Foreign buyers circle ‘undervalued’ UK firms
Foreign buyers continued to circle “undervalued” UK firms in the final quarter of last year, new figures show, with the value of inward Mergers and Acquisitions (M&A) surging to its highest level in four years.
The total value of deals in which foreign companies acquired UK firms rocketed to £27.4bn in the final quarter of last year, up nearly £20bn compared to the previous quarter.
This put the value of inward M&A at its highest level since the second quarter of 2021.
The Office for National Statistics (ONS) said this was largely because of an increase in the number of deals valued at over £1bn.
A handful of high profile listed businesses were bought by US firms in the period, continuing the long line of companies leaving the UK’s public markets.
In October, Deliveroo was formally acquired by its US rival Doordash in a £2.9bn deal which laid bare the contrasting fortunes of public companies on either side of the Atlantic.
Deliveroo listed in 2021 with a valuation of £7.6bn, but the company struggled to maintain investor confidence and its shares slumped more than 50 per cent post-listing.
In contrast, Doordash was valued at $71bn when it went public in 2020, and has managed to maintain its bumper valuation.
US private equity giant KKR also swooped on Spectris, the listed industrials firm which specialises in manufacturing precision instruments. The takeover, worth £4.8bn, was confirmed in December.
Patrick Sarch, head of UK public M&A at White & Case, said international bidders were attracted by the “relative valuations and many undervalued businesses” in the UK.
UK firms outshone by US tech
A recent report from McKinsey showed that the UK’s average EV/EBITDA multiple – a metric which compares a company’s valuation with their earnings – stands at 7.7, comfortably behind the 13.8 recorded in the US.
But the McKinsey report also noted that this was skewed by the predominance of the biggest tech firms in the US, which had massively outperformed the biggest UK companies.
“The relative underperformance of the largest UK companies, as well as the absence of significant outliers, has tended to have a detrimental effect on valuations.”
The figures also showed that the value of transactions involving domestic businesses fell to £1.8bn, from £7.1bn in the previous quarter. Total outward M&A, deals in which UK businesses acquire foreign firms, was valued at £1.7bn in the quarter, down from £3.4bn previously.
Looking into 2026, Helen Brocklebank, head of M&A at RSM, said that businesses might be put off major deals due to the “global geopolitical tensions and the knock-on impact on inflation”.
“In this environment, industries with strong recurring revenues such as business and professional services, healthcare, technology and industrials will continue to be seen as the most attractive acquisition targets,” she said.