How can you take advantage of DEAL MANIA?

A staggering £52 billion worth of UK-listed companies have succumbed to bids or mergers in 2024, in a deal frenzy that is causing concern but also signaling opportunity.

The contraction of our stock market is bad news for the economy: the pace of outflows is the fastest in a decade.

But the reward for investors from the takeover mania may be rewarding, suggesting British shares are now worth betting on.

So enough of Black Friday and its often regular sales. Is this the area where money could be made, especially given this week’s forecast from Swiss fund management group Pictet that the UK market could be less negatively affected than the rest of Europe by political Trump administration tariff?

American commercial buyers and private equity groups are eager to satisfy their appetite for businesses that look irresistibly cheap and may not stay that way.

Among the 45 companies that have been taken over are packaging company DS Smith, cybersecurity group Darktrace, financial platform Hargreaves Lansdown and bank Virgin Money.

Carlsberg’s £3.3bn purchase of Britvic is being investigated by the Competition and Markets Authority watchdog.

But the most controversial transaction of the year is Czech billionaire Daniel Kretinsky’s campaign to take control of Royal Mail owner IDS in a £3.6bn deal.

Why is UK plc so attractive to predators? Ian Lance and Nick Purves, managers of the Temple Bar investment fund, say shares have been brought down by short-term pessimism – and by the preference of UK pension funds to invest money in the US and other markets.

The offers that have been produced are so attractive that potential bidders are not postponing their plans for Christmas. “The acquisition giant continues to move forward,” in the words of Dan Coatsworth, an analyst at brokerage AJ Bell, with a series of deals for well-known names and lesser-known companies in recent days.

Yesterday insurer Aviva moved closer to gaining control of rival Direct Line with a £3.6bn bid. The combined group will control a fifth of the motor insurance market.

Rumored multi-party interest in ITV could turn into a tense drama, amid perceptions there is “trapped value” in its studio arm which offers shows as diverse as Love Island and Coronation Street.

Furthermore, the success of ITV X, its streaming service, has frustrated expectations. The belief that takeover talks could now be credible has led one analyst to speculate that ITV could be worth £4.5bn, up from its current market capitalization of £2.7bn.

There are suitors for smaller companies, too. Australian asset manager Macquarie has offered £700m for Renewi, the London-listed Belgian waste disposal company.

Meanwhile, FTSE 250-listed IT engineering company Fluid Systems is to be acquired for £1bn by Canadian competitor ABC Technologies, which is owned by US private equity giant Apollo Global Management, valued at £250k. million pounds.

It has also been revealed that AIM-listed gold mining company Metals Exploration is acquiring Condor Gold for around £67.5 million. Metals Exploration is backed by the investment vehicle of Nick Candy, the property developer famous for the super-luxury One Hyde Park apartment project in Knightsbridge, and his marriage to actress and singer Holly Valance.

If you’re checking your portfolio’s exposure to this spending spree through individual stocks, funds and trusts, be aware that a bid-on approach may not result in a reward for investors.

Lance and Purves point out that two holdings in their trust’s portfolio – Anglo American and Currys – have rejected attempts to limit their independence.

Currys argued that a £757m bid from US activist investor Elliott Partners was too low.

It seems a fair argument, since the electricity retailer’s share price is now 73 percent higher than it was a year ago. There is also growing concern among fund managers over what they see as paltry sums being paid by predators, which should also raise the ire of private investors.

There is special consternation for one business. Cafe company Loungers is to be bought for £338m by New York private equity player Fortress, whose previous UK acquisitions include Curzon Cinemas, Majestic Wines, Poundstretcher stores and Punch pubs.

Axa Investment Managers is just one of the disgruntled shareholders. Nick Hawthorn, manager of the Downing Strategic Multi-cap fund, argues that the 310 pence per share paid by Fortress represents a “paltry 30 per cent premium” on the Loungers share price, which was hit hard by national insurance. of the employer’s budget. raid and other measures. Loungers disputes these claims.

However, they should serve as a warning to anyone who wants to make the most of the deal and merger mania but doesn’t want to be disappointed. This is our guide:

where to invest

Valuations for British shares are currently so attractive that some analysts argue that “everything is for sale”.

This assessment may be an exaggeration. However, attention will increase on names whose shares have fallen in recent months, such as convenience store chain B&M, drinks group Diageo and bank Schroders: their price is down 27 percent this year.

US company Advent is reportedly ready to attack Tate & Lyle, the flavorings group.

Since it is difficult to know whether such reports are speculation or fact, it may be prudent to put some cash into a UK trust or fund that gives you a stake in the stock and a chance for future appreciation. Suitable options include Fidelity Special Situations, Fidelity Special Values, Jupiter UK Dynamic and Temple Bar, which is my choice.

Trusts that could pay dividends

There has already been a lot of consolidation in the investment trust sector. Alliance and Witan trusts have joined forces to form Alliance Witan, which joined the FTSE 100 this week. If you’re up for the adventure, QuotedData’s James Carthew suggests renewable energy trusts, such as Bluefield Solar, Greencoat Renewables or NextEnergy Solar.

Some of their share prices are at a 30 percent discount to net asset value (NAV), making them a possibly attractive target. Greencoat also offers a dividend yield of 7.8 percent, some consolation if a predator doesn’t appear on the scene.

Have your cake and eat it too.

Ben Yearsley of Fairview Investing doesn’t like investing in stocks just because a deal might appear. He says, “I tell my clients that they should buy what they normally buy, based on the company’s credentials and perspectives.”

If an offer materializes, this will be the icing on the cake.

He continues: ‘Standard Chartered has been the subject of takeover rumors for about three years. None have materialized.

‘If you had invested three years ago, believing this was a bank that could turn around, you would have been rewarded with a 126 per cent share price rise and enjoyed dividends along the way. Furthermore, the share price could rise another 20 to 30 percent.’

Don’t trust an offer

The luxury goods industry is poised to consolidate as its Asian clientele has become reluctant to spend. But companies looking to make acquisitions in this sector may prefer a brand that is on the path to revival, rather than just beginning the journey.

This means the owners of iconic British fashion house Burberry (like me) may have to bear with them as it attempts to retain its style credentials through ads featuring Oscar-winning actress Olivia Colman, Chelsea footballer and England Cole Palmer, and Alex Hassell and David Tennant. , stars of the Disney+ series Rivals.

For the moment, bag maker Mulberry has escaped the clutches of Fraser founder Mike Ashley. However, much attention will be paid to the success of boss Andrea Baldo’s initiative to reshape the business. “Watch and wait” should be your motto.

What to do in case of an offer

It’s tempting to be dazzled by an offer for a company in which you own shares, especially if it’s offered 20 to 30 percent above the share price.

But the offer may not necessarily reflect the company’s prospects. Most offers are cash only. But if there is a combination of cash and shares, you have to weigh whether you think it is worth backing the bidder.

If you hold your shares through a platform, you will receive information about the offer and can sell your shares commission-free if the offer is approved by the company’s board of directors and thus becomes official. If the shares are trading at around the offer level, it may be worth selling before then in case the deal falls through.