The UK government’s anticipated approval of the acquisition of Ultra Electronics by Cobham, owned by US-based Advent, adds to an ongoing trend of acquisitions by major US companies, with the effects of COVID-19 and Brexit causing British firms to be undervalued making them attractive opportunities for investors, says GlobalData, a leading data and analytics company.

William Davies, Associate Analyst at GlobalData, comments: “The anticipated approval comes after the US made threats to limit defense cooperation with the UK if measures were put in place to stop the deal. Whilst Advent has made numerous promises to the UK government about ongoing commitments to UK defense, ultimately its outsourcing of management to the US will decrease UK defense innovation.”

The UK implements significant screening for Foreign Direct Investment (FDI) in the defense and security sector, with the UK’s National Security and Investment act that came into force at the start of 2022 providing the government with increased powers to investigate and intervene in mergers and acquisitions. This includes conditions giving the government the power to look at deals retrospectively for up to five years. As a result, the Ultra Electronics deal contains clauses allowing the UK government to take control of important operations if necessary under national security grounds.

There have been a number of high-profile acquisitions of UK companies by American investors in recent years, including the purchase of Cobham by Advent, and the sale of Meggitt to US-based Parker Hannifin. Non-defense companies being eyed up by US investors include Signature Aviation, Asda, Morrisons, and St Modwen Properties.

Davies adds: “US firms clearly see acquisitions such as these as easy pickings. With the UK economy faltering, foreign investment can be seen as a necessary win. Yet, the UK remains wary of ceding majority ownership of major domestic defense companies to foreign investors, even to an ally like the US. This wariness translates, in practice, to restrictions on acquisitions. This has led to Advent’s offer dividing the company in two, with the UK government appointing directors to protect national security interests and ensure ongoing supply to critical production lines and maintain UK control of classified production.”