UK companies 'writing own death warrants'

Government statistics analysed by Grant Thornton found that UK investment in foreign companies was concentrated in the EU, where it more than doubled to £12.0bn, and other developed countries, where it more than trebled to £13.3bn.

The number of deals involving UK companies investing abroad were at their highest level since 2000 at 388, with the total value of £37.7bn – the highest since 2001 and 15% higher than the 2005 total of £32.7bn.

Investment in developing countries such as India and China fell from £7.2bn in 2005 to £5.0bn in 2006, despite a major government-sponsored push to encourage UK involvement in emerging markets. This was a cause for concern, according to Grant Thornton, which claimed that UK businesses are “writing their own death warrants” by ignoring opportunities from the world’s fastest growing economies. “UK businesses are missing out on vital import and export opportunities,” said Anuj Chande, international business partner at Grant Thornton.

The UK remains attractive to inward investment, however, with 242 deals being completed in Britain by foreign companies, which, together, invested £75.5bn – a 50% increase on the £50.3bn of investment in 2005.

It seems, however, that emerging economies are increasingly interested in investing in the UK. A staggering £40bn, spread across 32 deals, was invested in the UK by developing economy companies – an almost eight-fold increase on the £5.3bn recorded in 2005. Developed countries outside the EU or US invested more than £16.0bn spread across 46 deals, leaving just £18.5bn for US and EU-based investment in the UK.

“We are seeing far less aggressive takeover strategies by US firms, which, hampered by a weak dollar, have left the door open for businesses from other countries such as India and China to launch ambitious takeovers in the UK. Tata’s recent acquisition of Corus being the latest example,” said David Brooks, head of M&A at Grant Thornton. “Foreign companies are attracted to the UK by its favourable regulatory regime, its competitiveness in the global market and its veritable lack of protectionist policies. It is now seen as a tried-and-tested region for successful cross-border M&A.”

For more on Grant Thornton's findings, click here.