UK takeover frenzy: is it about to end soon?
One of the leading players in the surge in UK mergers and acquisitions since the pandemic struck has suggested the wave of deals could come to an end soon.
In an interview with Bloomberg, Philip Noblet, head of UK investment banking at stockbroker Jefferies, suggests the takeover trend is 70% over and British stocks are becoming less appealing versus their global peers.
‘There’s more to come, but the market has become more expensive,’ says Noblet. Not only has the surge in overseas interest forced up UK company valuations, in some sectors of national interest such as aerospace and defence there is the added complication of government scrutiny, he adds.
So far this year, the value of UK M&A deals has doubled to more than $550 billion as foreign firms and buyout groups scour the market for bargains, according to Bloomberg.
However, with the valuation of the mid-cap FTSE 250 index – the source of many of the M&A targets – now approaching 16.3 times next year’s estimated earnings compared with a valuation of 16.8 times earnings for the US S&P Midcap 400 index, there are fewer bargains on offer for US buyers.
Before the valuation gap narrowed, the FTSE 250 traded at a discount of more than 25% to the US mid-cap benchmark, according to Bloomberg analysts.
On a positive note, the wave of new stock market listings could provide investors with a more interesting range of stocks to play and help to fill the gaps created by companies delisting because of a takeover.
In the first half of this year initial public offerings and new listings topped £3 billion, with companies as diverse as digital marketplace facilitator Auction Technology (ATG), cyber-security provider Darktrace (DARK) and footwear maker Dr. Martens (DOCS) debuting.
Among the firms slated to list by the year-end are biotech firm Oxford Nanopore, part-owned by IP Group (IPO), and specialist investment vehicle Petershill Partners, owned by US investment bank Goldman Sachs.
However, investors need to consider the valuation and potential upside for some of these listings.
The fact Goldman Sachs is willing to float part of a unit which has minority stakes in alternative asset managers suggests at the very least that area of the market is frothy, and investors must take on trust that these side bets, some of which were taken years ago, will turn out to be profitable.
Other names potentially heading to the UK stock market include Eurowag which hopes to list on London’s Main Market soon. Founded in the Czech Republic in 1995, it helps commercial road transport operators and drivers with payment services.