Eurozone fears cause drop in UK takeovers

Debt crisis causes 14% fall in number of takeovers and mergers, but average size of deal rises 41%, report reveals

The drop in the number of takeovers was driven by fears over the future of the eurozone, the report says. Photograph: Oli Scarff/Getty Images

The turmoil sparked by the eurozone debt crisis has caused a 14% fall in the number of takeovers and mergers in the UK, a report has revealed.

The declining number of deals in the first quarter of 2012 compared with the previous three months was driven by fears over the future of the eurozone as Greece threatened default, Ernst & Young's M&A Tracker said.

The same trend was echoed on a global scale, with the number of deals down 24%. However, in the UK a 41% rise in the average size of the deals to $264m (£167m) meant their total value rose 20%, beating the global picture where average transaction values only increased slightly.

Jon Hughes, transaction advisory services leader at Ernst & Young, said: "The market uncertainty of late last year has clearly impacted transaction activity in the first quarter of 2012.

"That said, the small upswing in average deal values could indicate an increase in confidence amongst buyers, who, whilst still cautious about undertaking transactions, are more willing to push through larger deals."

The proportion of deals in the UK financed by cash rose to 91% from 88% previously, driven by an increase in the number of companies sitting on large surpluses. Globally, 55% of deals were financed by cash.

Hughes said: "Globally, the historically low cost of debt and improving equity markets have driven funding towards external sources of finance.

"This reflects an increasing confidence about access to capital markets for transactions.

"In contrast, deals in the UK have been, on the whole, financed by well-rated companies utilising their healthy cash piles to fund 100% cash payment transactions."