Bosses at the UK’s top firms are braced for a wave of takeovers this year as foreign buyers continue to swoop on cheap London-listed companies amid a rebound in dealmaking, new research has found.
Nearly ninety per cent of FTSE 250 directors said they believed UK firms were vulnerable to foreign takeovers this year, with a weak pound and falling valuations making firms an appealing prospect for buyers, according to research from investment bank and broker Numis.
Numis found that overseas corporates and private equity firms were “motivated to be active in UK M&A this year”, with 97 per cent of UK corporates predicting increased competition for UK businesses and assets.
The predictions come after London-listed Wood Group said last week it had rebuffed a number of offers from US buyout giant Apollo, while events firm Hyve said it was mulling a £306m takeover approach from US private equity outfit Providence Equity.
Lawyers said the quality of UK firms combined with a weak pound meant unsolicited approaches were likely to come thick and fast this year.
“Private equity and strategic buyers are keen to do deals and a significant amount of preparation and outside-in diligence is underway,” Katherine Moir, M&A partner at Clifford Chance told City A.M.
Moir added that the FTSE 250 may “be most at risk given lower bid financing needs”, but warned that UK firms have bee been in defence mode for months and were likely to push bidders “hard on price”.
A host of London-listed companies fell into the sights of foreign buyers last year, with Ted Baker picked off by a US-based bidder, tech firm Aveva bought by French firm Schneider electric and software firm Micro Focus bought by Canadian OpenText.
Richard Spedding, a partner at law firm Travers Smith told City A.M. that the general quality of UK corporates and lower price tags were a tempting prospect for foreign buyers.
“Buyers of the FTSE100/250 can have a strong degree of confidence in what they are buying – and they may also feel that they can get better value than comparable stocks on rival exchanges,” Spedding told City A.M.
“Those stocks may well be trading at lower multiples than businesses on rival platforms – some estimates put the relative discount on the price of UK equities as high as 45 compared to the US and 20 per cent against EU comparators.”
Bosses at Numis said foreign takeover interest this year was likely to come amid a rebound in wider M&A activity, following a sharp downturn last year.
Some 94 per cent of FTSE 250 directors said they expect an uptick in mergers and acquisitions this year, while the same amount expect the financing environment to rebound, which could allow private equity firms to pursue more big deals.
Stuart Ord, head of M&A at Numis, said constrained debt markets and volatility had eroded the appetite for dealmaking last year but this may now ease.
“These forces continue to weigh on the market this year, yet there seems to be a confidence in the boardrooms of UK PLC with respect to M&A,” he said. “However, it remains to be seen whether the expected improvement in outlook will convert into deal activity.”