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M&A back on the agenda for firms as they seek growth

More than a third of large UK companies plan to acquire smaller businesses during the next year, as firms start to shake off their cautious approach to corporate action after the last recession, according to Royal Bank of Scotland (RBS). Its survey of large businesses with turnover of more than £25m also found that a tenth intend to buy a firm overseas in the next 12 months.

Tim Boag, the head of RBS structured finance, said: "These results suggest we are beginning to see confidence return to the merger and acquisition. This is encouraging as M&A activity helps firms expand where prospects for organic growth are limited."

In a sign of wider ambitions, among companies with annual sales of more than £100m, 15 per cent plan an international acquisition. This compares with only 6 per cent of UK firms with a turnover between £25m and £100m, which suggests size is a crucial requirement for those planning an overseas shopping trip.

Mr Boag said: "Businesses have sought to protect themselves through the downturn by building up cash reserves. Generally, they will have money available and access to a range of funding sources, so now is a good time to consider making acquisitions, not least because valuations for target companies will be reasonable."

Among recent deals, the fitness club operator Virgin Active acquired rival Esporta in a £77.6m deal last week.

RBS found that nearly half of those companies seeking to acquire plan to target a business in their sector, while a tenth intend to buy a firm in another line of work. It said that 15 per cent of UK businesses expected to merge with a larger company during the next year, while the same percentage planned to sell their business to a competitor. Mr Boag said: "Many target firms will represent excellent opportunities for a buyer to generate good returns on their investment, whether it's through access to new regions or products, or simply the chance to increase sales at a time when the economic climate means growth is difficult to achieve organically."

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