Takeover interest in UK companies hits highest since 2018

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The value of bids for London-listed companies this year has hit the highest level since 2018, as beaten-up share prices help entice suitors and hand the UK a role in the burgeoning recovery in global dealmaking.

Targets so far range from big international companies such as miner Anglo American to groups including International Distributions Services, the owner of Royal Mail, whose fortunes are tied to the UK economy.

London-listed groups have received more than $78bn worth of bids this year, with the majority coming from overseas buyers, according to data from Dealogic.

While difficulties at some of the targets had left their share prices particularly battered, bankers say that the revival of interest also reflects expectations that interest rates have peaked and inflation has been tamed.

“The corporate bid wasn’t really there,” in the last couple of years, said Nimesh Khiroya, co-head of UK investment banking at Goldman Sachs. “That really has come back very aggressively in terms of volumes you see in the market.”

Last week the Bank of England signalled that it would cut interest rates from a 16-year high of 5.25 per cent this summer if inflation stayed low. Expectations that rates have peaked in the US and the Eurozone have also emboldened chief executives to pursue deals, bankers say.

The overall value of global M&A rose 30 per cent to $690bn in the first quarter, according to data from the London Stock Exchange Group.

US private equity firm Thoma Bravo’s £4.3bn acquisition of cyber security company Darktrace and International Paper’s £7.8bn purchase of paper and packaging group DS Smith are among the UK deals to be have been agreed this year.

“There were loads of people looking last year at buying UK companies but nobody could get to execution,” said Iain Fenn, a partner at law firm Linklaters, where he advises on M&A. “There’s a bit more confidence out there . . . the pent up demand is slightly forcing its way through in some cases.”

A more benign backdrop has also helped spur several transactions between UK companies, including Nationwide Building Society’s agreement in March to buy Virgin Money for £2.9bn.

Peter Luck, head of UK investment banking at Bank of America, said the depressed valuation of companies on the London market should also lead to more transactions as some of the earlier obstacles to deals disappeared.

“The UK has become structurally very attractive for M&A,” said Luck. “There’s a lot of frustration behind the scenes with valuations and the sense that the market is not properly rewarding UK companies.”

According to Goldman Sachs, companies in London’s blue-chip FTSE 100 index are trading at almost 12 times earnings compared with global equities that are trading at closer to 17 times.

Even excluding BHP’s £31bn bid for Anglo, comfortably the biggest takeover approach for a London-listed company this year, the value of bids is still the highest since 2018, according to Dealogic.

Not all the approaches have led to deals. Anglo rejected BHP’s bid while IDS last month rebuffed the £4.5bn bid from Czech billionaire Daniel Křetínský, who is its largest shareholder. Since then, talks between Křetínský and IDS over an improved bid have intensified, according to people familiar with the matter.

Belgian insurer Ageas, meanwhile, ditched its interest in motor insurer Direct Line in March after its £3.1bn bid was turned down.

Despite evidence of rising interest in London-listed companies, Alisdair Gayne, head of UK investment banking at Barclays, said that geopolitical risks and uncertainty over the resilience of the global economy would still temper the rebound in deals.

“You’re definitely seeing appetite pick up but we’re still a long way off peak M&A activity,” he said.

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