Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Potential UK-listed takeover targets as the M&A frenzy heats up
A key theme in the UK market in 2021 has been a spate of takeovers, mergers and strategic deals involving British businesses as buyers, often from overseas, have been attracted by lowly valuations relative to other international equities.
By the reckoning of stockbroker Peel Hunt, nearly £25 billion worth of bids for more than 20 companies have been pitched in the last six months and interestingly it sees no signs of this letting up in the short term.
Among the recent deals announced were US tobacco giant Philip Morris making a somewhat surprising bid for inhaled drug delivery specialist Vectura (VEC), Tate & Lyle (TATE) agreeing to sell a controlling stake in its commercial sweeteners operation to US private equity firm KPS Capital and the Rothermere family considering a deal to take Daily Mail & General Trust (DMGT) private.
A lot of the bidders for UK firms, as well as being foreign, are to be found in the private equity space where companies have plenty of cash at their disposal. This is supported by a low interest rate environment which it makes borrowing costs for these operators very low.
According to information provider Preqin, in global terms private equity is sitting on some $1.7 trillion of funds available for investment.
Other reasons this wall of cash is finding its way to UK stocks, other than valuation, is the success of the vaccine rollout and a relatively liberal takeovers regime, where other governments globally may take a firmer stand against foreign buyers.
Peel Hunt has identified several names which could be potential takeover targets including food-on-the-go play Greencore (GNC), food producer Premier Foods (PFD), and wound care experts Advanced Medical Solutions (AMS:AIM) and ConvaTec (CTEC).
It also flags vet operator CVS (CVS), DIY goods seller Wickes (WKS), packaging outfit DS Smith (SMDS) as well as price comparison site Moneysupermarket (MONY) and publisher Bloomsbury (BMY) as being possible bid targets.
Shareholders in companies receiving offers may welcome the boost to the pocket that bid premiums might provide but the impact longer term on the health of the domestic stock market is less encouraging.
If some of the UK’s brightest companies are being snapped up, the breadth, depth and quality of the London market will inevitably be diluted.
It was perhaps encouraging in this context to see the ageing founders of high-tech engineering firm Renishaw (RSW) call off the sale process on their 52.8% stake (7 Jul) as they were unable to find a buyer which met the criteria of protecting the company’s UK base, staff and shareholders.