Private equity firms and overseas buyers flocking to Britain to acquire companies on the cheap have sent bids for British businesses to their highest level since 2007.
The volume by combined value of takeover attempts involving UK targets has reached almost $217 billion, or £156 billion, in 2021, the highest year-to-date total for 14 years and up from $58 billion in the same period a year ago, according to Refinitiv, the financial information provider.
Companies including St Modwen, the property group, Vectura, a developer of respiratory drugs, Wm Morrison, the supermarkets chain, and Signature Aviation, a private jet services business, have attracted bids since the beginning of the year.
The boom has continued this week, with Meggitt, the FTSE 250 aerospace company, agreeing to a £6.3 billion takeover by Parker-Hannifin, an American engineer. Sanne Group, the London-listed supplier of administrative services to the funds industry, revealed that it was in talks about a £1.5 billion takeover by Apex, a rival.
Foreign suitors and private equity groups have been emboldened by bargain valuations in the London stock market, which trades at a relative discount to equity markets in Europe and the United States.
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While share indices in America, France and Germany have recovered from last year’s Covid-19-induced falls and are above their pre-pandemic levels, the FTSE 100 index of Britain’s biggest companies is yet to recoup all its losses. This is partly because of investor worries about the long-term impact of Brexit, which has weighed on UK equities since the vote to leave the European Union in 2016.
As a result, buyers, whose confidence has been buoyed by the progress of the coronavirus vaccination rollout, have seized on cheap valuations. Low borrowing costs because of rock-bottom interest rates also have helped to fuel the takeover boom.
Many bids have come from private equity firms, which use debt to help to finance buyouts and have amassed record sums of unused capital in their funds that they need to put to work. Buyout firms typically own a company for three to five years before selling them.
“The pace of dealmaking is frenetic,” a veteran London-based investment banker said, adding that activity was being driven by “low interest rates and a ton of dry powder at private equity.
“There’s a difference between what the public markets value stuff at and what private equity can make. And if you can borrow money cheaply to do it, it gears your returns significantly.”
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The number of bids for UK companies is also at multi-year highs, according to Refinitiv, including takeovers of private companies and bids for British groups by UK firms. There have been 2,463 deals this year, the highest number since at least 1998, the data shows. They included 220 takeover proposals last month with a total value of about $35 billion and 349 in June with a combined value of about $37 billion.
