Overseas investors have significantly increased their acquisition of UK companies, with bids totaling $110 billion (£81 billion) over the last year. This trend has intensified recently, with approximately £3 billion in new takeover bids announced in a single week.
Analysts describe the current environment as one where private equity firms and other bidders are actively pursuing UK businesses, likening the situation to an "all-you-can-eat buffet" where previously overlooked companies have become attractive targets. This has led to a notable decrease in the number of publicly listed companies on UK stock markets, a development with potential implications for tax revenues.
Notable Acquisitions and Bid Activity
Recent high-profile bids include a £1.64 billion offer from U.S. private equity firm Veritas for Bodycote, a thermal processing service company. Veritas is offering 940 pence per share, including a dividend, although the market reaction, with Bodycote shares trading at 949 pence, suggests a potential bidding war. CVC, another private equity group, has advised Bodycote shareholders to await further developments.
Gamma Communications is set to be acquired for £1.08 billion by British private equity firm Epiris. The offer of 1,419 pence per share represents a 53% premium over Gamma's share price in April when Epiris first expressed interest. Additionally, Capricorn Energy is being acquired by Norway's DNO for £293 million, or 384 pence per share, a 45% increase from its spring trading price.
Other significant acquisitions this year include the insurance broker Beazley, DCC Energy, and easyJet, which is being purchased by U.S. private equity firm Apollo for £5.7 billion (715 pence per share). This price is considerably higher than easyJet's 399 pence trading price before takeover interest emerged.
Strategic Approaches in Takeovers
The success of these bids is attributed to several factors, including the perceived lack of government intervention and strategic bidding tactics. While fund managers may advocate for rejecting inadequate offers, some company executives are reportedly attracted to better compensation and the prospect of U.S.-style board meetings focused on expansion rather than regulatory compliance. The "bear-hug" bid, which appeals directly to shareholders over the board's objections, has also proven effective. An example is the £14 billion deal for Segro, the UK's largest listed property company, by San Francisco-based Prologis. Despite some viewing the acquisition price for Segro's data center assets as low, the bid offered a 39% uplift on Segro's June share price.
Investment Outlook and Emerging Sectors
Despite a challenging economic backdrop, the FTSE 100 and FTSE 250 indices have seen a roughly 8% increase since the start of the year. This performance is partly driven by investor interest in traditional "halo" companies in sectors such as defense, engineering, and infrastructure, which are perceived as less vulnerable to AI disruption. This contrasts with the volatility seen in shares of U.S. tech giants heavily invested in artificial intelligence.
"Boring is now the new exciting," noted Ben Yearsley of Fairview Investing, referring to the appeal of established sectors like banking, energy, and mining, which constitute a significant portion of the FTSE 100.
The recent takeover of scientific instruments group Spectris by KKR for £4.2 billion, at a 105% premium, exemplifies the value found in these less glamorous companies.
Wealth management firms are emerging as a potential new target sector for private equity, managing approximately £1.5 trillion in national savings. Recent acquisitions of Brewin Dolphin, Charles Stanley, and Mattioli Woods, alongside NatWest's acquisition of Evelyn Partners, highlight the sector's attractiveness. Ken Wotton, manager of Gresham House Strategic Equity Capital, points to Brooks Macdonald as a company to watch, citing its improving performance under CEO Andrea Montague. The £2.5 billion Quilter group is also considered a potential acquisition target for banks aiming to expand their services for affluent customers.
While investing solely on bid speculation is risky, the current wave of M&A activity is providing a boost to UK shares and making investment in domestic companies a potentially rewarding strategy.