The majority of FTSE 250 bosses believe that UK-listed companies are vulnerable to foreign takeovers this year amid growing expectations that M&A activity will pick up as economic conditions improve.
British broker Numis found that “compressed” valuations meant that corporates were increasingly focused on their own vulnerability in the eventuality of a bid, according to an annual survey of M&A intentions of companies in the UK’s “mid-market” of FTSE 250 stocks.
Last week it emerged that two UK-listed companies — events business Hyveand energy services company Wood Group — were the takeover targets of US private funds.
Much of last year’s M&A activity was also driven by overseas buyers, including the takeovers of Aveva, Micro Focus and Avast in the UK listed tech sector.
Stuart Ord, head of M&A at Numis, said that 2022 “was a challenging year for M&A activity, with global economic pressures, constrained debt markets and broad volatility all negatively impacting the appetite for deals”.
Ord said that the slow start for dealmaking in 2023 suggested that UK M&A volumes for this year would be lower than 2022, but increasing confidence could lead to more activity in the second half of 2023.
More than nine in 10 FTSE 250 company directors expect to undertake some form of M&A this year, with a similar number expecting financing conditions to improve this year.
Numis surveyed 80 board directors at FTSE 250 companies and 200 institutional investors in January.
Ord warned that the UK stock market looked good value in certain sectors for more highly rated overseas buyers given the pound was still fairly weak against other currencies. But he said that depressed valuations would also make it less likely for boards to recommend takeover approaches.
The gap in valuations has also sparked some companies to consider moving their listings or taking additional listings in the US such as UK betting group Flutter, raising fresh concerns about the strength of the UK listed market.
Many executives still flagged reasons for caution over dealmaking, including the macroeconomic environment, financing needs and regulations. More than half suggested regulatory hurdles — including antitrust or national security — would be their biggest challenge this year, up from 38 per cent in 2022.
Higher leverage was not seen as an issue, reflecting that the balance sheets of many UK corporates are better capitalised than in previous downturns.
The appetite of companies to raise equity or use shares was lower than last year given subdued valuation levels for many mid-market groups, however.