U.S. Bidders Lead the Way on U.K. Public Takeovers
U.K. public companies have proved to be attractive targets for U.S.-incorporated businesses of late, with such U.S. bidders seeking to take advantage of a favourable stock market, economic conditions and the attractive valuations of a number of U.K. listed companies.
The increase in U.K. public takeover activity has coincided with the combined effects of a faster than expected rebound of the U.K. economy from the coronavirus crisis, and the certainty now provided following the conclusion of Brexit and the U.K.’s departure from the European Union.
In 2021, 23 out of the 53 bidders that announced firm offers to acquire U.K. public companies were U.S. based, with a further four bids being made by consortiums comprising U.S. bidders. In fact, only nine other overseas bids were made by non-US bidders. In this context, U.S. bidders were very active in 2021 and were involved in deals with an aggregate value of £51.3 billion (being 79% of aggregate deal value of all firm offers). Many of these bids were hostile and represented a marked increase on 2020 activity.
The deals were spread across a range of different sectors with the most active being real estate, technology, media and telecommunications, health care and pharmaceuticals, financial service, and retail and wholesale trade.
This trend reflects the perception that U.K. public companies are undervalued with share prices trading below their long-term prospects and/or not being reflective of their underlying asset values. The weakness of sterling against the U.S. dollar has also enhanced the attractiveness of U.K. targets.
British companies have appeared relatively cheap compared with their U.S. rivals when measured on a price-to-earnings ratio. Both FTSE 100 and 250 companies have been trading at lower multiples than their counterparts on Standard and Poor’s 500 index (S&P 500), the U.S. equivalent.
Another interesting trend we saw in the public M&A sphere in 2021 was the increased appetite of private equity funds to launch public bids in the U.K. Last year, 58% of bids made were backed by private equity and other funds, with U.S. funds involved in 16 out of 32 bids. Again, this reflects the general view outlined above, that some U.K. public companies do not reflect their underlying asset values. Furthermore, private equity bidders are now becoming much more adept at executing takeover offers under the U.K. takeover code and being ready to launch bids quickly and enjoy the benefits of “first mover” action. Interestingly, some private equity houses and funds have joined together in consortiums to make bids to make this happen. This included a bid last year for Signature Aviation, which agreed to a $4.7 billion takeover from a consortium comprising Blackstone BX, Global Infrastructure Partners and Cascade, the investment vehicle owned by Microsoft founder Bill Gates, after rival bidders teamed up to mount a joint bid.
The above factors point towards continued interest from overseas buyers in acquiring U.K. PLCs in 2022 and with current public M&A activity therefore set to leave. Recent moves by U.K. regulators to prevent overseas companies from buying up sensitive assets under the National Security and Investment Act 2021, and to bring the U.K.’s takeover rules more in line with those in the U.S., France and Germany, may curtail some of this activity to a certain degree. However, it’s unlikely to impact significantly on the current activity that has taken place over the past 12 months.
Armstrong Teasdale are experienced in advising on U.K. public takeovers and would be pleased to advise further. In particular, our experienced U.K. Capital Markets team is able to guide interested companies through the process of effecting a U.K. takeover offer and can also introduce investment bankers or other financial advisers in the U.K. and/or the U.S., who can assist with effecting these types of transactions. Joan Yu, Partner and Head of U.K. Capital Markets, and Nick Heap, Partner in the U.K. Capital Markets team, comment: “These market trends are certainly something we have witnessed over the past 12 months, having been involved in advising on a takeover bid made by a U.S. private equity house for a U.K. public listed company. We foresee continued activity going forwards.”
The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to Armstrong Teasdale’s U.K. Capital Markets team.