FTSE private takeovers will continue ‘unless action is taken’, analysts warn


The ‘relentless’ pace of delisting and takeovers by foreign buyers will continue if urgent action to incentivise UK stock ownership is not taken, a senior analyst has warned.

Britain’s stock markets have seen a flurry of delistings in recent years as low valuations drive pessimism about the prospect of public companies and interest from global buyers.

It has also led to a near-collapse in new initial public offerings.

If action that ‘impacts quickly’ is not taken on low UK valuations, head of research at Peel Hunt Charles Hall said this trend will likely continue.

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Late 2023 saw a flurry of private equity takeover activity in the UK market, with Smart Metering Systems, Hotel Chocolat and The Restaurant Group among the high-profile targets.

But last year actually marked a significant contraction in takeover activity as private equity firms put deals off amid rising interest rates.

There were 239 private equity and venture capital-backed M&A deals in the UK in 2022, with a total value of $28billion (£22.2billion), and 352 transactions worth $72billion in 2021, according to S&P Global Market Intelligence data.

Peel Hunt data suggests there were 40 deals worth over £100million each last year, with a total value of just £21billion.

It is thought that interest rate cuts forecast for 2024 could herald another surge in buyer interest.

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Low equity valuations attracting buyer interest, according to Peel Hunt, are driven primarily by a mass exodus of investor capital from UK funds.

There have been 30 consecutive months of outflows from UK funds, ‘which inevitably drives selling pressure and impacts on valuation,’ according to the firm.

The UK’s departure from the European Union was the initial spark for pessimism over London-listed stocks, with a net total of £80billion pulled from UK equity funds from June 2016 to November last year, according to Morningstar data.

Peel Hunt said outflows have been exacerbated by higher interest rates, cost of living pressures, an increase in tax on dividends and capital gains, and the ‘long term withdrawal from equities’ by pensions and insurers.

To correct this, the firm says the UK must increase appetite among retail investors through initiatives such as a ‘British Isa’, or changes to capital gains tax or dividend tax on UK shares.

The Government could also incentivise pensions and insurance firms to invest by enabling a greater focus on portfolio performance versus risk.

It could also reduce the cost of ownership and improve liquidity by ‘addressing the UK’s penal level of stamp duty vs other markets’, while London-listed companies could help by boosting share buybacks.

Bid activity accelerated in the final quarter of the year

Bid activity accelerated in the final quarter of the year 

These actions, according to Peel Hunt, could improve ‘appetite from overseas investors, if they perceived a material change in UK fund flows’.

Head of research Charles Hall said: ‘The pace of de-equitisation is relentless and will likely continue unless action is taken and impacts quickly.

‘This is driven by the low UK valuations, which makes it an attractive hunting ground for acquirors and is a key factor behind the dearth of IPO activity.’

Tech firms were the primary targets of private equity bids

Tech firms were the primary targets of private equity bids 

The breakdown on takeover M&A in 2023

There were 40 transactions worth more than £100million each announced in 2023, with the pace increasing through the year, Peel Hunt data shows.

Takeover activity was predominately in the smaller company space, with just three offers for FTSE 350 companies, which the group said ‘reflects the higher rate environment and reduced access to debt’.

There were no bids for firms in the FTSE100, while there were three in the FTSE 250, 13 in the FTSE Smallcap, 20 on AIM, and four other.

Bidders paid an average premium of a whopping 50 per cent, ‘which reflects the depressed valuations of so many UK smaller companies,’ Peel Hunt said.

There was greater activity from acquirors based outside the UK, with foreign buyers 55 per cent of deals by number and 64 per cent by value.

Tech and healthcare was the most common target, at 27 per cent of deals by number, followed by leisure, real estate and retail.

Every £100m-plus deal UK markets saw in 2023

Every £100m-plus deal UK markets saw in 2023 

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