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By Anjuli Davies
LONDON, Dec 12 (Reuters) - Britain has all the rightingredients for an M&A boom, upbeat company bosses, a vibranteconomy and a buoyant stock market, but dealmaking is laggingbehind the rest of the world.
And for bankers hoping to rake in more fees next year, alooming parliamentary election, creating political uncertainty,could prove a further dampener for big-ticket deals.
This year, a resurgent British economy gave some companyboards the confidence to reject takeover offers as too cheapwhich meant a lot of transactions did not happen.
Globally, M&A has surged to $3.2 trillion year to date, upnearly 50 percent from a year ago and the highest level since2007, according to Thomson Reuters data.
In Britain, although M&A activity is up compared to 2013, ithas been flat for the last five years. Deals totalled $146billion year-to-date, 62 percent lower than the pre-crisis boomdays of 2007 when the value of M&A deals hit $388 billion.
Ten years ago, dealmaking in Britain, Europe's financial huband home to some of the region's largest companies, made up 37percent of all M&A in Europe, Middle East and Africa. Thatfigure now stands at just 17 percent.
One of the reasons is that some of this year's deals failedto get off the ground because the robust economic backdrop hasgiven company boards the confidence to spurn bid approaches evenwith hefty premiums.
Balfour Beatty rejected Carillion's 2.1billion pound advances and property group Songbird Estates has said a 2.6 billion pound approach from Qatar doesnot reflect its full value.
"The consistent theme here is high price expectations ofsellers, which in a way says there is an good underlying levelof confidence," Mark Todd, co-head of M&A at Barclays told Reuters. "UK M&A started out with a bang this year but hasto some extent gone backwards more recently."
Early on, 2014 was shaping up as a bumper year. U.S.telecoms giant eyed up Britain's Vodafone in what wouldhave been a 80 billion pound ($125.7 billion) deal, U.S. drugsgroup Pfizer approached AstraZeneca with a 70billion pound offer and smaller UK rival Shire cameclose to being sold to Abbvie for 31 billion pounds.
"In a strange way this might have been the most spectacularyear of all time," said one M&A banker, who wished not to beidentified. "If one of those big deals had happened, it would'vechanged everything. But it's not just one or two deals thatdidn't happen, it's 4,5,6."
Bankers who spoke to Reuters also said despite the weak M&Adata, 2014 was busier in Britain than it had been for years interms of the deals that were made public, plus a host ofbehind-the-scenes activity.
"From a number of deals perspective the UK has been a bitunlucky in 2014. There's no one easy answer as to why volumesare lower. It's in part bad luck," Simon Mackenzie-Smith,chairman of UK and Ireland Corporate and Investment Banking atBank of America Merrill Lynch, said.
For next year, M&A bankers are not expecting an easy ridebecause uncertainty over the election in May could detercompanies from putting any takeover plans into action.
The election and the possibility of a referendum onBritain's membership of the European Union should Prime MinisterDavid Cameron be returned to power are weighing on investmentbankers' hopes for next year's fees.
"I think the UK elections will deter people buying intoUK-based businesses," Mackenzie-Smith said. "They will have tobe very sensitive on issues like jobs which will attract a lotof political attention in an election year."
But the threat of rising interest rates in Britain and theUnited States could yet be a catalyst for buyers, includingBritish purchasers considering acquisitions overseas.
Bankers are also expecting a wave of consolidation inBritain's telecoms sector with BT currently discussingthe possible acquisition of British mobile operators O2 or EE
The healthcare sector is also tipped to remain very activeas companies look to buy new products for growth as well as theenergy sector as oil prices continue to slide.
There were also plenty of smaller, bolt-on acquisitions thatgave bankers a solid stream of British business, such as AMEC's purchase of Foster Wheeler and the merger of Dixons andCarphone Warehouse.
($1 = 0.6364 pounds) (Editing by Carmel Crimmins and Jane Merriman)
