* UK acquisitions by foreign buyers total $48 bln year todate
* Highest since 2007 even if bid for O2 is excluded
* Weaker pound, better growth lure U.S. buyers
* Political uncertainty fails to dampen appetite
By Francesco Canepa
LONDON, March 24 (Reuters) - Foreign investors are snappingup British companies at the fastest pace in eight years as anunusual combination of stronger economic growth and a weakcurrency lures U.S. buyers despite political uncertainty.
Investors appear relatively unconcerned about the risk ofinstability after a general election on May 7 or doubts aboutBritain's future in the European Union. Even excluding a $15billion bid by Hutchison Whampoa for O2's UKoperations, inbound mergers & acquisitions activity so far thisyear is at its highest since 2007, Thomson Reuters data showed.
The total value of bids and completed deals in the period is$33 billion, including debt taken on by buyers. The figure risesto $48 billion when Hong Kong-based Hutchison's bid for themobile phone operator is included.
This reverses a seven-year decline and contrasts to a fallin inbound M&A activity in the euro zone and United States.
It also confounds expectations of dwindling M&A before theelections, in which opinion polls suggest no party will win amajority. This raises the possibility of an unstable coalitionor minority government propped up by smaller parties such as thepro-independence Scottish nationalists.
On top of this, the ruling Conservatives have promised areferendum within two years on whether Britain should leave theEU, should they be re-elected.
Many British business leaders are worried by the prospect.The chairman of insurer Standard Life said on Tuesday it would be disastrous for the country and London's financialcentre if Britain were to leave the EU single market.
However, bankers say U.S. investors are being attracted bysterling's weakness against the dollar - which makes Britishtargets cheaper for them - even though the economy is buoyant.
"The UK is at the forefront because the economy, aside fromthe uncertainty around the elections, is an attractive marketwith good growth dynamics," said Dirk Albersmeier, co-head ofM&A for Europe, the Middle East and Africa at JP Morgan.
With the Bank of England expected to keep interest ratesultra low for another year, the pound has fallen 13 percentagainst the dollar since July and is now hovering just above afive-year low. At the same time, official economic growthforecasts were upgraded last week to 2.5 percent this year and2.3 percent in 2016.
VALUATIONS BOOST
Valuations have provided a further boost. UK shares trade ata 10 percent discount to their U.S. counterparts based on theratio between price and expected earnings, Datastream datashowed.
Inbound M&A activity in Britain had been falling since 2007,data from the Office for National Statistics showed, partly dueto the pound's recovery against the euro since 2009.
This year's increase has been driven by 73 small andmid-sized acquisitions by U.S. buyers, such as drinks can makerBall Corp's $8.6 billion move for rival Rexam and a $2.8 billion bid by Verisk Analytics for energyconsultancy Wood Mackenzie.
These deals have more than offset a drying up of last year'sstream of large bids which were partly motivated by lowercorporate tax rates in Britain than in the United States, suchas Pfizer's abandoned attempt to buy fellowpharmaceutical group AstraZeneca.
Such bids have been curbed by a tightening of U.S. tax rulesand worries about possible fiscal changes in Britain after theelections.
As the economic recovery picks up pace, sectors which dependon growth are playing a larger role in M&A, joining defensivesectors such as healthcare and telecommunications, media andtechnology (TMT), where activity has been high for some time.
Aside from the telecoms and materials sectors, where theamount was skewed by the O2 and Rexam bids, inbound M&A activitythis year has been at its highest in the consumer goods sectorand industrial sectors, the data showed.
This marks a change from the previous year, when real estatedominated, with financials and high tech a distant second andthird, respectively.
"Activity is likely to be more broad-based than last year,"said Wilhelm Schulz, head of M&A for Europe, the Middle East andAfrica at Citi. "I expect this year we will see activity inhealthcare, TMT, industrials, chemicals and consumer products." (Additional reporting by Anjuli Davies and Freya Berry; editingby David Stamp)
Astrazeneca (AZN)
