First it was Wincanton, then Currys and now Direct Line. Companies at the heart of the UK economy are falling prey to foreign suitors – and this could be just the beginning.
As global deals return with a vengeance after a long hiatus, private equity tycoons and cash-rich corporations see listed British companies as a bargain.
And some observers fear the worst. “The situation looks structural and terminal for UK mid-caps,” said Richard Bernstein, head of activist investor Crystal Amber.
‘This is very serious. They’re just picking them off one by one.”
The signs were already there.
Easy prey: A survey by broker Deutsche Numis found that the majority of the 350 FTSE board members surveyed said they were at increased risk of being taken over by foreign buyers this year.
Charles Hall, head of research at investment bank Peel Hunt, said: “There is a hollowing out of listed UK mid-cap companies.”
“At the current rate of exits, the FTSE Smallcap index will cease to exist in 2028.”
A survey last month by brokerage Deutsche Numis found that the majority of the 350 FTSE board members surveyed said they were at increased risk of being taken over by foreign buyers this year.
And a Peel Hunt report found that as confidence in global boards about the future returns, the case for bulking up through deals has strengthened.
In particular, he noted a “recovery of interest among North American companies in their lower-value British peers in incoming bids.”
Simon French, chief economist at Panmure Gordon, said valuations of UK-listed companies were at their lowest level in 30 years.
In short, hungry foreign buyers have chosen a cheap way to satisfy their appetites.
But what’s behind the bargain prices?
French points out that pension funds or retail investors who in the past might have been the “natural buyers” of UK shares now “just want more Nvidia”, referring to the US chip company that is enjoying growth stellar thanks to the rise of artificial intelligence. (AI).
City fund managers face pressure as clients withdraw their money for cash, so they’re piling into America’s fast-growing tech stars rather than rank-and-file workhorses. middle of the British economy.
“These solid and underappreciated companies fail to attract financial capital, but – what is more worrying – they do attract the most talented workers,” says Bernstein.
This leaves companies such as Wincanton and banknote printer De La Rue, in which Bernstein’s Crystal Amber is the largest shareholder, as “easy targets”, he says.
Bernstein’s solution would be for the UK to create a sovereign wealth fund, similar to those in Norway and Singapore, to shore up the market.
He believes urgent action is necessary.
Target: Currys is up more than 40% amid two rejected bids from US hedge fund Elliott and an expression of interest from Chinese online retail giant JD.com
“Before, you had serious people in a room saying, ‘What are the issues? Let’s plan this and report back in six weeks’ and make a decision.”
‘There is no urgency. I am sure that within a month three or four more UK companies will be interested in bidding.
Foreign bids may encourage investors in the short term as they cash in on their holdings at premium valuations, but they will come at a cost, Bernstein said, with job losses if the new owners decide staff are “surplus.” .
Logistics company Wincanton has seen its share value double since agreeing a takeover by France’s CMA CGM last month, only for a rival US bidder, GXO, to submit a much higher bid of £762m yesterday. .
Currys rose more than 40 per cent amid two rejected bids from US hedge fund Elliott and an expression of interest from Chinese online retail giant JD.com.
And the value of insurer Direct Line rose by a fifth when details emerged this week of an offer, which it rejected, from Belgian rival Ageas.
Now, City analysts will speculate on who could be next.
Last month, research published by Quest, an arm of investment bank Canaccord Genuity, reportedly suggested that companies such as British Gas owner Centrica, North Sea oil and gas company Harbor Energy, and Easyjet could be goals.
Peel Hunt experts said in the wake of Currys’ recent bid that other retailers including DFS, Halfords and even Marks & Spencer were trading at low valuations.
Some UK companies have not been content to wait for foreign bidders to boost their valuations: travel giant Tui and drugmaker Indivior are moving their main listings to Frankfurt and New York respectively.
This despite much soul-searching and municipal reforms designed to stop the exodus.
Another consequence of low valuations is the dearth of listings on the London stock market, a notable trend even during a relatively quiet period globally, with only around £800m raised in initial public offerings (IPOs). last year.
David Schwimmer, chief executive of the London Stock Exchange Group, which now makes far more money through its data business than from running the stock market, denies complacency and says London is seeing an “encouraging pipeline of initial public offerings” and an increase in activity is expected. this year.
He told reporters: “Of course, we would like to see companies listed here in London and continue to be listed here in London, and all the different issues that we are working on are aimed at addressing any questions and concerns about that.”
“We feel like we’re making good progress and I would say the pipeline that I referred to would indicate that progress is happening there.”
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.