The UK as one of Europe’s most attractive destinations for foreign direct investments (FDI)

published on 11 June 2024 | reading time approx. 3 minutes

The UK has become one of Europe’s most attractive locations for foreign direct investments (FDI). Robust growth prospects, a business-friendly eco-system, increasing M&A activity and a rising pool of sellers: Here is a closer look at the main factors which make the UK an interesting target for investors from Europe and overseas.

The Big Picture – UK growth expectations outweigh European counterparts

Source: CEBR, December 2023

Across all major regions in Europe, the Centre for Economics and Business Research (CEBR) expects the UK to be the best performing economy based on its long-term forecasts.

GDP in the UK is projected to have a “relatively sharp growth” of 1.9 percent in 2025 and then expected to settle at an annual trend rate of between 1.6 percent and 1.8 percent to 2038 (+28 percent from 2023) providing a strong economic backdrop for investment into the UK.

The forecast in the UK is also expected to beat economies in France (+24 percent), Germany (+23 percent), Spain (+26 percent), Italy (+11 percent) and Netherlands (+27 percent) – with the UK expected to retain its position as the 6th largest economy in the world.

This is a positive outlook for investors from abroad as investments in the UK are expected to be backed by an economy which is not only stable but outperforming its European peers in the next decade.

Yes, the UK has the attractive growth prospects – but the appeal for overseas investors doesn’t stop there

The maturity and robustness of the UK provides a business-friendly ecosystem which enables investors to expand, trade and invest. The UK is a leading business location, with London one of the world’s most recognisable leading financial institutions.

There are a number of multi-faceted reasons why the UK is one of the easiest markets in which to start, scale and grow a business. This includes the language, the internationally recognised UK legal system, a competitive tax rate system, funding environment, regulatory framework, labour pool and a globally convenient time zone.

These factors have contributed significantly to cross-border transactions involving the UK. There is now a well-trodden and established path for numerous overseas investors.

The tide is turning in the UK in favour of increased M&A activity. Be ready.

Source: Capital IQ

At a macroeconomic level, 2024 is expected to bring greater economic stability to the UK than in recent years with a declining interest rate environment and falling inflation being key contributors.

The strains of supply chain issues and rising energy costs experienced by so many companies in recent years have now eased and the fundamentals are very much in place for continued M&A activity in 2024.

This greater stability is boosting the confidence of investment committees and boards, and other factors are also prevailing – capital remains available for high quality assets, valuation gaps between buyers and sellers are beginning to normalise, and funds focused on specific sectors will need to be deployed in a quieter period of activity.

UK mid-cap deals are where the real opportunities sit for investors

Source: Capial IQ

The UK mid-market remains buoyant and is a key area of investment.

The opportunity to develop – Mid-market and SME companies are often less developed and mature than their large-cap counterparts. This presents a whole host of opportunities for incoming investors ranging from strengthening and supplementing existing management teams, improving the financial and control environment, adding new product lines or entering new markets.

The quickest way to grow – For many investors, M&A is the most effective and quickest for companies to grow and compete. The UK has a rich environment of mid-market businesses that are innovative and dynamic. Investment into these companies allows purchasers to quickly integrate new technologies, enhance the skill of their workforce and grow geographies. Compared to large-cap deals, mid-cap acquisitions are also often preferred because they are less costly and time-consuming.

The pool of sellers is increasing – It’s widely accepted that smaller businesses have been disproportionately impacted by the economic issues in the UK over the past few years, leading to heightened levels of owner fatigue. Following a period of headwinds, SME owners have a keener eye on exiting their business as they seek to de-risk, take some cash out and secure the future of the business with either a strategic or financial buyer. This, of course, has not gone unnoticed by investors and as a result the opportunities in the UK are strong for those looking to invest.

The Rödl & Partner Transaction Services team in London has the experience to guide and fully support you in all parts of a UK transaction

Rödl & Partner is focused on supporting mid-market transactions on a global basis. Recognising the opportunity in the UK and the increasing activity in cross-border transactions, we proudly opened a new office in London in January 2024 to expand our Transaction Services offering.

From London, we are now able to offer financial due diligence services to the UK mid-market. We support on offering buy- and sell-side due diligence to UK clients on domestic transactions and overseas clients looking to invest into the UK. Rödl & Partner UK is now strongly positioned to be your advisor of choice on UK and cross-border transactions bringing interdisciplinary skills on every deal.