

Britain's M&A market has remained buoyant despite thecountry's looming exit from the European Union a year from now,a prospect which has cast uncertainty over British companies'access to the single market.

Rather than deter businesses from striking deals, however,it has prompted them to prepare for Brexit by acquiring rivalsto build scale.

The availability of cheap debt, high equity valuations thatare allowing companies to use their stock to pay foracquisitions, and economic growth are all behind the surge inM&A, bankers said.

The value of M&A volumes involving British businesses roseby 56.5 percent to $164.3 billion during the first quarter, themost since the $166.3 billion recorded in the same period 11years ago, Thomson Reuters data show.

Including plans by Anglo-Dutch Unilever and RELX to abandontheir dual listing structures, total deal levels hit $280.8billion in the first three months of 2018 in the UK, accordingto the data.

It means that Britain remained the second biggest countryfor deals behind the United States. Globally, dealmaking surged67 percent to almost $1.2 trillion, the data show.

In Britain this week alone, U.S. exchange operator CMEGroup agreed to buy British financial technology firmNEX for about 3.9 billion pounds ($5.5 billion) andJapan's Takeda Pharmaceutical said it was consideringan approach for FTSE 100 drugmaker Shire, which has amarket value of about 32 billion pounds.

"This feels like it's going to be a big year for M&A," saidAlison Harding-Jones, the head of European, Middle East andAfrica M&A at Citigroup. "This is not just UK based and isdriven by a perfect storm of all the ingredients you need fordeals."

"BREXIT SQUEEZE"

British companies are bulking up in preparation for thepost-Brexit era.

Dwayne Lysaght, the head of UK M&A at JP Morgan Cazenove,said there is "a bit of a Brexit squeeze which is encouraging afocus on domestic consolidation."

"British companies are acknowledging the need to be biggerto compete in a more open, global market place," he added.

Domestic deals totalled $43.3 billion in value during thefirst quarter, up from $24.9 billion a year earlier, the ThomsonReuters data show.

They include events and exhibitions business Informa's3.9 billion-pound deal to acquire rival UBM andthe sale of Standard Life Aberdeen's insurance businessto Phoenix for 3.2 billion pounds.

The biggest is Melrose Industries 8 billion-poundtakeover of aerospace and automotive parts supplier GKN,which was Britain's largest hostile bid since Kraft swooped onCadbury in 2009. Melrose clinched the deal on Thursday after52.4 percent of GKN investors accepted its cash-and-sharesoffer.

Stripping out Unilever and RELX, outbound M&A volumeswere$27.2 billion, down from $42.3 billion in 2017, whileinbound deals rose to $77.9 billion pounds, from $17.5 billion ayear earlier, according to the data.

TOP OF THE MARKET?

The biggest bid by an overseas acquirer for a British groupwas Comcast's potential 22.1 billion-pound proposalfor Sky, an attempt by the U.S. giant to gatecrash thetakeover the broadcaster agreed with its 39 percent shareholderTwenty-First Century Fox late in 2016.

Both Fox's pending bid for Sky and Melrose's acquisition ofGKN have drawn considerable scrutiny from British lawmakers.

The former has raised concerns about Rupert Murdoch'sinfluence over the UK media landscape, while the latter hassparked fears Melrose will break up GKN, a mainstay of Britain'sengineering sector, once it has turned the company around.

Indeed, under Theresa May, who became prime minister in July2016, the British government has adopted a more interventioniststance towards M&A by foreign companies.

In October, it proposed new rules that would give lawmakersmore say over takeovers of firms involved in the more sensitivetechnology and defence sectors.

Even so, that stance has not deterred overseas businessesfrom attempting to buy British firms, said Dominic Morris, thehead of UK M&A at law firm Allen & Overy.

"Yes, you could argue the government's being more activistto some degree and people have to be mindful of that," he said."But do I think it's right up there at the top of (acquirer's)agenda? I'm not sure it is."

More worrying for the M&A bankers and lawyers would be ifthe current boom in deals proved to be the top of the cycle, asit was 11 years ago, and activity begins to falter.

"It feels very similar to 2007," said Morris. "I would sayif we're not at the top of the market, we must be pretty closeto it."($1 = 0.7112 pounds)(Reporting by Ben MartinEditing by Keith Weir and Adrian Croft)